Preface: The day Ray Kroc watched the “Michael Process” at a level unparalleled in all his years of visiting customers as a salesman, (two industrious restaurant entrepreneurs from New Hampshire, who thought they could strike it big in California,) he could see plainly his “Michael Process” opportunity too.
The “Michael Process” – A Case Study (Segment IV)
Credit: Donald J. Sauder, CPA, CVA
Simple, effective and powerful, now for an analysis case study of the three step “Michael Process” A) passion for a marketplace, B) a concisely defined problem(s) the marketplace needs (re)solved, and C) providing an effective solution to the marketplace problem(s) defined in step B.
Ray Kroc watched the “Michael Process” firsthand in 1954. In preparation for his big day, he also invested decades of effort and work before he became an entrepreneur. As a fifty-two year old milk shake machine salesmen, Ray was performing his duties earning a fading yet comfortable $12,000 a year working as a Multimixer salesman, in an industry heading towards obsolesces from heavy competition.
“That evening Ray Kroc, a connoisseur of restaurant kitchens, saw the business potential…… he felt the McDonald brother’s business model was uniquely designed to succeed beyond their wildest dreams”.
One month he took a business trip to meet his biggest clients. One of those clients was a restaurant in San Bernardino, CA, that needed 8 Prince Castle Multimixers to churn out 40 milkshakes at a time. As Ray stood looking at his client Richard and Maurice McDonald’s restaurant, with lines of customers waiting to order from the low priced nine item menu, with the two golden arches lighting up the night sky, he envisioned the future career possibilities. As he watched “Michael Process” lifting those two local entrepreneurs, his saw opportunity to apply the process too.
That evening Ray Kroc, a connoisseur of restaurant kitchens, saw the business potential. When compared to all the market data he had on the restaurant industry from his real-time experience as a salesman, he felt the McDonald brother’s business model was uniquely designed to succeed beyond their wildest dreams. But the McDonald brothers were not interested. The next day, endeavoring with his top sales persuasion, he finally negotiated to sell McDonald franchises for a 1.4% of sales, and payback payment to the brothers of 0.5%. He told the brothers if the venture failed, he had no place to go.
Within four years, Kroc sold 79 restaurant franchises. The restaurants franchises developed quickly just like Kroc had envisioned when he saw the golden arches. Yet when they surpassed $75,000,000 in sale volume, McDonald’s net income was less than $170,000 – for the entire first 6 years. With his business idea under duress, Kroc granted 30% of the business to his key officers. In addition, he transferred a 22% stake of stock to insurance companies for a $1,500,000 loan to keep the doors open.
“Thanks to Harry Sonneborn, Kroc’s idea is now a global business. Sonneborn advised Kroc he profit from leasing or buying potential franchise locations, and then leasing to then selling the franchises for those locations.”
Soon Kroc was additionally stressed about the McDonald brother’s willingness to meet his expectations in the business, he rightly realized he need to buy them out. He knew well that “Kroc” burgers would flame out quick. Acting on his business acumen, he quickly took a high-risk loan for $2,700,000 to solve that problem.
At that time, all that kept him going was his adherence to the “Michael Process.” Deep in debt and no profits in sight, his passion for the industry, along with a purposeful solution of providing fast-food to a hungry America, lifted him to continue with the work. Thanks to Harry Sonneborn, Kroc’s idea is now a global business. Sonneborn advised Kroc he profit from leasing or buying potential franchise locations, and then leasing to then selling the franchises for those locations. With Sonneborn’s guidance, the business stabilized and Kroc arduously set to work professionalizing his franchises with a uniform look, feel, and taste from Bangor, Maine to Butte, Montana.
In the thirty years following Kroc’s “summer visit” to Richard and Maurice’s restaurant, Sonneborn’s idea for real estate surpassed a $4.0 billion dollar portfolio valuation. Kroc’s envisioned “Michael Process” with a fast-food opportunity placed him among the titans of American business.
“Likely thousands of customers had visited Richard and Maurice’s restaurant before Kroc. Yet Ray Kroc was the only one to visit, envision, and then act on the brother’s opportunities to succeed beyond their wildest dreams”.
Kroc’s adherence to the “Michael Process” was foremost his passion for restaurant kitchens. He invested thirty years preparing for his business opportunity. In addition, he was very well-aware of the fast-food industry opportunity, i.e. milk shake marketplace, in a developing nation, and the business opportunities with that. He had visited countless of those businesses in his career.
Likely thousands of customers had visited Richard and Maurice’s restaurant before Kroc. Yet Ray Kroc was the only one to visit, envision, and then act on the brother’s opportunities to succeed beyond their wildest dreams.
The day Ray Kroc watched the “Michael Process” at a level unparalleled in all his years of visiting customers, (two industrious entrepreneurs from New Hampshire, who thought they could strike it big in California,) he could see plainly his “Michael Process” opportunity too.