Dick and Mac did not expect their interns to use the same menu or name. When his maiden franchisee stated that he would also name his new restaurant “McDonald’s,” Dick replied, “Why the hell?
A man with different abilities and desires walked this well-functioning kitchen and franchise business.
Ray Kroc was 50 years old and was treating health problems, from diabetes to arthritis.
But he was more interested in money than in peaceful sunsets and loved life on the go.
Kroc later wrote that “finding places for McDonald’s is the most creative thing I can think of.”
Where the brothers had covered the potato chips, Kroc would rethink the franchise concept.
The idea itself was not new.
In the past, a monarch could have granted you a franchise that gives you the exclusive right to do something for a time in a certain area: sell armor or run a livestock market.
He built up an international network of beauty salons. As former domestic workers, their franchise companies have changed the lives of many other domestic workers.
But it was the fast food of the 1950s that gave the franchise its modern shape, not only at McDonald’s but also at Burger King, Kentucky Fried Chicken and many brands that have since been forgotten.
The big idea of Kroc was the importance of compliance.
Not only have you sold the right to use the company name and learned its methods – you are required to do things in a certain way.
With “Hamburger University”, McDonald’s has opened a full-time training center in which students learn topics such as the type of potato to be bought.
The inspectors wrote 27-page reports of whether franchisees cooked food at the right temperature and kept the bathrooms clean.
Economist Alan Krueger found evidence to support this idea: shift workers and supervisors appear to earn more in-house fast food stores than franchisees.
Obviously, both parties are exposed to a certain risk. The franchisor must be able to trust that the franchisee is working hard. The franchisee must be sure that the franchisor is developing and promoting exciting new products.
When both sides are concerned about the chaos on the other side, we speak of “double-sided moral hazard.” An industry theory called the agency tries to understand how franchise contracts solve this problem by combining progress and percentages.
But it seems like it is working, perhaps because, like Kroc and the McDonald brothers, different business tycoons wish various things.
Some people want the freedom to run their own business every day, but they don’t want to develop products or create a brand.