This Week in Startups - Business Breakdowns: “The Founder” Ray Kroc and the Story of McDonalds | E1872

Starting point is 00:00:00 So here we are in year 13 of, you know, this weekend startups. I'm like, I want to do more of these like business breakdowns with Lon because they're fun for us to do and the audience loves them. So here we are. Resiliency is the big takeaway for me, grinding it out. And just that understanding of branding from such an early, like today we take that for granted. Everybody is, we're all personal brands. Everybody thinks in that in those terms. But in 1954, to be like, you know what? Those golden arches in every town, you'll be on the road and you'll drive and you'll know what that is and you'll really, it's going to be consistent everywhere I go. McDonald's like, no, he was way ahead of the curve.

Starting point is 00:00:35 He was way ahead of the curve thinking about how important that would become for Americans. This Weekend Startups is brought to you by KuroTech. Are you one of those companies that knows you need to be using AI, but you're not even sure where to start? Well, then you need KuroTech. They are AI experts and they're offering Twist listeners an AI strategy roadmap tailored to your business for $5,000. That's 50% off the normal cost just for telling them we sent you.

Starting point is 00:01:03 Check out curatec.com slash twist and get $5,000 off. Northwest Registered Agent. When starting your business, it's important to use a service that will actually help you. Northwest Registered Agent is that service. They'll form your company fast, give you the documents you need to open a business bank account, and even provide you with mail scanning and a business address to keep your personal privacy intact. Visit Northwest Registeredagent.com slash twist to get a 60% discount on your next LLC. And Masterworks is the first company allowing investors exposure into the blue chip artwork asset

Starting point is 00:01:40 class. Twist listeners can skip the wait list by going to masterworks.com slash twist. All right, everybody, welcome back to this week in startups. We've got another business breakdown for you today. You may remember, Juan Harris and I on episode 1773, that's the episode number, not the year. We reviewed an incredible film, Blackberry. And we broke down the major business lessons from it. You went crazy for this. We made clips. People went crazy on TikTok about it. So, since we got so much great feedback, Lon and I, who are huge fans of cinema, decided we would do another one for you here in the holiday season. While you're on your break, you get to dive into the story of Ray Kroc, taking over McDonald's. The movie is called The Founder. It came out in

Starting point is 00:02:26 2016, nobody saw it, but Lon and I both love this film. We're going to go through the plot. We're going to pause during the plot to highlight and explain the major business lessons with some real world examples that we as founders and just human beings on planet Earth trying to reconcile entrepreneurship and capitalism and its impact on society and why it's done so many great things, but also, hey, this is a perfect story to talk about the underbelly of capitalism as well, the sharp elbows and all that great stuff. And at the end, we'll do some award categories and recommendations like we did last time. Lon and I love movies.

Starting point is 00:03:02 I love Lon. He's one of my favorite human beings on the planet. Great to be with you again, Lon. So the film right now on Amazon Prime, FreeV. It's actually on the freebie part of Amazon Prize. So you'll see a few ads, not too cumbersome. But it's there if you want to watch it. And for this point on, we're going to have spoilers.

Starting point is 00:03:19 So if you have not yet, seen the founder, pause this. go watch the founder. It's on free. It's free. Free. Then come back here. We're going to talk about. You literally can't do better than that. It is free. Spoiler alert. At some point, they make the filial fish. We don't, we don't care. That'll be the sequel. We'll get it. The McRib in the Filet of Fish. No post-credit scene where they tell them about the McRib initiative. So give us the quick hits. You're such a fan of films. Give us a quick hit. So who's in this? Who directed it? Give us the biography here. So this is a guy named John Lee Hancock who directed. He did not write the script. This was a script. I think it was a blacklist script. It was it, you know, the blacklist, they have those like every year they publish a list of the most popular, the most well-liked, unproduced screenplays that were distributed that year. In 2015, I believe, or 2014, this script was one of those ones that was just a guy wrote it on spec based on Ray Kroc's biography. And it was floating out there looking for a director until John Lee Hancock came in.

Starting point is 00:04:22 He also made The Blind Side with Sondra Bullock, that Oscar-winning film that has since been sort of questioned the veracity of it. Saving Mr. Banks, that film about Walt Disney, making a deal for the rights to Mary Poppins to adapt that. That's actually, I was thinking that would be another interesting movie for this segment, because it's also about negotiation, business, making deals and sort of these different parties that had very different takes on the same project and what to do with it. So it's kind of an interesting bounce here. And then he just did one called The Little Things with Jared Leto and Denzel Washington, a serial killer thing a few years ago. Got it. So he seems to have inspirational and business mixed into his biography.

Starting point is 00:05:04 What do you call it? Filmography. Yeah, definitely an interest in dealmaking, how sort of business is done and how, you know, like kind of the impact of that on individual lives that are caught up in that sort of system. I think, you know, there are a lot of different sort of films he's made that have kind of takes on that. Michael Keaton obviously stars as Ray Kroc. You also get great character actors, Nick Offerman and John Carroll Lynch. They play Dick and Mac McDonald's, the actual original creators of the very first McDonald's burger stand. Laura Dird plays Ray Kroc's wife,

Starting point is 00:05:39 Ethel Kroc and Linda Cardalini, plays Joan Smith, who becomes his next wife. During the course of the film, we also see her perspective. Patrick Wilson plays her husband. They are early McDonald's franchise owners who have their own kind of way of doing business. So that's kind of the, you know, the long and the short of cast. Also, written by Robert D. Siegel, who I looked up, he also did two films I very much enjoyed. There's one called Big Fan. That was with Pat Nosswall. That's a very, like, Sundancey kind of film, 500K. Very dark comedy, but, but, dark comedy. And he also did the wrestler, or wrote the wrestler, I should say. He wrote the wrestler. I love that movie. Yeah. He also,

Starting point is 00:06:21 interestingly, worked in comedic writing. So he was a senior editor at The Onion from 1996 to 1999 and editor-in-chief from 1999 to 2003. So I thought that was also notable, the path of the screenplay writer, you and I are both writers, but so hard to make movies, how when you're a screenplay writer or a director, you work every five years or so on something? Yeah. Well, I mean, I feel like this is clearly the sort of thing that comes from a veteran screenwriter because it takes so many sort of odd, unexpected turns. Like, it, It's a format that we're very familiar with, the like, you know, person made good, Horatio Alger, rags to riches, the rise of this great brand. I mean, you know, we had even a ton of those movies this year about the story behind all these famous brands.

Starting point is 00:07:06 But this one takes a very different tack where it's like, it's very conflicted about the guy and what he has to do in order to succeed. And it neither completely trashes him and presents him as a monster, nor is it a hagiography that, presents him as a saint-like great man. Usually a biopic, you're going to come down on one side or the other, like Ray, the Ray Charles movie, great movie, not not. But even when Ray Charles does things we recognize are not good or struggles, it's never like, well, Ray Charles wasn't a good guy. It's always like Ray Charles was a great guy. He was a troubled man. He had problems like everybody. This movie, I don't think is Ray Croc was a great guy. He just had troubles. It's like, maybe Ray Croc wasn't such a great guy. It's kind of asking you to

Starting point is 00:07:51 make the decision about what kind of a guy he was. And how early in the process did he make the decisions about what he was going to eventually do with this company? So we'll get more into that. But that's a very interesting screen writing thing that I think this movie does that a lot of other movies would not do. And I think the reason is, if you were in Hollywood, correct me if I'm wrong, you're going for the biggest box office possible. And if it's a conflicted, complex character, maybe you don't feel as jazzed after watching it. Maybe you're not over the moon. Yeah, exactly.

Starting point is 00:08:22 And so it would have been better to just, you know, sugarcoat the whole thing and make it like champagne and more exciting for people. Audiences love rousing inspirational biopics when it's something that's going to make you feel good and make you feel like, hey, this guy. And we were talking to this is a story about, you know, he's in his 50s when this story starts. Yes. So there is an angle on this that's just like, don't give up.

Starting point is 00:08:46 Persistence is key. even this 52-year-old down-in-his-luck guy created McDonald's. There is a take on this story that's that, which would have been more of a crowd-pleaser. This is the more sort of like layered, thoughtful take on it. Yeah, these are people in the final act of their business careers, like I am, I'm 53 now. Ray Kroc was 52, Mac and Dick, McDonald's were 52 and 45. Yeah. This was a 25 million budget film feels like more, probably because of Michael Keating in the role of Ray Kroc, $24 million box, obviously, the thing broke even, has a really strong 81% approval rating on Rottenam, I thought it would be higher. I thought this would be something that the critics would like

Starting point is 00:09:28 a lot more than that. Just overall on a film, you thought this was excellent, great? Where would you put it in your, you know, scoring system? I think this is really good. I, you know, I think it's definitely above average for a biopic, and I think it takes some interesting risk. It take some interesting chances in exploring Ray Kroc's story with a little bit more thoughtfulness. I think there's a more obvious, easy version of this movie out there that you could make that this one kind of doesn't go for. And I sort of admire that about it. Did you know of this film before I suggested it? Had you seen it? Yeah. I didn't see this in theaters, but I think I saw it. I think there was a little bit of

Starting point is 00:10:08 Oscar buzz this year around Keaton. And so when it first hit VOD or home video, I probably would have checked it out to see that, that Keaton performance. How I discovered this is people know my favorite musician is Mark Knopfler from the band Dyer Straits. When Dyer Shraets broke up in the late 90s and stopped touring, he went on to do solo work. One of his solo album, Shangri-La, which is exceptional from 2004, has an amazing song on it. And the song is called Boom Like That. And this song, it was just, I rocked out to this song, driving. I always loved it. And I listen to the words, and I, you know, as you frequently do, you listen to the lyrics and you start to put together, what is a song about?

Starting point is 00:10:50 I just like the catchy beat, right, and the guitar riffs. And then I found out, Mark Knopfler had read, grinding it out, the autobiography of Ray Kroc, I guess Mark Knopfler had read it, then wrote the song. The person who wrote the screenplay had also, like me, been a fan of Mark Knopfler, and that is the origin story of, the movie is my understanding, is that he heard the song, then read the Ray Crock book, grinding it out, which the movie The Founder is based on, and the song by Mark Nauvels called Boom Like That, I just want to give you the lyric here, Lon, and get your reaction to it. Sometimes you got to be an SOB.

Starting point is 00:11:30 You want to make a dream reality. Competition, send them south. They're going to drown, put a hose in their mouth. Do not pass go, go straight to hell. I smell that meat hook smell. Oh, my name's Ray Crock, that's Croc with a K. like crocodile, but not spelled that way. Oh, it's doggy dog, ratty rat, crock style. Boom, like that. Okay, you've seen Sunday night demo a ton of AI tools, and we've learned that these tools are going to help you do so much more with less.

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Starting point is 00:12:55 KuraTech is offering their $10,000 AI Strategic Roadmapping Service for 50% off. This includes up to three 90-minute sessions to find opportunities for AI in your business, a comprehensive breakdown of these opportunities, and a technical roadmap to make the solutions a reality. So go check out curatech.com slash twist and get $5,000 off. That's c-U-R-O-T-E-C dot com slash twist. C-U-R-O-T-E-C dot com slash twist. His take seems to be the more negative one that, that, you know, this was almost theft. This was corporate theft.

Starting point is 00:13:35 And I think, you know, again, that's, there's a movie that's that version of it, where it's just, here's this monster, he stole this company, away from these two good guys who just wanted to make people delicious cheeseburgers. And I think they don't go for that either. They definitely, it's a measure, like, because I think the movie's very aware of, McDonald's would not ever have been McDonald's if it was up to Dick and Mac. Like, they were never, they might have franchised it around. There might have been 10 or 12 locations around the Midwest or whatever.

Starting point is 00:14:07 Those guys were never going to turn it into this juggernaut that has changed the world, chain created the fast food industry, you know. Yeah. So, I mean, there's a balance there. It's something to think about. Just so people know, we took the screenplay, we took the autobiography and put it into Notebook L.M, the new Google Notebook L.M, which we had the creator of on the pod recently. We tried to see if, you know, they're going to drown, put a hose in their mouth, which is in the film and is in the song, is in the biography or autobiographies. We couldn't find them. So if you find the origin of that quote, I think Mark Knopfler made it up. But I love that evocative line. Yeah. It's interesting because if you look at it, if you Google it, which I did, a lot of those

Starting point is 00:14:51 fake SEO bait, like brainy quote sites bring it up and say they misattributed or attributed to Ray Kroc, but I could not find an actual citation. So I think all of those are quoting him from this movie, which are quoting probably that Mark Knopfler saw. Yeah, absolutely. Don't trust the internet. All right. Let's get into the plot here. Unless, I mean, it is possible he read a different, he maybe read the autobiography of Ray Crock and then he read a different book about Ray Kroc that does have that quote in it. Because it does seem like if you were writing your own autobiography, you wouldn't, you probably wouldn't self-attribute that quote. Yeah, I mean, a song does not need to be, it's an interpretation of the spirit of the person here. It wouldn't need to be a quote.

Starting point is 00:15:34 He didn't say all those other things. He's putting words in his mouth. Yes. And that's, we should know, Mark Knopfler does that all the time. Like a lot of his songs are, it's not him speaking. It's a character speaking. Most famously. Yeah, I was going to say that the money for nothing where he's using slurs or whatever, it's not the singer, he's playing a guy who's narrating that song. Look at those yo-yo's.

Starting point is 00:15:57 That's the way you do it. Make that money on the MTV. Yeah. All right. So let's get into the story here because the story of McDonald's has so many business lessons and the movie's super compelling. So we'll use the movie as the bones of the architecture as we go through the story. Yeah, so we open in 54 in St. Louis. At this point, Ray Crock, he's in his 50s. He is a traveling

Starting point is 00:16:16 milkshake mixer salesman. He's got this five spindle milkshake mixer that I guess if you had a very busy 50s diner and you needed to make a bunch of milkshakes at a time and customers didn't want to wait for you to individually make the milkshakes, this would be a helpful device. But he's bombing out. We see him going from diner. A lot of those 50s drive-in diners and he's trying to sell them on this milkshake. Nobody's biting. While he's there, we kind of note him, he's clocking the problems with this entire restaurant concept that you end up waiting a ton of time. They're not efficient. They don't get you your food quickly. When it does arrive, a lot of the time, the orders are wrong. And then it's just, it's also not an environment where

Starting point is 00:17:03 you want to sit and spend time and eat. There's hoodlums and teenagers. It's noisy. It's chaotic. There's trash everywhere. It's not a place he feels welcome and invited, even as he's there trying to sell them this milkshake mixer. Then, crucially, he gets an order for six of these devices, which if you've been paying attention up until now, he's had trouble selling even one. So he's thinking about what kind of restaurant could possibly need to make, you know, six times five, 30 milkshakes simultaneously. He finds out it's this burger place called McDonald's in San Bernardino, California. You could still go visit that very first San Bernardi. It's not still a McDonald's. Now it's like a museum dedicated to the first McDonald's, but it's still standing. It's a really good

Starting point is 00:17:48 observation you had of him clocking the joint. And they do this visually in the film. If you see him looking at the garbage, seeing somebody smoking, the loud music, he gets his food. He realizes like he's selling into a suboptimal business in and of itself. And they don't have any conception of, well, if we made food faster, then people would come more often. And it really is an interesting insight that not only he had, but that the McDonald brothers had the same one at the same time. And so in entrepreneurship, often many people come to the same epiphany, the same opportunity at the same time. Before Facebook came out, there were Friends and MySpace and a number of other social networks, for example.

Starting point is 00:18:35 But sometimes it takes somebody like Zuckerberg to come in and see it be a mess, like MySpace was a mess. And I thought of MySpace, as the analogy here to these, you know, burger joints. Like, he came in there and made it fast and organized and clean and friendly, friendly, and efficient, right? And so... Yeah, I mean, the movie really does give you, and I don't know how accurate all, like, maybe there were other fast food operations at the same time doing this.

Starting point is 00:18:57 But according to the film, the McDonald brothers had a tremendous amount of innovation all in one that Ray Kroc is seeing altogether. It was instead of driving your car up, you park and you walk up, which cuts down on the, you know, chaos of people sitting in their cars and the people on roller skates

Starting point is 00:19:16 having to go between, navigate through all these cars, it cleans it up, it allows them to control the environment more. They use this incredibly efficient, factory-style assembly line to make the burgers, which we see Richard McDonald has worked out in extreme,

Starting point is 00:19:31 explicit detail where everybody is and what their movements are, where they have to go to get their supplies. And so maximizing efficiency to get the burgers done in 30 seconds or less, which allows them to handle so many more customers. And even there's a great moment when Ray Kruck first arrives at this McDonald's. It's a long line and he gets to the back. And the lady in front of him, she says, don't worry about it. It goes really quickly.

Starting point is 00:19:58 And it's the right here. Don't worry. It moves fast. The opposite of the exact opposite 180 of the experience we just saw him have at the other driving restaurant, where it takes forever. They became known, the brand became associated with taking forever, getting your order wrong, whereas this lady is so confident that they're going to be fast. He's like, don't worry about it. We're going to get right up. And when he gets to the window, he gets his change, it's 35 cents, he gets 15 cents change.

Starting point is 00:20:26 I remember. And the guy turns around, grabs a burger from the rock, grabs a milkshake because they have a little menu in the hand it to him. and he thinks it's a mistake. Michael Keaton's like, I just ordered. I just ordered. That's a mistake. And that shows you how profoundly different this experience was. This is very important for founders to understand.

Starting point is 00:20:42 You can make something so profoundly different that it viscerally changes a person's experience, right? And you have that experience. I think Uber is a really good analogy for that. When you first use an Uber or you first use DoorDash, it was so dramatically different than calling on the phone and getting an order. Before that, using movie phone to buy tickets. or Amazon Prime. And so my mind was like, always there's room to make something faster and cheaper.

Starting point is 00:21:08 And this did essentially both. Yeah. And I mean, there are other innovations, too, the all-paper packaging. So before you had to worry about plates and forks and where are people going to sit to eat their meal and breaking, the dishes are shattering constantly. It costs a lot of money. They're constantly replacing dishware. So that was another McDonald's innovation was, you know, it's all paper.

Starting point is 00:21:29 You just throw your trash away when you're done. and, you know, he's sitting there sort of marveling at all of these lessons that they've learned. He introduced himself. He gets a little tour behind the scenes. And then he tells the McDonald brothers he wants to take them out to dinner, hear all about their story. He says, I've been in the, this is the most amazing restaurant I've ever seen. And I've seen it all. I've been in the food service industry for years.

Starting point is 00:21:51 So then, you know, we get to this. So see where sort of they let the movie lets Mac and Dick kind of relate to us the McDonald's story up until 1950s. They had a couple different companies, couple different concepts before. They made a lot of the same observations that Ray Crockett made about how inefficient these drive-in diners were. And they kind of came to their own conclusions and then they kind of walk them through how they fixed. Yeah. And this is really the product market fit moment of the film. And in our industry, product market fit is you conceive of a product.

Starting point is 00:22:28 And then you try to find if a market response. to that product. And here, they talked about how they tried to get people to embrace this, but it was really hard because people were upset that they couldn't get service in their car. But then once people got it and they enjoyed how amazingly consistent was and how good it taste and the price and the speed, all of that added up to that they had market pull. And they demonstrate market pull in the film when they have a big opening and, you know, the big old. opening's amazing. They put big lights out there because they had previously worked in the movie business. They put those floodlights out there. They put jugglers and clowns, whatever, to get people

Starting point is 00:23:08 excited. Everybody showed up. Everybody loved it. A bunch of flies showed up and it kind of canceled the party. So the next day they thought they had to go back to the drawing board, but then slowly people started showing up because they had such a great experience and word of mouth happens. And Lon, this is the key to the success of McDonald's, but it's also the key to being a great entrepreneur. You know you've done it when you have marketing. When you have marketing. market pull. What is market pull? That's when you get virality where people are telling their friends about the product. This can be experienced with something called net promoter score when people rate you a nine or a 10 as opposed to a one through eight. But it's so good that people promote your service

Starting point is 00:23:47 for you. McDonald's was so good. It was so revolutionary. This humble burger fries and shake, very simple for the pickup window. It was so dramatically different that people told their friends about it. When people tell their friends about it, you cut out one of the major expenses in business. Lon, what is that major expense? The acquisition, the cost of acquisition. Customer acquisition, marketing. Exactly. All right, listen, we all know, starting a business used to be a real pain in the neck. You needed to get a lawyer. There were tons of hidden fees. It was a mess now. With Northwest registered agent, it only takes 10 clicks and 10 minutes, Northwest provides everything you need to start and maintain your business. Every LLC.

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Starting point is 00:25:13 they didn't need to market. Why? The net promoter schools were so high that when I got my first Tesla and you were there when I had it, people asked for a ride in it. People ask questions about it. It was so transcendent. So this is this super important. And I'll just end on this part. in terms of product market fit, I don't know if you noticed this as well on, they made a point of demonstrating the ketchup and mustard dispenser. Now, the reason I believe they did this was because they wanted to show that it wasn't, that they had actually made physical innovation. So they had made some sort of a funnel with a handle and a grip. And when you squeezed it, it portioned out four dots of ketchup or four dots of mustard perfectly. And what that allowed them to do. This is still

Starting point is 00:25:53 used in the fast food industry today. You'll see behind the same. scenes at like Taco Bell where they got a little gun because it puts the exact right amount of sour cream on the taco or guacamole on the burrito or whatever. So yeah, it's exactly like that. And so they had any, and he asked them, where did you get that piece of equipment? And they said, oh, we made it. We fabricated it. And so I just want to end on this piece. You may think a business is too simple, like getting a cab, right? Or, you know, making a burger. But if you make it 20% better across 10 different vectors. Now you might have something that's 200% better than what you had previously. So you don't have to have one thing that makes it better. What McDonald showed was

Starting point is 00:26:32 they had a series of maybe 30 innovations. Hard fought. Some of them were simple, some of them were complex, but they had the audacity to not stop innovating and creating efficiency. Yeah. Nick Offerman plays Richard, who's sort of the brains behind the operation. And I think he's presented as being completely relentless. Like it was never good at, enough. Even when he figured out a problem, he was just immediately on to the next problem. He was just constantly looking at this entire operation holistically and thinking about, how can I make it like the first scene we see of them, he's talking to his brother about. I think if we increase the temperature on the fries by 25 degrees and put them in there

Starting point is 00:27:12 for a slightly less amount of time, they'd come out a little crispier. And everybody else is like, oh, you're crazy. They're already delicious. But that's just the way his brain works. He was constantly like, how do we shave? extra 1% off the time it takes to make this, or how do we make it taste 1% better? And if you come in with that attitude every single day, yeah, eventually you get McDonald's, you know. Yeah. And to not make it all about the McDonald brothers, Ray Kroc during the same thing, was listening

Starting point is 00:27:42 in his hotel as he's driving from town to town, trying to sell his five spindle milkshake maker. He's listening to self-help records. Yeah. And this self-help author, and he's kind of like a portable record play with him, that he's ostensibly sets up every night in his hotel room to listen to the same records over and over again. And it's talking about resiliency and what business is about. And so when I meet young founders and I introduce him to a business book to be inspiring or like we're doing right here or when I'm doing this week in startups,

Starting point is 00:28:09 I was seeing how important it is to tell stories and to look for inspiration. And Ray Kroc was a relentless entrepreneur who was relentlessly trying to make himself better and find a big win. He just needed one win because the two or three things he had tried to do previously didn't work. And he's constantly getting mocked for those things. But here he is, the person who created McDonald's, the modern day McDonald's, not the original drive-in. It's important for you to remember the self-help that he was listening to self-help would be the equivalent of today to podcasts. Well, I mean, that's still like a trope in the in the, in this kind of movie, in the sort of the go-getter, plucky upstart.

Starting point is 00:28:52 A lot of the time they're listening to motivational stuff in the car at the beginning of the movie. And I think they tweak it in a really interesting way here, where we do, we open with him listening to this motivational record about resiliency. And then at the end, we see him, and he's preparing to give a speech of his own, and he's ripping it off. He's plagiarizing the record he listened to in the opening scene as his own speech talking about the importance of resilience. So I think it's shading it in a way. It's like, well, is it just resiliency? Because the McDonald brothers were resilient as well. Is it just resiliency?

Starting point is 00:29:26 Or is it the willingness to do whatever it takes? Oh, yes. We're going to get there. Yes. I think there is an element of that, too, that it, resiliency is the nice way of putting it. Not as nice way of putting it is. And you won't stop. You won't let anything stop you, not ideology, morality, nothing.

Starting point is 00:29:46 You're going to win. Winning is all that matters. Winning it all costs. Right. And I think it reminded me of, remember the scene. It's a two-sided coin. It's a two-sided coin. You remember the scene from, I think it was American Beauty, I will sell this house today. Right. I will sell this house today. I mean, this is a, this is a trope. A lot of these movies about ambitious people or people are down on their luck, but they're their go-getters, they're driven, they're ambitious, they're going to win. They need this. They're desperate. A lot of that, you know, those are the people who are listening to. Sometimes podcasts, sometimes. Sometimes. to win friends and influence people, you know, those kinds of those kinds of stuff. All right.

Starting point is 00:30:23 Tony Robbins, Tony Robbins comes up in a lot of movies. So at this point, Croc has lost his mind, right? He's totally blown away. And one of the brothers comes out and says, oh, how are you enjoying your hamburger? There's just some people sitting on a bench. Croc says, this is the best one I've ever had in my life. This is, oh, well, we aim to please. And how would you like a tour?

Starting point is 00:30:41 Right. So, yeah, he takes him to dinner. They give him the whole kind of story. And immediately, he's like, Let's get into business. There need to be McDonald's all over the place. What are you guys doing with one burger stand? And they're hesitant at first because they,

Starting point is 00:30:57 apparently they've had bad experiences. Other people have come to them with similar deals. It didn't go well. They weren't able to keep quality consistent. They are so focused on their San Bredo location. They wanted other people to come in and start these other franchises. But then those other franchises aren't as good and don't keep up the standard. It's their name.

Starting point is 00:31:19 It's their business. Makes them feel bad. So they've had this bad experience. And as Mac tells Ray, he'd prefer to have one great restaurant than 50 mediocre ones. It's not just about the money for them. It's about the brand. It's about the pride. It's about making great burgers for people.

Starting point is 00:31:36 They don't want to make a subpar product. So they say, no. But, you know, that obviously does not, you know, everything we've talked about with Ray already that doesn't sit well. So he's immediately scheming. How am I? going to get these guys to say yes. And he, while driving around doing his sales trips, he comes up with the sort of pitch.

Starting point is 00:31:57 It's a kind of madman inspired sequence where he gives them like a draper kind of print pitch, where it's like, don't do this for me. Don't do it for yourself. Do it for your country. America needs McDonald's. He's talking about, you know, he was driving around and he sees every community. There's a cross because that's where people gather. for the church. And in his, and there's a flag because that's where people gather for the government

Starting point is 00:32:23 or for the court. And then he's like, he, to him, the golden arches of McDonald's, which was not his invention, which was Richard McDonald's idea. But he thinks that golden arches need to be just as prominent and it's just as important and central to American life. And it's this very patriotic, do it for your country kind of pitch. And this is where like, complementary skill sets of founders, you know, comes into play. The people who start a company are not, the ones who always get it to the promise land. And, you know, you'll sometimes have complimentary people on the team. You know, Steve Jobs and his partner, Wozniak is a perfect example. Was was like, you know, building the circuit boards, was the nerd, was the technical person. But Steve was the

Starting point is 00:33:05 visionary, clearly. And, you know, people sometimes remember Wozniak and sometimes they remember the third co-founder who got bought out of Apple, but most of the time they just say Steve Jobs. I say Apple, you say Steve Jobs. Right. And, you know, you had Dick McDonald, who was, just insane at operations, you know, doing all those little innovations. And Mac was like a, you know, kind of like a storytelling CEO type, jovial, you know, shaking hands, kissing baby type guy. Yeah, I think if you think of it in restaurant terms, like Dick was running the kitchen and Mac was front of house, you know, greeting customers, managing the staff, that kind of stuff. But neither of them were the scaling CEO. And when we are talking about technology

Starting point is 00:33:42 startups here in Silicon Valley, we talk about like a zero to one founder, a product visionary, somebody who can get a product into the world. But then you need people who know how to scale a business. If you want it to become a venture scale or a truly significant business in the world, McDonald's and the McDonald's brothers didn't want to do that. They wanted to have one really great business. But that was not the ambition of the scalable, you know, CEO in Ray Kroc. He sort of of how to make this grow across the country. And that really becomes the central tension, I guess, of the second act, you would say? Is the friction between the brothers and Ray Crocs' ambition? Listen, public markets can be volatile. Don't I know it? And if you're looking for a unique

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Starting point is 00:36:05 gets the brothers to agree to make him sort of director of franchise operations or something similar. So he's going to go around the country starting new McDonald's franchises. The brothers will take a small cut. He'll take a somewhat larger, but still fairly small cut. And he'll manage all of these other McDonald's restaurants and keep their quality up so that it befits the brand. So he opens the first McDonald's in Des Plains, Illinois. I believe it's still there as well. This is where we get into him, a lot of him like hustling. So first, working the people at the country club, working his connections there. and then finding new ways to find new people to kind of recruit.

Starting point is 00:36:46 It's almost a little bit of like an MLM scheme for him at this point. Like the more franchisees he signs up, the more McDonald's he opens, the more 2% takes he's getting of everybody's business. So it's kind of like he's the upstream and they're the downstream a little bit. And that is the criticism of the franchise business model. And it's the great part about it is the franchisees have to do all the work, but they may get this incredible formula. Now, this is something that's hotly debated if you dive into Subway, and we should do a deep dive into Subway, because I'm sure they'll make a

Starting point is 00:37:20 movie about Subway at some point. Those franchisees are really ground down and grinding it out is the name of Croc's book. So there is something to this. You have to be a grinder. And in terms of this film, you know, it really shows that food service and restaurants is a grinded out business. It is not a business for rich people who are, you know, retiring and don't want to work. And there's this very important moment. As he's trying to find people to open up these franchises, he starts at the country club with people who have the money and it's no big deal. They sign it and then they go back to playing golf and drinking, you know, martinis. But the problem is those people have no standards.

Starting point is 00:37:58 They don't care about the restaurant. They just want to flip their money. Kind of, and that infuriates Croc. And, of course, that infuriates the McDonald's brothers who care about it. quality above all else. And so there's this great pivot where he goes from country clubs to synagogues, veterans associations.

Starting point is 00:38:16 Who else does he hit up? Oh, the first person, tell everybody about the first person that he recruits as a franchisee when he decides rich people are not going to get to stand. I need blue collar, hard work, and salt of the earth people. The Jewish Bible salesman,

Starting point is 00:38:31 this guy, is that what we're talking about? Yeah. So he's, there's a lot of, I guess you see it in older movies where people are just in the same office and they overhear somebody's conversation. They're like, that's the guy I need to be in business. But I feel like this doesn't happen in today's world as much. There are random collisions. This would fall into the category of collisions or sliding doors. Or no, he goes to his own office and there's this very pushy Bible salesman trying to sell to his own secretary who's not interested.

Starting point is 00:39:02 And this guy is just relentless, not giving up. And then he stops him in the hallway and he's like, hey, you know, who are you? Tell me about yourself of the guy. His name's Greenbaum or something, something obviously Jewish. So it's like you're a Jewish guy selling Bibles. The guy's like, look, I got to, you know, I got to make my nut. I got to earn a living. And that's how he's like, oh, this, that's the kind of light bulb moment for Ray.

Starting point is 00:39:24 It's like, I need people who they need this. This is going to become their life. They're going to be obsessed with this the way I'm obsessed with this. Not these country club guys who don't really care. They've already made their money. I need hungry people. You know, in our industry, we want people to have skin in the game. And this is why in our industry, you know, people selling or founders selling their secondary shares and not having a mortgage payment or kids in private school or, you know, 12 months of runway, 6 months of runway, 18 months of runway.

Starting point is 00:39:52 The venture capital community and the architecture of the entire system is a bit of a pressure cooker. It's very rare that somebody gets five years of funding and some huge salary that competes with the salary they had at Apple or something. And that pressure makes the diamond skin in the game is what we're looking for with founders and with venture capitalists. They have to put a certain percentage of their money into their venture funds. And the movie also, it sort of does this with Ray and his wife, who's played by Laura Dern, Ethel, Ethel Code, where even she, they don't see eye to eye because she's at the point where they're in their 50s. She's like, we own our home. You've had your years of being a salesman on the road. like, isn't it time for you to slow down and start thinking about retiring or spending more time with me, going to dinners, you know, enjoying your life.

Starting point is 00:40:40 Maybe go to Spain. She wants to go to Spain. Yeah. And he just, he can't function that way. That's just not who he is. And we sense that that's never going to be who he is. It doesn't matter how much money he makes, how comfortable he gets. He's never going to want to just rest on his laurels and stop building.

Starting point is 00:40:55 He's just that kind of a person. He wants to win. He's competitive. and that's the only sort of life that he can envision for himself. And so, you know, later over the course of the film, he meets a franchisee named Raleigh Smith and his wife, Joan, who's much more of his kind of mindset. She's a go-getter.

Starting point is 00:41:15 She's hungry. She's ambitious. She loves money and wants to make more money. And so, you know, you can see that's the attraction of him to her is that, you know, again, it is about skin in the game, but it's also just about having that kind of motor, just having that personal ambition. versus, you know, just a different kind of person who's not as caught up in the rat race, you know?

Starting point is 00:41:35 I was going to bring this up. Spouses are so critical in the formation of startups. Now you'd think, like, well, they don't go to the startup every day, but if you think about it like an Olympic athlete, or if you think of it like a Navy C.L. Or somebody who's doing some extreme pursuit, well, their spouse might have to sacrifice. Oh, they're on a tour of duty, you know, in Afghanistan or they're going to the Olympics. and they've got to do three workouts a day and they're going to be, you know, doing some competitions all over the world. The spouses bear the brunt of that often in startup land. They have to take care of the family, if there's a family, they have to manage the domestic stuff. And this becomes a bit of

Starting point is 00:42:15 tension often because one person is pursuing their life dream and they're getting all this glory. And the other person is doing all the chores and having to cheer them on. And then the person who's cheering them on will become resentful. And then the person who is going out and working on this, they might have their spouse then become critical of what they're doing. And then that is the death of the marriage. It's the death of the partnership. It just becomes irreconcilable often. And that's why often when I talk to people who have families and kids and they're starting a company and they want my advice to say, well, have you talked about this with your partner slash spouse, whatever your, you know, a common term is. Make sure you have that aligned.

Starting point is 00:42:59 Because some people are work to live and some people live to work. And this is like the tension you see when I tweet on Twitter or X on Twitter, whatever I'm doing on Twitter posting on X, you know, and I say like hard work pays off. And then people are like, ah, but what if it doesn't? And it's like, well, that's kind of implied, but okay. And it's just fundamentally some people, when the whistle blows at five o'clock, that's when their life begins. Other people, when the whistle blows in the morning, they get to work, that's when their life begins. Yeah. So different strokes for different folks. Yeah, and I think that that is part of the sort of, it's both the McDonald Brothers versus Ray Kroc, it's Ray versus his wife.

Starting point is 00:43:31 We see, we see that kind of play out several times over the course of the movie. That's kind of just very different ways of measuring success and what does it mean to be a success and what does it mean to like have a successful company or marriage or, you know, whatever else. So I think that that's really interesting. So at this point in the movie, Ray is kind of, he started having the same kind of success and market pull that the McDonald brothers had. Now, Ray is starting to experience where rather than going out and recruiting, people are coming to him. McDonald's is becoming a breakout sensation. He takes this trip to Minneapolis where they're opening a new franchise and he gets this kind of heroes welcome and he realizes like, oh, this is really, I'm on to something. This is really taking off.

Starting point is 00:44:12 And that's the point where the tensions really start to build between him and the McDonald's brothers because he starts to feel more ownership. Like, I've built this into this huge thing. Sure, you guys had the idea of how to make the burgers, but now we're all contributing. It doesn't just feel like it's your company that I'm helping with. It's also my company now. I think part of what they're applying is that this was always kind of who Ray Kroc was, and he's just becoming unleashed. The more powerful he gets, the more rich he gets, the more status he gets, the more he's

Starting point is 00:44:43 sort of free to become that person. And he doesn't have to be the salesman anymore who's constantly pitching and glad-handed everybody. So as he kind of comes into his own more, we get a lot of back and forth where he wants to make changes and the McDonald brothers are not into it. Like the main one being that the contract he's getting, I think it's 1.9% of the revenue from these franchise restaurants. He was so eager to sign the deal, he didn't really worry about the math at the time. Now that it's really taking off and succeeding, he's recognizing that that's not that much money. I've got all this overhead that I'm managing and I'm only getting 2% of all of these actual locations.

Starting point is 00:45:26 I'm not getting rich the way I should be getting rich. And this is a path that founders go along. You have complete doubt and uncertainty and fear. And then you start winning. And then your confidence builds. And then that confidence can become arrogance. It can become narcissism. It can become, you know, momentum.

Starting point is 00:45:47 It can go either way. and often it goes multiple ways. And so it's important for founders to not feel so low in the beginning when you're figuring out product market fit and you're figuring out the business because that is the part of the process, is the suffering, is the, you know, not making enough money, is being underappreciated. And then what happens is you hit it. And when you hit it, then all of a sudden, everybody wants to be your friend. Everybody's giving you applause, thanking you, hugging you.

Starting point is 00:46:15 You're the greatest person ever. and this is where, you know, having a strong foundation as an individual, a strong sense of morality, a strong sense of ethics, a strong sense of who you are as a person. And this is where you're parenting and everything comes into this. And what will happen is people who are not grounded, man, you can see them go off the rails, all different kind of directions. And tragically, people who don't get product market fit, you know, they can get depression and worse. And so I thought that the movie did such a good job of capturing his journey from just being considered a loser by everybody, knowing he was actually a winner, knowing he saw these opportunities that other people couldn't see. He knew Lon that he had it.

Starting point is 00:46:57 He knew he had it. But the world doubted him. And then he starts turning a corner. And every week, every month, every franchise that joins, he realizes he's awesome at this. And everybody who doubted him is wrong. He gets the divorce from his wife. He gets the new wife who is, you know, aesthetically, you know, played as younger and more beautiful and more importantly, who wants to be his partner in crime and his partner who pumps him up and says you can do it and you're awesome and wants to be involved and celebrating the victories. Who needs real ice cream? We need profits. Yeah. Nick, producer Nick coming in with a really great drop. Maybe you could take us to that moment where the new wife is like getting involved

Starting point is 00:47:39 in the business and rolling up her sleeves and is thinking like crock and how that moment plays into his relationship where Croc finally confronts the McDonald brothers. So this is one of those movie, the law of efficiency of characters, what Roger Evert would call it. Like, you can't just constantly introduce new characters. So you got to consolidate when you can. So this did not all come from the real Joan Smith. She was a McDonald's franchisee. They did eventually get married.

Starting point is 00:48:06 But the movie, for convenience sake, also gives her the powdered milkshake idea. And apparently this was not, that's apocryphal. But anyway, yeah, in the movie, she comes to him with this discovery that one of the major expenses of running a McDonald's franchise at that point was these big walk-in freezers where you'd store the ice cream. And that's what it's a thing that it annoys Ray at his franchise. It annoys the other franchise owners. It's soaking up a lot of what should be their profits. So Linda Cardellini, who plays Joan Smith, she discovers in one of those trade industry magazines, powdered milkshakes, which you can sort of simulate the milkshake experience,

Starting point is 00:48:47 but it doesn't require a freezer. It's not real ice cream. You just mix the powder into water. And it did a one of those food science discoveries in the 50s and 60s they were so into. It's kind of a NASA kind of moment, right? They were taking freeze-dried stuff. Yeah. You know, and in-

Starting point is 00:49:03 provisioning for our troops. Food labs and all that, all those discoveries in terms of like chemical, artificial flavoring and all that. All that was big, big business at this time, and they were constantly coming out with these new kinds of products. And, you know, today stuff like powdered milkshakes and powdered potatoes or whatever, there's a lot of, we've already stereotyped that as like, oh, that's institutional food. That's cafeteria food. That's prison food. But in the 50s and 60s, they were obsessed with technology.

Starting point is 00:49:33 They thought that stuff was amazing. This is the future. Everybody's going to eat powdered milkshakes one day. Yeah. So Ray and Joan, very excited. about this idea, but Richard McDonald's is like milkshakes have ice cream in them. It's a part of the deal. No. And just refuses to negotiate or discuss or talks about it. So that kind of becomes the last straw. And this is a key because we haven't talked about deal making and negotiation. But in order to get the

Starting point is 00:49:59 deal for McDonald's, he had to agree that the McDonald's brothers would approve every change to what happens in that restaurant. So if he wanted to change the ice cream and milkshakes to a powdered one, he needed to get explicit written approval from the McDonald's brothers, which they would never give. And they were slow, and they were resistant to change. Right. So he's trying to sort of figure out this power struggle. And it's another one of those kismet. He's just having this conversation and then somebody's like, hey, I have the answer. But he meets Harry Son, born, played by the office VJ Novak, who would later go on to become McDonald's first CEO. He's just at the bank as a fellow customer overhears this problem and meets with Kroc and figures

Starting point is 00:50:46 out the solution, this very elegant, somewhat devious solution, which is rather than focusing on the franchise itself and taking a little piece of the profits of the franchise, McDonald's should be buying the plots of land that the restaurants go. on and then they lease those plots of land to the franchise owners, which gives the McDonald's company all the control over the location rather than the franchise owner, and they're just taking a little chunk of change every month of the profit. So let me reflect this back so the audience doesn't miss it. McDonald's had franchisees.

Starting point is 00:51:25 The McDonald's brothers own the McDonald's experience and Ray is in the middle. He can't make enough money off of the 1.9% he negotiated. Is there a problem? A big one. You don't seem to realize what business you're in. And so this clever person says, well, you know, you're really in real estate business. Why is he in the real estate business? It turns out when McDonald's opens a restaurant, the entire world goes next to them.

Starting point is 00:51:51 So they're so successful that they, in fact, are distribution. And Starbucks has a similar phenomenon. If you put a Starbucks, they research where they're going to put them really well. When you place a Starbucks, the block on either side of that Starbucks now, goes up massively in value. Why? Foot traffic, obviously. So they were leasing the land under the McDonald's building these iconic buildings with the arches. As you can see in Lon's background there, key part of the story, but they were leasing it from landowners. Who benefits from that, the landowners? Now, if you wanted to get around the McDonald's brothers deal, well, if you own

Starting point is 00:52:28 the land, if Ray Kroc had a separate company that owned the land, and he leased it to the new franchisee. So the franchisee, signs of franchisee documents, finds a construction person, builds it, and then opens their restaurant. Does it matter if they get the land from Ray Crock or they get it from some random landowner? Well, Ray Crock realizes that's the business. I'm assuming they didn't mention this in the story. We could ask our Google notebook LM, which has a bunch of McDonald's information. If they would also buy the plots of land around them, it would seem like you should by as many plots around a McDonald's as possible before you install it. But that was the key there because now they're the landlord in a 10 or 20 year lease. If it's successful, then what's the

Starting point is 00:53:10 price going to be? They own the land outright, and then they get to charge the franchisee, whatever they want. And the thing that they don't mention lawn, they know the franchisee's economics. So they can match the rent for that land, the lease, to what they think is the maximum breaking point that doesn't make the franchisee go find another location. which I'm sure is what they did. It's an exclusive deal. You can't open a McDonald's unless you're leasing the land from the McDonald's Corporation. So they have to, they don't have a choice.

Starting point is 00:53:39 In one other way, it's clever, too. From Ray's perspective, it gets him around the McDonald brothers. Like at this point, now he's the center of power. They might be able to say, well, contractually, we control what you do with the burgers. But now he owns the land. The franchisees are working through him. It gives him control. over the entire company.

Starting point is 00:54:00 And it really gives him free reign at this point to just start ignoring the brothers altogether, which he does in a big display by sending all the franchisees, the powdered milkshakes, and just doing it anyway, even though the brothers said no. And the brothers come to him and the brothers say, hey, we're not going to allow it. And when they don't allow it, they say, hey, we have a contract. Ray Crock just says, well, you know what they say about contracts? They're meant to be broken. Yeah.

Starting point is 00:54:26 And that's when he goes to the dark side in my mind. You realize he has the money, he has the power. He's now somehow wrestled control from them. And he feels emboldened to in any situation in his life to use the law or to use might and power, money to just create the world he wants. And this happens in business as well. We just had a situation where Apple is being accused of hiring all these people who built patents for the Apple. for smart watches and healthcare, like oxygen reading on your watch, and they stole employees and, you know, they're apparently being sanctioned down. But, you know, company like Apple might

Starting point is 00:55:08 get reckless as they have money, distribution, and power, and they will roll over people around them. And so this is when Ray, I think, kind of cresends into the, I don't say dark side, but just being cutthroat. If you want, if you don't agree with me, sue me. If you, if you are not going to support me as a wife. I'm getting divorced. I'll give you everything, but you're not getting to share a McDonald's. And he just went hardcore. This is the hardcore moment. Yeah, I mean, I think it's interesting. I think the movie is doing something really interesting here. Did Ray go to the dark side? Did

Starting point is 00:55:43 the money and the power and the status get to him and get in his head and change him? Or was this always who he was in the back of his mind? And he just, it had to wait to come out. Like in the beginning of the movie, he I think that's accurate. He doesn't have the power. He doesn't have the power. He can't. His goal the entire time is to get FU money so that he can unleash his inner capitalist

Starting point is 00:56:07 tycoon bastard, I think. I think that's a fair read. But I don't know if that's, I don't think that I think you could read the movie the other way that he wasn't, he wasn't always so cutthroat. He did learn that that's how you have to be or that's the way he wanted to be over time. My take on it is as you get more confident and you get more power, you will take more risk or you'll be more hardcore. So that would track more with me. He didn't have the power when he was selling milkshakes to roll over anybody.

Starting point is 00:56:39 In fact, he was, instead of being on a heater and accumulating power and having momentum as a founder, he was kind of the other way, right? He was on his heels. And when you're on your heels and you're not confident, the idea that you would fire off a lawsuit or you tell somebody, well, F you, sue me if you don't like it, you're. you might not do. Yeah, we meet him and he's in full salesman mode. I think it's really the very first scene we see of him. And it's not only just a sales, but it's that kind of Willie Lohman, like, down on his luck, Shelley Levine, like, I got to make this sale. It's that desperation. Hey, you look like a smart guy. I don't have to tell you the business, you know, like he's got that. And so I think that's kind of what we're watching too, is how it sort of unleashes him to

Starting point is 00:57:19 be able to put that persona aside permanently. I don't have to. have to be the salesman anymore. And that's kind of the scene when he's getting drinks and he gets back from Minneapolis and he's talking to his wife. And he's like, they love McDonald's. They were all over me. We got to have a drink. That's what he's really celebrating is I get to put away being servile forever. I'm nobody's, you know, step stool anymore. I get to be in charge now. And I, you know, I think it goes, it goes from there. Like, it only builds from there. And there's a lot of technical things that occur, you know, around company formation. When he makes this real estate company, calls it the franchise realty corporation.

Starting point is 00:57:57 Yeah. But then eventually he's like, you know what, I'm going to call the McDonald's Corporation. If you don't like it, you can sue me. It's confusing to people. It's confusing to people. Yeah, and he's like, that's the whole point. I'm going to confuse people. I don't care.

Starting point is 00:58:06 And this actually happened to go back to Zuckerberg as well, another incredible entrepreneur with, you know, many would argue, you know, less than top shelf morals or ethics. He screwed all his original business partners, restarted Facebook, sold the assets from an LLC into a C corporation. And that's what the social network was about, was about this same thing. A person who didn't have power was building, you know, software for the Winklevye,

Starting point is 00:58:30 all of a sudden getting some power, getting somebody like Sean Parker in his corner, getting Peter Thiel and his Parker, getting success, and then being like, you know what? Might is right. I have the chips. I have the power.

Starting point is 00:58:41 Now I'm going to just do whatever I want. And if you are my previous partner and friend, you can sue me. And so the arc of, and we should do the social network at some point, the arc of Zuckerberg going from a coder with, you know, a certain ability to copy other people's products and do it better than them, all of a sudden he just becomes a person who doesn't care and will screw anybody,

Starting point is 00:59:03 including his best friends. And this is a central theme of business. Is it necessary to screw everybody around you to be successful? The answer is, it's not. There's many more stories of people being menches and having a moral compass and being ethical and making sure everybody's taken care of than Zuckerberg. Ray Kroc. How much of it do you think came from Kroc feeling like he was being screwed because the percentage was so small. And obviously he was doing so much of a brunt of the expansion work, basically

Starting point is 00:59:31 100% of the expansion work. Presentment. And exactly. And the McDonald brothers wouldn't budge even a little bit. They wouldn't even give him 2% or 3% or 4% or whatever he was asking for. And another like follow up to that is do you think McDonald's would exist in its current iteration if the brothers had just been like, you know what, why don't you take 5%? We know you're doing all this work, and we're going to cut you in on 2% of the net profits from everything at the end. Okay. These are great questions. I'll take him in reverse. If the brothers had played ball with him and gave him more leeway, I think actually it would have grown faster because he wouldn't have been wasting so much time arguing with them. It is possible that he could have destroyed

Starting point is 01:00:05 the product, but I think it's unlikely. At some point, that power struggle was going to come to a head, right? Because no matter how much compromise each side made, their fundamental view of the business was just so different. The McDonald brothers really, they were, They cared about the food quality. They cared about family. Consistency. They really bought into that sales pitch of like, no, this is about bringing people together and community and making something great. How does he eventually get what he wants out of them?

Starting point is 01:00:35 I mean, I think at some point, Ray Kroc was going to screw them and get rid of them. So how does he get what he wants from them? So eventually, they're like, we're going to sue you. You're violating our contract. And he's like, go ahead, sue me. He points out what has been. become obvious, which is by making this land real estate deal, by forming this huge corporation, he now dwarfs them in terms of power and status. He is the owner of this massive company

Starting point is 01:01:02 McDonald's. They own a burger stand in San Bernardino. So I think once they realize that they've already lost before the argument has even started because he has this tremendous lead on them, there's basically no choice that can't sue him. He'd tie them up in court forever. They've got to make a deal. So he makes this deal that is a pretty terrible deal for them. He gives them $2.7 million to split between the two of them that's worked out mathematically. So each brother walks away with a million after taxes. Right. So they get to keep their San Bernardino location. That's theirs. And then they ask him for, they want 1% of all McDonald profits in perpetuity forever. And he says, well, I'd like to give that to you.

Starting point is 01:01:50 but the board, we're going to have to do it as a handshake deal. And I'll fight for you. And then he screws him. My point is, eventually, he just negotiated with them. And so I think that there was a negotiation to be at here. We're playing Monday morning quarterback. I think if the brothers had just extracted a small amount of money each time you wanted a concession, so that, you know, if he wanted to go to two and a half percent, okay, well, they want this payout or they want this percentage of the real estate company, et cetera. But they didn't want a play ball. They didn't want, they didn't want powdered milk. milkshakes, even if it made them $10 billion. But eventually, but eventually they wanted a payout. So I think the strategic error, I'm talking about strategy here, I agree with you, their motivation was, you know, this purity. At a point, they said, we don't want to deal with this chaos. We want our money.

Starting point is 01:02:36 And I think they should have got better lawyers. And I think they should have been negotiating a slow exit until the company went public. And this is an important lesson for everybody watching. If you are in a situation that's like the McDonald's brothers are in, keep your equity in the business. Make sure you have the equity in the business. Because what that means is no matter how big it gets, if Lon owns 10% of the business and let's say I'm Ray Crock and I own 20%,

Starting point is 01:03:00 okay, for every dollar those shares go up and you own $10 worth of the shares and I own 20, you go to 11, I go to 22. You're still getting the benefit, but you're not doing any of the work. And this is really why equity and stock ownership, as opposed to licensing deals and royalties is the gold standard in business because the share price goes up, everybody wins. Now, of course, people can do funny things like dilute the shares and issue more shares, but in general, those things are frowned upon. The McDonald's brothers did not have great representation. It was clear. And they should have. And they should have never,

Starting point is 01:03:35 obviously, walked away without owning equity in the business. And so Ray Kroc was dogged, but man, they could have held on to percentage ownerships. And by the way, the Facebook partners did. The Facebook partners did, Eduardo and then the other people, all those early people did wind up keeping shares in the company. Not the Winkle bosses. The Winklevosses, I think he specifically did not want him to own shares. Eduardo Savorin and those other guys.

Starting point is 01:04:00 Yeah, yeah. So, again, all of those things become negotiation. So here's the two lessons. Number one, if you're the king or queen and you've won power, you can really negotiate hard and you're going to wind up on top in all likelihood. But if you're the person who's getting screwed, you really want to fight

Starting point is 01:04:17 doggedly to make sure you own equity in it because that person has proven to you that they're a lunatic. And if that person has proven that they're a lunatic and they'll fight to the end, well, you want to have equity in them. Eduardo Saravan wound up with over 50 million Facebook share. So he did quite well for himself.

Starting point is 01:04:32 I just think there's a lesson here about like fiscally compensating people based on their value to the company. Like, he was so valuable. And you see, which I think goes back to Lon's point earlier about this being like a really measured take on this, didn't make him look like a total terrible guy, but it also didn't paint him like a hero. That scene where he's like behind on his mortgage payments and you're like, how is this

Starting point is 01:04:52 guy expanding this business so rapidly doing such an amazing job and he's missing his mortgage payments? And, you know, he's not gambling the money away. He's just like being underpaid. You're like, that's crazy. It was crazy to me. There is definitely a personal. emotional dimension to this rivalry that I think both sides probably kept them from seeing

Starting point is 01:05:12 things entirely clearly. Like Ray Kroc, kind of a hot-headed guy, even by his own admission, he talks about this in the autobiography, I believe, that he could, he was very emotionally. He cared about this a lot. He could fly off the handle. Yeah, he hangs up on them. And the guy's like, he just hang up on us? The McDonald's brothers immediately get turned off from dealing with him because they're not

Starting point is 01:05:33 like that. They're these very gregarious Midwestern, even keeled, calm guys. And this guy screaming at them on the phone, they don't like it. So I think they're hesitant to make changes both because of their ideology, but also because who the hell is this guy to call and bark orders at us? And I think it's the flip side, too. Ray, by the end of the movie, has become vindictive, where it's not just about, I want to get the most money.

Starting point is 01:06:01 I got to take care of myself. It's like, oh, I'll leave you your San Francisco. Bernardino restaurant, but then I'm going to open my own McDonald's right across the street and put you out of business. Yeah, he wants to bury them. It is personal. Exactly. Just because now I hate you and we've been combative for so long that now I want to get

Starting point is 01:06:17 my sort of revenge and stick the knife in. So I think, yeah, it's a business negotiation, but it does inevitably take on this personality clash as well, where they start to hate each other. The film ends. The McDonald's brothers get their money. Well, I think there's a fascinating scene at the very end. where Dick McDonald and Ray Kroc end up after the legal proceedings, they end up in the restroom together.

Starting point is 01:06:42 Yeah. It's a total movie trope, by the way. It's a very screenwritery. I'm sure this never happened. Take a leak and do the debrief. You got to get them together for one big final, you know, whatever scene. Recap of what happened. It's like what just happened.

Starting point is 01:06:58 Why did we see what we saw? We as an audience, right. We want closure. We want them to have a final moment coming to terms. with each other or whatever. So, you know, Dick McDonald's basically asking him like, hey, if you were willing to just steal from us and screw us over, why did you want to make a deal with this in the first place?

Starting point is 01:07:17 Like, we showed you everything. We showed you what we did. You saw the restaurant. You could have just gone home and made your own McDonald's and called it something else. And you didn't have to be in business with us at all. Why not just do that? And he says it's the name McDonald's, that that was part of it. part of the package and the brand and the when he showed up that day to get his burger and was

Starting point is 01:07:40 blown away that was part of the experience was that it was called McDonald's this very welcoming friendly all-American name he points out his own name crock very slavic immigrant sounding who would ever want to eat at crox is a great line well everyone ate at crocs and then in the epilogue to the epilogue so that's like kind of a mini epilogue but there's another one at the end where they actually show Ray Croc speaking, and he's talking about how beautiful the McDonald's name is, how iconic it is. And he says,

Starting point is 01:08:09 you know, I never like gimmicky names like Burger, you know, Castle or whatever. He's kind of obviously talking about Burger King or, you know, Burger Stop or whatever. Astro burgers we have here in LA.

Starting point is 01:08:18 And he's kind of mocking Burger King and other people who copied it. But it is such a key point of, I think, Ray Croc's brilliance. Ray Croc was an observer of humans and opportunities. He was a hustler. He was a grusseler.

Starting point is 01:08:33 He was a grubber. grinder, thus the term, grinding it out. And he took pride in that. And grinding it out is what startups are about at their best. It is what innovation is about at its best. It is a grind. And it is about resilience and confidence and momentum and just never stopping your innovation. And as an entrepreneur myself, people who have worked for me and you both have worked for me, you know, I might come in after, you know, a break and be like, hey, we're doing this new thing. It's founding university. Hey, we're doing this new thing. It's called This Week in Startups. Hey, we're going to try this. And you have to be constantly trying to come up with something new that clicks. And then you

Starting point is 01:09:06 have the thing that clicked and you got to keep tweaking it. So here we are in year 13 of, you know, this weekend startups. I'm like, I want to do more of these like business breakdowns with Lon because they're fun for us to do. And the audience loves them. So here we are. Resiliency is the big takeaway for me, grinding it out, having great lawyers. And just that understanding of branding from such an Earl, like today we take that for granted. Everybody is, we're all personal brands. Everybody thinks in those terms. But in 1954, to be like, you know what, those golden arches in every town, you'll be on the road and you'll drive and you'll know what that is and you'll really, it's going to be consistent everywhere I go. McDonald's is McDonald's like, no, he was way ahead

Starting point is 01:09:45 of the curve and thinking about how important that would become for Americans. Which, by the way, at the start of our careers, we saw this information super highway as this incredible opportunity because you could transmit information and go anywhere. and get any information for free or close to free. And really the highways, the American highways built in the 30s, 40s, 50, 60s were essentially like the platform shift of its time. Route 66, he says early on, Ray Crock, I have this vision of Route 66 and you can go across the entire country, which was built off the innovation of the factory, which created cars by

Starting point is 01:10:22 Henry Ford. And the McDonald's factory, and when they're making that tennis scene, is based on, on Ford and him making the assembly line. The assembly line. So we should sit here for a moment, I think, and reflect on platform changes, right? We're sitting here with AI as a platform change. We witnessed cloud. We witnessed mobile.

Starting point is 01:10:42 We witnessed broadband and the internet itself. PC revolution, cloud revolution, all this kind of great stuff. You know, and it just when there is a new innovation that occurs, like factories and the assembly line, many people can profit from it. Or when there's something like, you know, infrastructure that's built, many people can profit from it. McDonald's wasn't the only people who profited off of Route 66 and, you know, the highway system. Hotels. Yeah, Howard Johnson's would have been the same area. Tons of brands.

Starting point is 01:11:13 And then going big is my final lesson here. You know, people do not have a gambler's mindset. And if you look at the McDonald brothers, they had a protectionist mindset, lawn. They wanted to protect what they had. Because what they had was really special. They weren't willing to risk what they had to have what McDonald's has become. And that was their choice. It's obviously a critical mistake if you want to make a ton of money.

Starting point is 01:11:41 But they did make them, you know, a killing, you know, for people who made a hamburger joint. But they only wound up capturing, if you take it as $10 million in today's dollars or, you know, close to 500 million if you had put it into the S&P. or would have been a billion dollars between the two of them. They only got a fraction of the actual... Yeah. I mean, McDonald's last year made $6.1 billion in net income. That would have been $61 million if they got their 1%. Yes.

Starting point is 01:12:08 Last year alone. Every year. That's for one year. That happens every year. So lots of big... McDonald's a big company. I think there's one other really interesting... We were talking about...

Starting point is 01:12:19 We were talking about these sort of sea changes and shifts in not just individual companies, but the way kind of business is done and approached. And I think this movie is also about another kind of pivotal shift or sea change moment. The McDonald brothers are like when you, in elementary school, when they teach you Adam Smith and capitalism, you know, you do those like you make something at home and then you bring it in and you do a little like mini economy in class. Like, I'll sell you, you know, here's what bartering is. And here's, I'll sell you one of these for two of those. And that's how we have an economy.

Starting point is 01:12:52 And I think that's where the McDonald brothers. They were like, we want to make the best product for the best value, and we're going to be better than all of our competitors. It'll be faster. The cheeseburger is going to be juicier, and we're going to make everything as perfect as we could. And then that's where they stop. And I think Ray Kroc represents a modern take on capitalism, which is not just about looking at one product and looking at how much of that product do we sell to how many customers, but all of these elaborate financial systems and product. and institutions and ways of investing, ways of thinking about scaling companies and growth.

Starting point is 01:13:29 Scale is the key word, Lon. It's changed so much. And I think now it's all about how much are you making this quarter versus last quarter or this quarter versus the same quarter last year? Yes, yes. What's your five year? What's your 10 year projection?

Starting point is 01:13:45 How are we going to keep, you know, innovating and how are we going to keep your total addressable market and what percentage of it are you? Exactly. And so the Kroc brothers, we're never thinking, well, how many milkshakes and hamburgers are eaten every year and how many of those can we capture? They're just thinking, well, there's a person in front of me, how delighted are they with the burger? And so that was the first half of capitalism.

Starting point is 01:14:05 And here we are. The second half of capitalism is, how much can I capture? Producer Nick, any moments or lessons from this that you take away? It really was profound to me when he went to Phoenix for the first time, which was the first Golden Arch's establishment. And I just thought it was amazing how, you know, that's still a feeling that we all have. have if you're on the highway in the United States, if you're on a long road trip and you see the Golden Archers, you're like, oh, I can get, I can get some food there. Look, Mickey D's.

Starting point is 01:14:30 I just, you know, Jason, you talk about real world virality a lot. And back in the 50s, that basically didn't really exist, right? Like, what was that? And he just saw it. And I also, I said this before, but my other main takeaway was just like, if somebody is doing such a lion's share of the work, you have to get them in on ownership and compensate them properly and keep them around because that would have been much more lucrative for the McDonald's brothers in the in the end and what they did wind up just and who knows if that's actual really the reality but they're just talking about the movie multiple sides to the story both of their sides and the actual reality are the three that we're left to deal with right yeah i think those are great thoughts as

Starting point is 01:15:07 well all right we do we like to give a little awards here so nick uh lighten you around here these are the awards for the film producer nick came up with what's your first award you want to give the number one award uh well you guys have to give them but you could just choose any character you want, the would hire award for a character you would hire immediately. So you're telling me there's a chance. A wood hire award. Hmm. Well, I mean, can we say Ray Crock? You could say Red Crock, yeah. I mean, when you got somebody with that much to prove and who's that resilient and dogged and hardworking, that's the person you pick. I mean, after that, it's got to be the guy who explained to him, his like basically consulari, who explained to him

Starting point is 01:15:45 how real estate works. Those would be my two. Harry Sondonborn. For Searle. Yeah, Harry. That's, I mean, I think we got to take Ray Crock out of it. So I go with Harry. Who do you go with Lund? I mean, I feel like Dick McDonald is a good answer. Dick, Dick McDonald being the sort of the innovator.

Starting point is 01:16:00 He's the, that wouldn't, none of it exists without him coming up with the ways to make the burger better, you know? Like, he's got to be there at the ground floor. You don't have a product. Got it. So you got the product market fit guy. I got the financial engineering guy. We both would have taken Ray Crock first, I assume.

Starting point is 01:16:18 The Woodfire Award You fire For a character You would fire immediately Who would you fire immediately God, I don't want to say The first wife She doesn't even work there

Starting point is 01:16:29 She's just the wife She's such a downer And she's like Doesn't believe in him And yeah She was Oh man They didn't give Lord Dern a lot to work with

Starting point is 01:16:39 By the way in this movie No She played a sourpus That's such a thankless role The like The wife Who just wants her husband to stay home I always think of...

Starting point is 01:16:48 They didn't even really give her like a mad scene either. They didn't let her go. I always think of, I love Donnie Brasco, but Anne Hache and Donnie Brasco has the most thankless role of her job is literally

Starting point is 01:16:59 stand in the kitchen and yell at Johnny Depp for not being home enough. And like, there's like four scenes. They keep cutting to it. And it's the same every time. And this is one of those

Starting point is 01:17:07 thankless Anne Hache and Donnie Brasco type roles where she's just there to be, you know, why aren't you home more? We should go to space. Yeah. No, and you're 100% right.

Starting point is 01:17:16 Not giving lower. Laura Dern, you know, a really juicy character. It's just a huge mistake. Yeah, she's Laura Dern. She's a queen. Queen. Can I jump in here? I have an answer for this one.

Starting point is 01:17:27 Okay. Who do you hate? I would immediately fire. Snap up. Joan Smith's like nerd husband who just lets Ray Crock like completely ogle his wife in front of him at the dinner scene. I mean, Ray Crock should have been smacked there. And that guy is just, what a loser.

Starting point is 01:17:45 I would fire him in two seconds. with her. Yeah. I mean, that's an instant toss. He's just ogling her. Like, and he's like, that's my wife, dude.

Starting point is 01:17:52 And he's like, yeah, I don't care. I mean, maybe you grab him by the belt. Actor Patrick Wilson. I know, yeah, I know it's Patrick Wilson. Yeah, yeah.

Starting point is 01:17:59 That was just treating, who were you firing? I imagine treating Aquaman's brother that way. Uh, let's see, who would, who would I fire?

Starting point is 01:18:06 That's the, oh, all of the hoodlum teenagers. Get them out of there. None of these hudlem teenagers can hang around. Okay, next one, Scarface, push it to the limit award

Starting point is 01:18:14 for the best money-making montage. Oh, there's a few good ones in here. There are some good ones in here. So in the film, there's the montage when they're on the tennis court. I can think of four montages right now in the film that are all like... But there's a tennis court one, right? That would be considered a montage.

Starting point is 01:18:32 Yes, yes. I love that because that's the product market fit tennis court montage. Operational excellence, yeah. Yeah. Yeah, I like that one. There's another good one where it's where they're opening up all of the McDonald's and you just get those lower thirds of like each new location as it goes up and they do a really good job of I'm assuming it was probably one plot and they would just build out a few different looks to get to make it look like it was different McDonald's locations. I'm sure they didn't build like five whole old school McDonald's. But they shoot it. They're very clever. It definitely does not look like the same location over and over again. I love the one where he's pitching. He's at like the temple. He's at the synagogue. He's at the mosque. He's at the church. And he's like Mazel tov. He's like doing the difference.

Starting point is 01:19:14 VFA. Make me part of your tribe. Yes. Yeah, yeah, yeah. I love that one. That's pretty great, actually. Yeah, these are good ones. Yeah, because he's even peppering in Yiddish phrases.

Starting point is 01:19:25 Exactly. That's what I'm saying. He thinks he's thankful to be at their misbuchar or whatever. Yes. Yeah. All right, that's good. The next one, the Travis Award for Biggest Force of Nature. We are going to dominate every city that we go into.

Starting point is 01:19:39 I mean, this one's, you got a, right? There's no, there's no comparison. Yeah, there's no other answer. this, like, Croc, yeah. I mean, that's an interesting that you call it the Travis Award, because if you look, in the case of Uber, most people felt that he went to two-rayed crock, perhaps, right, and pushed it too hard, is that always been the criticism that he was going too hard, too fast, bending, breaking, whatever your interpretation of it, you know, of breaking the rules around who gets to, you know, give people a ride from point A to point B, and then you bring in somebody like, you know, Dara. And so, you know, some, you know, someone like Dara wants it to grow, wants it to be profitable, but does care about maybe not knocking as many things over. And so that's like the balance between the two. But yeah, it's right.

Starting point is 01:20:24 Got to be. 100%. All right. Any ideas for the next one? Jason, you mentioned social network. Ron? Man. Are you on board for that?

Starting point is 01:20:30 Do you have any other ideas? Oh, oh, for our next episode? I mean, I think social network makes a ton of sense. Moneyball. Moneyball would be the other one, I would say, is an interesting movie that still has a lot of like fans and is part of the sort of discourse people talk about a lot. I think that would be... It's fun too because it's not directly business, right? It's baseball thinking about, but thinking about it anecdotically like you would operating a business. How come there's no business bio

Starting point is 01:20:57 of Oprah? Why is there no movie about Oprah's career? Oh, I mean, probably when she gets a little old. I think she's still too in the public eye. Like, you need to wait a few more years for her to be less present and then you do the Oprah move. You know, how about I was Fern, private parts is a pretty good business movie. It might not have a knuck to it, but it is a... That's an interesting one. There was, it's on Prime Video now. There is a really good movie called The Burial that came out this year with Jamie Fox and Tommy Lee Jones, based on a real lawsuit from the 90s where a small mortuary owner took on like one of these huge funeral service conglomerates in court.

Starting point is 01:21:41 and Jamie Fox plays this kind of ambulance chasing TV defense lawyer who ends up representing the small business. Tommy Lee Jones is the owner of the small business. Really well done, like kind of a throwback courtroom drama, but really well done. And it does touch on a lot of the kinds of, you know, like David versus Goliath kind of stories. Like it might be, it's an interesting one to check out as well. If boiler room comes to mind, Moneyball comes to mind. The big short would be iconic.

Starting point is 01:22:09 Did I see margin call on here? that's a good one too. Yeah. I mean, that's an indie about the financial crisis. I almost feel like the big short is a bad one because it kind of does that to itself in the movie, right? They have those cutaways where they're like explaining everything. Yeah,

Starting point is 01:22:25 I almost feel like margin call is the more interesting take that fewer people have seen. Margin call is like amazing. 48 hours behind the scenes at Lehman Brothers, like the day that their analysts figured out that the entire market was about to collapse. I think it's actually Goldman, Because Goldman was the one who sold and survived. Lehman was the one that went under. You're right.

Starting point is 01:22:44 It's Goldman. Yeah, it's amazing. Jeremy Irons, greatest movie speech between me over. Jeremy Irons, Zachary Kintow. Incredible, yeah. The goal of this is to get business lessons out of it. And this one had so many business lessons. Yeah.

Starting point is 01:22:55 I mean, we could go like totally off the wall has a lot of good ones. That's why I think money balls got a lot of business lessons. Yeah. What is Jeremy Irons say? It's you can either be... There's three ways to get ahead in this business. You can be first. You can be the smartest or you can cheat.

Starting point is 01:23:10 We don't cheat. And I'd like to think we have a lot of smart people in this room, but it's a hell of a lot easier to be first. That's like the big thing when he decides to sell. It's amazing. All right. This has been amazing. Great job, Lon. Our Twitter handle, our X handle is TWA startups.

Starting point is 01:23:24 And let us know which business breakdown you want next.

This Week in Startups - Business Breakdowns: “The Founder” Ray Kroc and the Story of McDonalds | E1872

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