Part A: Entrepreneurship, Conflict Management & Ethics
1. A summary of the storyline and context of the film:
The Founder is a film based on true events that took place when McDonalds opened its first store in San Bernardino, California in the 1950’s. The film follows Raymond Kroc –played by Michael Keaton- and how he finds success in franchising the McDonalds fast food chain.
The film introduces Ray Kroc by portraying him as a failing salesman selling multi-mixers to make milkshakes. The film shows that Ray Kroc craves something more than just selling Milkshake mixers and waiting for carhops to give him the wrong order 30 minutes later at drive-ins.
Ray Kroc meets two brothers, Richard and Maurice McDonald, who purchase 8 multi-mixers from him. The McDonald brothers have developed a fast food restaurant that provides quick deliveries of milkshakes, hamburgers and French fries to customers. Ray Kroc suggests the idea of McDonalds becoming a franchise but the brothers have tried this and seen it fail due to inconsistent products.
Ray Kroc takes on the way he thinks McDonalds should be franchised and he falls into a cycle of promoting the idea to his friends that are retired, but after he saw the product becoming inconsistent; so he posed the idea to younger, struggling couples.
Ray Kroc made the McDonalds franchises successful and that resulted in him being sought after; which he boasts about to his wife Ethel until the expenses are tallied and he sees that the owners are encountering higher, unexpected costs, particularly from the ice cream and refrigeration, so he asks the McDonald brothers if they could review his contract, he is denied.
Ray is called to the bank as his mortgage is past due, but this is overheard by Harry Sonneborn, a financial consultant for Tastee-Freez, who requests to review Ray’s books. Sonneborn realizes that the real profit opportunity is in providing real estate to the franchisees, which will not only provide a revenue stream, but give Ray leverage over his franchisees and the McDonald brothers.
Ray incorporates a new company, Franchise Realty Corporation, and attracts new investors. This move upsets the brothers and emboldens Ray: he increasingly defies them by circumventing their authority and providing powdered milkshakes to all franchisees. Ray also divorces Ethel, she gets all his assets except any shares in his business.
Ray renames his company to The McDonald’s Corporation and demands to be released from his contract and buy the brothers out, the news of which sends Mac into diabetic shock. Ray visits him in the hospital and offers a blank check to settle their business.
The brothers agree to a $2.7 million lump sum payment, ownership of their original restaurant in San Bernardino, and a 1% annual royalty. The McDonald bothers are forced to take their name off the San Bernardino restaurant and Ray opens a new McDonald’s franchise across the road from the original restaurant to put the brothers out of business.
The film closes in 1970 with Ray preparing for a speech in which he praises himself for his success in his mansion with his new wife, Joan. The epilogue reveals that the brothers were never paid their royalties which could have been approximately $100 million a year.
2. Detailed review and opinion on the film:
2.1.The entrepreneurial successes and shortfalls of the McDonald Brothers and ray Kroc:
Curiosity: Curiosity is an important characteristic to get new ideas. Due to Ray Kroc’s curiosity to investigate the business that ordered 6 multi-milkshake mixers from him, he was able to hear the McDonald’s story. Therefore Ray Kroc’s curiosity is an entrepreneurial success.
To be successful, an entrepreneur must be able to deconstruct and reinvent his or her business to ensure that the business is satisfying the needs of customers efficiently to make a profit. The McDonald brothers where able to recreate their diner so that it would enable them to deliver food faster, with a high-quality efficiently. The brothers were able to deconstruct the traditional diner, they did this when they drew the layout of the kitchen on the tennis court multiple times. Once the model was perfected, the layout was designed to fit the kitchen with custom utensils which ensured high-quality food. This is a success for the McDonald bothers on their entrepreneurial discovery.
In order for an entrepreneur to be successful he must be competitive. The McDonald brothers where a competitor in the fast food industry of the 1950’s because they had an idea that no one else had. Due to the uniqueness of their idea, they were able to hold a competitive advantage over drive-in diners of the time. The brothers wanted to maintain their competitive edge by not dropping the standard of food they were producing by franchising the business. This made the McDonald brothers successful because of how they conducted the business and their morals of what they wanted the McDonald’s name to be.
Negotiate contracts carefully: a well negotiated contract can create a defence and add to a business’s competitive advantage. Initially, Ray Kroc had agreed to a complex contract that stipulated that all decisions had to go through the McDonald brothers. However, instead of putting this down on paper that the deal was 1% royalty to the McDonald brothers. Ray Kroc offered the brothers a handshake deal on this term. The McDonald brothers failed to see that the handshake deal would put them at a disadvantage because they would lose that part of the deal. Due to how badly this deal was conducted, this is seen as a shortfall on the McDonald brother’s side because of their negligence in not understanding what was required for the deal to be successful.
To be successful, an entrepreneur must select the right business partners. The partners should provide some form of value to the business. To expand McDonald’s, Ray Kroc wanted to have multiple franchise owners who would follow his guidelines of discipline, automation and standards. The first set of franchisees he selected were rich and had their own way of thinking which made it difficult for Ray Kroc to make them implement things in their branches that he wanted. Eventually, he realised that if he selected the right individuals, they would follow what he wanted; he successfully learnt that if he selected hard-working couples from the middle-class he would have franchises that followed his guidelines.
2.2.The Professionalisms, ethics and effective business practice scenarios in the film:
It was wrong of Ray Kroc to want to change the milkshake formula and make the milkshakes from powder but he was trying to cut the cost of refrigeration to stop the business from going into debt. What Ray Kroc did was try to undermine the McDonald Brothers by making the franchises stop using ice cream to make milkshakes because it was very expensive to pay for the storage of the ice cream, so he asked the franchises to change over to the powder formula. However, Ray was trying to prevent debt that he couldn’t afford due to the percent of what he earned through every franchise. This is questions whether or not the McDonald Brothers were fair in what they paid Ray Kroc, thus questioning whether Ray Kroc was ethical when he tried to implement powdered milkshakes.
The handshake deal. The handshake deal is a scenario that questions the ethical intentions of Ray Kroc and whether what he did was just towards the McDonald Brothers. Long term, Ray Kroc robbed the McDonald brothers of their royalty which could have amounted to possible millions today. However, it is debateable that if Ray Kroc had not made that handshake deal, McDonald’s would not be where it is today.
The next point questions professionalism and ethics. Ray Kroc tells Joan Smith that he founded McDonalds, which he didn’t. It was unethical because ray Kroc is lying and misleading the Smiths’ into what the will get when they become a franchise of the McDonalds brand. The lie also questions Ray Kroc’s whether or not Ray Kroc has integrity and is trustworthy.
In the film, one of the franchises Ray establishes loses its way and starts selling fried chicken. This is not an effective business practice because it could have changed the way customers thought of the brand and what the brand had to offer. The franchisee was trying to cater to its customers by offering them what they wanted, fried chicken. Perhaps the franchisee thought that he would make a higher profit by offering customer what they wanted.
When Ray Kroc opens his new business, franchise realty. He makes a suspicious move because he threatens the contract that he has with McDonald brothers. The move gives Ray the courage to defy the brothers’ authority. This is an example of and unethical business practice because Ray put his contract with the brothers at risk when he did this as he would be cutting them out of some money. It can be debated that Ray was looking out for himself and his franchisees by owning the land instead of renting it.
2.3.The skills used to manage conflict in the film:
The accommodating approach: The McDonald brothers used this approach at conflict management with Ray Kroc when they let him have his way. The brothers should not have let Ray Kroc have his way at the time because it led to him taking advantage of them. Instead, they should have applied a more cooperating approach to satisfy the demands of both parties and this would have showed Ray that they were willing to listen to what he had to say.
The competing method of conflict management is seen when Ray Kroc confronts one the chains that starts selling fried chicken instead of hamburgers. This is possibly the best way that the situation could have been handled because had Ray taken any other approach, other franchisees would have made their own changes to their stores and Ray would be overrun by his franchisees.
When Ray Kroc asked the McDonald brothers to review his contact and he was denied, the McDonald Brothers took an approach that avoided conflict. This was not the most effective way to handle the situation as it resulted in defiance from Ray. The McDonald brothers should have taken a more compromising approach as it would have ensured that both parties would have been satisfied with the results through a common middle ground.
The conflict of the blank cheque. When Ray Kroc gives the McDonald brothers a blank cheque, he challenges them. The McDonald brothers should have adopted a competing method of conflict management as it could have helped them earn their 1% royalty if they had. Instead the McDonald brothers chose to avoid conflict and this gave Ray the upper hand and he did a gentleman’s agreement.
Nearing the end of the film, the McDonald brothers are forced to remove their name from the San Bernardino store while Ray Kroc opens a McDonalds opposite the brothers’ store. The McDonald brothers were unable to compete with the store opposite them and so they avoided conflict. This could have been the best approach at the time because the brothers would have been tired of seeing Ray Kroc and so they gave up. They should have reinvented themselves and taken a competing approach towards the store on the other side of the road.