McDonald's generated total revenue of 23.22 billion U.S. dollars in 2021. It is a name that is most recognizable to everyone in the world. That is why I decided to start this series by talking about the franchise's history.

Franchising

Ray Kroc tried to convince the McDonalds brothers, Richard and Maurice, with the idea of starting a franchise. His goal was simple, the more restaurants that would open with McDonald's name, the more milkshake machines he will sell. He also saw potential with the McDonald's restaurant and how it will benefit from franchising.

How It Would Work

Ray Kroc would seek out interested people in starting their own restaurants under the McDonald's name. They would open their own restaurants and follow the formula exactly. In exchange for that, McDonald's would get paid 1.9% of the annual profit with Ray Kroc making 1.4 out of that 1.9% Ray Kroc supervises all the restaurants to make sure they have the same design, quality, and menu.

Ray Kroc's Problem

Ray Kroc had a problem when it comes to how much money he was making in comparison with his effort. But, he was able to overlook that in exchange for him opening his own restaurant under the McDonald's name in Chicago.

After constructing the restaurant out of his own pocket, Ray Kroc found out that the McDonald's brothers have already sold their franchise rights in Chicago. Ray Kroc got angry with the brothers and they severed communication after sending a paper in the mail that said "It's done"

Never Give Up

Instead of giving up, Ray Kroc decided to wait a couple of days and clear the air with the brothers. He even paid 25,000$ to buy the franchise in Chicago again.

Things started to look up after that. However, Ray Kroc saw that he was dealing with idiots who only know how to run a restaurant but nothing outside of that. Ray Kroc continued working to sell franchise rights all over the country, however, no money was convinced that they would profit from making a 15-cent burger, even in the 1950s.

It Was A Hard Job

Ray Kroc suffered a lot to sell those franchise rights around the country. And Ray Kroc went from chasing people to people chasing him for those franchise rights.

However, there were a few problems as with many restaurants

It was hard keeping every restaurant owner from deviating from the original menu and structure of the restaurant
Many people were having problems purchasing the land to construct the restaurant as not many banks were giving out the loans necessary for that.
Some people would open another restaurant by the time the franchise renewal comes around, using the McDonald's reputation to keep interested in their own brand.

Ray Kroc was obsessed with expansion and was unable to believe how so many people weren't seeing the potential he was seeing. Still, he was able to increase the number of restaurants with the McDonald's name to over 1,000 thousand restaurants eventually.

Harry Sonneborn

This businessman had all the answers Ray Kroc needed to fix his issues. Harry made it clear to Ray Kroc that he wouldn't be able to build an empire with 1.4% of the annual profit on a burger that costs 15 cents. Harry had a genius solution that would make him and Ray Kroc millionaires instead of making others millionaires.

A solution that ended up making McDonald's the chain it is today.

Taking Control And Becoming Landlords

Harry suggested that Ray Kroc starts a company owning lands. The contract between the franchise buyers and McDonald's would dictate that they have to rent the land from that company. That solution did the following.

It will remove the cost of buying land from the franchisees
When people buy the McDonald's name, they will only need to pay the original contract value.
They would rent from that company owned by Ray Kroc
Fully control: Any party that breaks the terms of service would have the contract terminated and the McDonald's name revoked.
Ray Kroc's company would terminate the rent contract as well and take the restaurant since it is on its land.
Franchisees who break the terms of the contract would have lost out on the initial payment and ended up without the restaurant they constructed.
Ray Kroc's company would then be free to rent the land to other franchisees.

The Perfect Solution

This solution ensured full control of the franchise, it also had extra layers. It solved the land issue as Kroc's company had enough credit that make them acceptable in the eyes of the banks for loans. Finally, Kroc was also able to make a profit selling the lands. An all-rounded solution.

Harry Sonneborn's covered everything and it delivered on everything and more. However, there was still one obstacle ahead: The McDonald's brothers and their lack of ambition. That's what we will cover in the next part of this series.