When Harry Sonneborn, who would eventually become the first President and Chief Executive of the McDonald’s corporation, met Ray Kroc; Founder of the McDonald’s corporation, one can say it was one of those serendipity meets opportunity moments.
There is a little-known fact that Ray Kroc did not actually create the concept of McDonald’s. It was founded in the American state of California by Richard and Maurice McDonalds. These two brothers operated what was possibly known as the first fast-food restaurant with their revolutionary speedy system. Ray Kroc was a milkshake mixer salesman for Prince Castle, a foodservice equipment manufacturer who sold these mixers to the McDonald brothers at their restaurant in California. Having been so impressed with what he saw the brothers doing, he proposed going into business with them by leading the charge to franchise out their restaurants.
Business was good initially for the McDonalds brothers but not so good for Ray Kroc because he was not benefitting from the existing business model. After going to the bank to secure an extension on his loan, he met Harry J Sonneborn, a businessman who overhead Ray Kroc’s troubles and decided to offer him some advice on turning things around.
During that chance encounter after diagnosing the existing business model and contract Ray Kroc was under with the McDonald brothers, Harry Sonneborn discovered that the franchise model where the franchise owners find a land, takes out a construction loan from the McDonalds business and builds a new location while McDonald’s provides the system, training, and operational know-how presented a massive opportunity to redefine the business Ray Kroc was in.
The famous quote attributed to Harry Sonneborn when he said to Ray Kroc, “you don’t realise what business you are in. You are not in the burger business, you are in the real estate business” was not only a turning point in Ray Kroc’s personal and professional life but also the creation of the McDonalds organisation as we know it today.
What Harry Sonneborn was proposing is how organisations ultimately become multinational conglomerates. They do it by understanding the fundamental business that they operate. McDonald’s did not become McDonald’s by selling billions of Hamburgers. They became McDonald’s by buying lands and eventually leasing them to the franchise owners, making them one of the largest landowners on the planet.
However, the moral of the story is how businesses need to understand the actual business they are in versus what they might believe is their actual business. A classic example of this is mostly in the service-based industry. Amazon, which started as an online bookstore delivery business, has grown to be one of the largest marketplaces online. So, if you were to ask Amazon what business they are in, the answer would not be online retail; the answer would be “the logistics business”. The reason why that is follows the same principle of the McDonalds Corporation. Amazon does not own any of the products they sell. They own the transportation delivery vehicles, including a fleet of aeroplanes and warehouses from where they ship merchandise. That is their business.
As a business owner/entrepreneur or an employee in an organisation, it is very important to dissect what business you are in because it informs all stakeholders where time and money shall be invested to achieve profitable returns.
In Nigeria, for example, especially in the service-based industry, it is quite common to get confused about what business these organisations are running. Business owners and custodians spend a lot of time focusing on products they are pushing out to clients and not enough time on their core focus, marketing. Think about it. Most service-based companies depend on scale. You achieve scale through an awareness of your company in the minds of consumers. That awareness is created through consistent massive action marketing campaigns. What does it cost to achieve that level of marketing? A nice chunk of operating expenses. So, I ask again for those in the service and content industry; what business are you in?
Going through this discovery journey for any working professional is the nuts and bolts of discovering what works from a business model sustainability perspective. Truly understanding what business you are in allows you to make the right investments to position your organisation for future greatness with the products and services you consistently deliver to your clients.
Written by:
Nwaji Jibunoh
Head of Training
