Lessons from ‘The Founder’

After watching ‘The Founder,’ I am scared of franchising,” says Tatang (not his real name), 57, who started their family food business 15 years ago. “Ray Kroc betrayed the McDonald brothers, who created McDo!”

“But our dream is to expand,” says son Bunso, 34, his heir. “Our friends want to join us. Our outlets have increased, but we can grow faster with good franchisees.”

“The key word is ‘good’,” I say. “Whatever its origins, McDo is a global behemoth largely through franchising.”

“How can we ensure that franchisees won’t stab us in the back?” asks Tatang.

“There are no guarantees, but make things crystal clear,” I say. “The McDonalds were too trusting, and it’s hard to believe, but they gave Kroc franchise rights to the US for a pittance.”

“They don’t have a head for business!” says Tatang.

“Before Kroc, they had tried to expand their one branch, and failed. Perhaps they didn’t believe Kroc would succeed, perhaps they were just naïve, but they underestimated Kroc’s creativity, persistence, ruthlessness.”

“Our lawyers will definitely look at all MOAs,” says Bunso. “What else can we do?”

“You can’t please everyone, but try to keep franchisees relatively content. From the outset, make the contracts as fair as can be, with reasonable profits for all.”

“Kroc felt his original contract was unfair,” says Bunso. “He got too little profit despite his hard work.”

“What is fair to one party may be unjust to the other,” I say. “Conduct due diligence, of course, on prospective franchisees, but dialogue honestly with them. What are your expectations? Theirs? Are these doable? Are potential returns favorable to all parties?”

“The initial meetings are important, so don’t delegate them to your non-family employees. You are associated with your brand, so franchisees would be thrilled to meet you. For day to day matters, they can deal with your professionals, but meeting franchisees regularly, even once or twice a year, signals that you care for them, that you treat them like family. But let’s go back to the planning stage.”

“Let’s dream big!” says Bunso. “We can do it, dad!”

“What if franchisees do not follow us?” asks Tatang. “Kroc took shortcuts, using powder instead of real milk for the shakes. I worry that franchisees will not care about quality like we do, and our reputation will be ruined.”

“That’s in the past,” says Bunso. “Today franchisees follow strict guidelines issued by the parent company. They welcome these guidelines, which is why they want our franchise. People respect our business and our product quality.”

“Standard guidelines often make it easier for franchisees to profit from a solid brand rather than branching out on their own,” I agree with Bunso. “Look at the successful franchisees of established companies like Jollibee.”

“In Kroc’s case, he was still trying to establish the McDo brand,” I continue, “and he felt stifled by what he perceived as the lack of innovation by the McDonalds. I admire the brothers’ emphasis on quality, but things might have worked out better if they had chosen their battles more carefully. If they had listened to Kroc and adapted some of his better ideas, he might have not rebelled. We’ll never know.”

“Are you siding with Kroc?” asks Tatang.

“I am disappointed at Kroc’s lust for power, his horrible treatment of the McDonalds,” I say. “But growth cannot be achieved without innovation and flexibility. Hard work may not be enough. To compete in today’s world, you have to be open to new ideas and techniques, while still holding on to the founder’s values.”

Queena N. Lee-Chua is on the board of the Ateneo Family Business Center. Get her book “Successful Family Businesses” (e-mail [email protected]). Contact her at [email protected].