Quick, what business are you in? It sounds silly but a lot of companies don’t know.
McDonald’s is the classic example. In the early 50’s Ray Kroc was selling milkshake machines when he got an order for a 48 head mixer. Figuring that he needed to see for himself what kind of business needed to make 48 shakes at once, he went to California to Dick and Mac McDonald’s hamburger stand. The amount of business they did was eye opening. After a day or two watching, he made them an offer to take the chain national.
He thought he was in the restaurant business. He was wrong. After struggling for a couple years he hooked up with Harry Sonneborn. Sonneborn convinced Kroc that McDonald’s, the national version, was not a restaurant but a real estate company.
The restaurants and food are important and McDonald’s does what every manufacturer does, or should be doing, quick response to the customer via the McDonald’s Spee-Dee system: quality that means that the French fries and everything else is the same in Miami, Milwaukee or Modesto and low prices. Importantly, the low prices are achieved by efficient operations rather than skimping on materials or service.
The food brings the customers in the door and pays the rent. Better food, advertising, locations, image and so on brings more customers in and pays even more rent.
But they are not, repeat, not in the food business. They are in the real estate business.
Once Ray Kroc realized what business they were in, he refocused the company. McDonald’s leased or owned each restaurant and subleased them to the franchisee for the lease cost plus 20% or 5% of the gross, whichever was higher. It is the franchise lease payments, not hamburger sales that puts the money in the till. Today there are 35,000 restaurants worldwide which have sold “Billions and billions” of hamburgers.
Where would McDonald’s be today had Harry Sonneborn not shown Ray Kroc what business he was really in?
Have you thought deeply about what business you are in? That is the business you need to tend to, not necessarily the business you may seem to be in.
And the title, “Donuts to dollars”? It’s a play on the old song that goes “Keep your eye on the donut, not on the hole” The donut is the real business.
Keep your eye on the donut and turn those donuts into dollars.
