Many of you may know that the film “The Founder” was based on a true story set in the 1950’s. It is about an individual named Ray Kroc who succeeded in transforming McDonalds from a small local business in San Bernadino, California into a global franchise empire with more than 37,000 restaurants all over the world and generating more than 20 billion dollars a year.
Yet, many of you may not know the underlying hitherto invaluable lessons in Intellectual Property that can be learned from the film. Without further delay here are 8 Intellectual Property lessons that can be benefited by entrepreneurs from “The Founder”.
- “Not every patent has the potential to be commercialised” –
Before Ray Kroc was fated to meet the McDonalds brothers (Mac and Dick), he was a struggling salesman, trying to sell funny products such as a “wax cup”, “fold a nooks” and a multi mixer that can produce five servings of milks at a time. Your inventions may not be profitable solely by the reason that it has comply with the novelty requirement, unless you had done the marketability and sustainability research. Ironically the Prince Castle Multi Mixer business has led Ray to the McDonalds brothers as he became intrigued by the order of 8 of those mixers at once from the McDonalds.
- “Always safeguard your trade secrets ”
Trade secrets are confidential information that concerns the know-how, recipes, and anything else that gives your business the competitive edge. These trade secrets must be kept safe from prying eyes and from the general public. The Coca-Cola’s recipe is that has been kept in vault for nearly 90 years would be a good case in point. At the start of the film, there was a scene where the McDonalds brothers gave Ray a tour in their kitchen and showcased how the ‘speedy system’ was applied. The McDonald brothers even told Ray the origin of the system where it started from a simulation method used in tennis courts whilst serving a meal in less than a minute, as compared to the other drive-in restaurants who took much longer time to prepare meals for their customers, was their Unique Selling Proposition at that time.
- “Be Courageous to invest in one particular Intellectual Property that you have analysed and calculated the potentials and risk.”
In the film, after convincing the McDonalds brothers to let him lead the effort to develop franchise business for McDonald’s, Ray took a risk in taking a mortgage on his house without his wife’s knowledge in order to invest. He entered into an agreement with McDonalds with condition that any future changes made to the business must be consented by the McDonalds brothers in writing.
- “Strictly standardize your franchise to its full extent”.
In a franchising business, it is imperative that you standardize everything ranging from your restaurant’s image to its services so you can ensure your franchise have only one identity that becomes the forefront of your restaurant’s brand. This increases your business’s brand awareness and invokes brand loyalty among your customers when you ensure that each one of your franchise brings the same quality in both products and services regardless of which franchise your customers visit. In the film, before Ray Kroc took over the franchise business the McDonalds brothers have tried numerously to franchise their business yet every single one of their ventures failed because they could not ensure the franchisee follow their system and bring the same quality for their products and services. When Ray Kroc came and took over the effort, he was merciless and very strict with the franchises in maintaining the same food quality and the cleanliness even though those franchisee were his acquaintances from the Club House.
- “Franchisor must always maintain bargaining power against the Franchisee to maintain the upper hand”.
Even though Ray have opened many McDonalds’ franchises, he was still facing financial difficulties due to his low profit share in his agreement with the McDonalds brothers. It was until Ray met a financial consultant named Harry Sonneborn who incidentally overheard Ray’s financial problem at the bank. Harry advised Ray to conduct a real estate business using his franchises. With that, Franchise Realty Corporation was born and soon Ray had owned each one of the property where his franchises were located on. This move not only solved Ray’s financial problems but it gives Ray more bargaining power to control the franchises in maintaining their qualities. The McDonalds brothers lost their bargaining power and was unable to keep Ray in check even when Ray had made business decisions that was against their choices and consent, for instance when he used milk powders rather than the usual store used milk in order to save costs on storage and refrigeration, and the last but not least, the establishment of the Franchise Realty Corporation itself.
- “Know the actual value of your Intellectual Property”.
What the McDonalds brothers created was groundbreaking. Their fast food restaurant system was revolutionary to say the least but they failed to optimise the full potential of their intellectual property and they gave up easily every single time they faced any obstacles. Ray Kroc on the other hand, was determined and he had a clear vision on what he wanted to achieve with the McDonalds intellectual property. If you don’t do something good fast enough, somebody else will!
- “When you do Intellectual Property dealing, every terms and conditions must be expressed clearly and in detail.”
After the McDonalds could not handle Ray anymore, to the extent that Mac was admitted into the hospital due to diabetic shock, the McDonald brothers finally agreed to sell off the entirety of their business to Ray for the price of 2.7 Million dollars and 1% royalty. Ray initially agreed with the terms however only later on the signing day, he informed the brothers he was not willing to include the 1% royalty as a term in the agreement and he proposed to shake on it with the gentlemen’s handshake. As we may not be surprised, Ray never did honor the agreement up to this day where the McDonald brothers were denied from the 1% royalty estimating to 100 million dollars a year.
- “A suitable and catchy trademark can impact on your business tremendously.”
I believe there’s a soul in every name, and when it is perfectly used as a trademark for a just-right business, it will give the business a leverage. I will let the scene on the conversation of Ray and Dick in the men’s room after Ray had successfully signed and acquired the whole McDonald’s business from the McDonalds brothers to illustrate this most vital lesson:
Dick: Let me ask you one thing. Something that I never understood.
Dick: That day we met, we gave you the tour. We showed you everything. The whole system. All of our secrets. We are an open book. So, why didn’t you just..
Ray: Steal it? If I start my own business using all the ideas, it will fail.
Dick: How do you know?
Ray: I am not the only one who got the kitchen tour. You must have invited a lot of people back there. How many of them succeed?
Dick: Once people started their restaurant.
Ray: As big as McDonald’s? Of course not. No one ever had. No one ever will. Because they are all lacked one thing that makes McDonald’s special.
Dick: Which is?
Ray: (giggling while shaking his head unbelievably) Even you don’t know what it is.
Dick: Enlighten me.
Ray: It’s not just the system, Dick. It’s the NAME! That glorious name. McDonald’s. I remember the first time I saw that name. It’s love at the first sight. I knew right then and there, I had to have it. And now I do (grinning in satisfaction).
Dick: You don’t have it.
Ray: You sure about that? Bye, Dick.