Believe it or not, you’re not in the business you think you’re in. You may be following your business model, but it’s not what you’re actually selling. Alex Mandossia dives into the history of the McDonald’s empire and how it went from being a simple chain of restaurants to being the corporation it is today. In this episode, you will discover that your customers are buying the emotion you’re selling, not just the products itself. You will also learn why it’s easier to change your market segment when it’s no longer working.
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What Business Are You Really In?
In this episode, you’ll learn three key insights that are critical to making you a highly-skilled ethical influencer. You’ll discover to know the specific emotion you are selling to your target audience or niche, the emotion not the product.
Next, you’ll discover the true purpose of the business you’re in. I’ll be teaching you the principle of precession which was first introduced to me by my root mentor, the great Buckminster Fuller. Third, you’ll learn why it’s easier to change a market segment than to change your business model.
The Humble Beginnings Of Mcdonald’s
This is a story of Ray Kroc’s ascension and secret to building the McDonald’s Empire. The McDonald’s family moved from Manchester, New Hampshire to Hollywood, California in the late 1930s. They were the brothers Richard and Maurice McDonald, also known as Dick and Mac. They began working as a set of movers and handyman at Motion Picture Studios in the Hollywood area. In 1937, their father Patrick McDonald opened the Airdome.
The Airdome was a food stand where they first cut their teeth with fast food. It was on Huntington Drive on Route 66 near the Monrovia Airport in Monrovia, California. They had hotdogs, which was one of the first items sold there. Hamburgers were later added to the menu at a cost of $0.10 and with all you can drink orange juice at $0.05. Remember, this is the 1930s.
In 1940, Maurice and Richard moved the entire building 40 miles or 64 kilometers east to West 14th and 1398 East Street in San Bernardino, California. The restaurant was renamed McDonald’s Bar-B-Que. It had 25 menu items, mostly were barbecue items. In October 1948 after the McDonald’s brothers realized that most of their profits came from selling hamburgers, they closed down their successful carhop drive-in.
That’s where people would park their car and then you would get waited on by waiters and waitresses. That’s what they call them back then, they call them servers now. They established this streamlined system with a simple menu. It consisted of hamburgers, cheeseburgers, potato chips, coffee, soft drinks and apple pie. Later they would have French fries.
This is important because many times, variety is not the most streamlined and profitable thing a business can do. By getting rid of what doesn’t work opens up to what does work. It’s like pruning a tree. You have to kill a few branches in order for the tree to grow tall and strong. After the first year, potato chips and pie were swapped out for French fries and milkshakes. The carhops were eliminated because there was a streamlined and would take too much time.
It made the new restaurant a self-service operation which allowed them to sell more food. Richard and Maurice took great care in setting up their kitchen. After all, they were brothers so they got along. They were optimizers. They learned how to optimize the whole process. Their kitchen was like an assembly line to ensure maximum efficiency. Efficiency is different than effectiveness.
Peter Drucker, who I got to interview before his death, is a great business philosopher for many years. He said, “Efficiency is doing things right, effectiveness is doing the right things.” It wouldn’t be until they met Ray Kroc that they would be effective, but they were definitely efficient in that one location. They set up this kitchen like an assembly line, almost like the Amazon.com of fast food. The restaurant’s name was changed again and this time they simply put McDonald’s.
[bctt tweet=”Variety is not the most streamlined and profitable thing a business can do. Getting rid of what doesn’t work opens up to what does work.” username=”AlexMandossian”]
It reopened on a historic day, December 12, 1948. In April 1952, the brothers decided that they needed an entirely new building in order to achieve two specific goals. The first was further efficiency of improvements, like the assembly line in the kitchen. The other was more eye-catching of an appearance where they would be a sit-down restaurant to fast food chain focused food. That would increase sales volume. People could eat there and not just go back to their cars.
Now, that doesn’t seem like much but back then it was innovative. Other companies followed McDonald’s strategies to turn their own restaurants into fast food establishments. This was during the 1950s. Burger King is one and White Castle, mostly seen on the East Coast, was another.
The bottom line is once you have a documented system, it’s documented. If an employee leaves you, the other employee can take that documentation model and learn a lot faster. It became easier to expand its operation.
Ray Kroc’s Role In The Rise Of Mcdonald’s Empire
In 1954, Ray Kroc came into the picture. That was an important year. This is a guy who was a milkshake-mixer salesperson. He sold milkshake-mixers to fast-food restaurants. Somehow, he learned that the McDonald’s brothers were using eight of his machines in their San Bernardino restaurant. Typically, most restaurants would use just one machine. The McDonald’s brothers had some business formula which was a ticket to success and they were selling eight times as many milkshakes.
Kroc suggested that they franchised their restaurants after they got to know them. He wanted to franchise it throughout the United States. The brothers knew efficiency and optimization. They didn’t know effectiveness or profit and revenue as much as Ray had an idea about. Nevertheless, the self-serve approach could succeed in other parts of the country. The biggest skepticism came from the McDonald’s brothers about the colder climates and the risk of making it a national venture.
Once you start spreading out, your optimization is put to the test. Grasping the potential for scaling a chain of restaurants, that means building it out so it’s duplicable, Kroc offered to work as a franchising agent for a cut of the profits. He said, “You have no risk but I’ll expand it. I’ll get a piece of everything I do.” It was smart. In 1955, he founded the McDonald’s System Inc., later called the McDonald’s Corporation. He opened its first new restaurant in Des Plaines, Illinois where Ray Kroc was originally from.
By 1959, McDonald’s had opened restaurant number 100. Regardless of having 100 restaurants, Kroc still wasn’t reaping significant profits because they were expanding at the rate of their profit. Revenue and profit are not the same things. When you grow, you’ll know that. In 1961, Ray Kroc stumbled upon his big idea. That big idea defines the business and what McDonald’s is all about. It’s the true business they’re in.
He set up a system in which the company purchased and leased the land to the new franchisees. They were the franchisor and he was selling to franchisees. They were masquerading as a hamburger franchise, but Kroc was really in the real estate business. By leasing each franchisee location to the people who paid a franchise fee for the system that the McDonald’s brothers created, he made profits no matter what. It was like arbitrage.
No matter how well hamburgers sold, the franchisor always made money. McDonald’s franchisees make money by utilizing the McDonald’s business system. The McDonald’s Corporation makes its real money in real estate acquisitions for each McDonald’s location. The company’s unique ability is to research and secure ideal locations that practically guarantee all the foot traffic retailers would constantly dream of.
If you want a good model to follow, look where McDonald’s is going to open. You already know that tens of thousands of dollars, if not hundreds of thousands of dollars of research has already been done for that location.
In 2018, McDonald’s commemorated the 50th anniversary of the Big Mac. You’ll find them in 121 countries. There are over 37,000 restaurants and they serve nearly 70 million customers each and every day. Again, what business are you in? McDonald’s is not in the hamburger business. They are in the real-estate business. They promote fast food, but they profit from the lease payments of their franchisees. The company makes money from franchise fees and franchise royalties.
The true value of the McDonald’s Corporation stems from their unique ability of researching and securing the high foot traffic real estate locations throughout the world that retailers have always dreamed of. If you’re in the retail business, your best strategy is to find out where the next McDonald’s will open in a city near you. You can be assured that they have done the research for you. They already know the importance of location, which is the favorite word of any real estate broker.
You will be more profitable and sustainable in the long run if you follow McDonald’s lead. This is an interesting story for many reasons because Ray Kroc had a lot of challenges in paying bills. If you watch the movie that was published and has been out for quite some time, there are different adaptations of what Ray Kroc was all about. Some people called him a tyrant; other people called him a genius. I’ve never met the man so I have no idea.
I do know that you’re not in the business that you think you’re in. Remember from a previous episode, you win the heart first and then the head will follow. For example, if you’re about to launch something, chances are you’re selling the emotion of hope. If you’re in the coaching or consulting business, you’re selling the emotion of confidence. Hope is not knowing how to get from point A to point B, it’s simply acknowledging that point B exists.
What Are You Really Selling?
Confidence is knowing how to get from point A to point B and that’s where coaching comes in. In sales, you’re mostly selling hope. When you’re fulfilling that sale, you’re selling confidence. What about a carwash? My good friend, Keith Cunningham who’s out of Austin, had many profitable car washes. He is not in the business of getting rid of bugs and dirt from windows and on the hoods of cars. He’s in the self-esteem business. A clean car means self-esteem. That’s the emotion car washes sell.
What about certification? If you have a Bachelor’s degree, a Master’s degree or a PhD, you’re getting certified. Whether you’re a dentist, a doctor, or you have some kind of certification with coaching consulting, the emotion is status. That’s a strong emotion to sell and it has a lot of pulling power. A life insurance or a home, you’re selling the emotion of security.
[bctt tweet=”Revenue and profit are not the same things. When your business grows, you’ll know that.” username=”AlexMandossian”]
If I were selling a dog, I would be selling loyalty. That’s what a dog is. If I’m selling independence, I would be selling a cat. Cat people and dog people are two different people. We have a Guerrilla Business online mentoring program and what we’re selling is freedom. It’s not just financial freedom, which is money freedom, but time freedom. We do well by selling the emotion first and then fulfilling it by showing them how to do it.
Principle Of Precession
One thing about McDonald’s that I want you to be aware of, and I learned this from my root mentor, my root Lama as the Tibetans would call it, Buckminster Fuller. He told a story about the honeybee. There is a principle of precession. It’s a term often used in physics and gravitational bodies. It’s complicated when you look at planetary objects and other terms in physics and other objects. The honeybee is the best example I can think of. The honeybee has a purpose to get honey. How does the honeybee do that?
They go directly toward a flower, extract nectar and bring it back to the hive. The queen bee is waiting for all those worker bees. That’s the purpose of the honeybee. What’s the honeybee’s true purpose? The true purpose isn’t the direct approach to the flower. It’s about a ninety-degree byproduct of what happens. When the honeybee goes to extract that nectar, the pollen from the flower, as a result of the honeybee pulling it out, is dumped to the ground.
All of a sudden, the wind blows and other flowers are showing up all over the place. How do flowers multiply? How do flowers have sex? They don’t know. What do honeybees do to make flowers grow? They don’t know either. The true purpose of a honeybee is to make more flowers and build this ecosystem. If the honeybee were extinct, you and I as human beings would also be extinct. Look it up on Google, I’m not stretching the truth.
I believe you find your purpose. The purpose is the business you’re in, but your true purpose finds you. That’s the business you think that you’re in once you find out what that is. It has a lot to do with the emotion you’re selling. Many people get frustrated because they ask, “What’s my true purpose?” My response is, “It doesn’t matter. Find your purpose. Your true purpose will find you.” You’ve got to do something.
You have to execute. If CEOs don’t execute in Fortune 500 or Fortune 1000 companies, they get fired. You have to have an execution attitude. If you have a revenue mental attitude of generating income so that you can profit, precession will work its way in. There’s one more thing I want to mention because it’s important. It’s a mistake I’ve made over the years.
A friend of mine, Ryan Deiss, who was the CEO of Digital Marketer said something one time at an intensive, a $30,000 Mastermind I belong to called the War Room. He said, “It’s easier to change a market segment than it is to change your business model.” In other words, don’t change the business model you’re in if it’s not working. Change the market segment, meaning the niche that you’re selling to. I know that I and my team are good at high-end funnels.
If the segment I’m going after, such as entrepreneurs in the third world don’t have the means or the capability of paying the premium in fees and tuitions that we’re asking for, why not change that high-end funnel? Turn that business model into selling to another segment such as a franchisor who wants to become an author for the first time. Sell them the concept of a legacy of a self-published book so their franchisees can co-author with them.
It could also be to network marketer with the 10,000 or more downline who’s never been an author. Teach them how to do this same thing with self-published books. It could also be a CEO with over 500 people in the company. Why is that? All of those people that support them can buy a $0.99 Kindle version. That can be an irresistible offer for about ten days on Amazon and beget Amazon bestseller status. It can get over a hundred five-star reviews.
All of a sudden, Jeff Bezos’s algorithm will kick in and your book will show up everywhere. The business model is the high-end funnel. We know how to do that through discovery sessions, intakes, and appointment marketing. If the market segment is not working or gets tired, change the segment and keep the model.
Quick Recap Of This Episode
A quick review at the insights that you and I had rediscovered in this episode. Number one, know the specific emotion you are selling to your target audience. A carwash sells self-esteem, a certification program sells status, and life insurance sells security. Next is to discover the true purpose of your business not by looking for it but by simply knowing what purpose you’re in. Let the power of precession, it’s a universal law, find you.
It will never find you unless you’re serving your purpose and you’re doing the things so that you can observe what’s coming back at you. It’s like the way the honeybee creates more flowers without even knowing what it is doing. It still doesn’t know what it’s doing. Flowers don’t even know what’s happening to them. Through the laws of nature and precession, true purpose finds a way. Finally, I covered why it’s easier to change a market segment than it is a business model.
A segment is just a new population or congregation that you’re ultimately selling to. The biggest mistake I’ve made over the years is I’ve changed the business model because I think it didn’t work. All I had to do is take that unique ability that had taken sometimes a few years to build and change the market segment. Thank you, Ryan Deiss, for reminding me of that truth.
These insights will only work for you if you choose to work them. Make sure you execute what you’ve learned in all of these All Selling Aside episodes, especially this one. If you do, your future will be bigger and brighter. You’ll get to create it on its own terms. My hope is the true purpose that you’ve had will find you.
I request that you go to AllSellingAside.com/iTunes and type in your biggest takeaway or a-ha moment that you experienced during this episode. If you haven’t done so already, please do it because it’ll mean much to me. You can do it in the reviews section of iTunes. After you’re done with the review, iTunes will ask you to rate the episode. I hope I’ve earned five stars from you. Will you do that for me? If you’ve already done this, thank you. I want this show to go higher up on iTunes.
The reviews and the ratings, as well as the subscriptions, will always assist me to get there. You’re serving others who hate to sell. That’s my intention because it’s a public service. I don’t make money from it and I don’t have a sponsor. Go ahead and declare your one big takeaway in the iTunes review section at AllSellingAside.com/iTunes. It’ll take three minutes out of your day but what you declare could provide you a lifetime of learning.
If you’ve already done this, write your big takeaway on an index card, save it and then go back and review. One final gift in honor of the 40th episode of All Selling Aside and that’s complimentary access to my four-part video eCourse series. You can get it at MarketingOnlineMentor.com. We will teach you how to identify your specific market, how to create your message so that it becomes irresistible and how to capitalize on the most lucrative and cost-efficient media sources available to you.
[bctt tweet=”Don’t change the business model you’re in if it’s not working. Rather, change the market segment.” username=”AlexMandossian”]
Market, message, media are the three M’s of marketing. Ethical influence is a term I learned from one of my mentors, Dr. Robert Cialdini, a best-selling author. Ethical influence is within your reach so that you can achieve and even exceed your sales potential.
Sales is fun when you know what to say, when to say it, and how to say it. Do whatever it takes to join me next time because the topic will be Why Proximity is Power. I learned those four words from Tony Robbins, you’re going to love it. I can’t wait for our paths to cross then.