Business Breakdowns: “The Founder” Ray Kroc and the Story of McDonalds |  E1872

SPEAKER_05: So here we are in year 13 of you know, this week and startups are like, I want to do more of these like business breakdowns with one because they're fun for us to do and the audience loves them. So here we are. resiliency is the big takeaway for me grinding it out. And just that understanding of branding from such an early SPEAKER_04: today, we take that for granted. Everybody is we're all personal brands. Everybody thinks in that in those terms, but in 1954, no to be like, you know what those golden arches in every town, you'll be on the road and you'll drive and you'll know what that is. And you'll really, it's going to be consistent everywhere I go McDonald's McDonald's like, Oh, he was way ahead of the curve thinking about how important that would become for Americans. SPEAKER_02: This Week in Startups is brought to you by Curotec. Are you one of those companies that knows you need to be using AI, but you're not even sure where to start? Well, then you need Curotec. They are AI experts, and they're offering twist listeners and AI strategy roadmap tailored to your business for $5,000. That's 50% off the normal cost just for telling them we sent you check out Curotec.com slash twist and get $5,000 off. Northwest registered agent. When starting your business, it's important to use a service that will actually help you. Northwest registered agent is that service. They'll form your company fast, give you the documents you need to open a business bank account, and even provide you with mail scanning and a business address to keep your personal privacy intact. Visit Northwest registered agent.com slash twist to get a 60% discount on your next LLC. And masterworks is the first company allowing investors exposure into the blue chip artwork asset class. Twist listeners can skip the waitlist by going to masterworks.com slash twist. Alright, everybody, welcome back to This Week in Startups. We've SPEAKER_05: got another business breakdown for you today. You may remember Lon Harris and I on Episode 1773. That's the episode number not the year we reviewed an incredible film, Blackberry, and we broke down the major business lessons from it. You went crazy for this. We made clips people went crazy on Tiktok about it. So since we got so much great feedback, Lon and I who are huge fans of cinema decided we would do another one for you here in the holiday season. While you're on your break, you get to dive into the story of Ray Kroc taking over McDonald's. The movie is called The founder. It came out in 2016. Nobody saw it. But Lon and I both love this film. We're going to go through the plot. We're going to pause during the plot to highlight and explain the major business lessons with some real world examples that we as founders and just human beings on planet Earth trying to reconcile entrepreneurship and capitalism and its impact on society and why it's done so many great things. But also, hey, this is a perfect story to talk about the underbelly of capitalism as well the sharp elbows and all that great stuff. And at the end, we'll do some award categories and recommendations like we did last time. Lon and I love movies. I love Lon. He's one of my favorite human beings on the planet. Great to be with you again. So film right now on SPEAKER_04: Amazon Prime freebie. It's actually on the freebie part of Amazon price. So you'll see a few ads that not not to not to cumbersome, but it's there if you want to watch it and for this point on, we're gonna have spoilers. So if you have not yet seen the founder, pause this, go watch the founder. It's on freebie. It's free, free and come back. We're gonna talk about it. You literally can't do better than that. It is free. Spoiler alert. At some point they make the filet of fish. We SPEAKER_04: don't we don't care. That'll be the sequel. We're getting the sequel to the filet of fish. We know no post credit scene where they tell them about the McRib initiative. Right. So give us a SPEAKER_05: quick hit. You're such a fan of films. Give us a quick hit. So who's in this? Who directed it? You know, give us the biography here. Yeah. So this is a guy named john lee hancock, who, who directed he SPEAKER_04: did not write the script. This was a script. I think it was a blacklist script. It was it. You know, the blacklist, they have those like, every year they publish a list of the most popular, the most well liked, unproduced screenplays that were distributed that year. In 2015, I believe, or 2014. This script was one of those ones that was just a guy wrote it on spec based on Ray Kroc's biography, and it was floating out out there looking for a director until john lee hancock came in. He also made the blindside with Sandra Bullock, that Oscar winning film that has since been sort of questioned the veracity of it, saving Mr. Banks that film about Walt Disney making a deal for the rights to Mary Poppins to adapt. Oh, that's actually I was thinking that would be another interesting movie for this segment, because it's also about negotiation, business, making deals and sort of these different parties that had very different takes on the same project and what to do with it. So it's kind of an interesting balance here. And then he just did one called the little things with Jared Leto and Denzel Washington, a serial killer thing years ago. Got it. So he seems to have inspirational and business mixed SPEAKER_05: into his biography or filmography. SPEAKER_04: Yeah, definitely an interest in deal making how sort of business is done and how you know, like kind of the the impact of that on individual lives that are caught up in that sort of system. I think you know, there there are a lot of different sort of films he's made that have kind of takes on that. Michael Keaton obviously stars as Ray Kroc. You also get great character actors Nick Offerman and john carroll Lynch. They play Dick and Mac McDonald, the actual original creators of the very first McDonald's burger stand. Laura Durd plays Ray Crocks wife apple crock and Linda Cardellini plays Joan Smith, who becomes his his next wife. During the course of the film, we also see her perspective Patrick Wilson place her husband, they are early McDonald's franchise owners who have their own kind of way of doing business. So that's kind of the, you know, the long and the short written by Robert D SPEAKER_05: Siegel, who I looked up, he also did two films I very much enjoyed. There's one called big fan. That was with Patton Oswald. That's a very like Sundance II kind of film 500k very dark comedy, but but dark. But yeah, he also did the wrestler or wrote the wrestler. I should say the wrestler. I SPEAKER_04: love that. Yeah, he also interestingly, worked in SPEAKER_05: comedic writing. So he was a senior editor at the onion from 1996 to 1999. And energy from 1999 to 2003. So I thought that was also notable the path of the screenplay writer, you and I are both writers. Mm hmm. But so hard to make movies how when SPEAKER_05: you're a screenplay writer or a director, you work every five years or so. Yeah, something one. I mean, I feel like this is clearly the SPEAKER_04: sort of thing that comes from a veteran screenwriter because it takes so many sort of odd unexpected parents like it's a format that we're very familiar with the like, you know, person made good Horatio Alger rags to riches, the rise of this great brand. I mean, we you know, we had even a ton of those movies this year about the story behind all these famous brands. But this one takes a very different tack where it's like, it's very conflicted about the guy and what he has to do in order to succeed. And it neither completely trashes him and presents him as a monster, nor is it a card geography that presents him as a saint like, great man, usually a biopic, you're going to come down on one side or the other like Ray the Ray Charles movie, great movie, not not. But even when Ray Charles does things we recognize are not good or struggles. It's never like well, Ray Charles wasn't a good guy. It's always like Ray Charles was a great guy. He was a troubled man. He had problems like everybody. This movie I don't think is Ray Kroc was a great guy. He just had troubles. It's like, maybe Ray Kroc wasn't such a great guy. It's kind of asking you to make the decision about what kind of a guy he was and how early in the process did he make the decisions about what he was going to eventually do with this company. So we'll get more into that. But that's a very interesting screen screenwriting thing that I think this movie does that a lot of other movies would not do. SPEAKER_05: And I think the reason is if you were in Hollywood, correct me if I'm wrong, you're going for the biggest box office possible. And if it's a conflicted, complex character, maybe you don't feel as jazzed after watching it, maybe you're not over the moon. Yeah. So it would have been better to just, you know, sugar coat the whole thing and make it like champagne and more exciting love rousing inspirational biopics when it's something SPEAKER_04: that's going to make you feel good and make you feel like, hey, it this guy and we were talking to this is a story about it. You know, he's in his 50s when this story starts. Yes. So there is an angle on this. That's just like, don't give up persistence is key. Even this 52 year old down and his luck guy created McDonald's. There is a take on this story. That's that which would have been more of a crowd pleaser. This is the more sort of like layered thoughtful take on it. I yeah, these are people in the in the final act of their business SPEAKER_05: careers. Like I am I'm 53 now, Ray Kroc was 52. Mac and Dick McDonald were 52 and 45. Yeah, this was a 25 million budget SPEAKER_05: film feels like more probably because of Michael Keaton in the role of Ray Kroc $24 million box office so they broke even hasn't a really strong 81% approval rating on rotten tomatoes. I thought it'd be higher I thought this would be something that the critics would like a lot more than that just overall on a film you thought this was excellent. Great. Where would you put it in your you know, scoring system? I think this is SPEAKER_04: really good. I you know, I think it's a it's definitely above average for a biopic and I think it makes it takes some interesting risks. It takes some interesting chances in exploring Ray Kroc story with a little bit more thoughtfulness. I think there's a more obvious easy version of this movie out there that you could make that this one kind of doesn't go for and I sort of admire that about it. Did you know of this film before SPEAKER_05: I suggested it? Had you seen it? Yeah, I didn't see this in SPEAKER_04: theaters, but I think I saw it. I think there was a little bit of Oscar buzz this year around Keaton. And so when it first hit VOD or home video, I probably would have checked it out to see that that performance. Yeah, how I discovered this as people SPEAKER_05: know, my favorite musician is Mark Knopfler from the band Dire Straits when Dire Straits broke up in the late 90s and stopped touring. He went on to do solo work. One of his solo albums, Shangri La, which is exceptional from 2004 has an amazing song on it. And the song is called boom like that. And this song, it was just, I rocked out to this song driving, I always loved it. And I listened to the words and I you know, as you frequently do, you listen to the lyrics and you start to put together what is the song about? I just like the catchy beat, right? And the guitar riffs. And then I found out Mark Knopfler had read SPEAKER_05: grinding it out the autobiography of Ray Kroc, I guess Mark Knopfler had read it then wrote the song. SPEAKER_05: The person who wrote the screenplay had also like me been a fan of Mark Knopfler. And that is the origin story of the movie is my understanding is that he heard the song, then read the Ray Kroc book grinding it out, which the movie The founder is based on and the song by Mark Knopfler is called boom like that. I just want to give you the lyric here, Lon and get your reaction to it. Sometimes you got to be an SOB. You want to make a dream reality competition send them south. They're going to drown put a hose in their mouth. Do not pass go go straight to hell. I smell that meat hook smell. Oh, my name's Ray Kroc. That's Kroc with a K like crocodile but not spelt that way. Oh, it's doggy dog ratty rat Kroc style. Boom like that. SPEAKER_05: Okay, you've seen Sun and I demo a ton of AI tools. And we've learned that these tools are going to help you do so much more with less. That means more revenue and less overhead. Here's the hard part for a lot of companies. How do you actually integrate your AI into your daily work flow? Well, you got to check out cure attack cure attack specializes in strategic consulting and product engineering for AI tools. Cura tech starts with strategic consulting, and they bring those ideas to life with their expert engineering teams. They offer a few key services AI strategy roadmapping. 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His take seems to be the SPEAKER_04: more negative one that that you know, this was this was almost that this was corporate that and I think you know, again, that's there's a movie that's that version of it where it's just here's this monster he stole this company away from these two good guys who just wanted to make people delicious cheeseburgers. And I think they don't go for that either. They they definitely it's a measured like because I think the movie is very aware of McDonald's would not ever have been McDonald's if it was up to Dick and Mac like they were never they might have franchised it around there might have been 10 or 12 locations around the Midwest or whatever. Those guys were never going to turn it into this juggernaut that has changed the world chain created the fast food industry, you know, yeah. SPEAKER_04: So I mean, there's a balance there. It said something to SPEAKER_04: think about, just so people know, we took the screenplay, we SPEAKER_05: took the autobiography and put it into notebook LM, the new Google notebook LM, which we had the creator of on the pod recently, we tried to see if you know, they're going to drown put a hose in their mouth, which is in the film and is in the song is in the biography or autobiography is we couldn't find them. So if you find the origin of that quote, I think Mark Knopfler made it up. But I love that evocative line. Yeah, SPEAKER_04: it's interesting, because if you look at if you Google it, which I did a lot of those fake SEO bait, like brainy quote sites, bring it up and say they misattributed or attributed to Ray Kroc, but I could not find an actual citation. So I think all of those are quoting him from this movie, which are quoting, probably that Mark Knopfler song. Yeah, SPEAKER_05: absolutely. Don't trust the internet. Alright, let's get SPEAKER_04: into the plot here. Unless I mean, it is possible he read a SPEAKER_04: different he maybe read the autobiography of Ray Kroc, and then he read a different book about Ray Kroc that does have that quote in it. Because it does seem like if you were writing your own autobiography, you wouldn't you probably wouldn't self attribute that quote. Yeah, I mean, a song does SPEAKER_05: not need to be. It's an interpretation of the spirit of the person here. It would need to be a quote. Yeah, he didn't SPEAKER_04: say all those other things. He's putting words in his mouth. Yes. Right. And that's it. We should know Mark Knopfler does that all the time. Like a lot of his songs are it's not him speaking. It's a character speaking most famously. Yeah, I was gonna say SPEAKER_04: that the money for nothing where he's using slurs. That's not this the Mark Knopfler the singer. He's he's playing a guy who's narrating that song. Look at those yo, yo's. That's the SPEAKER_05: way you do it. Make that money on the MTV. Yeah. All right. So let's get into the story here. Because the story of McDonald's has so many business lessons and the movie super compelling. So we'll use the movie as the bones of the architecture as we go through the story. Yeah, so we open in 54 in St. Louis. At this SPEAKER_04: point, Ray Kroc, he's he's in his 50s. He is a traveling milkshake mixer salesman. He's got this five spindle milkshake mixer that I guess if you had a very busy 50s diner, and you needed to make a bunch of milkshakes at a time and customers didn't want to wait for you to individually make the milkshakes. This would be a helpful device. But he's he's bombing out we see him go into from diner, a lot of those 50s drive in diners and he's trying to sell them on this milkshake. Nobody's nobody's biting. While he's there. We kind of note him he's clocking the problems with this entire restaurant concept that you end up waiting a ton of time they're not efficient. They don't get you your food quickly. When it does arrive. A lot of the time the orders are wrong. And then it's just it's also not an environment where you want to sit and spend time and eat there's hoodlums and teenagers. It's noisy. It's chaotic. There's trash everywhere. It's not a place he feels welcome and invited even as he's there trying to sell them this milkshake mixer then crucially, he gets an order for six of these devices which if you've been paying attention up until now he's had trouble selling even one. So he's thinking about what kind of restaurant could possibly need to make, you know, six times 530 milkshake simultaneously. He finds out it's this it's this burger place called McDonald's in San Bernardino, California. You can still go visit that that very first San Bernardino is not still a McDonald's. Now it's like a museum dedicated to the first McDonald's but it's still standing. SPEAKER_05: It's a really good observation you had of him clocking the joint and they do this visually in the film with you see him looking at the garbage seeing somebody smoking the loud music he gets his food. He realizes like he's selling into a sub optimal business in and of itself. And they don't have any conception of, well, if we made food faster than people would come more often. And it really is an interesting insight that not only he had, but that the McDonald's brothers had the same one at the same time. And so in entrepreneurship, often many people come to the same epiphany, the same opportunity at the same time when before Facebook came out, there were there were friends or in my space and a number of other social networks, for example, but sometimes it takes somebody like Zuckerberg to come in and see it be a mess like myspace was a mess. And I thought of myspace as the analogy here to these, you know, burger joints, like he came in there and made it fast and organized and clean and friendly, friendly and efficient, right. And so I mean, the movie really does give you and I don't know how SPEAKER_04: accurate I'll like maybe there were other fast food operations at the same time doing this. But according to the film, the McDonald brothers had a tremendous amount of innovations all all in one that Ray Kroc is seeing all together it was instead of driving your car up, you park and you you walk up which cuts down on the, you know, sick chaos of people sitting in their cars and the people on roller skates having to go between navigate through all these cars, it cleans it up and allows them to control the environment more. They use this incredibly efficient factory style assembly line to make the burgers which we see Richard McDonald has worked out in extreme explicit detail where everybody is and what their movements are, where they have to go to get their supplies and and so maximizing efficiency to get the burgers done in 30 seconds or less, which may allows them to handle so many more customers. And even there's a great moment when Ray Kroc first arrives at this McDonald's he gets it it's a long line and he gets to the back and the lady in front of him. She says don't worry about it. It goes really quickly and it's the right here. SPEAKER_04: The opposite of the the exact opposite 180 of the experience we just saw him have at the other drive in restaurant where it takes it takes forever the they became known the brand became associated with taking forever getting your order wrong. Whereas this lady is so confident that they're going to be fast. He's like don't worry about it. We're gonna go right now when he gets to the window, he gets his change 35 cents he SPEAKER_05: gets 15 cents change. I remember. And the guy turns around grabs a burger from the rack, grab some milkshake because they have a little menu and they hand it to him. And he thinks it's a mistake. Michael Keaton is like I just ordered. That's a mistake. And that shows you how profoundly different this experience was. This is very important for founders to understand the you could make something so profoundly different SPEAKER_05: that it viscerally changes a person's experience, right. And you have that experience. I think Uber is a really good analogy for that when you first use an Uber or you first use DoorDash. It was so dramatically different than calling on the phone and getting an order before that using movie phone to buy tickets or Amazon Prime. And so my mind was like, always there's room to make something faster and cheaper. And this did essentially both. Yeah. And I mean, there are other SPEAKER_04: innovations to the all paper packaging. So before you had to worry about plates and forks and where people going to sit to eat their meal and breaking the dishes are shattering constantly. It costs a lot of money. They're constantly replacing dishware. So that was another McDonald's innovation was you know, it's all paper, you just throw your trash away when you're done. And, and, you know, he's sitting there sort of marveling at all of these lessons that they've learned. He introduced himself, he gets a little tour behind the scenes. And then he tells the McDonald brothers, he wants to take them out to dinner here all about their story. He says, I've been in the, this is the most amazing restaurant I've ever seen. And I've been I've seen it all. I've been in the food service industry for years. So then, you know, we get to this. So see where we're sort of, they let the movie, let's Mack and Dick kind of relate to us the McDonald's story up until 1954. Yeah, they had a, you know, a couple different companies, couple different concepts before they made a lot of the same observations that Ray Kroc had made about how inefficient these drive in diners were. And they kind of came to their own conclusions. And then they kind of walk them through how they fixed. Yeah. And this is really the product market fit moment of SPEAKER_05: the film. And in our industry product market fit is you can see a product and then you try to find if a market responds to that product. And here, they talked about how they tried to get people to embrace this. But it was really hard because people were upset that they couldn't get service in their car. But then once people got it, and they enjoyed how amazingly consistent was and how good it tastes, and the price and the speed all of that added up to that they had market pull. And they demonstrate market pull in the film, when they have a big opening. And you know, the big openings amazing. They put big lights out there because they previously worked in the movie business. They put those floodlights out there, they put jugglers and clowns, whatever to get people excited. Everybody showed up, everybody loved it, a bunch of flies showed up, and it kind of canceled the party. So the next day, they thought they had to go back to the drawing board. But then slowly, people started showing up because they had such a great experience and word of mouth happens. And long This is the key to the success of McDonald's. But it's also the key to being a great entrepreneur, you know, you've done it. When you have market pull, what is market poll, that's when you get virality where people are telling their friends about the product. This can be experienced with something called net promoter score when people rate you a nine or 10, as opposed to one through eight. But it's so good that people promote your service for you. McDonald's was so good. It was so revolutionary. This humble burger, fries and shake. Very simple for the pickup window. It was so dramatically different that people told their friends about it. When people tell their friends about it. You cut out one of the major expenses in business. Lon, what is that major expense, the acquisition, the cost of SPEAKER_04: acquisition customer acquisition marketing exactly. All right, SPEAKER_05: listen, we all know starting a business used to be a real pain in the neck. You need to get a lawyer, there were tons of hidden fees, it was a mess now with Northwest registered agent, it only takes 10 clicks and 10 minutes. Northwest provides everything you need to start and maintain your business. Every LLC, corporation or nonprofit Northwest forms comes equipped with registered agent service, a business address, a website and hosting email a phone number. And all of this is covered by Northwest privacy by default settings. Again, your full business identity is going to be live in 10 minutes and in 10 clicks. So here's a very simple call to action for 39 bucks plus state fees. They're going to form your LLC, your corporation or your nonprofit, and you'll be able to launch your business in just minutes. Visit Northwest registered agent comm slash twist today. That is North West registered agent comm slash TW ist today. And so when Uber came out, they didn't need to market when Tesla's came out, they didn't need to market why the net promoter scrolls were so high, that when I got my first Tesla and you were there when I had it, people asked for a ride in it. People ask questions about it, it was so transcendent. So this is this super important in the I'll just end on this part. In terms of product market fit. I don't know if you notice this as well on they made a point of demonstrating the ketchup and mustard dispenser. Now, the reason I believe they did this was because they wanted to show that it wasn't that they had actually made physical innovation. So they had made some sort of a funnel with a handle and a grip. And when you squeezed it, it portioned out four dots of ketchup or four dots of mustard perfectly. And what that allows them to do is still used in the fast food industry today, you'll see SPEAKER_04: behind the scenes at like Taco Bell where they're got a little gun because it puts the exact right amount of sour cream on the taco or guacamole on the burrito or whatever. So yes, exactly like that. And so they had any any answer? Where did SPEAKER_05: you get that piece of equipment? And they said, Oh, we made it, we fabricated it. And so I just want to end on this piece, you may think a business is too simple, like getting a cab, right? Or, you know, making a burger. But if you make it 20% better, across 10 different vectors, now you might have something that's 200% better than what you had previously. So you don't have to have one thing that makes it better. What McDonald's showed was they had a series of maybe 30 innovations, right? Fought some of them were simple, some of them are complex, but they had the audacity to not stop innovating and creating efficiency. Oh, yeah. Nick Offerman plays Richard, who's sort of the SPEAKER_04: brains behind the operation. And I think he's he's presented as being completely relentless, like it was never good enough. Even when he figured out a problem, he was just immediately on to the next problem. He was just constantly looking at this entire operation holistically and thinking about how can I make it like the first scene we see of them? He's talking to his brother about I think if we increase the temperature on the fries by 25 degrees and put them in there for a slightly less amount of time, they'd come out a little crispier and everybody else is like, Oh, you're crazy. They're already delicious. But that's just the way his brain works. He was constantly like, how do we shave an extra 1% off the time it takes to make this or how do we make it taste 1% better and if you come in with that attitude every single day, yeah, eventually you get McDonald's, you know, yeah. And to not make it all about the McDonald brothers, SPEAKER_05: right? croc during the same thing, was listening in his hotel as he's driving from town to try and town trying to sell his five spindle milkshake maker. He's listening to self help records. And the self help author and he's kind of like a portable record player with the ladies, ostensibly sets up every night in his hotel room to listen to the same records over and over again. And it's talking about resiliency and what business is about. And so when I meet young founders, and I introduce them to a business book to be inspiring, or like we're doing right here, or when I'm doing this week in startups, I was seeing how important it is to tell stories and to look for SPEAKER_05: inspiration. And Ray Kroc was a relentless entrepreneur, who was relentlessly trying to make himself better and find a big win. He just needed one win, because the two or three things he had tried to do previously didn't work. And he's constantly getting mocked for those things. But here he is the person who created McDonald's, the modern day McDonald's, not the original drive in, it's important for you to remember the self help that he was listening to self help would be the equivalent of today listen to podcasts. Well, I mean, that that's still like a trope in the in the in SPEAKER_04: the in this kind of movie in the the sort of the go getter plucky upstart. They a lot of the time they're listening to motivational stuff in the car at the beginning of the movie. And I think they play they tweak it in a really interesting way here where we do we open with him listening to this motivational record about resiliency. And then at the end, we see him and he's preparing to give a speech of his own. And he's ripping it off. He's he's plagiarizing the record he listened to in the opening scene, as his own speech talking about the importance of resiliency. So they get it's shading it in a way it's like, well, is it just resiliency because the McDonald brothers were resilient as well? Is it just resiliency? Or is it the the willingness to do whatever it takes? Oh, yes. We're gonna get to win. Yeah, like it. I think there there is an element of that too, that it resiliency is the nice way of putting it as nice way of putting it is. And you won't stop. You won't let anything stop you not ideology, morality, nothing. You're gonna win is all that matters when it all cost. Right. And I think it SPEAKER_05: SPEAKER_04: reminded me of the side of court is a two sided good. Remember SPEAKER_05: the scene from I think it was American Beauty. I will sell this house today. I will sell this house today. I mean, this SPEAKER_04: is a this is a trope a lot of these movies about ambitious people or people are down on their luck, but they're, they're go getters. They're driven, they're ambitious, they're gonna win. They need this. They're desperate. A lot of that, you know, those are the people who are listening to sometimes podcasts, sometimes how to win friends and influence people, you know, those kinds of those kinds of stuff. All right, SPEAKER_05: Tony Robbins, Tony Robbins comes up to a lot of movies. So SPEAKER_05: at this point, croc has lost his mind, right? He's totally blown away. And one of the brothers comes out and says, Oh, how are you enjoying your hamburger system people sitting on a bench? Crocs is the best one I've ever had in my life. So we aim to please and how would you like a tour? Right? SPEAKER_05: Yeah, he takes him to dinner. They think they give him the SPEAKER_04: whole kind of story. And immediately he's like, let's let's get into business. This there needs to be McDonald's all over the place. What are you guys doing with one burger stand and they're they're hesitant at first because they apparently they've had bad experiences. Other people have come to them with similar deals. It didn't go well, they weren't able to keep quality consistent. They are so focused on their San Purdue location. They wanted other people to come in and start these other franchises. But then those other franchises aren't as good and don't keep up the standard. It's their name. It's their business makes them feel bad. So they've had this bad experience. And as Mac tells Ray, he'd prefer to have one great restaurant than 50 mediocre ones. It's not just about the money for them. It's about the brand. It's about the pride. It's about making great burgers for people. They don't want to make a subpar product. So they say, No, but you know, that that obviously does not, you know, everything we've talked about with Ray already, that doesn't sit well. So he's immediately scheming, how am I going to get these guys to say yes. And he, while driving around doing his sales trips, he comes up with the sort of pitch and a very, it's a kind of Mad Men inspired sequence where he gives them like a Draper kind of prick pitch, where it's like, don't don't do this for me. Don't do it for yourselves. Do it for your country. America needs McDonald's. He's talking about, you know, he was driving around and he sees every community there's a cross because that's where people gather for the church. And in his and there's a flag is that's where people gather for the government or for the court. And then he's like he to him, the golden arches of McDonald's, which was not his invention, which was Richard McDonald's idea. But he thinks that golden arches need to be just as prominent and it's just as important and central to American life. And it's this very patriotic, do it for your your country kind of pitch. And SPEAKER_05: this is where like, complementary skill sets of founders, you know, comes into play. The people who start a company are not the ones who always get it to the promised land. And, you know, you'll sometimes have complimentary people on the team. You know, Steve Jobs, and his partner was the act is a perfect example was was like, you know, building the circuit boards was the nerd was the technical person. But Steve was the visionary clearly. And you know, people sometimes remember was the act and sometimes they remember the third co founder who got bought out of Apple, but most of the time, they just say Steve Jobs, I say Apple, you say Steve Jobs, right. And you know, you had Dick, McDonald's, who was SPEAKER_05: just insane at operations, you know, doing all those little innovations. And Mac was like, you know, kind of like a storytelling CEO type, and jovial, you know, shaking hands, kissing baby. If you think of it in restaurant terms, like Dick was running the SPEAKER_04: kitchen and Mac was front of house, you know, greeting customers, managing the staff, that kind of stuff. But neither of them were the scaling CEO. And when we are SPEAKER_05: talking about technology startups here in, you know, Silicon Valley, we talk about like, a zero to one founder, a product visionary, somebody who can get a product into the world. But then you need people who know how to scale a business, if you want it to become a venture scale, or a truly significant business in the world. McDonald's and the McDonald's brothers didn't want to do that they wanted to have one really great business. But that was not the ambition of the scalable, you know, CEO in Ray Kroc, he saw a vision of how to make this grow across the country. And that really becomes the central tension, I guess of the second act, you would say, yes, the right is the friction between the brothers and Ray Kroc's ambition. Listen, public markets can be volatile, don't I SPEAKER_05: know it. And if you're looking for a unique asset class to diversify with, let me tell you about blue chip art. blue chip art has historically been uncorrelated with the stock market. And Bloomberg reported that as equities dipped in 2022, blue chip art had its best year on record last year, the big three auction houses posted record high revenues of a combined $17.7 billion. But here's the problem. blue chip art has always been an exclusive asset class until masterworks with masterworks. Anyone can invest in fine art without needing millions of dollars. This is because masterwork securitizes blue chip pieces and sells the shares to investors and masterworks provides liquidity. To date, masterworks has sold over $45 million worth of art and net proceeds have been paid out to everyday investors, not billionaires. masterworks has more than 840,000 users and north of 800 million in assets under management, aum and twist listeners get special access to skip the waitlist. Just go to masterworks.com slash twist that's masterworks.com slash twist to skip the waitlist past performance doesn't guarantee future results. See important disclosures at masterworks.com slash CD. SPEAKER_04: It becomes as we've seen in so many of these kind of business movies, especially based on true stories. This was the sort of the theme of Blackberry as well. When you've got multiple large personalities with very clear visions for what they want to do and what the company should be, you're setting up these these kinds of power struggles become almost inevitable. So yeah, Ray gets the brothers to agree to make him sort of director of franchise operations or something similar. So he's going to go around the country starting new McDonald's franchises, the brothers will take a small cut, he'll take a somewhat larger but still fairly small cut. And he'll manage all of these other McDonald's restaurants and keep their quality up so that it befits the brand. So he opens the first McDonald's in Des Plaines, Illinois, I believe it's still there as well. This is where we get into him a lot of him like hustling. So first working the people at the Country Club working his connections there, and then finding new ways to find new people to kind of recruit. It's almost a little bit of like an MLM scheme for him at this point, like the more franchisees he signs up, the more McDonald's he opens, the more 2% takes he's getting of everybody's business. So it's kind of like, he's the upstream and they're the downstream a little bit. SPEAKER_05: And that is the criticism of the franchise business model. And it's off the great part about it is, you know, the franchisees have to do all the work. But they may get this incredible formula. Now, this is something that's hotly debated. If you if you dive into subway, and we should do a deep dive into subway, because I'm sure they'll make a movie about this about subway at some point, those franchisees are really ground down and grinding it out is the name of Crocs book. So there is something to this, you have to be a grinder. And in terms of this film, you know, it really shows that food service and restaurants is a grinded out business. It is not a business for rich people who are, you know, retiring and don't want to work. And there's this very important moment as he's trying to find people to open up these franchises, he starts at the Country Club with people have the money and it's no big deal, they sign it and then they go back to playing golf and drinking, you know, martinis. But the problem is those people have no standards. They don't care about the restaurant, they just want to flip their money, kind of and that infuriates Croc. And of course, that infuriates the McDonald's brothers who care about quality above all else. And so this is great pivot where he goes from country clubs to synagogues, veterans associations, who else does he hit up? Oh, the first SPEAKER_05: person tell it tell everybody about the first person that he recruits as a franchisee when he decides rich people are not going to get to stand any blue collar hard work and salt of the earth people, the Jewish Bible salesman, this guy is there SPEAKER_04: we're talking about? Yeah, so he's, there's, there's a lot of there's like, I guess you see it in older movies where people are just in the same office and they overhear somebody's conversation. They're like, that's the guy I need to be in business. But I feel like this doesn't happen in today's world as much. There are random collisions, this would fall into SPEAKER_05: the category of collisions or sliding doors. SPEAKER_04: Oh, no, he goes to his own office. And there's this very pushy Bible salesman trying to sell to his own secretary, who's not interested in this guy is just relentless, not giving up. And then he stops him in the hallway. And he's like, Hey, you SPEAKER_04: know, who are you tell me about yourself the guy, his name's green bomb or something, something very obviously Jewish. So it's like you're a you're a Jewish guy selling Bibles. The guy's like, look, I gotta you know, I gotta make my nut. I gotta earn a living. And that's how he's like, oh, this, that's the kind of light bulb moment for race. Like, I need people who they need this, this is going to become their life. They're going to be obsessed with this the way I'm obsessed with this, not these country club guys who don't really care. They've already made their money. I need hungry people. You know, in our industry, we want people to have skin in the SPEAKER_05: game. And this is why in our industry, you know, people selling or founder selling their secondary shares and not having a mortgage payment, or kids in private school or you know, 12 months of runway six months from 18 months of runway, the venture capital community and the architecture of the entire system is a bit of a pressure cooker. It's very rare that somebody gets five years of funding, and some huge salary that competes with the salary they had an apple or something. And that pressure makes the diamond skin in the game is what we're looking for. With founders and with venture capitalists, they have to put a certain percentage of their money into their venture funds. And the movie also, it sort of does this with Ray and his wife, SPEAKER_04: who's played by Laura Dern, Ethel, Ethel code, where even even she they, they don't see eye to eye because she's at the point where they're in their 50s. She's like, we own our home. You've had your years of being a salesman on the road. Like, isn't it time for you to slow down and start thinking about retiring or spending more time with me going to dinners, you know, enjoying your life? If you go to Spain, she wants to go to Spain. SPEAKER_04: And he just he can't function that way. That's just not who he is. That's and we sense that that's never going to be who he is. It doesn't matter how much money he makes, how comfortable he gets. He's never going to want to just rest on his laurels and stop building. He's just that kind of a person he wants to win. He's competitive. And that's the only sort of life that he can envision for himself. And so you know, later over the course of the film, he meets a franchisee named Raleigh Smith and his wife, Joan, who's much more of his kind of mindset. She's a go getter. She's hungry. She's ambitious. She loves money, wants to make more money. And so you know, you can see that's the attraction of him to her is that, you know, again, it is about skin in the game. But it's also just about having that kind of motor just having that personal ambition, versus, you know, just a different kind of person who's not as caught up in the race, you know, SPEAKER_05: I was gonna bring this up. Spouses are so critical in the formation of startups. Now you'd think like, well, they don't go to the startup every day. But if you think about it, like an Olympic athlete, or if you think of it like a Navy CL or somebody who's doing some extreme pursuit, well, their spouse might have to sacrifice Oh, they're on a tour of duty, you know, in Afghanistan, or they're going to the Olympics, and they've got to do three workouts a day, and they're going to be, you know, doing some competitions all over the world. The spouses bear the brunt of that, often in startup land, they have to take care of the family, if there's a family, they have to manage the domestic stuff. And this becomes a bit of tension often because one person is pursuing their life dream, and they're getting all this glory. And the other person is doing all the chores, and having to cheer them on. And then the person who's cheering them on will become resentful. And then the person who is going out and working on this, they might have their spouse then become critical of what they're doing. And then that is the death of the marriage, it's the death of the partnership, it just becomes irreconcilable often. And that's why often when I talk to people who have families and kids, and they're starting a company, and they want my advice, I say, Well, have you talked about this with your partner, slash spouse, whatever your, you know, common term is, make sure you have that aligned. Because some people work to live and some people live to work. And this is like the tension you see when I tweet on Twitter, or x on Twitter, whatever I'm doing on Twitter posting on x, you know, and I say like, hard work pays off. And then people are like, Ah, but what if it doesn't? It's like, well, that's kind of implied, but okay. And it's just fundamentally some people when the whistle blows at five o'clock, that's when their life begins other people when the whistle blows in the morning, they get to work, that's when their life begins. Yeah. So different strokes for different folks. SPEAKER_04: Yeah. And I think that that is part of the sort of it both the McDonald brothers versus Ray Kroc. It's Ray versus his wife and we see we see that kind of play out several times over the course of the movie, those kind of just very different ways of measuring success. And what does it mean to be a success? And what does it mean to like have a successful company or marriage or you know, whatever else. So I think that that's really interesting. So at this point in the movie, Ray is kind of he started having the same kind of success and market pull that the McDonald brothers had. Now Ray is starting to experience where rather than going out and recruiting, people are coming to him, McDonald's is becoming a breakout sensation, he takes this trip to Minneapolis, where they're opening a new franchise, and he gets this kind of hero's welcome. And he realizes like, Oh, this is really, I'm on to something, this is really taking off. And that's the point where the tensions really start to build between him and the McDonald's brothers, because he starts to feel more ownership, like, I built this into this huge thing. Sure, you guys had the idea of how to make the burgers, but now we're, we're, we're all contributing. It doesn't just feel like it's, it's your company that I'm helping with. It's also my company. Now, I think part of what they're implying is that this was always kind of who Ray Kroc was, and he's just becoming unleashed, the more powerful he gets, the more rich he gets, the more status he gets, the more he's sort of free to become that person. And he doesn't have to be the salesman anymore, who's constantly pitching and glad handing everybody. So as he kind of comes into his own more, we get a lot of back and forth where he wants to make changes. And the McDonald brothers are not into it. Like the main one being that the contract he's getting, I think it's 1.9% of the revenue from these franchise restaurants. He was so eager to sign the deal. He didn't really worry about the math at the time. Yes, now that it's really taking off and succeeding. He's recognizing that that's not that much money. I've got all this overhead that I'm managing. And I'm only getting 2% of all of these actual locations. I'm not getting rich the way I should be getting rich. SPEAKER_05: And this is a path that founders go along, you have complete doubt and uncertainty and fear, and then you start winning. And then your confidence builds. And then that confidence can become arrogance, it can become narcissism, it can become, you know, momentum, it can go either way. And it's often it goes multiple ways. And so it's important for founders to not feel so low in the beginning when you're figuring out product market fit, and you're figuring out the business because that is the part of the process is the suffering is the, you know, not making enough money is being underappreciated. And then what happens is, you hit it. And when you hit it, then all of a sudden, everybody wants to be your friend. Everybody's giving you applause, thanking you hugging you, you're the greatest person ever. And this is where you know, having a strong foundation as an individual strong sense of morality, a strong sense of ethics, a strong sense of who you are as a person. And this is where your parenting and everything comes into this. And what will happen is people who are not grounded, man, you can see them go off the rails, all different kinds of directions. And tragically, people who don't get product market fit, you know, they can get depression and worse. And so I thought that the movie did such a good job of capturing his journey from just being considered a loser by everybody knowing he was actually a winner, knowing he saw these opportunities that other people couldn't see. He knew on that he had it, he knew he had it, but the world doubted him. And then he starts turning a corner. And every week, every month, every franchise that joins, he realizes he's awesome at this. And everybody who doubted him is wrong. He gets the divorce from his wife, he gets the new wife, who is, you know, aesthetically, you know, played as younger and more beautiful. And more importantly, who wants to be his partner in crime, and his partner who pumps him up and says you can do it and you're awesome and wants to be involved and celebrating the victories not nice real ice SPEAKER_02: cream. We need profits. Yeah, Nick, producer Nick coming in SPEAKER_05: with a really great drop. Maybe you could take us to that moment where the new wife just like getting involved in the business and rolling up her sleeves and is thinking like crock and how that moment plays into his relationship where crock finally SPEAKER_05: confronts the McDonough brothers. This is one of those SPEAKER_04: movie, the law of efficiency of characters, what Roger Ebert would call it like you can't just constantly introduce new characters. So you got to consolidate when you can. So this did not all come from the real Joan Smith. She was a McDonald's franchisee. They did eventually get married. But the movie for convenience sake also gives her the powdered milkshake idea. And apparently this was not that's apocryphal. But anyway, yeah, in the movie, she comes to him with this discovery that one of the major expenses of running a McDonald's franchise at that point was these big walk in freezers where you'd store the ice cream. And that's what it's a thing that it annoys Ray his franchise, it annoys the other franchise owners, it's it's soaking up a lot of what should be their profits. So Linda Cardellini plays Joan Smith, she discovers in one of those trade industry magazines, powdered milkshakes, which you can sort of simulate the milkshake experience, but it doesn't require a freezer. It's not real ice cream, you just mix the powder into water. And it did a lot one of those food science discoveries in the 50s and 60s they were so into, it's SPEAKER_05: kind of a NASA kind of moment, right? They were taking freeze dried stuff. Yeah, you know, and, and, and right, the food SPEAKER_04: chemistry, food labs, and all that all those discoveries in terms of like chemical artificial flavoring and all that all that was big, big business at this time. And they were constantly coming out with these new kinds of products. And, you know, today stuff like powdered milkshakes and powdered potatoes or whatever, whether there's a lot of we've we already stereotype that as like, oh, that's institutional food. That's cafeteria food, that's prison food. But in the 50s and 60s, they were obsessed with technology, they thought that stuff was amazing. This is the future that everybody's going to eat powdered milkshakes one day. Yeah. So Ray and Joan very excited about this idea. But Richard McDonald is like milkshakes have ice cream in them. It's a part of the deal know, and just refuses to negotiate or discuss or talks SPEAKER_04: about it. So that that kind of becomes the last straw. And this SPEAKER_05: is a key because we haven't talked about deal making and negotiation. But in order to get the deal for McDonald's, he had to agree that the McDonald's brothers would approve every change to what happens in that restaurant. So if he wanted to change the ice cream and milkshakes to a powdered one, he needed to get explicit written approval from the McDonald's brothers, which they would never give and they were slow. And they were resistant to change. Right. So he's trying to sort of SPEAKER_04: figure out this power struggle. And it's another one of those kids met, he's just having this conversation and then somebody is like, Hey, I have the answer. But he meets Harry Sonnborn, played by the office of Ed BJ Novak, who would later go on to become McDonald's first CEO. He's just at the bank as a fellow customer overhears this problem and meets with Crock and figures out the solution this very elegant, somewhat devious solution, which is rather than focusing on the franchise itself and taking a little piece of the profits of the franchise, McDonald's should be buying the plots of land that the restaurants go on. And then they lease those plots of land to the franchise owners, which gives the McDonald's company all the control over the location rather than the franchise owner. And they're just taking a little chunk of change every month of the profit. So let me reflect this back so the audience SPEAKER_05: doesn't miss it. McDonald's had franchisees, the McDonald's SPEAKER_05: brothers own the McDonald's experience and raise in the middle, he can't make enough money off of the 1.9% he negotiated. SPEAKER_01: Is there a problem a big one, you don't seem to realize what business you're in. SPEAKER_05: And so this clever person says, Well, you know, you're really real estate. Why is he in the real estate business? It turns out when McDonald's opens a restaurant, the entire world goes next to them. So they're so successful, that they in fact, are distribution. If Starbucks has a similar phenomenon, if you put a Starbucks, they research where they're gonna put them really well, when you place a Starbucks, the block on either side of that Starbucks now goes up massively in value, why foot traffic, obviously. So they were leasing the land under the SPEAKER_05: McDonald's building these iconic buildings with the arches, as you can see in Lunt's background, they're key part of the story. But they were leasing it from landholders who benefits from that the landowners. Now, if you wanted to get around the McDonald's brothers deal, well, if you own the land if Ray Kroc had a separate company that owned the land, and he leased it to the new franchisee. So the franchisee signs a franchisee documents finds a construction person builds it and then opens their restaurant. It doesn't matter if they get the land from Ray Kroc, or they get it from some random landowner. Well, Ray Kroc realizes that's the business I'm assuming they didn't mention this in the in the story. We could ask our Google notebook LM, which has a bunch of McDonald's information. If they would also buy the plots of land around them, it would seem like you should buy the five as many plots around McDonald's as possible before you install it. But that was the key there. Because now they're the landlord in a 10 or 20 year lease. If it's successful, then what's the price going to be they own the land outright, and then they get to charge the franchisee whatever they want. And the thing that they don't mention lawn, they know the franchisees economics. So they can match the rent for that land the lease to what they think is the maximum breaking point that doesn't make the franchisee go find another location. Right? Which I'm sure is what they did. It's an SPEAKER_04: exclusive deal. You can't open a McDonald's unless you're leasing the land from the McDonald's Corporation. So they have to they don't have a choice. In one other way. It's clever to from Ray's perspective, it gets him around the McDonald brothers like at this point. Now he's the center of power. They might be able to say well contractually we control what you do with the burgers. But now he owns the land the franchisees are working through him. It gives him control over the entire company and it really gives him free reign at this point to just start ignoring the brothers altogether which he does in a big display by sending all the franchisees the powdered milkshakes and just doing it anyway even though the brother said no. So for others come to him and the brother say, Hey, we're not SPEAKER_05: going to allow it. And when they don't allow it, they say hey, we have a contract. Ray Krak just says well, you know what they say about contracts. They're meant to be broken. Yeah. And that's when he goes to the dark side in my mind. You realize he has the money he has the power. He's now somehow wrestled control from them. And he feels emboldened to in any situation his life to use the law or to use might and power money to just create the world he wants. And this happens in business as well. We just had a situation where Apple is being accused of hiring all these people who built patents for the Apple for for smartwatches and healthcare, like oxygen reading on your watch, and they stole employees and you know, they're apparently being sanctioned down. But you know, coming like Apple might get SPEAKER_05: reckless as they have money distribution and power, and they will roll over people around them. And so this is when Ray I think kind of crescends into the dark side, but just being cut throat. If you want if you don't agree with me, sue me. If you are not going to support me as a wife, I'm getting divorced. I'll give you everything but you're not getting to share a McDonald's. And he just went hardcore. This is the hardcore moment. Yeah, I mean, I think it's interesting. I think the movie SPEAKER_04: is doing something really interesting here. Did Ray go to the dark side? Did the money and the power and the status get to him and get in his head and change him? Or was this always who he was in the back of his mind? And he just it had to wait to come out like in the beginning of the movie. He doesn't think that's accurate. I think he doesn't have the power he can't he does his goal the entire time is to get FU money so SPEAKER_04: that he can unleash his inner capitalist tycoon bastard. I think I think that's a I think that's a fair read. But I don't know if that's I don't think that I think you could read the movie the other way that he wasn't. He wasn't always so cut throat, he did learn that that's how you have to be. Or that's the way he wanted to be over time. My take on it is, as you get more confident, and you get more SPEAKER_05: power, you will take more risk or you'll be more hardcore. So that would track more with me. He didn't have the power when he was selling milkshakes to roll over anybody. In fact, he was instead of being on a heater and accumulating power and having momentum as a founder. He was kind of the other way, right? He was on his heels. And when you're on your heels, and you're not confident, the idea that you would fire off a lawsuit or SPEAKER_05: you tell somebody Well, if you sue me, if you don't like it, you might not do. Yeah, we meet him. And he's in full salesman SPEAKER_04: mode. I think it's really the very first scene we see of him. And it's not only just a sales, but it's that kind of Willy Loman, like down on his left Shelly Levine, like, I gotta SPEAKER_04: make this sale. It's that desperation, like, Hey, you look like a smart guy. I don't have to tell you the business, you know, like, he's got that. And so I think that's kind of what we're watching, too, is this the how it sort of unleashes him to be able to put that persona aside. Yes, permanently, I don't have to be the salesman anymore. And that's kind of the scene when he's getting drinks, and he gets back from Minneapolis, and he's talking to his wife, and it's like, they love McDonald's, they were all over me, we gotta have a drink. That's what he's really celebrating is I get to put away being servile forever. I'm nobody's, you know, to be worth stool and he anymore, I get to be in charge now. And I you know, I think it goes it goes from there. Like it gets it only builds from there. And there's a SPEAKER_00: SPEAKER_05: lot of technical things that occur, you know, around company formation, when he makes this real estate company calls it the franchise Realty Corporation. Yeah, that eventually is like, you know what, I'm gonna call the McDonald's Corporation, you know, like, you can sue me, they can all tweak out. It's confusing. Yeah. And he's like, Oh, that's the whole point. I'm gonna confuse people. I don't care. And this actually happened to go back to Zuckerberg as well. Another incredible entrepreneur with, you know, many would argue, you know, less than top shelf morals or ethics. He screwed all his original business partners, restarted Facebook sold the assets from an LLC into a C Corporation. And that's what the social network was about, was about this same thing, a person who didn't have power was building, you know, software for the Winklevii all of a sudden getting some power getting somebody like Sean Parker in his corner getting Peter Thiel in his Parker getting success, and then be like, you know what, might is right. I have the chips, I have the power. Now I'm going to just do whatever I want. And if you are my previous partner and friend, you can sue me. And so the arc of and we should do the social network at some point, the arc of Zuckerberg going from, you know, a coder with, you know, you know, a certain SPEAKER_04: SPEAKER_05: ability to copy other people's products and do it better than them. All of a sudden, he just becomes a person who doesn't care and will screw anybody, including his best friends. And that this is a central theme of business. Is it necessary to screw everybody around you to be successful? The answer is it's not. There's many more stories of people being mentions and being having a moral compass and being ethical and making sure everybody's taken care of. Then Zuckerberg and Ray Kroc, SPEAKER_02: how much of it do you think came from crock feeling like he was being screwed because the percentage was so small, and obviously he was doing so much of a brunt of the expansion work, basically 100% of the expansion work resentment. And exactly and the McDonald brothers wouldn't budge even a little bit, they wouldn't even give him 2% or 3% or 4% or whatever he was asking for. And another like follow up to that is do you think McDonald's would exist in its current iteration? If the brothers had just been like, you know what, why don't you take 5% we know you're doing all this work, and we're going to cut you in on 2% of the net profits from everything at the end. Okay, these are great questions. I'll take them in SPEAKER_05: reverse. If the brothers had played ball with him and gave him more leeway, I think actually would have grown faster because he wouldn't have been wasting so much time arguing with them. It is possible that he could have destroyed the product. But I think it's unlikely. At some point that SPEAKER_04: power struggle was going to come to a head right because no matter how much compromise each side made their their fundamental view of the business was just so different. The McDonald brothers really, they were they cared about the food quality. They cared about consistency. They really bought into that sales pitch of like, No, this is about bringing people together and community and making something great. SPEAKER_05: How does he eventually get what he wants out of them? SPEAKER_04: I mean, I think at some point Ray Kroc was gonna screw them and get rid of them. I but how does he get what he wants from them? So eventually, they're like, we're gonna sue you, SPEAKER_04: you're violating our contract. And he's like, Go ahead, sue me. He points out what has become obvious, which is by making this land real estate deal by forming this huge corporation. He now dwarfs them in terms of power and status. He is the owner of this massive company, McDonald's, they own a burger stand in San Bernardino. So I think once they realize that they've already lost before the argument has even started, because he has this tremendous lead on them, there's basically no choice that can't sue him, he'd tie them up in court forever, they've got to make a deal. So he makes this deal that is a pretty terrible deal for them. He gives them 2.7 million to split between the two of them that's worked out mathematically. So each brother walks away with a million after taxes, right? So they get to keep their San Bernardino location that's theirs. And then they ask him for they want 1% of all McDonald's profits in perpetuity forever. And he says, Well, I'd like to give that to you. But the board, we're gonna have to do it as a handshake deal. SPEAKER_05: My point is, eventually, he just negotiated with them. And so I think that there was a negotiation to be had here. We're playing Monday morning quarterback. I think if the if the brothers had just extracted a small amount of money each time you wanted a concession, so that you know, if you wanted to go to two and a half percent, okay, well, they want this pay out or they want this percentage of the real estate company, etc. But they didn't want to play ball. They didn't want they SPEAKER_04: didn't want powdered milkshakes, even if it made them 10 billion eventually, but eventually, they wanted to pay out. So I think SPEAKER_05: that the strategic or I'm talking about strategy here. I agree with you, their motivation was, you know, this purity at a point, they said, we don't want to deal with this chaos, we want our money. And I think they should have got better lawyers. And I think they should have been negotiating a slow exit until the company went public. And this is an important lesson for everybody watching. If you are in a situation that's like the McDonald's brothers are in, keep your equity in the business. Make sure you have the equity in the business. Because what that means is no matter how big it gets, if lawn owns 10% of the business, and let's say I'm Ray Kroc, and I own 20%, okay, for every dollar, those shares go up and you own $10 worth of shares, and I own 20, you go to 11, I go to 22, you're still getting the benefit, but you're not doing any of the work. And this is really why equity and stock ownership as opposed to licensing deals and royalties is the gold standard in business because the share price goes up, everybody wins. Now, of course, people can do funny things like dilute the shares and issue more shares. But in general, those things are frowned upon. The McDonald's brothers did not have great representation, it was clear and they should have and they they should have never obviously walked away without owning equity in the business. And so Ray Kroc was dogged, but man, they could have held on to percentage ownerships. And by the way, the Facebook partners SPEAKER_05: did Eduardo and then the other people all those early people did wind up keeping shares in the company. We've in the bosses, the winkle of losses, I think he specifically did not want them to own shares. So we're no sovereign and those SPEAKER_04: other guys. Yeah, yeah. So again, all of those things SPEAKER_05: become negotiation. So here's the two lessons. Number one, if you're the king or queen, and you've won power, you can really negotiate hard, and you're going to wind up on top in all likelihood. But if you're the person who's getting screwed, you really want to fight doggedly to make sure you own equity in it, because that person has proven to you that they're a lunatic. And if that person has proven that they're a lunatic, and they'll fight to the end, well, you want to have equity in them. Eduardo Saravan wound up with over 50 million Facebook shares. So he did quite well for himself. SPEAKER_02: I just think there's a lesson here about like, fiscally compensating people based on their value to the company, like he was so valuable. And you see, which I think it goes back to Lon's point earlier about this being like a really measured take on this didn't make him look like a total terrible guy, but it also didn't paint him like a hero. That scene where he's like behind on his mortgage payments. And you're like, how is this guy expanding this business so rapidly doing such an amazing job, and he's missing his mortgage payments. And you know, he's not gambling the money away. He's just like being underpaid. You're like, that's crazy. It was crazy. Definitely SPEAKER_04: there is definitely a personal emotional dimension to this rivalry that I think both sides probably kept them from seeing things entirely clearly like yeah, Ray Kroc, kind of a hot headed guy, even by his own admission, he talks about this in the autobiography, I believe that he could he was very emotionally this he does. He cared about this a lot. He could fly off the hand. He hangs up on them. And the guy's like, just SPEAKER_02: hang on us. The McDonald's brothers immediately get turned SPEAKER_04: off from dealing with him because they they're not like that. They're these very gregarious, Midwestern, even keeled, calm guys. And this guy screaming at them on the phone, they don't like it. So I think they're hesitant to make changes, both because of their ideology, but also because who the hell is this guy to call and bark orders at us. And I think it's the flip side to Ray, by the end of the movie has become vindictive, where it's not just about I want to get the most money, I got to take care of myself. It's like, oh, I'll leave you your San Bernardino restaurant, but then I'm going to open my own McDonald's right across the street and put you out of business. He wants to bury them. It is personal. Yeah, just because now I hate you. And we've we've been combative for so long that now I want to get my sort of revenge and stick the knife in. So I think, yeah, it's a business negotiation, SPEAKER_04: but it does inevitably take on this personality clash as well, where they start to hate each other. The film ends the McDonald's brothers get their money. Well, I think there's a SPEAKER_04: there's a fascinating scene at the very end, where which one Dick McDonald and Ray Kroc end up after the legal proceedings, they end up in the restroom together. Yeah, it's a total SPEAKER_05: total movie trope, by the way, the epilogue is a very writery, SPEAKER_04: I'm sure that's never happened. But you take a leak and do the SPEAKER_05: debrief. You got to get them together for one big final, you SPEAKER_04: know, whatever. See recap of what happened. It's like, what just happened? Why did we see what we saw an audience, right? We want closure, we want them to have a final moment coming to terms with each other or whatever. So, you know, Dick McDonald's basically asking him like, Hey, if you were willing to just steal from us and screw us over, why did you want to make a deal with this in the first place? Like we showed you everything, we showed you what we did, you saw the restaurant, you could have just gone home and made your own McDonald's and called it something else. And you didn't have to be in business with us at all. Why not just do that? And he says it's the name McDonald's that that was part of it, part of the package and the brand and the when he showed up that day to get his burger and was blown away. That was part of the experience was that it was called McDonald's this very welcoming, friendly, all American Amy points out his own name, crock, very Slavic immigrant. So SPEAKER_05: SPEAKER_04: Crocs is a great line. SPEAKER_05: And then in the epilogue to the epilogue, so that's like kind of a mini epilogue. But there's another one at the end where they actually show Ray Crock speaking, and he's talking about how beautiful the McDonald's name is how iconic it is. And he says, you know, I never liked gimmicky names like burger, you know, castle or whatever. He's kind of got to start about Burger King or, you know, burger stop or whatever. Astro burgers we have. Yeah, he's kind of mocking Burger King and other people who copied it. But it is such a key point of I think, Ray Crocs brilliance. Ray crock was an observer of humans SPEAKER_05: and opportunities. He was a hustler. He was a grinder. Thus the term grinding it out. And he took pride in that. And grinding it out is what startups are about at their best. It is what innovation is about it. It's best it is a grind. And it is about resilience and confidence and momentum and just never stopping your innovation. And as an entrepreneur myself, people who have worked for me and you, you both have worked for me, you know, I might come in after a break and be like, Hey, we're doing this new thing. It's found a university. Hey, we're doing this new thing. It's called this weekend startups. Hey, we're going to try this. And you have to be constantly trying to come up with something new that clicks and then you have the thing that clicked and you got to keep tweaking it. So here we are in year 13 of you know, this weekend startups are like, I want to do more of these like business breakdowns with one because they're fun for us to do and the audience loves them. So here we are. resiliency is the big takeaway for me grinding it out, having great lawyers, and just that understanding of branding from such an early SPEAKER_04: today, we take that for granted. Everybody is we're all personal brands. Everybody thinks in that in those terms, but in 1954, no to be like, you know what those golden arches in every town, you'll be on the road and you'll drive and you'll know what that is. And you'll really, it's going to be consistent everywhere I go McDonald's is McDonald's like, oh, he was way ahead of the curve, thinking about how important that would become for Americans, which by the way, at the start of our SPEAKER_05: careers, we saw this information superhighway as this incredible opportunity because you could transmit information and go anywhere, get any information for free or close to free. And really the highways the American highways built in the 30s 40s 50s 60s were essentially like the platform shift of its time route 66. He says early on Ray Kroc, I have this vision of route 66. And you can go across the entire country, which was built off the innovation of the factory, which created cars by Henry Ford, and the McDonald's factory. And when they're making that tennis scene is based on Ford and him making the the assembly line assembly line. So we could you we should sit here SPEAKER_05: for a moment, I think and reflect on platform changes, right? We're sitting here with AI as a platform change, we witnessed cloud, we witnessed mobile, we miss witness broadband and the internet itself, PC revolution, cloud revolution, all this kind of great stuff, you know, it just when there is a new innovation that occurs, like factories and the assembly line, many people can profit from it. Or when there's something like, you know, infrastructure that's built, many people can profit from it. McDonald's wasn't the only people who profited off of route 66. And, you know, the highway system, hotels, yeah, Howard Johnson's would be the SPEAKER_04: SPEAKER_04: same area, yeah, tons of brands. And then going big is my final SPEAKER_05: lesson here. You know, people do not have a gambler's mindset. And if you look at the McDonald brothers, they had a protectionist mindset, man, they wanted to protect what they had, because what they had was really special. They weren't willing to risk what they had to have what McDonald's has become. And that was their choice. It's obviously a critical mistake, if you want to make a ton of money, but they did make them you know, killing, you know, for people who made a hamburger joint, but they only wound up capturing if you take it as 10 million in today's dollars, or, you know, close to 500 million. So if you had put it into the S&P, or would have been a billion dollars between the two of them, they only got a fraction of the actual Yeah, I SPEAKER_04: mean, McDonald's last year, six point 1 billion in net income that would have been 61 million if they got there 1%. Yes. And SPEAKER_05: that was every year, every one year, you know, one year, that SPEAKER_04: happens every year. So lots of big lessons, big company. I SPEAKER_04: think there's one other really interesting we were talking about lessons, we were talking about these sort of see changes and shifts in not just, you know, individual companies, but the way kind of business is done and approached. And I think this movie is also about another kind of pivotal shift or see change moment. The McDonald brothers are like when you in elementary school when they teach you Adam Smith and capitalism, you know, you do those like, you make something at home, and then you bring it in and you do a little like mini economy in class, like I'll sell you, you know, here's what bartering is. And here's, I'll sell you one of these for two of those. And that's how we have an economy. And I think that's where the McDonald brothers stopped. They were like, we want to make the best product for the best value. And we're going to be better than all of our competitors, it'll be faster, the cheeseburger is going to be juicier. And we're going to make everything as perfect as we could. And then that's where they stop. And I think Ray Kroc represents a modern take on capitalism, which is not just about looking at one product and looking at how much of that product do we sell to how many customers, but all of these elaborate financial systems and products and institutions and ways of investing ways of thinking about scaling companies and yes, scale is the key word on that. Yeah, SPEAKER_05: SPEAKER_04: it's it's changed so much. And and I think now it's all about how much you making this quarter versus last quarter this quarter versus the same quarter last year. Yes, as it should be a year. What's your 10 year projection? How are we going to keep you know, innovating and how we're going to keep your SPEAKER_05: total addressable market? And what percentage of it are you? SPEAKER_05: Exactly. So the Kroc brothers were never thinking, well, how many milkshakes and hamburgers are eaten every year? And how many of those can we capture? I'm just thinking, well, there's a person in front of me, how delighted are they with the burger? And so that was the first half of capitalism. And here we are, the second half of capitalism is how much can I capture? producer Nick, any moments or lessons from this SPEAKER_05: that you take away? It really was profound to me when he went to Phoenix for the SPEAKER_02: first time, which was the first golden arches establishment. And I just thought it was amazing how, you know, that's still a feeling that we all have, if you're on the highway in the United States, if you're on a long road trip, and you see the golden arches, you're like, Oh, I could get I could get some food there. Look, Mickey D's, I just, you know, Jason, you talk about real world virality a lot. And back in the 50s, that basically didn't really exist, right? Like, what was that? And he, he just saw it. And I also I said this before, but my other main takeaway was just like, if somebody is doing such a lion share of the work, you have to get them in on ownership and compensate them properly and keep them around. Because that would have been much more lucrative for the McDonald's brothers in the in the end. And what they did wind up just and who knows if that's actual really the reality, but they're just talking about the movie, multiple sides to the story, SPEAKER_05: both of their sides and the actual reality are the three that we're left to deal with, right? Yeah, I think those are great thoughts as well. All right, we do. We like to give a little words here. So Nick, let me around here. These are the awards for the film producer Nick came up with. What's your first award you want to give? SPEAKER_02: The number one award? Well, you guys have to give them but you could just choose any character you want the woodhire award for a character you would hire immediately. So you're telling SPEAKER_05: me there's a chance SPEAKER_05: would hire award. Hmm. Well, I mean, can we say Ray Kroc? You SPEAKER_02: could say Ray Kroc? Yeah. I mean, when you got somebody with SPEAKER_05: that much to prove, and who's that resilient and dogged and hard working. That's the that's the person you pick. I mean, after that, it's got to be the guy who explained to him this like basic console. yary who explained to him how real estate works. So it'd be my Harry Sondenborn for CEO McDonald's. SPEAKER_02: Yeah, Harry. That's I mean, I think we got to take Ray Kroc SPEAKER_05: out of it. So I go with Harry. Who do you go with? I mean, I SPEAKER_04: feel like Dick McDonald is a is a good answer there. Dick McDonald being the the sort of the innovator. He's the wouldn't none of it exists without him coming up with the ways to make the burger better. You know, like he's got it. He's got to be there at the ground floor. You don't have a product. Got it. So you got the product market fit guy. I got the SPEAKER_05: financial engineering guy. We both would have taken Ray Kroc first I assume the wood fire award. You're fired for a character you would fire immediately. Who would you fire immediately? God, I don't want to say the first wife. There's no such a downer and she's like, doesn't believe in him. And yeah, she was man. SPEAKER_02: I think you're doing a lot to work with, by the way in this movie. No. Yeah, that's such a thankless role. The like the SPEAKER_04: the wife who just wants her husband to stay home. I always think of didn't even really give her like a like a mad scene SPEAKER_02: either. They didn't let her go. I always think of I love Donnie SPEAKER_04: Brasco. But Anne H in Donnie Brasco has the most thankless role of her job is literally stand in the kitchen and yell at Johnny Depp for not being home enough. And like there's like four scenes they keep cutting to it. And it's the same every time. And this is one of those thankless and Haitian Donnie Brasco type roles where he's just there to be you know, more Alicia go to space. No, and you're 100% right. Not giving SPEAKER_05: Laura Dern. You know, a really juicy character. It's just huge mistake. She's Laura Dern queen, queen. I have I have an answer for this one. Okay. I would immediately fire. Joan Smith's like nerd husband, who just lets reg SPEAKER_02: Smith like completely ogle his wife in front of him at the SPEAKER_02: dinner scene. It should have been smack there. And that guy is just what a what a loser. I would fire him to song with her. SPEAKER_05: Yeah, I mean, that's an instant toss. He's just ogling her like SPEAKER_02: and he's like, that's my wife, dude. And he's like, Yeah, I don't care. I mean, maybe you should have such a belt. I know. SPEAKER_02: Yeah, I know. Yeah, yeah. That's what was just treating. Who you man's brother that way? Let's see who would I fire? That's SPEAKER_04: the Oh, all of the hoodlum teenagers. None of these hoodlum teenagers can hang around. Okay, next one Scarface push it to SPEAKER_02: the limit award for the best money making montage. Oh, SPEAKER_04: there's a few good ones. There are some good ones in here. SPEAKER_05: So in the film, there's the montage when they're on the tennis court. And they're going for montages right now in the SPEAKER_02: film that are all there's a tennis court one right that SPEAKER_05: yes, yes. I love that because that's the product market fit tennis court montage. operational excellence. Yeah, SPEAKER_02: yeah. SPEAKER_04: There's another good one where it's where they're opening up all of the McDonald's and you just get those lower thirds of like each new location as it goes up and they do a really good job of I'm assuming it was probably one plot and they would just build out a few different looks to get to make it look like it was different McDonald's locations. I'm sure they didn't build like five whole old school McDonald's but they shoot it. They're very clever. It definitely does not look like the same location over and over again. I love the one where he's SPEAKER_02: pitching. He's at like the temple. He's at the synagogue. He's at the mosque. He's at the church. Yeah. And he's like Mazel tov. Yeah. SPEAKER_01: SPEAKER_02: Your tribe. Yes. Yeah. Yeah. I love that one. That's pretty SPEAKER_05: great, actually. Yeah. These are good ones. Yeah. Cuz he's he's SPEAKER_04: even peppering in Yiddish phrase. Exactly. That's what I'm saying. Thanks. He's he's thankful to be at their mission book or whatever. Yes. Yeah. All right. That's good. The next SPEAKER_02: one, the Travis Award for biggest force of nature. We are going to dominate every city that we go into. I mean, this one's you got to write crock. There's no SPEAKER_05: crock. Yeah. I mean, that's an interesting that you call it the Travis Award because if you look in the case of Uber, most people felt that if he went to to Ray crock, perhaps, right, and pushed it too hard is that always been the criticism that he was going too hard, too fast, bending, breaking, whatever your interpretation of it, you know, of breaking the rules around who gets to, you know, give people a ride from point A to point B, and then you bring in somebody like, you know, Dara, and so you know, someone like Dara wants it to grow wants it to be profitable, but does care about maybe not knocking as many things over. And so that's like the balance between the two. But yeah, it's right. Gotta be 100%. Got all right. Any ideas for the SPEAKER_02: next one? Jason, you mentioned social network? We're on man. SPEAKER_02: Are you on board with that? Do you have any other ideas? Oh, for SPEAKER_04: our next episode? I think social network makes makes a ton of sense. I think money ball would be the other one I would say is an interesting movie that still has a lot of like, fans and is part of the sort of discourse people talk about a lot. I think that would be fun too, because it's not directly business, SPEAKER_02: right? It's baseball thinking about but thinking about analytically like you would operating a business. SPEAKER_05: business bio of Oprah. Why is there no movie about Oprah's career? Oh, I mean, probably when she, she gets a little old SPEAKER_04: the way I think she's still too in the public eye. Like, you need to wait a few more years for her to be less present. And then you do the Oprah move. SPEAKER_05: You know, I was turned private parts is a pretty good business movie. to it, but it is a that's an interesting one. There was it's on Prime Video now. There is a really good SPEAKER_04: movie called the burial that came out this year with Jamie Foxx and Tommy Lee Jones based on a real lawsuit from the 90s where a small mortuary owner took on like one of these huge funeral service conglomerates in court. And Jamie Foxx plays this kind of ambulance chasing TV defense lawyer who ends up representing the small business. Tommy Lee Jones is the owner of the small business. Really well done, like kind of a throwback courtroom drama, but really well done. And it does touch on a lot of the kinds of you know, like David versus Goliath kind of stories like it might be it's an interesting one to check out as well. SPEAKER_05: I think boiler room comes to mind. Moneyball comes to mind. Well, the short would be iconic. SPEAKER_04: Dessie margin call on here. That's a good one, too. Yeah. I SPEAKER_04: mean, that's an indie about the financial crisis like that. I almost feel like the big short is a bad one because it it kind SPEAKER_02: of does that to itself in the movie, right? They have those cutaways where they're like explaining everything. Yeah, I SPEAKER_04: almost feel like margin call is the more interesting take that fewer people have seen. Mm hmm. Marginal is like the amazing SPEAKER_04: 48 hours behind the scenes at Lehman Brothers like the day that their analysts figured out that the entire market was about to collapse. I think it's actually Goldman because Goldman SPEAKER_02: was the one who sold and survived. Lehman was on that one under Yeah, right. It's Goldman. Yeah, it's amazing. Jeremy Irons greatest movie. Jeremy Irons, Zachary can tell SPEAKER_05: credible. Yeah, the goal of this is to get business lessons out of it. And this one had so many business lessons. Yeah, I mean, SPEAKER_05: we could go like totally off the wall has a lot of good ones. SPEAKER_05: That's why I think moneyballs got a lot of business lessons. Yeah. What is Jeremy Irons say? It's you can either be buyers, SPEAKER_02: there's three ways to get ahead in this business. You can be first you can be the smartest or you can cheat. We don't cheat. And I'd like to think we have a lot of smart people in this room but it's a hell of a lot easier to be first. That's like the the the big thing when he decides to sell. It's amazing. All right, SPEAKER_05: this has been amazing. Great job, Lon. Our Twitter handle or x handle is TWI startups. And let us know which business breakdown you want next.