The Modern Franchise: McDonald's Corporation
Two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame-seed bun: That's good food. But speed, quality, consistency and real estate? That makes for a great business model. When the McDonald brothers had the brilliant idea to incorporate the assembly line into the restaurant business, they created fast food -- and it was a match made in business heaven.
However, it wasn't until a salesman named Ray Kroc came along that this new industry discovered its full potential. By partnering with the brothers and eventually taking over the business, Kroc started the McDonald's Corporation, a company dedicated to franchising the restaurant. Franchising wasn't a radical idea: McDonald's and other restaurants had been doing it before Kroc came along. But Kroc took a different slant on the concept.
Kroc kept strict control over his franchises, making sure that every restaurant across the country upheld his business practices and standards of cleanliness. His business methods turned off large investors, and the cost of leasing land made it hard for Kroc to turn a profit. So he adopted a policy of subleasing his properties to the franchisee. Real estate provided the cash flow Kroc needed for more down payments on additional land for his growing franchises.