By 1993, 53 years after its founding, McDonald’s had sold more than 100 billion hamburgers. Today, the fast food restaurant operates in 120 countries, serves close to 70 million customers daily, and generates annual systemwide sales of $129.5 billion. Unsurprisingly, the idea of dining at a fast food restaurant, receiving food through a drive-through window, and eating food wrapped in paper–in a majority of cities in the world–is normal today. However, this wasn’t always the case. And as normal as the practice has become, the market had to be created and customers had to be educated.
Recently, I watched the movie, The Founder, which chronicles the story of Ray Kroc, the mind behind the meteoric rise of McDonald’s, the behemoth fast food restaurant, and couldn’t help but identify several market creation lessons. The movie was a reminder to me that the many markets we experience today had to be created by entrepreneurs who were persistent and who believed in a version of the future that few others saw.
Here are five lessons from the rise of McDonald’s:
Identify a specific struggle
Ray Kroc, a former traveling salesman who went on to expand McDonald’s operations globally, often ate at drive-in restaurants. With the growth of automobiles in the United States, drive-in restaurants offered customers the opportunity to drive up, order, and eat right in their cars. Many however, were slow and it wasn’t uncommon for customers to be given the wrong order. The parking lots were also chaotic with waiters and waitresses with trays navigating the traffic. The experience left much to be desired.
After visiting the first McDonald’s restaurant in San Bernardino, California–started by the McDonald brothers, Richard and Maurice–Kroc noticed the speedy service (the brothers called it the Speedee Service System). Customers ordered at a window and received their food in 30 seconds, as opposed to sometimes 20 minutes with at the drive-in. Compared to what Kroc was used to, the food tasted good and was much cheaper than previous drive-in restaurants. His interest was piqued.
Focus is a superpower
Today, obviously the McDonald’s menu has more than 150 items that customers can order, but that wasn’t always the case. Before the McDonald brothers started their Speedee Service System restaurant, they ran a restaurant that served everything from burgers, fries, and milkshakes to many other products. After analyzing their menu and purchases, they found that almost 90% of their orders were three items: burgers, fries, and milkshakes. So, they built a restaurant that sold those three products. This focus enabled them to streamline their operations significantly while delivering superior customer service.
Many startups and new organizations want to be everything to everyone too soon. It serves them–and their customers–better to focus first, build scale, and then offer new offerings.
Educating customers is paramount
Some of the most surprising aspects of the new McDonald’s restaurant were that people weren’t used to eating out of paper and they were expected to discard their trash. Additionally, many customers expected a drive-in restaurant, which meant they didn’t need to get out of their cars. McDonald’s was different. Customers ate out of paper. They discarded their own trash. And they were expected to get out of their cars and order through a walk-up window.
Much of the activities associated with existing markets, from purchasing certain products to disposing of waste, seem normal to us today. But at market inception, many of the activities are new to everyone. As a result, the market-creating entrepreneur must invest in education. Without investing in educating your customers about aspects of the new market that are novel, entrepreneurs risk losing ostracizing customers who would benefit from access to the new market.
In the beginning, interdependence is necessary
In order to increase the efficiency of the restaurant and reduce wait times to 30 seconds, the McDonald’s brothers designed an entirely new kitchen and a ketchup and mustard dispenser, among other things. These enabled them to increase the operational efficiency of their kitchen and ensure superior employee productivity.
One of the theories we discuss a lot is modularity theory. The theory explains how different parts of a system’s architecture relate to one another and consequently affect the development and adoption of that system. In short, modularity theory explains why most companies, at the market creation phase, must integrate many of their operations to serve nonconsumers.
Designing a McDonald’s specific kitchen and kitchen components was not optional if the company was going to scale. It was necessary. These investments often start out as cost centers but, over time, they ultimately become profit centers. Today, McDonald’s franchisees attend Hamburger University in Chicago, Illinois, where they learn about operational excellence, leadership and people management, and customer service and experience.
Design distribution to scale effectively
One of the most important components of the McDonald’s business model is franchising. Although the brothers had tried (and failed) to franchise the concept years before working with Ray Kroc, Kroc still believed that franchising was the path to scaling the restaurant. He worked to identify people who were invested in the community and developed systems to ensure operational efficiency.
In this piece, I explain the process of market creation and how the second phase, distribution, is necessary for effective market creation. This is often the phase that is missing in many growth markets. Kroc was able to identify a model that enabled him to scale the McDonald’s business effectively.
The story of McDonald’s is a powerful reminder that lasting markets don’t just emerge—they are deliberately built by entrepreneurs who dare to envision a different future.
