Family Business – Disruption, disputes and the rest!

Family Business – Disruption, disputes and the rest!

Last week I watched “The Founder”. Getting to watch a movie is a rare occasion these days with two young boys that are much more into watching Paw Patrol or Toy Story (yes….20 + years later it still generates revenue!).

For those of you who have not seen it…apologies in advance, this is a spoiler alert!

The movie is based on the story of the founding and growth of McDonalds. Based in early 1950’s America, what struck me when I was watching the opening segment when we are introduced to the McDonald brothers and the amazing new fast food model they have given to San Bernardino, California, is that disruption is nothing new!

You probably hear disruption and either say one of two things:

  1. Nothing to do with me; or
  2. Not that buzz word again!

I felt the same myself for a long time. Sometimes words are given to concepts that actually make it difficult to relate to your own life or business. I tend to use the analogy for us Accountants as the debits and credits being the same regardless of whether you are dealing in hundreds of euros or millions. When you break the business down the Accounting is generally very similar.

Disruption and the family Business

In my view digital disruption has given a buzz to the whole concept and there is maybe a feeling that disruption is new or that it only relates to IT companies. In addition the word “disruption” itself can seem negative. True, disruptive technology has increased the pace of change beyond anything imaginable in the last 50 years, but, to me, what the McDonald brothers did in 1950’s America was total disruption of the fast food model and the industry which had been in place for years beforehand. The pre-existing model meant customers had to wait 30 minutes for the wrong order, there was a clumsy approach to customer service and it was not considered to be a family outing. They changed all that. The conditions for disruption were all in place – out dated work practices, complacency, lack of innovation and the resulting customer frustrations. By addressing these through their new “speedee service system” the McDonald brothers created total disruption and saw their single location business thrive. They succeeded in introducing a new network of customers to their business.

In addition they applied what we would know as the 80/20 rule by using the data available to them. They saw that the majority of their sales came from 3 products – Burgers, fries and drinks. They limited the menu to focus on those items and became experts at making and serving them.

The entire Speedee Service system was a finely tuned process that was implemented with total precision. They practiced, discussed, changed and argued how it should work and were constantly trying to improve and save time. The same fundamentals as we would see in lean processing.

So here was a family business that became a disruptive influence in the market they were operating in.Think about your own business for a second. Do similar conditions for disruption exist? If they do it is only a matter of time. Combine technology, the ability of the millennial generation to use that technology and a more expectant customer and the potential is there.

We have seen this in the Accountancy profession in recent years and hopefully it will continue. It will make us all better and the customer experience better as a result.

Agreements and Disputes

What the McDonalds didn’t do so well themselves was scaling. They had tried it on their own but it had failed due to poor quality controls. This possibly was an indication of failings in their management or recruitment processes. Their management weaknesses would come back to bite them at a later stage also.

This is where Ray Kroc came in. Ray was a dreamer (maybe a visionary) and he also had perseverance. He saw what the brothers had done as having the potential to disrupt throughout the entire United States through franchising. This is where the second part of the blog title comes in. While all was “happy days” at the outset, all parties were ultimately different personalities who had different visions and, as with any family business, the potential for dispute exists. The normal protection for all parties is a shareholders agreement. While such an agreement existed in this case, the monster that Ray Kroc had created over the next number of years would effectively mean that the brothers ended up on the losing side. From their perspective, they had relinquished too much control and had not managed Ray Kroc effectively.

Now who is to say what would have happened had they managed him more closely…….maybe we would not have golden arches throughout the globe (and we would all possibly have better diets) but I thought it was interesting to relate to the potential dynamics that exist in any family business as I watched the story unfold.

So where is the relevance in the above total spoiler to your own business? Well you can only learn from your own or others experiences. The following are some points I found interesting and would be relevant to all family businesses:

  1. The potential for disruption exists in all industries. As business owners we need to be aware of the threats and opportunities
  2. Customer service is always critical and also acts as the best business growth tool through referrals and word of mouth. In the case of McDonalds the growth of the original San Bernardino location came from this route
  3. When problems surface they need to be addressed and managed timely and effectively
  4. Business or shareholders agreements should always be in place. While they do not mean disputes won’t exist, what they give is a potential mechanism to settle such disputes
  5. As a business grows more and more control will have to be relinquished by the owners to allow this happen. Having good systems and processes in place is a necessity. Measurement and monitoring of performance (both financial and non-financial) then becomes essential as this is the key control of the owner who has less involvement in the day to day business.

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