top of page

It's What You Own That Counts

Ray Kroc, the IP thief and faux founder of Mc Donald's hamburger franchise, could not understand how he was expanding the brand, yet his margins did NOT reflect the growth. (Just goes to show, you never really know what's going on in someone's wallet) Enter Harry Sonneborn, a financial consultant for Tastee-Freez. Harry looked over Kroc's financials and what he proposed was so fundamental, it was downright revolutionary. Sonneborn convinced Kroc that his real goal was not just franchise fees, but the rents collected from the franchisees. (Imagine that!) Kroc could purchase the land and rent the franchise locations to the family-owned franchises. This would give old Ray enhanced revenue for growth and leverage over the holding company in California. The plan worked so well that Mc Donald's Realty eventually cannibalized the Mc Donald brothers- giving complete control of the brand to "Kroc & Co."

To this day, Mc Donald's keeps close to 82% ($7.6b of $9.2b) of all their franchise-generated revenue versus only 16% ($2.9b of $18.2b) of its company-operated restaurant revenue.......And you thought they just flipped burgers! NO, their model is inherently diverse by building real estate into it. The franchisees can flip and sell burgers- that only explains half the company's revenue.

In your case, always own the building which you operate your business in a separate holding company. That way you can collect rent no matter if your own venture fails. While you may not be as ambitious as Mc Donald's Corporation, the micro version can still suit you well. To counter, some entrepreneurs argue over cost-benefit analysis. The analysis has already been done. The rule of thumb is seven years. If you plan to be at a certain location for more than seven years, then buy. Ownership becomes more beneficial in the long term. You see now? You're not just in the steakhouse business, you're in the real estate business! After all, it's not what you sell, it's what you own!

bottom of page