Our friend Roger Neu over at the M&A Law Firm makes some very valid points in this interesting look back at the founding of McDonald’s and Ray Kroc’s investment into an existing ongoing business instead of a start up. Some things can be learned here. Having been engaged in numerous start-ups we have learned many of these lessons. Start ups are very fluid, they flex and change almost on a daily basis, many evolve to entirely new enterprise before they succeed, but acquiring an existing business allows you to enter the company after the testing is done and as a more stable long term picture of the business has begun to be formed. Check it out it is a wonderful perspective to share.
“RAY KROC DID NOT START MCDONALDS”
Roger L. Neu, JD. CPA
M & A Law Firm
THE M&A LAW FIRM REPORT
The genesis of McDonalds was a small but successful restaurant in San Bernardino, California owned by Dick and Mac McDonald. Ray Kroc obtained the rights to the McDonald name in 1955 and by 1958 McDonalds had sold its 100 millionth hamburger.
Would Ray Kroc have succeeded if he had to start from scratch instead of taking over a highly successful restaurant?? Statistics would indicate that Mr. Kroc had an 11 times greater chance of succeeding by purchasing an ongoing business than beginning from scratch.
The theory is that buyers of businesses are forced to think about issues that startups do not address and that they have more know-how and advisors available to assess risks. In addition, the focus of the due diligence can be more targeted since, unlike a startup, the seasoned business has a developed business path (after probably failing at some initial objectives) and many of the variables of a startup have been eliminated.
This theory is reality in the M&A world and is one of the reasons that buyers spend millions of dollars to buy established companies. These buyers know that purchasing an established company is much less expensive and less risky than doing their own R&D, setting up a new facility, hiring employees, getting good management, establishing new customers and suppliers and brandishing a good name in the market place. On the other hand, without the founding and growth of the startups there would not be any middle market companies to buy.
Next time you go into McDonalds, thank Dick and Mac McDonald for taking an 11 times greater risk to start their restaurant. In my next newsletter I will talk about two other “founders” who did not start their own companies. [HINT: 99% of Americans have used their products and services.]