(p. 32) “I was in search of a one-armed economist, so that the guy could never make a statement and then say: “on the other hand.””
Source:
Harry S. Truman as quoted in: Keyes, Ralph. The Wit & Wisdom of Harry S. Truman. New York: Gramercy Books, 1999.
(p. 132) . . . the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on. Railroad construction in its earlier stages, electrical power production before the First World War, steam and steel, the motorcar, colonial ventures afford spectacular instances of a large genus which comprises innumerable humbler ones–down to such things as making a success of a particular kind of sausage or toothbrush. This kind of activity is primarily responsible for the recurrent “prosperities” that revolutionize the economic organism and the recurrent “recessions” that are due to the disequilibrating impact of the new products or methods. To undertake such new things is difficult and constitutes a distinct economic function, first, because they lie outside of the routine tasks which everybody understands and, secondly, because the environment resists in many ways that vary, according to social conditions, from simple refusal either to finance or to buy a new thing, to physical attack on the man who tries to produce it. To act with confidence beyond the range of familiar beacons and to overcome that resistance requires aptitudes that are present in only a small fraction of the population and that define the entrepreneurial type as well as the entrepreneurial function. This function does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists in getting things done.
Source:
Schumpeter, Joseph A. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper and Row, 1950.
(Note: ellipsis added.)
(p. 189) McDonald’s is a real melting pot.
The key element in these individual success stories and of McDonald’s itself, is not knack or education, it’s determination. This is expressed very well in my favorite homily:
“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education alone will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.”
Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
(p. 163) Some of my detractors, and I’ve acquired a few over the years, say that my penchant for experimenting with new menu items is a foolish indulgence. They contend that it stems from my never having outgrown my drummer’s desire to have something new to sell. “McDonald’s is in the hamburger business,” they say. “How can Kroc even consider serving chicken?” Or, “Why change a winning combination?”
Of course, it’s not difficult to demonstrate how much our menu has changed over the years, and nobody could argue wish the success of additions such as the Filet-O-Fish, the Big Mac, Hot Apple Pie, and Egg McMuffin. The most interesting thing to me about these items is that each evolved from an idea of one of our operators. So the company has benefited from the ingenuity of its small businessmen while they were being helped by the system’s image and our cooperative advertising muscle. This, to my way of thinking, is the perfect example of capitalism in action. Competition was the catalyst for each of the new items. Lou Groen came up with Filet-O-Fish to help him in his battle against the Big Boy chain in the Catholic parishes of Cincinnati. The Big Mac resulted from our need for a larger sandwich to compete against Burger King and a variety of specialty shop concoctions. The idea (p. 164) for Big Mac was originated by Jim Delligatti in Pittsburgh.
Harold Rosen, our operator in Enfield Connecticut, invented our special St. Patrick’s Day drink, The Shamrock Shake. “It takes a guy with a name like Rosen to think up an Irish drink,” Harold told me. He wasn’t kidding. “You may be right,” I said. “It takes a guy with a name like Kroc to come up with a Hawaiian sandwich . . . Hulaburger.” He didn’t say anything. He didn’t know whether I was kidding or not. Operators aren’t the only ones who come up with creative ideas for our menu. My old friend Dave Wallerstein, who was head of the Balaban & Katz movie chain and has a great flair for merchandising–he’s the man who put the original snack bars in Disneyland for Walt Disney–is an outside director of McDonald’s, and he’s the one who came up with the idea for our large size order of french fries. He said he loved the fries, but the small bag wasn’t enough and he didn’t want to buy two. So we kicked it around and he finally talked us into testing the larger size in a store near his home in Chicago. They have a window in that store that they now call “The Wallerstein Window,” because every time the manager or a crew person would look up, there would be Dave peering in to see how the large size fries were selling. He needn’t have worried. The large order took off like a rocket, and it’s now one of our best-selling items. Dave really puts his heart into his job as a director, now that he’s retired and has plenty of time. There’s nothing he likes more than traveling with me to check out stores.
Our Hot Apple Pie came after a long search for a McDonald’s kind of dessert. I felt we had to have a dessert to round out our menu. But finding a dessert item that would fit readily into our production system and gain wide acceptance was a problem. I thought I had the answer in a strawberry shortcake. But it sold well for only a short time and then slowed to nothing. I had high hopes for pound cake, too, but it lacked glamor. We needed something we could romance in advertising. I was ready to give up when Litton Cochran suggested we try fried pie, which he said is an old southern favorite. The rest, of course, is fast-food history. Hot Apple Pie, and later Hot Cherry Pie, has that special quality, that classiness in a finger food, that made it perfect for McDonald’s. The pies added significantly to our sales and (p. 165) revenues. They also created a whole new industry for producing the filled, frozen shells and supplying them to our stores.
During the Christmas holidays in 1972, I happened to be visiting in Santa Barbara, and I got a call from Herb Peterson, our operator there, who said he had something to show me. He wouldn’t give me a clue as to what it was. He didn’t want me to reject it out of hand, which I might have done, because it was a crazy idea–a breakfast sandwich. It consisted of an egg that had been formed in a Teflon circle, with the yolk broken, and was dressed with a slice of cheese and a slice of grilled Canadian bacon. This was served open-face on a toasted and buttered English muffin. I boggled a bit at the presentation. But then I tasted it, and I was sold. Wow! I wanted to put this item into all of our stores immediately. Realistically, of course, that was impossible. It took us nearly three years to get the egg sandwich fully integrated into our system. Fred Turner’s wife, Patty, came up with the name that helped make it an immediate hit–Egg McMuffin.
Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
(Note: ellipsis and italics in original.)
Rita Gunther McGrath is a member of the faculty of the Columbia Business School. Source of photo: online version of the WSJ article quoted and cited below.
(p. R2) BUSINESS INSIGHT: You and Prof. Ian C. MacMillan of the Wharton School of the University of Pennsylvania wrote a book called “Discovery-Driven Growth.” What is discovery-driven growth?
DR. MCGRATH: Discovery-driven growth is a way of planning to grow that doesn’t require a lot of analytical information at the outset. It recognizes that many of the data that you need to make decisions don’t exist at the time that you have to make the decisions. It’s a plan to learn.
I think we all live with a conceptual overhang from an industrial era when things were more predictable. You had big production runs. At least if you were an American company, you had a lot of markets with very little competition, and what competition there was was more or less predictable. In many businesses you could use the past as an adequate guide to what the future held for you.
In more and more industries, those conditions no longer apply. You’re seeing temporary advantages, very rapid swings in who’s on top competitively, new technologies that make older ones irrelevant at an ever-faster clip–the usual litany of things people moan about today. But I think one of the things that has not yet quite been fully recognized is that these have an impact on our management processes–or should.
For the full interview, see:
Martha E. Mangelsdorf. “Executive Briefing; Learning From Corporate Flops; When starting new ventures, companies should revisit their assumptions early and often.” The Wall Street Jounal (Mon., OCTOBER 26, 2009): R2.
(Note: italics in original.)
Source of book image: http://events.roundtable.com/iguru/DiscoveryDrivenGrowth.gif.
Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.
The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hence would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.
(p. 91) I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.
Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
“A woman examined bouquets and messages left by Google users on Wednesday outside the Internet search company’s headquarters in Beijing.” Source of caption and photo: online version of the NYT article cited way below (after the citation to the quoted article, which is a different article).
David Smick in The World as Curved, has suggested that restrictions on the internet in China, limit entrepreneurship, and ultimately economic growth.
(p. 5) BEIJING — At the elite Tsinghua University here, some students were joking Friday that they had better download all the Internet information they wanted now in case Google left the country.
But to many of the young, well-educated Chinese who are Google’s loyal users here, the company’s threat to leave is in fact no laughing matter. Interviews in Beijing’s downtown and university district indicated that many viewed the possible loss of Google’s maps, translation service, sketching software, access to scholarly papers and search function with real distress.
“How am I going to live without Google?” asked Wang Yuanyuan, a 29-year-old businessman, as he left a convenience store in Beijing’s business district.
. . .
Li An, a Tsinghua University senior, said she used to download episodes of “Desperate Housewives” and “Grey’s Anatomy” from sites run by BT China that are now closed. “I love American television series,” she said with frustration during a pause from studying Japanese at a university fast-food restaurant on Friday.
The loss of Google would hit her much harder, she said, because she relies on Google Scholar to download academic papers for her classes in polymer science. “For me, this is terrible,” Ms. Li said.
Some students contend that even after Google pulls out, Internet space will continue to shrink. Until now, Google has shielded Baidu by manning the front line in the censorship battle, said a 20-year-old computer science major at Tsinghua.
“Without Google, Baidu will be very easy to manipulate,” he said. “I don’t want to see this trend.”
A 21-year old civil engineering student predicted a strong reaction against the government. “If Google really leaves, people will feel the government has gone too far,” he insisted over lunch in the university cafe.
But asked whether that reaction would influence the government to soften its policies, he concentrated on his French fries. “I really don’t know,” he said.
For the full story, see:
SHARON LaFRANIERE. “Google Users in China, Mostly Young and Educated, Fear Losing Important Tool.” The New York Times, First Section (Sun., January 17, 2010): 5.
(Note: the online version of the article has the title “China at Odds With Future in Internet Fight” and is dated January 16, 2010.)
(Note: ellipsis added.)
The source of the photo at the top is the online version of:
KEITH BRADSHER and DAVID BARBOZA. “Google Is Not Alone in Discontent, But Its Threat Stands Out.” The New York Times (Thurs., January 13, 2010): B1 & B4.
(Note: the online version of the article has the slightly different title “Google Is Not Alone in Discontent, But Its Threat to Leave Stands Out” and is dated January 14, 2010.)
The reference to the Smick book is:
Smick, David M. The World Is Curved: Hidden Dangers to the Global Economy. New York: Portfolio Hardcover, 2008.
(p. 74) The income from Multimixer paid the rent and all salaries while I was slaving away to get McDonald’s started.
Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
Here is evidence of the continuing relevance of Hayek’s The Road to Serfdom:
(p. A5) CARACAS, Venezuela (AP) — A cable television channel that has been critical of President Hugo Chávez was taken off the air on Sunday after defying new government regulations requiring it to televise some of Mr. Chávez’s speeches.
Venezuelan cable and satellite television providers stopped transmitting the channel, Radio Caracas Television, after it did not broadcast a speech by Mr. Chávez on Saturday at a rally of political supporters.
. . .
. . . the cable channel, known as RCTV, said the telecommunications agency “doesn’t have any authority to give the cable service providers this order.” It said in a statement, “The government is inappropriately pressuring them to make decisions beyond their responsibilities.”
The channel switched to cable in 2007 after the government refused to renew its license to broadcast on the regular airwaves.
For the full story, see:
THE ASSOCIATED PRESS. “Cable TV Station Critical of Chávez Is Shut Down.” The New York Times (Mon., January 25, 2010): A5.
(Note: the online version of the article has the date January 24, 2010.)
(Note: ellipses added.)
Reference for Hayek book:
Hayek, Friedrich A. Von. The Road to Serfdom. Chicago: Univ of Chicago Press, 1944.
One recurring puzzle is the role, if any, for science in innovative entrepreneurship. The episode chronicled below provides one piece of evidence:
(p. 71) I had explained to Ed MacLuckie with great (p. 72) pride the McDonald’s secret for making french fries. I showed him how to peel the potatoes, leaving just a bit of the skin to add flavor. Then I cut them into shoestring strips and dumped them into a sink of cold water. The ritual captivated me. I rolled my sleeves to the elbows and, after scrubbing down in proper hospital fashion, I immersed my arms and gently stirred the potatoes until the water went white with starch. Then I rinsed them thoroughly and put them into a basket for deep frying in fresh oil. The result was a perfectly fine looking, golden brown potato that snuggled up against the palate with a taste like . . . well, like mush. I was aghast. What the hell could I have done wrong? I went back over the steps in my mind, trying to determine whether I had left something out. I hadn’t. I had memorized the procedure when I watched the McDonald’s operation in San Bernardino, and I had done it exactly the same way. I went through the whole thing once more. The result was the same–bland, mushy french fries. They were as good, actually, as the french fries you could buy at other places. But that was not what I wanted. They were not the wonderful french fries I had discovered in California. I got on the telephone and talked it over with the McDonald brothers. They couldn’t figure it out either.
This was a tremendously frustrating situation. My whole idea depended on carrying out the McDonald’s standard of taste and quality in hundreds of stores, and here I couldn’t even do it in the first one!
I contacted the experts at the Potato & Onion Association and explained my problem to them. They were baffled too, at first, but then one of their laboratory men asked me to describe the McDonald’s San Bernardino procedure step-by-step from the time they bought the potatoes from the grower up in Idaho. I detailed it all, and when I got to the point where they stored them in the shaded chicken-wire bins, he said, “That’s it!” He went on to explain that when potatoes are dug, they are mostly water. They improve in taste as they dry out and the sugars change to starch. The McDonald brothers had, without knowing it, a natural curing process in their open bins, which allowed the desert breeze to blow over the potatoes.
With the help of the potato people, I devised a curing system of my own.
Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
(Note: ellipsis in original.)
(p. C27) People are hard-wired to be fearful of large carnivores. What’s more, it’s hard for the poor to see the economic advantage of rewilding. Humans don’t like conservationists telling them what they can and can’t do with the land that surrounds them. As one conservationist counterintuitively points out to Ms. Fraser: “Conservation is about managing people. It’s not about managing wildlife.”
For the full review, see:
DWIGHT GARNER. “Books of The Times; Conservation as a Matter of Managing People.” The New York Times (Fri., January 22, 2010): C1 & C27.
(Note: the online version of the article is dated January 21, 2010.)
The book under review, is:
Fraser, Caroline. Rewilding the World: Dispatches from the Conservation Revolution. New York: Metropolitan Books, 2009.
