Way back in the 1990s I attended a memorable speech sponsored by the Philadelphia Chamber of Commerce. I’d been intrigued because the speaker was billed as a prominent consultant to CEOs, and the teaser promised some useful tips. I had recently started my first nonprofit executive director job, and felt I could use all the help I could get. While I’ve long forgotten the speaker’s name (an unfortunate habit of mine), I still remember two things from that talk:

First, a quote: “Great people don’t make businesses succeed – great systems do.” He emphasized that many terrific people are out there, and the task isn’t to magically find the super-talented few. Instead, it’s the context that matters; by designing and applying impeccable systems for getting the company’s work done, you can ensure everyone succeeds.  Conversely, even geniuses will fail if operational systems are a mess. I don’t think he invented this idea; after all, many successful companies embody it (Apple, Amazon, Southwest and Starbucks come to mind). But sometimes the best ideas aren’t the most original. I used the advice, hired people who supported this philosophy and, likely for this and several other reasons, our organization took off. 

My second memory of the speech was the example he chose to illustrate his “great systems principle.” It was McDonald’s, and he specifically noted that a Big Mac was the same, whether you got it in Philadelphia, Sacramento, Paris or Hong Kong. Keep in mind that I was running a food and nutrition organization, and the Big Mac was just starting to embody an emerging public health crisis fed, in part, by the fast food explosion. Needless to say, I wasn’t keen on the toxic sandwich as a symbol of good business. Still, the point was well taken. Imagine how extensive and foolproof operating systems must be to ensure the same Big Mac is presented to discerning customers, wherever they may have happened to place the order. It’s a classic lesson in scaling up, and one that nonprofits can learn from.

burger-1441183846YvU.jpg

I recently watched the movie The Founder, about McDonalds’ scaler in chief, Ray Kroc. (Here’s a review.) You may be aware that Kroc didn’t start McDonald’s. The real founders were two Southern California brothers who had perfected burger joint operation on a small scale. Kroc signed a licensing deal to use their name and existing systems for mass-producing burgers, fries and shakes. Essentially, the original owners created the concept of the modern family-oriented fast food establishment. (The scene where the bros demonstrate their revolutionary production process for Ray is one of the film's best.) Kroc had ambition and, if you believe the movie, got some good advice at the right time. Billions of burgers and an obesity epidemic later, McDonald’s is still everywhere, and the Big Mac may, for all I know, be unchanged.

The movie presents the young, ambitious Kroc as an ethically-challenged manipulator, and stealer of ideas. It also paints him as a savvy businessman, and while some of those traits were likely part of his persona, I suspect both sides of the Kroc coin were less pure than portrayed. 

Let’s talk about his supposed business savvy. Kroc, played nicely on screen by Michael Keaton, pioneered some business strategy concepts and deserves credit for turning McD’s into an empire. But the film suggests the original contract he signed with McDonald brothers was unfair to Kroc, because the revenue-sharing formula was weighted heavily in favor of the brothers and individual franchise owners. (Kroc didn’t run franchises, but served as a regional middle-man licenser.) In the plotline, Ray didn’t figure this out until he was on the verge of bankruptcy, despite a growing and thriving set of franchises under his umbrella.

I’ll make an analogy here to the nonprofit sector. Have you heard about the “nonprofit starvation cycle?” It’s a term coined by Ann Gregory and Don Howard to refer to what happens when nonprofits accept large restricted grants that don’t adequately fund core operating needs. (See this related blog entry for more about the cycle.) Nonprofits can literally grow themselves to death this way. Ray Kroc was doing the same thing.

The surprising part to me was that Kroc, the shrewd tactician, apparently did no financial analysis, either before signing this lousy contract or while implementing it. Basic financial modeling would have told him what his break-even points would be, as well as the required terms to ensure a reasonable profit margin. Armed with knowledge, he could have negotiated a good deal.  

Nonprofits often fail to do the same type of business planning – and can end up in essentially the same situation. 

McDonald’s had great systems, but that wasn’t enough. Ray Kroc’s branch of the burger business needed smart business planning to guide decision-making in the early years. He didn’t have that when his train left the station, and he instead made decisions based on a dream, enthusiasm and ego. It’s a recipe for disaster – just as much as having poor operating systems. (Some of my favorite scenes in the film are when Dick McDonald, played by Nick Offerman, calmly explains the contractual terms Kroc agreed to. They’re reminiscent of grant agreements nonprofits routinely sign on to.)

Admittedly, the science of business analysis wasn’t well established as Kroc was dreaming big (though common sense presumably was). Business analysis and planning are well established now. So why do so few nonprofits use it? And why do nonprofit leaders often make big decisions based on factors like intuition and political considerations alone?

Different people may have different theories. What’s yours?

Again, McDonald’s offers an important lesson. Kroc and his revamped team redefined their business model. His key adviser, portrayed by B.J. Novak, identified the corporation’s structural strengths and weaknesses. That analysis, combined with heavy-handed legal tactics, defined a new business strategy. The rest is history.

Ray Kroc got a second chance just before he drove his organization into the ground. Many others, nonprofit and for-profit alike, haven’t been so fortunate, and that’s an unexpected takeaway from an American “success” story.