In anticipation of local McDonald’s franchisee Mike Luna making his annual guest speaker visit to the Midwest Entrepreneurs class, I informed students that franchising can be seen as  a special type of business operation from the entrepreneur’s perspective wherein the entrepreneur pays fees to the parent company and receives a proven business plan to follow (but must follow the company’s rules). I also told students that another way to look at franchising is to consider it as a “limited risk” entrepreneurial option; in that there is a proven business model to follow and start-up costs for a similar operation—compared to if you were to build it on your own—are likely much lower. I added that beyond that, one must still face a lot of risk and run their business in a highly efficient entrepreneurial-like manner to be successful. More on franchising as from an entrepreneurial perspective can be found at the following link.

http://www.entrepreneur.com/encyclopedia/franchising

Mr. Luna supported my advance commentary to the students and more; with special emphasis on the imperative of running the business in a highly efficient manner. Below, class member Parker Perrero captures very nicely these and other key themes and takeaways from Mr. Luna’s insightful presentation.

Prof. Gabel

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This past Tuesday our class was able to listen to a special type of entrepreneur we have yet to see, a franchisee. Mike Luna is a long time franchisee for McDonald’s, owning two McDonald’s, one located in Monmouth and one in Aledo.

Mike has come a long way since first working the window at McDonald’s as a 16 year old in 1960, when the menu only had hamburgers, cheeseburgers, fries, and a few refreshments. Mike described the work as being a lot harder back in the day. He would carry 100 pound bags of potatoes and prepare the fries by hand. Mike worked at McDonald’s for five years before leaving for school for another five years. While working there he said he gained most of his work ethic from his boss who taught him to “maintain discipline and better standards” at all times.

Mikes relationship with his former boss landed him a job as a supervisor for McDonald’s in Galesburg. He was later offered an opportunity to buy a percent of the store. Lucky for Mike, his former boss knew Ray Crock who allowed him to be a franchisee through a “handshake agreement.” It only took Mike three or four years to pay back his loans and start saving money himself.

As we learned from Mr. Luna, a franchisee must abide by a set of rules created by the franchisor. Some of these rules involve payment for the right to run the McDonald’s store. For example, Mike must pay a 13.25% franchisee fee and a 4% commercial fee. The franchisor takes everything off the top, not from profit, so he doesn’t get paid until after everything has been paid for. This includes labor and equipment, which makes balancing supply and demand and efficiency in operations vital. This can be stressful for Mike because he must deal with the budget the franchisor gives him each year. They base their budgets from the previous year’s sales. Mike says dealing with the franchisor can be aggravating because sometimes it’s just “a lot of wasted time and money” due to their specific requirements from year to year.

However, Mr. Luna also informed us that the franchisee gets a lot in return for the fees paid and the following of the rules set by the franchisor. He told us, for example, that McDonald’s has a very efficient supply chain and that he is provided inventory that has been checked and maintained from the point of it being planted/born to when it was shipped to the locations. “Food Safety and Customer safety” has been and always will be his number one priority. Taking care of the customer, serving the customers, having the proper amount of product, and cleaning are all also their top priorities.

Mr. Luna’s “Nothing is Free” and “Time is the most important thing you have” mottos are something he tries hard to pass along to his employees. He enjoys seeing his employees go on and be successful after working for him. He doesn’t like to fire employees and says he rarely has in the past.

Being a franchisee is no slouch job, and must be taken seriously. You have to work long and hard days to make sure the company runs smoothly. Mike has worked hard enough to be successful and says he is able to “back off” more now with his son helping out more and more. Mike manages his stress by taking up many hobbies like playing golf, cards, and going on vacation.

Parker Perrero