Small Business and Entrepreneurship The Roots of McDonalds

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This assignment is prepared as per the requirement of identifying the anatomy of a successful business model. In doing so it was essential to go through a successful business model which thrives in the practical world. For this purpose the business model of the world famous fast food restaurant chain McDonalds' has been selected.

Before analyzing the MCD business model we have to define the term entrepreneurship and identify various types of entrepreneurships. Then the business model of the chosen organization has been thoroughly analyzed by using various tools such as SWOT analysis, PEST analysis, porters value chain as well as BCG matrix.

Finally as per the requirements the initial requirements for a business start up has been looked at in a broader sense.


Entrepreneurship can be defined as

"The act of becoming an entrepreneur which means he who undertakes a duty Entrepreneurs gather resources which consists innovations, finance and business acumen in an endeavor to transform innovations into economic goods".

According to Daft [2008] we can identify five types of entrepreneurships.


This is the most common type of entrepreneurship we can see in the business field. This type of person prefers innovation and enjoys working in a novel thing or something meaningful to them.


This person is much closer to idealist but he is content simply because of the ownership of a business.

Hard workers

These are people who strive and put a bigger effort in order to build a larger business organization. They are willing to take challenges and in return they expect to turn the company in to a multimillion dollar organization. Business involves hard work but not all the entrepreneurs are working hard to achieve their goals.


These types of entrepreneurs like the chance of handling things by themselves by way of operating the business. They are enriched with higher levels of energy and are always on pressure to meet deadlines.


These people like balancing work life and personnel life. Most notably they do not dream to build large organizations due to the fear that it will obstruct their personnel life. They are satisfied with having just enough to survive.


An Overview

McDonalds has become the world's ninth most valuable brand replacing US army as the US's largest job training organization. Mc's market share is larger than the next 3 largest fast food companies combined. McDonalds is the world's largest fast food chain that serves more than 47million customers daily. Its main products are chicken products, hamburgers, cheese burgers, French fries, breakfast items, soft drinks, milk shakes and desserts. From recent years at has been heavily focusing on children as a viable market. It has also now comes up with redesigned restaurants, specially focusing on comfort. Thus at McDonalds one can experience facilities such as lounge areas as well as fire places.

Also Mc has expanded its menu that includes salads as well as snack wraps as new product offerings.

Normally every McDonalds' restaurant is operated by a franchisee, an affiliate or by the organization itself. The company's main income flow comes from rent, royalties as well as fees paid by franchisees. For the year ending 2007 McDonalds' revenue was $22.8 billion a growth of 27% compared to the previous year. For the same period the operating income was $3 Billion which was a nine percent growth.


In 1954 a milk shake machine salesman called Raymond Kroc saw a hamburger stand in California. The scene immediately ignited a new idea in his mind, fast food. Facella (2008) says that McDonald founder Raymond is no less capable than Henry Ford. He revolutionized the US fast food industry by introducing discipline in making hamburgers, French fries and milk shakes. He also gifted the world a sophisticated operating and delivery method that would eventually became the benchmark of American fast food industry.

McDonalds' started its first restaurant in 1953 and today it has around 20,000 restaurants around the world. Soon after its opening McDonalds' first restaurant became the standard of then American fast food industry.

McDonalds' mission

The McDonalds mission is to become the number one choice of place for our customers and way to eat with inspired people who make every customer happy with quality, service, hygiene and value every time. We invite you to be part of this successful team enduring to make smiles on the faces of millions of people daily.

McDonald's culture and value

McDonald's values

McDonald's value system is called Q.S.C. & V which means quality, service to customer, a clean environment when customer enjoys the meal. The value of the meal create smile in every customers face.

Customer experience is our core

We exist because of our customers. We show our appreciation by providing quality meals and superior service, in a hygienic welcoming environment at a great value. We strive to achieve QSC&V for every customer every time.

We are committed to our people

We give opportunity, nurture talent, create leaders and reward achievement. We believe that in order to achieve success it is essential to have a team of highly trained individuals, with diverse background and experiences working collectively.

We believe in the McDonalds' system

The corner stones of McDonalds' business model are known as the three legged stool. It consists of owner/operators, suppliers and company suppliers. These three are our foundation and striking a balance of interest between these three are essential.

We operate in an ethical manner

As an ethical business we are committed to maintain a higher level of fairness, integrity, and honesty. We are individually as well as collectively responsible.

We give back to the society

We are Serious about performing our responsibilities as a leader. We help our customers to make the world a better place by building better communities, supporting Ronald McDonalds' house charities as well as by providing required resources.

We grow our business profitably

McDonalds' is a public quoted company. So we strive to provide a sustained profitable growth for our share holders. This needs frequent focus on our customers and the health of our system.

We are a learning organization and our goal is to expect and respond to changing customer, employee as well as system requirements via constant evolution and innovation.

[Abstract Ritzer George (2007), The McDonaldization of Society 5th edition]

SWOT Analysis


Diversified risk

Possession of a large market share

Strong supply chain

Strong ethical conduct

Strict standards in food safety

Decentralized but connected system

Strong brand name, recognition and reputation

Strong financial performance and position

Reasonable pricing as well as high quality products

Availability of nutritional information in the package

Robust global presence as well as strong performance in the global market place

A dedicated training centre for managers known as the Hamburger University

The company's focus in price, place, product, promotion and people.


The bad image saying McDonalds' food are unhealthy

The company experiences a higher labor turnover that includes top management

Customer losses are high due to strong competition

Legal actions taken against the company on health related issues over the use of trans fat & beef oil

Contribution to the ozone depletion due to the usage of HCFC-22 to make polystyrene

Low width as well as depth of products


The health trends are growing among customers

The ability to strike joint ventures with retailers such as super markets

Better locations for franchisees because of consolidation of retailers

By innovation of healthier lifestyle food the company can respond to social changes. The company has been able to better position itself by moving into healthier snacks as well as baguettes

The organization uses data base marketing as well as CRM in order to reach target consumer groups more accurately. It enables the organization to recognize likely customers and avoids brand switching.


According to Eric [2005] the company frequently comes under attack by health professionals as well as health activist who accuses that the organization is actively contributing to obesity, diabetes, heart attacks as well as cholesterol.

The anti American feelings also have a bad impact on the organization

Global economic meltdown and fluctuating currencies

The heavy competition might lead the company to lose a larger proportion of market share.

The health and environmental issues will be severe challenges from the fast food industry and the players in the industry will have to come up with innovative ideas to meet customer expectations.

The recent economic meltdown impacts consumer confidence and the ability to spend. The increase in limited brand operations might be a great obstruction for McDonalds's growth. Additionally tariffs on imported material that might be imposed by the government as well as discrepancies in the lengthy supply chain of the company are possible risks. The decrease in value of US dollar as well as soaring cost of labor will force the company to think about its operations in a new dimension.

Five forces analysis


The restaurant industry is a highly competitive industry. A prominent feature of the industry is the strong completion between a large numbers of small restaurants who are heavily competing for with each other to enhance their customer base. McDonalds is no exception on this regard. It excelled in this area since its establishment in 40s. To face the competition it started McCafe. This was a key reason for the organization to stay ahead of the competition. Another major step towards tackling competition was introducing breakfast meals. The implication is McDonalds must stay up to date in order to face the competition.

Ease of entry

Entry in to the restaurant industry is very difficult. Establishing a distinct brand name is even harder. High cost of entry is mainly due to high cost of research and development. Price competition is also a major barrier for the new entrees in to the industry. Larger organizations such as McDonalds' make it difficult for new organizations to enter the market.


The marketplace is rich in substitutes. People can choose from a wider variety of substitutes and this could alter by McDonald's burgers, dairy products, beverages and other products.

Strength of suppliers

The suppliers have a relatively smaller power in the fast food industry. They only get a considerable power only if the main ingredient of the product is hardly readily available.

Strength of buyers

This is comparatively low in the fast food industry.

PEST analysis

Political & Legal

The foreign operations of the company have an extensive amount of influence by individual state policies imposed by each government.

Changes in these regulations, newly imposed laws as well as new law enforcements under the Obama administration may have impact on trade, product safety, employment /labor, tax, privacy as well as financial conditions of the organization.


McDonalds' experiences difficulties in situations where the economy of a certain state is hit by recession and changes in the exchange rate.

Market leadership in the industry

Very high target market

Cost is low and income is high

The economic growth rate of a specific state decides the purchasing power of the consumers in the country.


The organization works within a diverse social group

It increase the employments


Development of advanced technology

Higher quality standards


Foreign supplies are used by the local manufacturers

Packaging is of high quality


Products are subject to legislation

The logo is sustainable

Porters value chain analysis

The aim here is to offer customers a value that exceeds cost. It will generate profit margins for the organization.

The primary value chain activities of the organization include followings.

Inbound logistics - this is where receiving as well as ware house activities for raw material happening. Also it includes distribution of raw material to manufacturing as they are needed.

Operations - this is where input is transformed in to output.

Out bound logistics - this involves warehouse activities and distribution of finished goods

Marketing and sales - the recognition of customer requirements and generation of sales

Service - this refers to services provided after the sale of goods

The above primary activities are backed by

Technology development - the value chain model provide a huge advantage in identifying the organization's core competencies of the organization. It enables the organization to pursue ost advantage

BCG Matrix of McDonalds

It is essential for McDonalds to use a strategy to expand its current line of products in very promising markets. McDonalds', KFC and other players have been dominating the American continent as well as outside the continent for so long. The growth rate of the market indicates the attractiveness of the industry. The epicenter of the logic is the industry life cycle. The following chart illustrates the BCG matrix of McDonalds. bcg.jpg

The products have been placed in 4 cells according to the BCG matrix.

Stars [rapid growth and high market share]

Occasionally roughly in balance on net cash flow. The maximum effort should be kept to retain the market share as the outcome of it is the ability to move in to cash cow position. Therefore McDonalds use is in the star cell.

Cash cows [slow growth and high market share]

The generation of profits as well as cash should be high and as a result of the low growth investment requirements should be low. Keep profits high.

Dogs [slow growth and low market share]

The company should strive to avoid and reduce the number of dogs. Should be careful about costly 'turn around plans'

Question marks [rapid growth and low market share]

This indicates the worst cash characteristics of all. This is due to heavy demand but lower return.

The startup Basics

Under this section we wish to discuss about the basic elements which should be considered when commencing a business. This includes financing, research, licensing etc.

Financing the business

As a stat up an organization might have many financing options. But the following chart illustrates the most common methods of funding possible for such organization.



Self funding

This is where you use whatever source of money you have in your hand to fund the business. Although most of the funding for many start ups comes from personnel savings and home equity loans one can also use his credit card to finance the business. For instance Google's Larry Page and Sergey Brin financed their business during the first two years purely by their credit cards. But one needs to be careful to avoid the buildup of a huge debit that would damage his credit rating as it will make things harder to get more funding.

Family and Friends

During the very early stages entrepreneurs can go to family, friends, relatives for financing. For instance the blue job estate coffee a premier coffee seller started its business with no products and little prior experience. The business's founders A.J.Brown and John Shanebrook decided that their sole source of funding would be their family and friends. They went for that and collected $480,000 for the business.

The advantage here about family and friends as a source of funding is that it is informal. Therefore one need not draw business plans to get funding for the business.


This might be an option for startups but getting a loan is a long process. It is because banks only consider businesses that have been in the trade for two years. Sometimes they ask for a tangible asset as a surety. For a manufacturing company the surety might be the plant or heavy machinery.

The bank provides a loan based on your ability to repay the sum says. Although it is a hard method one way that works for a start up in obtaining a loan is to apply for a loan guaranteed by the SBA or small business administration.

Venture capital

This is Also known as seed funding. the venture capitalist in the US alone has provided a large amount in seed funding for the first quarter of last year. Although it is bit difficult to obtain a loan from a venture capitalist compared to other methods if you have a good track record and can guarantee a handsome return then the chances are high for getting a loan. One needs to use his networks as well as referrals in securing a VC contribution. The major drawback of this method is you will have to give up the power of making major decisions as well as control when it comes to the business.


This is possible if the business is in the technology business. One can apply for a small business Innovation grant or SBIR. This method mainly exists to fund programs which are high in technological innovations.

There are also government loans available for women and minority groups. Since the competition is very high for this type of loans winning such a loan would attract investors from outside as well.

specialty loans

Organizations such as count me provides loans to women entrepreneurs from small sums up to $50,000. Some large banks offer special loan schemes for women, minority groups as well small businesses

Improving hiring at startups

Define criteria for judging - when hiring people first and foremost the organization should erect standards based on criteria such as personality, intellect, work experience as well as other elements required for the particular job.

Then these criteria should be sub categorized. For instance if we take work experience it can be sub divided in to

Experience in managing a team

Lead a direct sales effort

Prior work experience in a start up

Based on the above method score should be allocated.

It is also better to make decisions by a evaluation team instead of individual decision making.

Create a process - the recruitment should take the form of a process. This should include

The data bases used in the process

The deadline for submission of applications

The methods of application for the job

The time period for reviewing the applications

Giving notice to those not been selected

Dale [2006] provides further guidelines in recruitment

Maintain a dedicated email account for recruitments.

Set up an auto responder

Have a good pipeline of candidates - it is very important to have a pool of talented candidates for selection.

Use referrals as much as possible - Roberts [2006] provides following guidelines in using referrals as a tool of recruitment

Use your trusted and best employees to get recommendations about potential employees

Use social networks such as facebook, twitter and LinkedIn for the purpose

Provide bounties for valuable referrals

Pre interview testing - for some jobs like programming you can have a glimpse of the talents of candidates even before you meet them. This is practical in the internet age. If the job involves that involves writing you can ask for a sample. This method can be applied for many other jobs.

Market research

The success for a start up heavily depends on how well the organization knows its audience. A good research team should focus on followings.

The research team should thoroughly focus on its target audience.

Should trace the subtleties of the market

Avoid debates that waste time and inappropriate allocation of resources about the needs of the customer

Provide the foundation to build the right product at the right time

Should identify marketing message by understanding what customers value

Identifies what value the customers ready to pay

Establish confidence in investors by convincing that the product will meet the real market requirements

Provide the foundation to reduce the impact of torn over and expansion


Type of the license

The purpose

Basic business operations license

this is the type of license that should be acquired from the administration of the city or county which the business operates

Zoning and land use permits

This is for some home based businesses as well as manufacturing organizations.

Sales tax licenses

in order to sell any product or service

Special license issued by state


Lottery tickets


Fire arms

Special license issued for professions

Medical care


Auto repair

Real estate

Insurance sales

Tax services

Health department permits

For business involved in preparing food and beverages.

Fire department permits

For organizations that attract lot of customers such as night clubs and bars.


McDonalds' unarguably one of the greatest organizations ever developed in the world. From its inception in 40s the organization was the trend setter for the fast food industry. The organization can thrive by doing more such as by providing a wider variety of choices, introducing more desserts and items such as pizza Mcpuff. There are more space available to provide a speedy service. The company can reduce cost by reducing costs which are related to the supply chain.

McDonalds' is looking forward to expand its happy meal choices to attract more customers. It can also introduce Mccafe special coffees and other beverages to the existing menus. The menus can be further expanded by offering cakes as well as pastries. McDonalds' should also focus on gifts. Gifts for all generations not only kids but also for teenagers and for senior citizens which is a new market with a higher potential. During festive seasons it must focus on special promotions. The organization should consider increasing the space availability for special occasions such as birthday parties.

By analyzing the marketing mix of the company we can conclude that McDonalds' deserves the status of "global entrepreneurship". It is a combination of globalization as well as internationalization. McDonalds' achieved its current position by following the simple theory "think global, act local".