Here is the full founding story of McDonald’s—from a radical kitchen experiment in California to a corporate empire—including what became of its original founders.
Phase 1: The Blueprint—Chasing the American Dream
In the late 1930s, two brothers from New Hampshire—Richard "Dick" and Maurice "Mac" McDonald—headed west to California. They weren't looking to revolutionize food; they just wanted to make money. After a brief stint running a movie theater, they opened a drive-in barbecue joint in San Bernardino in 1940.
It was successful, but the brothers noticed three frustrating operational bottlenecks:
- Carhops were slow and unreliable.
- Plates and metal silverware kept getting stolen or broken.
- 80% of their sales came from a single item: hamburgers.
In 1948, Dick and Mac did something radical. They shut down a profitable business for three months to rethink fast food from first principles.
Phase 2: The Invention—The Speedee Service System
The brothers stripped their menu down from 25 items to just 9: burgers, cheeseburgers, potato chips, pie, coffee, soft drinks, and milkshakes.
To prepare food at scale, they chalked out a full-scale kitchen layout on a tennis court and made their staff practice moving around like dancers on a factory assembly line. They replaced glass plates with paper wrappers, eliminated carhops in favor of self-service windows, and dropped the price of a burger from 30 cents to 15 cents.
They called it the Speedee Service System. Instead of waiting 20 minutes for a meal, customers got hot burgers in under 30 seconds. The model was a cash machine.
Phase 3: The Catalyst—Enter Ray Kroc
By 1954, a 52-year-old traveling salesman named Ray Kroc was struggling to sell Prince Castle Multimixer milkshake machines. Suddenly, he received an order for eight machines from a single small restaurant in San Bernardino.
Curious how one diner could mix 40 milkshakes simultaneously, Kroc drove across the country to see it himself. When he saw lines wrapping around the building, he didn't just see a diner—he saw thousands of duplicates dotting every highway in America.
Kroc pitched the brothers on national expansion. Dick and Mac, content with their comfortable local lifestyle and burnt out from a few failed franchise attempts, made a deal: Kroc would lead the nationwide franchising effort while they stayed in San Bernardino.
Phase 4: The Clash—Operation vs. Expansion
Kroc opened his first franchise in Des Plaines, Illinois, in 1955 and founded McDonald's Systems, Inc. However, an inherent founder-operator conflict quickly emerged:
- The Brothers' Priority: Quality control, strict operational limits, and maintaining a relaxed lifestyle.
- Kroc's Priority: Rapid national scale, aggressive real estate acquisition, and dominant market presence.
Every time Kroc wanted to tweak the model—like adding basement storage or changing franchisee agreements—he had to send a registered letter to California for approval, which the brothers frequently denied.
To break the deadlock, Kroc brought in financial advisor Harry Sonneborn. Sonneborn realized McDonald’s wasn't in the burger business; it was in the real estate business. The company formed the Franchise Realty Corp., bought or leased the land under future locations, and subleased it back to franchisees at a markup. This real estate leverage gave Kroc total financial independence from the brothers.
- 1940: San Bernardino Drive-In
1940
Dick and Mac McDonald open their first barbecue drive-in location in San Bernardino, California. - 1948: The Speedee System Launch
1948
The brothers pivot to a streamlined assembly-line system, offering 15-cent burgers wrapped in paper. - 1954: Ray Kroc Arrives
1954
Kroc visits the San Bernardino store to investigate an order for eight Multimixer machines and pitches national franchising. - 1961: The $2.7M Buyout
1961
Kroc buys out Dick and Mac McDonald's full rights to the brand name and system for $2.7 million in cash.
What Happened to the Original Founders?
By 1961, the tension reached its breaking point. Kroc wanted full control to take the company public and eliminate the brothers' oversight once and for all.
1. The 1961 Buyout Deal
The brothers agreed to sell full rights to the company, trademark, and systems.
- The Cash Payout: The brothers demanded $2.7 million. This specific figure was chosen because it gave them exactly $1 million each after taxes, with $700,000 allocated for capital gains tax.
- No Contractual Royalties: The legal agreement transferred all trademark and intellectual property rights to Kroc. No ongoing royalty clause was included in the written contract.
2. The Legend of the "Handshake Deal"
According to accounts from the McDonald family, the brothers alleged that Kroc promised them an informal 0.5% annual royalty on all future corporate revenues as part of a verbal handshake agreement.
- The Result: Kroc never paid any ongoing royalties after the buyout. Because no royalty provision existed in writing, the brothers had no legal recourse.
- Had a 0.5% royalty been legally executed, it would be worth hundreds of millions of dollars annually today.
The Aftermath
| Aspect | Details |
|---|---|
| Original Restaurant | The buyout excluded the brothers' original San Bernardino location. However, because they lost the rights to the name "McDonald's," they were forced to rename their diner "The Big M". |
| Fate of "The Big M" | Kroc opened a brand-new McDonald's location nearby, competing directly with "The Big M". Deprived of their original brand name, the brothers eventually sold and closed the business. |
| Maurice "Mac" McDonald | Retired from the food industry and lived quietly in Palm Springs, California, until his death in 1971 at age 69. |
| Richard "Dick" McDonald | Moved back to New Hampshire. He maintained that he had no regrets about selling, expressing satisfaction with his quiet life without the stress of managing a global empire. He died in 1998 at age 89. |
