Mickey D’s

McDonald’s museum. Photo by Bruce Marlin

What startups and small business owners can learn from the giant’s struggles

McDonald’s just reported a 35% bump in profits this quarter. That makes three consecutive quarters of positive financial results. As some speculate, after years of slumping, it seems like they’ve finally turned the business around.

Here’s a few interesting takeaways about this news that might also be useful for those of us running small companies, even ones struggling to get started.

First, let’s look at what turned this company around.

Everyone is obsessed today with disruption and trying to use technology and innovation to create the next new big thing.

But if you listen to McDonald’s explain what’s working for them, it isn’t a new product at all.

Of course they try their hand at new things. New burgers, new health foods trends, even new items they’ve never tried before like mozzarella sticks. But none of those things are behind the turnaround.

So what worked? All-day-breakfast. Simply delivering a current product that people already enjoy more often.

That’s not to say it didn’t take some innovation and deep thought. The reason McDonald’s hadn’t released all-day-breakfast in the past was space. There’s only so much room in the kitchen and on the grill for burgers and other lunch items. If you look at what all-day-breakfast means, it’s actually a very limited menu. They had to figure out how to pull this off without crowding out the rest of the space in the kitchen.

But compared to inventing a brand new product whose market demand you can hardly predict, figuring out a way to deliver what your customers are already demanding is so much easier.

I’ve been involved with my own turnaround here at Highrise. Highrise is a CRM for small business that Basecamp created and spun off in 2014. As soon as it was announced that Basecamp wanted to focus on Basecamp and find someone to buy or spin-off Highrise, folks thought Highrise was shutting down, resulting in an exodus of customers. When I took over in August of 2014, we had to get this company turned around.

And finally, now, we’ve been seeing weeks and weeks of customer growth.

How’d we do it? Not a disruptive new technology. Sure I felt the urge to try to create something new and BIG, but the thing that’s worked has simply been regularly updating the product with what users have asked for and a website change to our pricing plans.

That change to our pricing plans took 3 hours. That’s right. 3 hours to make the change. Of course it took months of experiments, mistakes and working with Basecamp’s data scientist to analyze what we were doing right and wrong.

But without even touching the product, that 3 hour change improved our conversion rate of new paid customers by 70%. A huge improvement to our business simply because we changed how we communicate about the product.

When your business is going in the wrong direction, you may not need to throw out the product and reinvent everything. But that’s what many feel like they need to do in the middle of the storm. Instead, there are other, easier levers, to experiment with first.

The second thing that stands out is McDonald’s dollar menu. McDonald’s CEO claims they finally figured out a new version of their value menu.

Value is extremely important to McDonalds.

Stephen Dubner of Freakonomics fame asked on his podcast: What’s the cheapest, most nutritious, and bountiful food that has ever existed in history. It’s got 390 calories, 23 grams of protein, substantial portions of calcium and iron, and it costs only a buck or two. This was a question a fan wrote in. And the fan’s answer: the McDonald’s McDouble hamburger.

According to McDonald’s, 1/4 of it’s customers walk in the door looking for that value.

But the $1 menu that’s over a decade old just wasn’t serving McDonald’s well anymore. How can these items remain $1 when costs of everything else are going up each year? Something had to change.

Various experiments with a new value menu have failed over the years. Until now with McDonald’s new McPick 2 idea. Steve Easterbrook, the new CEO, told investors last week:

We tested two versions of the platform in the first quarter: McPick 2 for $2 in January, and McPick 2 for $5 in March. The offerings were designed to target different customers, and both resonated well.

I think the effort is a great reminder about what can be important to shoppers. They don’t always want the best product. They don’t always want the cheapest product. Often, they want the best for what they can afford. That’s a subtle but important difference, and we should strive to better understand if that lever is important in our products.

Personally, I think that’s very important to Highrise users who tend to be small business owners just getting started and with a tight budget. Over the last year we’ve added multiple features to help people get more value from using our tool (now you get a group inbox and bulk email all for the same price you were paying before). But given how much success McDonald’s has establishing value with their products, this seems like something we need to keep understanding and communicating better with our own marketing at Highrise. And I think it’s an area most entrepreneurs rarely explore.

A third thing that stands out from McDonald’s turnaround news is the fact that they’ve been in slumps before. In 2002 sales had fallen 1.5% in the US. And in 1997 McDonald’s was facing the same thing.

The lesson: if you plan on making a lasting business, plan on a constant flow of setbacks.

When I look at entrepreneurs around me, I see many of them planning as if the startup period of their business is all the pain they’ll have to endure. If they can just get to profit or funding, it’ll be worth all the sacrifice.

I’ve started my share of businesses and now realize how silly that feeling is. I remember getting my second business started. I hadn’t slept much in days, and just put down a 5 hour energy to keep the coding alive. My heart was racing. I called my wife thinking I was having a heart attack (I was living in California for a few months to be near my investors).

How ridiculous. We can’t make these enormous sacrifices of our health and family just because we think they’re temporary. Because the race doesn’t stop. It’s not actually a race.

We need to build our business and manage ourselves in a way that can keep going for the long term. McDonald’s knows this. The only constant is change.

Interestingly this week, Edy’s ice cream just announced that sales of it’s Slow Churned-lower fat ice cream has been slumping. Why? Because people have changed their attitude about fat. Now people aren’t as afraid of saturated fat. Bulletproof coffee is the new fad. It’s coffee without sugar but a couple tablespoons of fat and oil. Edy’s low fat ice cream is slumping, meanwhile this year, Edy’s full fat ice cream surged 10.8%.

Attitudes and tastes shift.

Jason Fried has mentioned some of the best advice he’s gotten from Jeff Bezos is to “Focus on the things that don’t change.” While that is certainly true with McDonald’s recent problems and solution, I think the example is also a reminder to be ready for the things that do change. Because they always will.

P.S. It would be awesome to meet you on Twitter, and check out what we’re up to at Highrise. It’s a fantastic way to help start or run your business: track conversations with new customers, manage relationships with investors, market new promotions with our bulk email tool, and a whole lot more.

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