Not the company line

But in the early years that practice threatened to bankrupt Kroc's cash-poor company…"Our numbers were funny numbers, but without them we would never have gotten the loans to expand, because we didn't have real profits."

The Toronto Star
December 23, 2001

Not the company line
In the business world, the real stories behind a company's founding and its early struggles are often underplayed. Sometimes, it’s meant to be
David Olive

IS THE season for creation stories.

The best ones in the corporate world are seldom told, having been sanitized by in-house hagiographers who put a revisionist glow on long-ago events. The real stories are more instructive than the official accounts.

In the examples that follow, we learn that Conrad Hilton did not seem destined to become a hotelier, that an unheralded woman loomed large in Canadian Tire's success, that Walt Disney relied on a largely unknown collaborator in creating Mickey Mouse, and that McDonald's Corp. would not have survived its early years without the help of some accounting tricks.

Muriel Billes is the unsung hero of Canadian Tire Corp. Ltd., one of the country's oldest and most consistently profitable retailers. It was Muriel who persuaded her husband, co-founder Alfred (A.J.) Billes, to put countermen on roller skates in the firm's huge new store at Yonge St. and Davenport Rd. - a promotional gimmick that no newspaper photographer could resist. She came up with the enduring name Motomaster for the company's line of private-label automotive goods.

And she conceived the famous Canadian Tire money, initially as a Gas War Bond good for a 15 per cent discount on future gasoline purchases.

When A.J. extended the money's use to merchandise in the store, he wanted the coupons to bear an engraving of a semi-nude goddess Diana pursued by three dogs, thinking that would appeal to the store's male clientele.

But Muriel rejected the idea, and to this day Canadian Tire money instead features an engraving of the thrifty Scotsman, Sandy McTire.

When it was founded by Ottawa in 1937, Trans-Canada Air Lines, forerunner to Air Canada, was a "paper airline" with no planes or personnel. Thankfully, neither was it the nation's first major airline, so it was able to borrow heavily from the carrier that held that distinction.

Launched in 1926 by Winnipeg grain baron James Richardson, Western Canada Airways, later Canadian Airways Ltd., pioneered safe, reliable passenger flights across Canada, and without its bush pilots the North would not have been opened up to mineral exploration.

By the late 1920s, Richardson's airline was the second-largest in the British Empire, trailing only Imperial Airways of Britain, and it led all North American airlines in the amount of tonnage carried. Deprived of its government mail contracts and most lucrative cross-country routes by a federal government bent on creating TCA as the nation's sole major airline, Richardson's venture nonetheless survived as Canadian Airlines, which was acquired by Air Canada in 1999.

In its earliest years, TCA turned to Richardson for some of its first airplanes and raided Canadian Airways for its first complement of pilots, machinists and flight attendants. When they took up their assignments with the new state-owned airline, a great many of TCA's inaugural employees showed up for work wearing their Canadian Airways uniforms.

One name you don't hear from Walt Disney Co. as it celebrates the 100th anniversary of its founder's birth is Up Iwerks. Mickey Mouse, the foundation of today's $25.8 billion (U.S.) Walt Disney Co., was designed not by Disney, who was a mediocre draftsman, but by Iwerks, Disney's long-time partner. Disney suggested the plots and behavioural ticks of the amiable rodent, whom Disney initially named Mortimer. (His wife suggested that Mickey was a friendlier name.)

Mickey Mouse made his film debut in the 1928 short, Plane Crazy. It was Iwerks, a self-taught draftsman and cartoonist of Dutch extraction, who created the world's most-famous mouse, basing the figure on a series of circles - one of the most pleasing geometric forms.

Iwerks turned out 700 drawings a day for two straight weeks for Plane Crazy, which ultimately inspired 135 films, 73 years of comic books, the Mickey Mouse television shows, figurines, Christmas ornaments, books and toys.

Bankrolled to the tune of $538 (U.S.) by their Stanford University electrical engineering professor, classmates William Hewlett and Dave Packard set up a tinkerer's shop in a one-car garage behind Packard's house in Palo Alto, Calif., in 1938.

The partners' first break is commonly said to be Walt Disney's order for eight oscillators used in making the film Fantasia - a contract whose importance was later downplayed by the H-P founders.

In fact, Hewlett and Packard hoped simply to find a buyer for whatever their tinkering led to - "anything to bring in a nickel." Early products included a self-flushing urinal, a bowling lane foul indicator and a shock machine to help people lose weight.

Resolving to make a wide variety of scientific instruments and electronic devices, in order not to be vulnerable to a downturn in any one product line, Hewlett and Packard laid the foundation for a company with sales last year of $45 billion (U.S.)

Today's H-P, which looks to printers alone for about two-thirds of profits and is now seeking shareholder approval for a merger with PC maker Compaq Computer Corp., has strayed from the co-founders' philosophy by allowing itself to become dependent on just a few products.

In launching the oldest continuing brewery in North America, John Molson modestly allowed that "Good ale is all I want, and plenty of custom and good profits will follow." But based on the immediate success of his Montreal brewery, opened in 1786, Molson was able to finance what became Canada's first industrial conglomerate, whose innovations extended far beyond brewing.

In 1809, Molson, a Lincolnshire, England, native who was orphaned at age 8, introduced steam navigation on the St. Lawrence River and founded a steamboat company three years later.

He entered the flourishing lumber business, built a hotel and established Lower Canada's first distillery. In 1836, Molson launched the Champlain and Saint Lawrence Railroad, the first railway in Canada, and introduced the early steam engine to Montreal industry, profiting from his friendship with James Watt.

The pioneering Molson Bank, begun in 1855, grew to assets of $68 million and 125 branches by 1925 when it was acquired by the Bank of Montreal, an institution whose presidency was held by none other than John Molson from 1826 to 1830.

McDonald's Corp., the $14.2 billion (U.S.) fast-food juggernaut with 27,000 outlets worldwide, more than 1,000 of them in Canada, was not an immediate success.

In the mid-1950s, Ray Kroc, a Chicago milkshake-machine salesman, bought the national rights in the United States to a flourishing burger stand in San Bernadino, Calif., operated by brothers Dick and Mac McDonald, and set about creating the first national fast-food chain.

Observing that franchise operations often failed after bleeding their franchisees with exorbitant corporate fees, Kroc was generous to a fault with his franchisees, taking only a slender cut of their profits in order to ensure their success. But in the early years that practice threatened to bankrupt Kroc's cash-poor company.

With a net worth of just $24,000 (U.S.) in 1958 when it began its rapid expansion, McDonald's Corp. engaged in the accounting legerdemain of booking anticipated future rental income from franchisees as current income. Only on that basis was Kroc able to offer collateral to the bankers he tapped for expansion capital.

"We fully disclosed everything in the footnotes, but people don't read the footnotes," Gerry Newman, the firm's chief accounting officer, would later explain.

"Our numbers were funny numbers, but without them we would never have gotten the loans to expand, because we didn't have real profits."

"I'm going to be a banker," Conrad Hilton told his mother. "That's the real ambition of my life. Some day, you wait and see, I'll have three or four banks all up and down the Rio Grande."

But young Hilton failed to reach an agreeable price for any of the banks he scouted, and was no better suited to life as an impresario.

His singing group, the Hilton Trio, did not make the big time.

Rather late, at age 32, he found his true calling after plunking down $40,000 (U.S.) for the decrepit Mobley Hotel in Cisco, Texas, in 1919. In time, the "Man Who Bought the Waldorf," future husband of Zsa Zsa Gabor and father-in-law of Elizabeth Taylor would build the first international chain of hotels and resorts, his name becoming synonymous with convention-style innkeeping.

Caricatured in Arthur Hailey's Hotel as an unsentimental profit maximizer, Hilton in fact was passionate about his crown jewels, from the Waldorf Astoria in Manhattan to the Queen Elizabeth in Montreal, and was an ambassador of U.S. values.

"Each of our hotels is a little America," said Hilton, "built to show the countries most exposed to communism the other side of the coin."

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