Want to know how you can take your franchise business to the next level and become a high-performing franchisor and franchise owner? Here to help you find out is serial franchise entrepreneur Erik Van Horn. Erik is the Co-founder of Front Street Equity Partners and podcast host of Franchise Secrets. From owning six different emerging franchises across eight states to founding a franchisor to advising emerging franchises, Erik has seen and done just about everything you can do in franchising. In this episode, he joins Dru Carpenito to dive deeply into the emerging franchise world with tips on how to stand out in the industry. Don’t miss this episode’s valuable insights and practical advice and tune in!
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How To Become A High-Performing Franchisor And Franchise Owner With The Myth, The Man, The Legend, Erik Van Horn
I am joined by a guy that I have known for a long time, who’s been in franchising since he was a pup and has done all kinds of amazing things. Erik Van Horn is here to talk about his story from owning franchises and now running masterminds for franchises, all kinds of stuff. It’s going to be a fun conversation. Erik, welcome my friend. How are you?
I love what you are doing out there. I follow you online. I know you so it’s even more fun to follow you. I was so glad when you started to do the show because you are natural to do it, so I’m so happy to be on.
We have come full circle, but you have been a big inspiration to help get this thing out and with a lot of other things. I appreciate it. Enough about that. Let’s talk about you because you have such an amazing story to share because you’ve done so many different things. You’ve been on all sides of franchising and you are up to some cool stuff, but 1 would love to hear a little bit more so the readers can hear a little bit more about you, your story, and what you are up to. We are going to dive into a lot of that stuff.
I will make the back story real fast and then we’ll get up to now quickly and we can dive back into the story whenever you want. I was going to go to law school in Chesapeake, Virginia. I decided against that because I was not a great student and law school takes being a great student to survive that, and then I realized attorneys worked their butts off and I didn’t want to do that. I wanted to work smarter and not tie my wage to an hourly rate. I started a lawn business, mowing lawns, planting flowers, and things like that.
I was in front of this older lady’s house, planting grass, digging out old flowers, planting new ones, and she came out with some tea and said, “What do you want to do when you grow up?” I said, “I’m going to be a real estate investor,” because I was getting my real estate license at the time and I was working with my broker there, and he invested in a lot of different properties. I had read Rich Dad Poor Dad.
We didn’t download things at that time. I had purchased Carleton Sheets’ billion CDs on how to buy houses with no money down. I confidently told her I was going to be a real estate investor. She said, “We did that several years ago.” Through the course of the next hour, I left her house with an option contract to buy her condo at the beach, and I gave her $100 as earnest money and I was able to assume her mortgage because it was an assumable mortgage for zero money.
I had to pay for the closing cost. I called up my parents. I said, “I got a deal for you,” and they are like, “That sounds too good to be true.” I said, “If you don’t do it, my new broker, Gary, said he would do it with me. I will give you 50% of the deal if you pay 100% of the closing cost and when I get the money, I will pay you half of your closing cost.” That’s what we did.
The lady was so nice. She’s like, “You seem like a nice young man. We want to do this, but our broker right now is making money every month on us and we want to sell it. He’s not selling it for us, so we want to help you.” That’s what they did, and I sold that to my parents shortly after I bought it. I made about $20,000 on that. I had never had $20,000 in my bank account in my entire life. I was in my early twenties.
I rolled that into my first franchise which was Liberty Tax. I bought a couple of franchises and opened them. Not making money but had some success in terms of numbers and then bought the area development for Liberty Tax in Austin, Texas. I took that from 4 locations to 42 locations as an area developer and over that time, I had acquired 12 locations at the retail level, and store level as a franchisee.
Sold all of that in over a nine-year period and that’s when I started the consulting business and started to buy more franchises as a franchisee and as an area developer, and then continued to do that until I helped start a franchise or with some mutual friends of ours. Exited that early on and then continued to double down on masterminds that I have for franchisees, franchisors, and passive investors, and then started to do more advisory work for franchisors and that’s been a ton of fun. That’s the quick down and dirty.
With your advisory work, you have such a unique perspective because you have a franchisee-first perspective, I’m assuming. From the front lines and the happiness and the profitability, the franchisors and if that flourishes how much easier the franchisor’s job becomes, but that’s cool. You are working with some emerging brands right now? Are they more mature brands?
I’m working with some emerging brands and realized talking to a friend of mine, Roland Frasier. He does a lot of advising for equity, and I said, “I want to do more of that.” My podcast, I started putting it out there that I’m going to advise for equity and then all of a sudden, I got a message that says, “Let’s talk. I have got this cool concept. We are looking to fill out our advisory board.”
I had a conversation with Bennett over at Dirty Dough Cookies, and he’s like, “We want you.” I’m like, “I want to be in.” Within a month, I was an advisor with options for equity in that brand. It’s been fun too because I have been able to make some strategic introductions, give some advice, and put guardrails on like, “Watch out for this. Don’t do that.”
A lot of it of this platform with a Facebook group, the podcast, and social media presence like you and I’m able to share things about my portfolio brands and it drives attention to them and provides leads to them. It’s been a lot of fun. I have had offers for more to advise them for equity and I have turned some down and am about ready to acquire some more in terms of coming into my portfolio of brands.
You’ve been through the ringer and had a tremendous amount of success both as a top performing franchisee of multiple brands and getting involved with the franchisor side and everything. When you are looking at these opportunities for your advisory business, are there certain things that you are looking for like when you know, “This is a great company. I want to get involved with,” and are there some red flags that stick out to you as like, “Maybe this brand isn’t one that is a fit for me to get involved with?”
I want to make sure I can have an impact. First and foremost, I was at the springboard conference at a number of brands and vendors come up to me. They like to talk about advisory for equity. One of the questions that I asked them right away was, “Why do you want me?” If they want me to get in the trenches, go to board meetings, fly out quarterly, and things like that, it’s an immediate no. That’s not what I do for advisory services.
I do more of that with a company called Front Street Equity Partners, and that’s where my business partners and I do a deep advisory, in-the-trenches advisory for significantly more equity than what I do for being a regular advisor. With Front Street being a portfolio brand of mine, they have access to me. I want them to have access to me whenever they need it. They are looking at raising some funds. They are looking at doing this. They need some help finding franchise development people or C-level executives. I can help them with that without much effort for me.
High-value, little effort for me is what I look for. If they want something for me that’s high-value, little effort, I’m all in. Here’s an example. I have a company that wanted a call with me and I charged him $1,500 an hour for a call, they said, “For fifteen minutes, if you fill out this form, we’ll pay you $25 a minute, which is $1,500 an hour.” I said, “No. I hate filling out paperwork.” Even for $25 a minute, I won’t fill out paperwork. That’s it.
There are things they want me to do like attend meetings, travel, and all of that. It’s not going to be the right fit for me from being a portfolio brand. On the Front Street Equity Partners, we’ll spend a ton of time with them but it’s more equity and there are different payment structures for that. As we talk about equity, there are two different paths. One is advisory and then strategic in-the-trenches advisory.
The emerging franchisor space is so interesting because whenever a company starts to franchise its business, it’s a whole new ball game. Some companies embrace it and are humble about it. Other companies aren’t humble about it and show up to Discovery Day with “Follow the Process” t-shirts on and expect their franchisees to follow the process when in reality that’s not how it shakes out.
As you’ve been in franchises, are there certain characteristics or things that you’ve noticed that the emerging franchise companies that have amazing success are able to replicate their business and be happy and profitable? Are there certain things that they have that you’ve seen compared to the emerging franchises that might have the most amazing franchise concept in the world? They might have a ton of money behind them, but for whatever reason, it doesn’t play out like they thought it was. What have you seen as to what separates the good ones from the ones that don’t do as well?
You have to have that balance of following the system and following our process. Otherwise, you get franchisees in there like I was that would drive them crazy. I’d be like, “You are doing this wrong and you are doing that wrong.” I was successful in 1 or 2 brands. If they would have listened to everything I said, I never have been a franchisor even though I’d grown bigger in my area development than most franchisors get with 42 open locations. I still didn’t know their industry and what they were dealing with as a franchisor.
There needs to be a level of a franchisor saying, “This is the way that we are going to do it,” and then balancing that with, “We don’t know what we are doing, because we are a new franchisor.” I was successful in the industry with my mom-and-pop business that we’d now turned into a franchise where we have a couple of franchise locations that are doing well, but they have got to realize that they are in a steep learning curve. They need to balance being in this place of having a steep learning curve and then yet still learning from their franchisees and making things better.There needs to be a level of a franchisor saying “this is the way that we're going to do it,” and then balance that with, “we don't know what we're doing because we're a new franchisor.” Click To Tweet
I can think of emerging brands now that have a ton of territory sold and they are still learning. When I was starting the franchisor with mutual friends of ours, we knew Discovery Day. We are going to tweak Discovery Day. We do a Discovery Day, then we got to huddle up and tweak it. Collectively, we have done thousands of Discovery Days and yet we still knew we had to tweak it.
The first training, the same thing. We did this. Let’s survey them to see how our initial franchisees felt about training and we got feedback from them. We told them, “We are not going to implement everything that you tell us or change anything because you want to change, but we do want your open and honest feedback. Give it to us,” and then we immediately change some things.
We are like, “We need to do this. We need to add more hands-on here, and less hands-on over there. Start later, finish earlier, things like that so we are not wearing them out.” Even little things, experienced franchisors still get it wrong. You are in this continual learning process. From a mindset standpoint, that’s what they have to balance.
Knowing that they are going to get pushback from franchisees who think they know better, some of them might know better, they might not. Knowing that they are not a successful franchisor yet. That’s a balancing act. How do you mitigate some of that or how do you accelerate through that so you can have a successful franchisor faster?
I think of strategic advisory. Bringing on a board of advisors is smart. To get my attention from an advisory standpoint, introductions and being the guardrails for emerging brands, it’s at least 2% equity for me or it’s just, “I’m not going to do it.” It needs to be worth it for them. They need to see the value in that and with that, they are going to listen to me.
There are other people out there that know a lot about franchising and they are happy to be on the board of advisors unpaid or have very few equity options or something like that. I would start to seek out people that are good at what they have done in a franchise. Maybe they are an executive or a C-level executive somewhere and they can offer something.
They are going to be happy with a little piece of equity. They don’t need 2%. They need a little bit or they need to pad their resume or they want an introduction. The more that you can fill your bench of advisors, you do it. They are going to be some brands that are like, “It’s worth 2%, 3%, or 4% equity to have you on board because I know you are going to over-deliver in what you give to us and your value.”
In the case of Dirty Dough Cookies, they are at 200 units sold now, which is a stupid metric in some ways because sold doesn’t mean anything. It’s also an interesting metric in other ways because for a brand to sell 200 locations organically is impressive, and you and I both know that. What he did is he brought on experts me as an expert in one area and other experts and it’s accelerated his growth. I’m not the reason he’s at 200, but I’m a small part of it and he is making better decisions for the brand and for the franchisees because of it. There’s your long-winded answer.
It’s got to be about fit and expectations, but it’s also about the people and whom you get connected with too like how it can change not just the company’s trajectory but also personally your trajectory. It’s the same thing as a franchise owner too. I have heard that one of the things that you preach is, “As soon as you get into a franchise system, be humble and go find the top performing franchise owners and buddy up to them, be nice to them, and ask them for help because they will help you and they have been down the path.”
“You have to ask them for help and you have to earn their respect and they are not going to give it to you. You can’t expect it. Be nice but they will help you.” It’s amazing how if you put in the work and can then can get connected with people whether it’s inside the franchise system or in life or on the franchisor side like how much easier it can help everybody including yourself.
If you are wanting to get better as a franchisee, you are wanting to get in the in-crowd of successful franchisees to learn from them. Not to be a part of the Cool Kids Club but to learn from them. Do something that is valuable. Create something valuable that they want, whatever that is. Here’s what I would probably do. It just came to my mind. If I’m in a franchise system where I don’t have anything to add because I’m newer in it, but there’s a group of franchisees that get together and they are killing it, they are doing well, and they want to get better and that’s the purpose of them meeting weekly, monthly, or quarterly.If you're wanting to get better as a franchisee, you want to get in the “in” crowd of successful franchisees to learn from them, not just to be a part of the Cool Kids Club, but to actually learn from them. Click To Tweet
I would probably go in and say, “I know that you and Andrew, Wes, and some of these other characters are crushing it at what you do. I want to be a part of your group. I know I have zero to add but what I will do is I will take notes, put those notes out, and distribute them to the group. I won’t comment or do anything. I will take notes just to be in the room.”
Do whatever you can do to get in the room, or maybe it’s like, “I know you guys are meeting. What are you guys talking about in the next couple of months? I have somebody amazing. You are talking about guerrilla marketing. Let me bring in the guy from Orangetheory that created the Orange Bike thing that helped them do amazing guerrilla marketing.” I don’t know if you know that story about Orangetheory who was very good at guerrilla marketing because they would paint a bike orange and leave them in a city that they would go in. It would create a buzz and then they would have a grand opening and it’d be like, “It’s Orangetheory.”
I think about this because I have a mastermind group of franchisees who are top-performing franchisees. They wanted to know more about guerrilla marketing. A couple of my members are Orangetheory Fitness franchisees. I said, “I’m going to be doing a thing on guerrilla marketing.” They are like, “You should have so and so on because he created the Orange Bike and that whole thing for Orangetheory.”
He’s coming on a panel to talk about guerrilla marketing. If you knew somebody like that, then your group wanted to talk about guerrilla marketing, and now you are connected to the guy that’s done amazing things and generated incredible amounts of enterprise value, hundreds of millions of dollars, or OTF as a franchisor. Bring somebody to the table or do something to be in those rooms.
I’m a big believer in being in those rooms. That’s what changed for me. I would be listening to conference calls back in my early days several years ago, and I’d hear franchisees talk about what they are doing from a marketing standpoint. Back then, it was Liberty Tax and I never did a tax return, but I knew how to market, or at least I thought I knew how to market. I was still learning.
I remember the plan was to go deliver 50 donuts every morning and then that’s the marketing plan. You would hear somebody come on the conference call and says, “We are having amazing success. We have lines out the door. We are doing so well. We never thought business could be this good, and here’s what we are doing. We are delivering 150 donuts a morning. This is how we are doing it and this is how we are building relationships, and this is how we are not leaving them places, but we are engaging with somebody. We are doing business-to-business, also people-to-people marketing and this is how we are doing it.”
I’m like, “I thought I was busy at 50. I need to 3X it.” I did, and then I started to do it the way that they did it because I could have easily said, “I will do 150 donuts.” No, you go into a business. You don’t look at the gatekeeper, the secretary that’s grumpy. You look at the person that’s in the cubicle that’s smiling that wants some donuts and you directly engage with that person and then you set the tone. Now you have easy access to have a conversation with people in that building or in that lobby area. It’s learning from the best people and we all hang out together.
It’s like the Bill Belichick coaching tree of like the Liberty Tax tree and franchising.
You and I have mutual friends. The people that you know from Liberty Tax were better franchisees than me. They were amazing franchisees. They probably didn’t do 150. They probably did 300.
You’ve done it. Knowing you and watching the success you’ve had, you’ve done a great job at evolving in terms of never accepting where you are at the top of the mountain. You keep finding new ways to do more things, breakthrough new ceilings, and stuff like that. I know you’ve put a lot of work into figuring that out.
I was curious. As you look back at the success you’ve had, where you are now, and all the things you’ve done, have there been like certain defining moments that you look back on and you are like, “That one conversation got me thinking down a certain line or introduced me to this certain person,” whatever it may be? Are there certain things that happened in your life or career that you can point back to and be like, “That was a defining moment that set off this catalyst of events that helped me get into something new or have success with something new?”
I followed people that were outside of franchising. I followed Gary Vaynerchuk. I followed people that were not in the franchising world but were more in the marketing world. I remember being at a franchise conference years ago, and I would do videos. I was known as a video guy. I was made fun of as a video guy by dear friends. They are like, “You are the video guy.”
Now it’s super normal, but back then it was not. I was always pushing the edge and I wanted to be comfortable being uncomfortable. I would put produce videos. I felt like I was late to the podcast game, but a few years ago I started my first podcast and I thought I was late for it because I had it ready to go. I had all the equipment purchased three years before that.
I start acting on things. If I see an opportunity, I’d act on it and do it for the long term. Going back to some milestone moments, that was a big one for me. I started that conference at FranChoice. I was known as a video guy. I learned about some people using some software there, so I bought the software and I spent a week learning that software. It helped me automate stuff in the franchise business, which I don’t do anymore. I’m not a broker anymore. I like people like you that are brokers. People like you that are doing that are my heroes and I will send people to you guys.
I’m like, “Go check out Dru. Go check out some of our friends. They are the people that help you.” I don’t do broker anymore. Creating that podcast was a big thing for me, and then I was a franchisee, wanting to do something a little bit more different around a personal brand. I started a Facebook group. COVID hit. This is one of those big shifts, something that happened and put me in a different direction. Two years before that, I was at a marketing conference called Traffic & Conversion in San Diego and they had a mastermind there and the mastermind was called War Room. It was $25,000 or $30,000 to be a part of it.
I’m like, “I bought it.” At the conferences at FranChoice, I was one of the top guys in the room. People would look to me for advice. I’m at the top of my game there. If I go into this mastermind where people are paying a lot of money, I’m going to be a nobody and it’s uncomfortable and that’s probably where I need to go. That’s what I did.
I joined that mastermind and then two years later, everybody’s my friend. I’m on the same level playing field with them. I know a bunch about marketing. COVID hit. I leaned on the relationships that I’d built there. I got Kevin Harrington to come on. Alex Hormozi came in. You should check out Alex Hormozi’s podcast. He’s got a book called $100M Offers. Amazing guy.
I can’t get him on my podcast anymore. He came on when Roland Frasier, Bedros Keuilian, and all these guys came on into the Facebook group because I knew them and I asked them to come in and to help, and at that time, everybody was giving off their time. COVID hit. Nobody knew what was going on. Everybody was scared. Everyone had an opinion, and so they would come in and help all of these people in there from PPP loans to mindset to whatever.
Out of that, I thought, “I have been wanting to start a mastermind. It’s time to do it.” I went into the group and I said, “Who wants more of this? I can’t keep doing all of this for free because I got other things to do” People raise their hands and then, “Erik, we’ll start paying you to be a part of your group.” Out of that, 60 or 70 people started to pay $200 a month to be a part of my group, and that’s called Franchise Tribe Grow, and then have another one that’s called Scale, and that one’s $7,500 a year. They get more of me with that one, and they are full of a bunch of amazing franchisees.
I got that started out of COVID because I joined a mastermind. I had the idea for the mastermind. I had the confidence that started. I knew how to do it. I grew it out of a Facebook group, and then I’m like, franchisors need this. I started to do some group coaching with franchisors, not one on one, so I can do something once and it hits everybody and then I build up a library of good content or playbooks, whatever you want to call it.
The guerrilla marketing session that we have coming up for franchisees is going to be a playbook on the guerrilla market. It’s part of a playbook for guerrilla marketing that all franchisees that are in the mastermind now or in the future will have. I started a mastermind with a good friend of mine called Justin Donald on passive investing, and that’s $20,000 a year. We have got about 40 or 50 members in that. We bring passive deals to them and do all kinds of things.
All of that started with the mastermind at the Traffic & Conversion Summit, me starting a Facebook group, starting a podcast, and launching a mastermind that turned into an investing mastermind. Now I have influence with franchisees. I have got influence with franchisors, and I have access to a bunch of capital because all my buddies are looking for deals to invest in. That gives you the events that were a-ha moments or significant events in my life that led to where I am now. I wouldn’t be able to ask for equity in companies. I wouldn’t be able to advise companies if I didn’t have all of those things happen.
All from being the video guy at a franchise conference.
With thick enough skin to own it.
When you started doing these videos, it sounds like you knew that it was something that could have helped the business. Did you ever envision that it would get to where it is?
No way. I had no idea. There was no way and I was scared to do it. People do Facebook lives all the time now, but I remember being like, “I need to do a Facebook live. I don’t want to do it. I need to do it.” I’m on a hike behind my house up the mountain with my dog and then I pulled out the iPhone. I’m like, “I have got to do it. This is the best time because I’m hiking down this mountain in a rainstorm with my dog jumping over trees. People are going to be paying attention to everything else besides what I say. I need to go back and find this.” I pull out the iPhone. My buddy, Aaron Geary, is the only guy that was on. I don’t think anybody else joined but he felt bad for me so he was on there.
I got more and more comfortable. The more that you are out there, the more success and quotes that you have online or in the public, and the more people want to hate on you. If you weren’t your authentic self, then you have to be this person that you are not, and that’s not a fun place to be. I chose early on that I’m going to do it in my backyard on a hike because that’s what I do.
If you’ve ever been on a phone call with me or around me, you’ll probably hear chickens in the background, a cow, horses, or something like that because that’s my life in South Dakota. Even though I get to go do all these cool things, that’s my life. I misspell things on Facebook in my post all the time. That’s how you know it’s me or my content writers doing it. If it’s misspelled and has bad punctuation, it’s probably me. I decided to own who I am, a family guy first that owns a business and lives in a small town of 10,000 people on an 80-acre ranch in the middle of nowhere in the Black Hills of South Dakota. Either people like it or they don’t, but it’s who I am.
I have a couple of thoughts. Doing the videos is super awkward. I have tried to do them and I struggle with it. The other piece of that too is like you have a pretty valuable thing. You had a lot of insight to share with the world. People wanted to hear and still want to hear obviously, but at the beginning with what you’ve done in franchising, there’s so much experience that people can learn from by listening to whatever thoughts and insight you might share about certain stuff.
Especially for first-timers that are getting into franchising, it’s tough because it’s a whole new ballgame, business, and dynamic. I watched a lot of that stuff. I learned a lot of stuff from it too. I got to think it’s the quality of the information you were putting out and nobody was doing it right at the time.
Nobody’s doing it and it was good quality. It wasn’t quality from a production standpoint or even probably from the ease of listening, but it helped me get better at speaking. It helped me get better in front of the camera. Here’s what I thought too. If you are on Facebook Live, you can’t hide behind anything. You are out there talking and if it’s good content, good information, people are going to continue to listen to that, and that’s what it was because it was real.If you're on Facebook Live, you can't hide behind anything. You're out there talking and if it's good content, good information, people are gonna continue to listen. Click To Tweet
It still is. I give the real stuff. Here’s something that I have been talking about more and more. If this makes the edit, I know that you liked it. If it doesn’t, it gets kicked out. Let’s do it. We all want franchisors that put Item 19 in their franchise disclosure document. We like it when they put Item 19s in because we get to validate that Item 19 with franchisees that are doing it.
The challenge comes when there are not a lot of franchisees that can validate what’s in the Item 19 because they haven’t been open long enough or the territories are different, or it’s a legacy location and there might be reasons why it’s successful. Time might be the biggest factor in that Item 19. If it’s been around for six years and you are trying to say, “I will be there in two years,” that may or may not be true. You can’t validate with somebody that is an emerging brand that’s been around for six years. Most people do the best that they can and they validate with franchisees that they are ramping up accordance in according to how they built out their budget. That’s how most people do it.
I’d been thinking more and more that buyers should be looking at mom-and-pop businesses in the same industry to see if those margins add up. If someone says they have 30% margins and yet the industry says 20% margins are good, then spend time digging into why that franchisor has a 10% greater margin and a third greater margin than the average successful small business, and that’s what I would spend my time in.
Some of the best brands that I have been a part of in the salon suite industry were solo salons. I had an eight-figure exit in that brand along with some mutual friends that were my partners at that time. Their Item 19 was very accurate. I have talked to some other people with inside info. You get inside info. I get inside info into brands and it’s great because we can help people with that inside info. Even though we can’t disclose it, we can help people with it.
I have heard about some other brands that you work with. Brands that you probably send your candidates to that said they have an accurate detailed Item 19. I don’t care how detailed it is or how big it is. I want to know that it’s accurate. I have heard from people very much on the inside that this particular brand that you work with, Dru, is right on in terms of its Item 19 and that’s great franchising.
There’s also the other side of that coin where you’ve seen the trumped-up Item 19s that are manufactured or misleading. The way they call certain things like a net profit. There’s one floating around right now that uses the word net profit and it’s not net profit. They conveniently leave out the entire labor line item. They are sitting there quoting these healthy “net profit numbers” and unless you look at the details and you read through the notes and what they are disclosing, you wouldn’t see it. You wouldn’t know.
They get more insider because this is fun. I like these conversations and that’s why it’s important to work with people like you, not that have access to information, that have the knowledge, that have an experience like you, but who do what’s right with that information like you. I appreciate that. The franchisor’s attorney probably advised them. Little risky putting in net profit in there. That’s probably not something that you want to do or it’s one attorney would probably say, “Not allowed to do that. We are not doing that. I’m not doing it for you.”It’s important to work with people who not just have access to information but have that knowledge and experience and do what’s right with that information. Click To Tweet
Another attorney is like, “We will do that. The risk is on you.” Franchisors have a risk-reward equation as they put together Item 19. There’s a risk that they can take and they are willing to accept and some people don’t take any risk at all. That’s why some franchisors don’t put anything in there because they think that’s the least risky thing to do. The more that you can dive into Item 19, the better. Realize in general, you as a candidate are at a disadvantage talking to any franchisor. They know. They can spin the numbers. They can manufacture or spin the numbers however they want and you don’t know.
They can be a magician with that stuff. Some are and some aren’t, but the buyer needs to not be super skeptical of everything but be aware they have the upper hand here. They know all the stuff that I don’t know. Do as much due diligence and get around people like you that can lead them in the right direction. That’s why I love you putting out podcasts because I know you put out stuff that is helpful to buyers and out there for the general public. That’s what I liked when I did was doing podcasts on buying franchises like I’m telling you the truth. The more truth that you and I get out there, the better it is for the whole franchise industry in general.
No doubt about it. It can be amazing. For a lot of people, you get in with the right franchise and the fun part is that you’ve been involved in all these different types of businesses. A lot of times, some of the right fits for the right candidates that they can go on to have amazing success with are these businesses when they first learn about it. They are like, “You are crazy.” I’m like, “Have a call.”
Go in with an open mind, listen, learn, and if it’s not, whatever. That’s the way it shakes out a lot of times in franchising. If you can come in with an open mind, the opportunities are endless. As a candidate, if you do have guardrails on your mindset in terms of what you are open to and how you are going to look at these businesses, that’s a risky thing to do as well because it puts the blinders on. If you fall in love with the widget but don’t validate the actual business model, then it could be trouble. There are a lot of layers in this whole thing.
I love keeping an open mind. I was talking about this with Lane Fisher and Jeff Herr on a show, on a session and franchisors don’t keep an open mind. The three of us did some conversations with some franchisors and they thought big territories were better. That was a value prop. That was a point of differentiation for the franchisor.
Bigger territories are not a value prop. Sometimes you get bigger territories because it’s an emerging brand. That’s an advantage as a franchisee, but that’s not what I’m looking for. This franchisor thought they would be crushing it in franchise development. They have sold zero. I was talking to him. He was like, “It was a lot harder than I thought selling these franchises.”
I had a list of people like 20 or 30 people that said they are ready to buy as soon as you franchise it. It came time to buy the franchise and everyone was gone. They need to keep an open mind because they think as a franchisee that bigger is better. It’s a bigger territory, a bigger this and bigger that, it’s better. It doesn’t mean that it is.
Franchisors need to keep an open mind and the people that are buying a franchise need to keep an open mind. The things that they think they want in a franchise many times are the things that they don’t want, or they think because a brand says they are semi-absentee. Are they semi-absentee? That’s where you come in and you be like, “This is what semi-absentee means to this particular brand. This one over here says they are not semi-absentee, but they allow their franchisees to do the exact same thing.” That’s even in validation and how to validate different types of ownership in different brands.Franchisors need to keep an open mind and the people that are buying a franchise need to keep an open mind. The things that they think they want in a franchise many times are the things that they really don't want. Click To Tweet
If you’ve never done it before, you don’t know how to do it and that’s working with you. People will understand how to validate not check it off on their list. Keep an open mind. I’m so glad that I did that. I bought seven different brands. I have had two losers, by the way. Not everything I touch has turned to gold. I know you had a question, “What are some of the big moments in your life that have set you on a different track?”
Once I realized I wasn’t a magic franchise picker, I was a better consultant. I was better at my videos. I was better on my podcast. I was more empathetic to people that weren’t doing very well. A good thing that happened to me is getting punched in the gut, kicked in the face, whatever you want to call it, but losing a lot of money because I did things. I was overconfident in my own ability. Just because the brand had some weaknesses in these other areas, I thought my success as a franchisee historically would overcome that, and it did not.
The other thing that was a challenge with that is I thought a successful brand was doing well, but it needed my full-time involvement and I wasn’t giving that. I didn’t vet that out or give enough weight to that and we are seeing more and more of that. I’m sure you help your candidates with that to give them accurate expectations of time involvement what semi-absentee means, or because these numbers are big in Item 19. What’s the owner’s involvement in that particular franchise? Lots to talk about there.
I have had a similar experience and it’s humbling. You think your breaches are bigger than it is but if you can embrace that experience and that investment, there’s a lot to learn from it. That can help on the next deals help you vet, get sharper, and all that stuff, but it’s also humbling. If you haven’t been humbled yet, I don’t know if I can help you because you think everything is easy and maybe you’ve set it up to be a success. There’s typically something that happens when a franchise company gets humbled and how they respond to it says a lot about who that company is and what the ride’s going to be like.
A franchisor can get humbled and yet not have any humility coming out of that. From the outside, it’s like you got humbled. You did all this stuff wrong. Your franchisees are failing. You did your territories all wrong. You did this wrong. Nobody’s interested in buying you because of how you set it up, but they do not see it as like, “I made some mistakes and I should have course corrected earlier.” Especially at Front Street Equity Partners, we are looking for brands with founders that are humble. Founders that will implement fast and want to learn. If you don’t have that, I’m not going to be an advisor or we are not going to bring you on at Front Street Equity because we are not going to have an impact.
I spoke with young brands at the Springboard Conference. They have cool concepts but the founders are like, “I know too much already.” I know that you guys think you are doing but you don’t. Even in the franchisor mastermind. It charges $2,000 a month, which is a steal. It sounds like a lot of money if you are thinking of an expense, but the value that they get is a steal for them.
I will coach them. I will ask many things and do sessions. Some of them are like, “It’s too expensive for me right now.” If they say that or they are not into it, I’m like, “Great. What’s your goal? Go for it,” because I know they will be back in 1 year or 2 years. The price will be increased for it, but they will see the value. I can’t tell somebody the value. They have to see that value or they are not going to stick around for very long and they are not going to learn and they are not going to implement.
It’s not an expense. It’s an investment. If you are looking at it like an expense on the P&L, then probably not a fit.
You and I could take any brand and easily save them or make them $24,000 a year by having one hour a month with us. Because of your background and my background, we could easily help them get the right franchisee that should be a buyer that is not going to buy from them or help them avoid getting a bad franchisee. Easy. If they don’t see that, they will never be a part of their mastermind. They will never be able to scale their business how they are dreaming about scaling it.
For these early emerging franchise companies that have aggressive goals, if they make the wrong decision, it can set them back years if they can get connected with the right people who can navigate them. They don’t know any different, but if they don’t come in with this, “We have got to realize we don’t know what this franchise journey is going to be like. We want to lean into people that have been through the path.”
There’s this one company. You’ve heard about them. They were talking to a particular FSO that had a unique strategy that was unconventional and they were about ready to sign the paperwork. They randomly got connected with me because if somebody saw one of those stinking videos that you inspired me to do.
We sat in a room for 4 hours and I gave them 14 years of experience in 4 hours and they were like, “There’s this whole other piece to this thing.” If they hadn’t at least listened to or got connected to hear about what the other options could be then they would be nowhere near what they are right now. It’s these delicate little things and it’s all about whom you get connected with, get advice from, and what that advice is.
I was thinking, we are like, “They don’t know what they don’t know and they should be doing this. We could save them this. They could be worth so much more in a faster period of time and have X amount more enterprise value if they would listen to us.” Yet, I go back and look at it from their perspective. They are like, “How do you have what it takes, Erik, Dru, or whomever they are talking with?” There are so many different ways that they can do it. They can give up equity, which they would do with us or they would pay a lot of money, which they would do with others. That’s neither right nor wrong. It’s whatever’s right for them at that time.
That’s why it’s beautiful because there are multiple different good brands and people. We are at Front Street, but there are other good brands out there doing some cool things that have a different model than we do. We are all friends. We all know each other. We all hang out together, but that’s the truth. How do they know as a brand that Erik’s, Kurt’s, and Zinc’s Group and all these guys’ groups are good? They don’t because there are a bunch of bad ones out there.
There’s a bunch of them that are going to take their money, give no strategic advisory, and not be helpful. They have a poor reputation in the industry, but they are good at selling a brand, and there are some out there with very poor reputations. We will not call anybody out, but do your due diligence, but bringing on people that are smarter than you as an advisory board or something like that is a good thing for these young emerging brands.Bringing on people that are smarter than you as an advisory board or something like that is a really good thing for young emerging brands. Click To Tweet
The exit is significant and it seems to be getting bigger and bigger.
Jeff and I were talking about this. This isn’t public information. It’s not private. I can talk about it because we are not talking about any specific brand, industry, or anything. There was a company on the market. Let’s say they got sold for $100 million back in the day many years ago. Now they are back on the market.
The rumor is $400 million, $500 million, or $600 million for this particular brand, and they were bought. The deal was as good as done and then the big private equity company pulled out and said, “We are no longer doing this, and the reason is that we are no longer doing consumer-based brands. We are going more business-to-business.” That one thing changed everything for that. Now they are back on the market.
They can’t do anything about that for themselves but it shows you the magnitude of a brand selling for $500 million or $600 million. If they would have set it up wrong and didn’t pull the right levers over the last handful of years, they wouldn’t be sitting at $600 million because I know some of their competitors are less than $100 million now.
It’s because they were introduced to the right people. They made good decisions along the way. They took their chips off the table. They brought in better people. They have made some strategic acquisitions, some strategic things, and now they are looking at a $500 million valuation, but they did things right from the very beginning and what they didn’t do right, they changed along the way. I know a handful of their competitors and they are nowhere close to that. You got to pull the right levers.
Make sure you have happy and profitable franchise owners. Fundamentally, if you ever lose sight of that as a franchise company, then there is no getting around that. There’s no way.
This brand has happy, successful franchisees. I’m so glad you brought that point up because they wouldn’t be where they are without that and private equity cares about that. Sometimes as franchisees, we get disgruntled with our franchisor and we are like, “They are not doing this. They are not doing that.” Good franchisors know that they need happy and successful franchisees or they can have a good exit but not a great one. A great one occurs with happy and successful franchisees that have the opportunity to expand. Private equity cares about the health of the franchisee.Good franchisors know that they need happy, successful franchisees or they can have a good exit, but not a great one. A great one occurs with happy, successful franchisees that have the opportunity to expand. Private equity absolutely cares about the… Click To Tweet
It’s a symbiotic ecosystem. It’s all got to flow together and that’s why validation, we all preach, talk to the franchise owners, and there’s a way to go about it. It blows my mind how many people skip that step in buying a franchise. It’s crazy.
Why do you think people skip doing deep enough franchisee validation?
It goes back to the humility piece of it. People think that they know more than they do when they are getting involved, especially if they have never owned a business before and it’s a lot of work. It’s not easy putting in the time and reaching out to people on a call basis to have conversations with them. Those are two things that come to my mind. What do you think?
I think so. It is a lot of work. We think that we know better or we do. We talk to a good one and we are like, “This is good.” We talk to another good and we think it’s good or we are not asking the right questions. Some people don’t validate because they don’t know where to start or how to start the conversation, how to ask the right questions, and even how to build rapport with a franchisee on the phone. How do you do that? You don’t want to be a bother to them because they are in their business and they are getting a bunch of these validation calls.
I’m sure you do a good job at this. I did an okay job at this but helping candidates with validation like here’s a bunch of questions that you should ask or here’s some topics that you should be asking about. Make it easy for them to pick up the phone, and send emails and text messages. As we are having this conversation, I would probably have a text set up that says, “Here’s how to text them.”
Help them set that up or leave the voice a voicemail script for somebody or an email script so they can do it. It’s easy and frictionless for them to initiate those conversations. It’s like working out. Once you get to the gym, bike, or treadmill, you can stick around. You start out as 2 minutes, but 20 minutes goes by pretty fast. Once you start doing that, you start to understand the value of that.
More direction would probably be helpful as well. Here’s the other thing. Some people are so enamored by the brand, the leadership, the product, and the thing that they don’t think that they need to do it. They are like, “This brand has amazing leadership. They have success over here and over there,” and then they don’t validate. Does that prior success as a franchisor over here translate to success at a current franchise? Sometimes it does and sometimes it doesn’t. They don’t think about connecting those types of dots, so they might be validating the wrong thing.
There are a lot of layers to this for sure. I enjoyed it. What’s next for you? You got all kinds of stuff going on.
I want to have the most amount of impact with the least amount of work. Part of that’s understanding the own levers that I can pull in different franchise organizations and being a part of brands where I can have a significant impact on them without tying it to my hours. I have seen that happen and it’s happening more and more now with a technology company and software company I’m getting ready to be an advisor for.
I want to continue doing all of that. I want to start allowing other people to see opportunities to invest in franchisors. Just about listed on AngelList with my friend Justin Donald. He’s a lifestyle investor, so he and I are going to have syndication on AngelList. I have got some things of cooking from being able to invest in different area developments to franchisors and things like that. I don’t know how all that’s going to pan out but that’s something that’s cooking.
I figured you had something interesting cooking. If people want to get in touch with you, how can they find you?
Go to Scalable Franchise. ScalableFranchise.com or Franchise Secrets. You will get into my world or check out the Franchise Secrets Facebook group. That’s a fun group. Don’t spam people in there. You will get kicked out real fast. To be a fly on the wall or participate as much as you want. FranchiseSecretsGroup.com and that will take you right there.
Good stuff. I’m part of the group and there are a lot of good questions and learning that can happen from other people asking questions. Thank you for hopping on here. I enjoyed it.
It’s been a pleasure and so I’m so glad you are producing the content that you are producing the show and videos just giving out there. You are one of a handful of consultants that I trust and I know that knows their stuff. You’ve been on all sides of franchising, so keep it up.
I appreciate that. Thank you.
- Erik Van Horn
- Rich Dad Poor Dad
- Front Street Equity Partners
- $100M Offers
- Franchise Secrets
- Franchise Secrets – Facebook
- Alex Hormozi’s podcast
- Lane Fisher and Jeff Herr – past episode on Erik’s podcast
About Erik Van Horn
I started to seek out other top performing franchisees and entrepreneurs. Sometimes I had to pay money just to get in the same room as those people, but let me tell you – IT WAS WORTH IT EVERY PENNY.