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From Franchisee To Franchisor, Investor, Mastermind Leader, Podcast Host, And Overall Franchise Industry Influencer And Thought Leader, The Super Talented Erik Van Horn Drops Knowledge Bombs On All Things Franchising.

LUNL 6 | Franchise Industry

 

Nick Lopez and Erik Van Horn of Franchise Secrets discuss everything about the franchise industry. This dynamic conversation covers Erik’s time operating as a franchise owner, multi-unit franchise owner, master franchise owner, and franchise development rep. Over his career, he has been a franchise owner with six brands and an area rep with two others. As of late, he lives on the outskirts of South Dakota where he runs his companies out of state.

Erik and Nick discuss the most valuable lessons in franchising, the power of getting the right mentor to help you level up, the importance of location, and prioritizing trust and credibility above anything else. Nick also shares some of his predictions on the franchise industry and the best ways to cope with these potential trend shifts.

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From Franchisee To Franchisor, Investor, Mastermind Leader, Podcast Host, And Overall Franchise Industry Influencer And Thought Leader, The Super Talented Erik Van Horn Drops Knowledge Bombs On All Things Franchising. 

There Is More To Franchising Than What’s On The Surface. Trust, Credibility, And Most Importantly Results Are Beyond An Impressive Item 19.

Welcome to the show where we have the absolute pleasure of learning from thought leaders in franchising, business, and high-performance personal development. Our guest goes without exception. He's an investor and advisor to franchisors. He has gone from franchisee to franchisor. He is a podcaster. He's the Mastermind Founder of the Franchise Secrets Facebook group, which many folks in franchising know and love. He's a franchise mentor. We know him for the Franchise Tribe and Tribe of Investors. Mr. Erik Van Horn, welcome to the show.

It's good to be here.

I love it. You're prepared for the show. I've had some pretty amazing guests but I haven't had to reference notes when looking at a bio. I don't know if you noticed but there's a long list of items there that you're involved with in the franchise space. You're an influencer. I most certainly appreciate all the things that you do in franchising. You've been somebody that I've admired.

I appreciate all the things you do in franchising. Thanks for being on the show. I hear so many people talk about these unique ways of getting into franchising but nobody says, "I'm getting into franchising." I'm curious. You're somebody pretty involved in a lot of different ways in franchising from franchisee to franchisor and everything in between and around. How did franchising find you?

I have so many things that I've done in franchising because I get bored doing the same thing over and over. I'll answer the question, "How did franchising find me?" The answer to that is why I've been able to do so many different things in franchising. My first brand was called Liberty Tax Service. I was able to buy Liberty Tax in my early twenties because I was planning to go to law school, didn't go to law school, started a law company, and ended up working on a house for a lady. She brought me some lemonade and said, "What are you going to do when you grow up?" I said, "A real estate investor."

 

LUNL 6 | Franchise Industry

 

I left that time with that lady with a contract in hand to buy her house with no money down, assuming her mortgage and my parents as business partners in that because I didn't have $5,000 for a closing cost. A few months later, I sold 50% to my parents for about $20,000, give or take. I was involved or looking at Liberty Tax because some of my friends were looking at Liberty Tax. I'm like, "I have more cash than I've ever had in my entire life." I didn't want to blow it on anything stupid, so I bought a franchise.

Some of it was luck that I happened to do that. As you were saying that, I realized that in my first year of owning Liberty Tax, I opened up three locations right away. I've got experience as a multi-unit franchisee day number one. I got experience in partnerships day number one. I got experience with out-of-state ownership on that first tax season day number one. I emailed John Hewitt and said, "I would like to sell franchises for you." I didn't have a job. He was like, "Show up on this date."

There was a handful of us new franchise development folks that were learning how to sell franchises. After my first six months in the business, I was now working at the corporate office. That allowed me the opportunity to see what was happening on the inside of the franchisor. My parents and I bought the area development rights to Austin, Texas when they had four locations in Austin.

We ended up growing and selling that about 8 or 9 years later when we had 42 locations in that market. Area developers, franchise development, and working for a franchisor and a multi-unit franchisee gave me a lot of insight into the franchising world that the average single-unit franchisee doesn't get. It's the first time I thought about that. That's how franchising found me, and that's why I've been able to go and do so many different things within franchising.

You started as a franchise owner, stewarded those resources, turned that $5,000 into $20,000, and invested that wisely into Liberty Tax. You started as a franchise owner and then worked for corporate doing franchise development. Did I hear that you were doing an area development role and took some locations?

We bought the area development. Most of the time, people know there's a master franchising model but we bought the area development. It's called area rep. We bought Austin, which had 60 territories that were undeveloped. My role as a twenty-something-year-old was to sell franchisees and help those new franchisees become successful. The more successful they became, the more money I made, the more that they would grow and expand in that market, and the more valuable that market became. It's a mini-franchisor but without all the responsibility of becoming a real franchisor.

That was in Austin. That gave a foundation beyond a single-unit franchise owner. Fast-forward here a little bit, I appreciate you going back there and laying some of the groundwork. What are you doing these days?

I was a franchisee with 6 other brands and an area developer with 2 or 3 other brands. I sold pretty much all of that. I live on a ranch out here in the middle of nowhere in the Black Hills in South Dakota with my wife. We have three daughters. This is a fantastic life. I love the chill life out here in South Dakota. I got used to having businesses out of state. I advise franchise brands. I have franchisors that want me to advise them. I'll typically take a piece of equity for that.

I have masterminds where I help franchisees get better and be around other amazing franchisees and bring in cool speakers. I have a franchisor mastermind. Some of these young franchisors don't know what they don't know. I'm able to shortcut the process for them and give them good and smart people like you. You were in there helping these emerging brands and knowing what pitfalls they might be getting ready to experience so they can avoid them. Having people like you in there with your knowledge and experience is helping some of them.

I do a lot of passive investing. I love passive investing because I don't need to be the richest guy in the world. I don't need to have the biggest business. I want to have the most epic lifestyle. I want to be known as a guy whose family loves being around him. I want my kids to know me and to love me, and my wife to do the same. That's more important to me than money.

Instead of building massive businesses these days, I would rather passively invest my money. I have a lot of passive income coming in that exceeds my lifestyle expenses. It pays my bills but exceeds my lifestyle expenses. I help other people do the same in the Tribe of Investors mastermind. I'm doing different things with Front Street with some friends and doing some different stuff with franchisors advisory and helping them in different ways. Franchising stuff, franchisor stuff, and investing stuff are what I'm up to.

 

 

I know the team some of the team there with Front Street. What are some of the projects you are working on? What are some of the things you can talk about?

We have never talked about this publicly yet, so this is fun. It's called Magnolia Soap and Bath. It's one of the brands. We have some others in the works. It's natural soap stuff. It's experiential. She had a brand that has about twenty locations. She has locations that she's had herself for years. They do well. When we look at a brand like that where the founder is successful and the founder wants franchisees to be successful, we know that we can help them. There are other brands that we can't help and that other people can't help but we know that we can have a significant impact on their brand, which means franchisees will get value out of it. We want to help brands like that.

Magnolia is one of those. Sometimes they go into the broker networks. Sometimes it's better for organic. We want to provide some guardrails for some of these brands and help them get in the trenches. We call it strategic advisory but it's in the trenches. You've had some mentors like that who have been in the trenches with you. I'm sure you could be that guide in the trenches with other brands. There are so many things that brands do wrong early on that have a significant impact on the franchisees, the brand value, and the way the brand is able to do it once they have 10, 20, 50, or 100 franchise locations.

LUNL 6 | Franchise Industry

Franchise Industry: The best and most effective mentors are those that have been in the trenches with you.

 

We want to help them grow faster than they could on their own while avoiding many different mistakes. Magnolia Soap and Bath is one of those brands. Branding is important. You know about that. We know some of the most amazing branding people out there. We want to bring in somebody like Gary to be like, "Get your mind on this brand. Get your genius on this brand. Let's make sure that it's buttoned up from a branding standpoint because once you get that branding set up the right way, that's the foundation of your brand from a marketing standpoint and so many brand stories and different things." You and I both know and love Gary. He's one of the best out there with that.

Gary, the Oracle.

He's amazing.

He's our Chief Marketing Officer. He helped us with that process. I was working with some of the leadership at Front Street in their previous endeavor with St. Gregory. Gary was so instrumental in many of the national brands that St. Gregory took to the market. We were so fortunate to be in that position. That relationship carried forward with Gary. He acquired the nickname of the Oracle because of his Oracle-ness when it comes to brand development.

You don't want to take this local footprint that has been successful with the founder of a brand. There are probably some gaps. You don't want to take those gaps and scale them because those gaps compound. You're partnering with founders and concepts that are successful in their market and have a lot of potential to bring value across the country to many clients but you're bringing that franchise leadership experience and helping level up different elements of the business prior to scaling it.

What a fun process. It's one of the many things that you're doing. We had met up at Springboard in Philly. You shared with me a little bit about Front Street. I have a lot of respect and admiration for Jeff and a lot of his talents for doing that. I was curious about where his next endeavor was going, knowing that he is partnered with you. I know some of the other partners as well. What an impactful group of individuals. Those founders that are working with you are in a pretty awesome position.

Through all of your experience in different projects and throughout franchising, what do you think are some of the lessons that you've learned? I'm sure you're constantly learning lessons that take you to your next projects. As we all know, we don't want to repeat the same mistakes. That's a part of leveling up. That's something that you have been good at. I was curious. What are some of those lessons that have helped you to level up that you would share with our audience?

I have so many going through my mind. I'm trying to figure out which ones to share. From a franchisee standpoint going from brand to brand as a franchisee, and I've been that, I got overconfident in my ability to be successful because I was successful in this brand, I went on to be successful in multiple brands, and then I had one that I was not successful in. In franchising, so many people say, "If you're not successful, it's your fault, not the brand's fault," but sometimes it's the brand's fault. It was my fault for thinking I could overcome some of the weaknesses that I saw because I was successful.

In franchising, so many people say, "If you're not successful it's your fault", but sometimes, it's the brand's fault, and it was my fault for thinking I could overcome some of the weaknesses I saw because I was successful

It's realizing early emerging brands carry more risks. I started to think about the lesson that I learned if I would go into other brands as a franchisee and do that, and I am doing that as an investor but I want to ensure that the franchisees that I invest in are proven operators. They're proven franchisees in that particular brand. The brand has a proven track record of success, not Item 19. You can call up the franchisees and validate with their numbers, KPIs, gross, customers, and all this stuff that you want to understand to make a good decision in a business.

If you have to rely on Item 19, it might be the most amazing business but it is a higher risk. There's risk-reward with everything. In early brands, you get to have a pick of territory. The whole country is wide open but your franchisee is number one. It's a high risk, and most of them don't make it. That's the reality. In terms of thinking, "I want to get another franchise. I want to be a franchisee," it's risk mitigation and getting honest with myself or the people that I advise.

Get honest about what the real risks are. There are risks with brands like that. Even if the founders have been successful in another brand, that eliminates some risk but that's not full risk mitigation. I've seen that play out where they were successful in another brand and they start a new brand that's not nearly as successful, or maybe there are a couple of them that are successful. They go on to scale multiple brands. They're not all that successful. There are some losers in there. It's getting honest with myself with stuff like that.

How do you mitigate risk with that? One of the things I think about is looking at industries like the painting industry. If I'm looking at Lime, I'm thinking, "Nick is a proven franchisor because he has done it." Franchisees are proven because I can call them up. They haven't been in business for 6 months or 12 months. They have been through a pandemic. I like all of that about models that are more proven. It's validating the industry in general. What is the painting industry like? What is the remodeling industry like? Why have more services to offer versus painting porches, front doors, the inside, or the exterior?

I would validate the industry to make sure that what I am being led to believe is true, especially with models that are in new industries or industries that are not proven. I would start to try to figure out, "Is what I'm being led to believe true?" I research the franchising industry to find that out because some things might be overinflated and underinflated. That's the reality. You know that. That's why I appreciate you and what you've done. It's hard to find people that are trustworthy and people that have done it and been in your shoes. You're both of those.

I appreciate that. I didn't expect you to go there. From a franchise owner's standpoint, it's not always what it seems. It's important to do your due diligence. Even if Item 19 looks great, you want to have more conversations with the folks that are doing it. Even if a founder has been successful in the past, and this is their 2nd, 3rd, or 4th brand, not every franchise system is going to be a home run. It's truly figuring out, "How are the franchise owners doing?" Validation is so important when it comes to understanding, "Is this an opportunity that's going to give me everything that I hope and expect?"

To piggyback on that with validation, I was a franchisee with Sola Salon Studios. We grew that to twenty locations in Orange County. We had an eight-figure exit on that back to the first three locations that we opened up. We secured leases on three locations and opened them up within nine months of each other. Location number one is an average location. It opened up as we expected it to.

We as owners, franchisees, founders, and corporate staff thought location number two was going to be the best location in Orange County. It turned out to be the worst location out of the twelve locations that we had. It lost money. It would continue to lose money. We had to lower our rent and do so many different things. It took a lot of our time and attention. It was our dog.

We opened the third location up in Huntington Beach. It was a dog. We have this other one that we're opening up in Irvine. It is the most expensive lease that we have, the biggest buildout, and all of this. We opened up making money from day number one. We opened up our doors to making money. We couldn't do anything as franchisees to stop making money in that one.

We had a hard time trying to make money in location number two. We couldn't stop making money in location number three. We had levers to pull in location number one. The takeaway there or the lesson learned is location matters, especially in a retail concept but in the service space, it does as well from who your customer is and whatnot. The same franchisee, the same management team, the same marketing, and the same everything in different locations have three different outcomes.

If you were to validate with me at location number one, I would be like, "It's what we thought. We're making some money. It's not amazing. It's good." If you were to validate with me on location number two, I would be like, "This brand sucks. This is the worst brand. We thought we were going to be making money. We're losing money, doing everything that they say, and not making any money. It was more expensive than we thought. They thought it was going to be great. They're not telling us the truth."

That would have been the validation. The validation on location number three would have been, "This is the best franchise in the world. We opened up and started making money. We're making hundreds of thousands of dollars a year. We can't screw this up. We love the franchisor and the training team. They didn't even think this location was going to be that great. Now, it's amazing. This is the best brand in the world." If we were single-unit operators of locations 1, 2, and 3, you would have heard three completely different stories based on our experience. They were all true.

We went on to continue to open up twelve of them and sold the private equity. Location number two was the worst one. We eventually made money in it but that shows you that location matters. The brand, the franchisors, and everything else were the same but location matters. There's another dirty little truth in franchising. I'm glad you let me go here. I love it. Territory matters. The type of territory that you end up buying or the location that you end up opening plays a role in your success as a franchisee.

Territory matters. The type of territory that you are buying actually plays a role in your success as a franchisee. 

A takeaway with that is the franchisor is right a lot of times. They're not always right because we thought this one location was going to be not very good, and it turned out to be great. I'm glad that we decided to go all in and not hang our hat on 1 or 2 locations because we probably wouldn't have been able to have the exit that we eventually had. There's another lesson that I learned as a franchisee.

There's a huge benefit in owning multiple territories versus a single. The third unit that you mentioned ended up turning out to be pretty solid. As you were talking, I was having a thought not too long ago about the power behind the territory, yet the unknown. When we launched in Boise, Idaho, it was our first territory out of state. We're a high-end paint company. You wouldn't necessarily say Boise, Idaho has a high-end paint company but it has consistently been a top location. It's a growing market.

Our threshold for awarding that territory was $500,000. We look at home value as that threshold per market. In Boise, it was $500,000 up. In Denver, it's $1 million. In LA, it's $2 million. We're awarding the territories in those top third of home values within that market but even then, there's that ambiguity around what nobody knows. Having multiple territories helps to mitigate some of that and reduce some of the risks that can be there.

I was also thinking about the franchisor side. You have some franchise candidates that don't necessarily stack up as having all the intangibles or hard skills that we think are going to be a home run in the business yet they're a great culture fit and they are adamant that they want to be an owner. We award the territory. Generally, we have decision day, and there are a handful of groups there. It's not necessarily focused on one individual. Most of the time, you're awarding multiple licenses to multiple groups in a period. You don't necessarily overthink, "This individual may not be a great performer."

All of a sudden, they're making all this noise. They're crushing it and hitting it out of the park. If we were that selective in not allowing them to join the franchise, we would miss out on that opportunity. There's a little bit of that unknown all around that. It has to play itself out. I want to transition a little bit. We talked a little bit about some lessons. We're talking about this a little bit but what makes a franchise model successful? What are some themes?

What makes a franchisor successful for franchisees to be successful is a franchisor that has proven the model out in an average market, or at least they're honest with themselves about the market. They're making money according to what Item 19 says in a particular market within a particular geographical area. Number one, the model works, and they know why it works. It's not that it happened to work or they know why. The leadership team in the franchisor makes a big difference.

Just because somebody was successful as a mom-and-pop business owner doesn't mean they're going to be a successful franchisor even if their business is or was successful. All of a sudden, you go from a successful mom-and-pop business owner to a big business owner or whatever you want to call it, and now you're a franchisor. There are different problems. It's a different business. That's the truth. You don't know what you don't know unless you have strategic advisors and seek out mentors. You're one of the few guys that did a lot of that. You did it but most people don't.

I like early merging brands that have smart people with franchising experience on their team or as advisors. They are honest with where they are, "We're new. This is where we are. We're not the most amazing brand yet but we're going to get there." Honesty and transparency are important in that as well. Those are two big things. There's a proven track record in doing the thing that they are telling everyone that they can do successfully. They have industry experience and franchising experience as advisors on their team. That's important.

 

 

Naturally, I'm a perfectionist. I'm also pretty humble. I try to be humble. I have no problem saying, "I don't know what I don't know." Being a perfectionist, I didn't know franchises when I got into it. It has been important for me to put in that due diligence and go back to my degree. I've seen the sales process that I learned translate and produce results. That wasn't me having the humility to recognize that.

I wanted to go out and surround myself in franchising with folks that know a lot more than me and could help me with some of that upfront infrastructure that ultimately allows support and growth and doesn't do the opposite and expose gaps in that growth. It's not to say that things are perfect but to then have those advisors and that leadership team to help pivot, adjust, and close gaps as growth happens is so pivotal.

What makes a franchise model successful is a great leadership team, an experienced leadership team, and some humility there to admit that we don't have it all figured out. Business owners in general have been harping on this more as of late. The best entrepreneurs are very humble, whether it's humbly acknowledging that you did something wrong with a client or that you can get better at serving a client, customers, the community, the product, and the business.

To compete, stay relevant, and deliver value, you have to have the humility to level up. If you don't have the ability to do it in-house, it's seeking those and being coachable to level up. The beautiful thing in the franchise model is you have the resources, the tools, and the support to give you that playbook and get you through those learning curves that ultimately level you up to have a successful business. That's a little bit of my opinion on what makes a successful franchise owner or entrepreneur in general.

I love the humility aspect of that. You've got to ask questions and be curious. In one of the brands that I was a founder of and help start as a franchisor, we did a survey right after training. What did we do well? What can we improve on? We got a list of things that we could improve on. We said, "We're going to take not all of them but some of these. We are improving on this for our next training." We let everyone know, "We heard you. This is what we are changing for our second training." We did it and got a better response. You always have to improve.

If you think you know everything as a franchisor, that's mistake number one. You're going to always run the business as a dictator. You have to listen to franchisees and be willing to tweak and change things because they're the ones out there on the ground going through your training and doing the thing. They are the eyes and the ears on the ground. You have to listen to them and yet be the franchisor, still stay the course, and give direction. It's a balance. I love what you're saying with humility. I couldn't agree more.

You always have to improve, and if you think you know everything as a franchisor, that's mistake number one. Listen to franchisees and be willing to tweak things. 

In your opinion, what do you think are some elements that make a successful franchise owner?

The most successful franchise owners that I've seen hanging out with other successful owners. They're always wanting to improve. They're doing more of what works. It sounds so simple, "What do you mean to do more of what works?" If certain marketing is working, do more of it until there are diminishing returns. If you need to knock on more doors, send more flyers, make more phone calls, and spend more money on this, then do more of that thing until there are diminishing returns.

I learned that early on. I used to think, "These franchise owners are more successful because they have a better territory, a better market, or whatever the better thing is." I realized as I got to know them and see what they're doing that they're doing 3 times or 4 times what I'm doing. No wonder they're getting 3 or 4 times the results that I'm getting. They all hang out with each other. If you think about it, a lot of these top franchisees hang out with each other. That's why I started the franchisee mastermind.

I started to go from brand to brand. I went from Liberty Tax and some different brands and got to know top franchisees in other brands. I'm like, "They all had the same problems and issues. There are reasons why they're all at the top of their game." They were all multi-brand units like I was at the time. We all learned from each other. I learned from people in the massage industry how I could impact the current businesses that I was in, the eyelash industry, or the senior care industry. I started to learn from a lot of different successful franchisees in different brands. Having that heart and that desire to learn, be open, share, and give as well will help you become a successful franchisee.

 

LUNL 6 | Franchise Industry

 

It's doing 2, 3, or 4 times the amount of effort and doing the right effort. As a franchise owner, you may be doing 1/4 or 1/3 of the effort, and it may not even be the right behavior. It's not only the amount of effort but the right effort. I always say there's this law in existence. It's much like physics cause and effect but in the business realm, it is behavior equals outcome. The great thing is you can control that effort and that behavior unless one thing. It's the wrong behavior. Hanging around with franchise owners is going to give you a good feel for what to do and in what capacity. I can talk to you about this stuff.

There's a right way and wrong way to do that with behavior. There are two ways to approach it. You see a successful owner. They're doing successful things. Let's say they are doing 100 things of whatever. They're doing 100 business-to-business deliveries. You as a bad franchise owner will go in there and be like, "I'm doing 100 as well." If you're going in there as a franchise owner that's 1 and 2 levels up, you say, "They're doing 100 but what are they doing that's different from my 100 to get different results that they're getting? The results, the outcome, or the outputs are different from mine. What are they doing differently?"

You start to say, "They're not delivering moldy donuts. They are going in and getting access this way. They're doing this thing. They're getting coupons in. They're able to talk to this person." Find out what the successful people are doing that's different from you. You go in with that question versus confirmation bias of saying, "They're doing 100. I'm doing 100. They must be luckier than I am."

How much of that is doing the business model? How much of that is the behavior of those top performers being the basics in whatever way, or in our case, the Lime way? From your experience, are those owners doing innovative behavior that is leading to that? I'm sure there are some innovative elements.

It may not be true in Lime. It's true in a lot of ones. The top franchisees are usually doing all the basics. They're doing the Lime way but a lot of them are innovating. They're doing different things but they have almost earned the right to do that because they have done the basics well, and then they are improving on the basics. Some of the stuff that they're improving on might turn out to be a good thing. Some of it is a waste of time and energy. I like to learn from those guys and be like, "What are you doing? How are you doing it? Why are you doing it? Can I duplicate that?"

If they're testing things out, I don't want to spend time on it unless I'm at the point in the business where I'm so successful I can start testing things out as well. Sometimes the franchisors don't like that. Sometimes they do like it. Sometimes they let some of these top performers do what they want to do because they're not hurting the brand at all, and they come up with good ideas. Once that brand's top franchisee comes and says, "Nick, I got a good idea. It's working. This is why it's working," Nick is like, "Let's roll that out." That's how some of these brands get better.

LUNL 6 | Franchise Industry

Franchise Industry: Once the top franchisees come up with really good new ideas, it helps the brands get better.

 

The key word there was they earned that leverage to go out and innovate because there's trust in the execution. There are rhythms for understanding what makes the business model successful. There's trust in that innovation because you have to be pushing the envelope to get more results. You hit that ceiling. Every market is a little different but not different enough to where the business isn't what makes the core of the business work. It's not different enough to get away from the core of the business. It's a changing and evolving landscape there from a competitive and commerce standpoint.

Innovation is necessary. That trust and communication between top-performing, middle-performing, and even bottom-performing franchise owners and the franchise themselves is what levels up a brand and takes it to the next level most certainly. Erik, I want to transition here. I feel like I could talk to you all day. I am curious. I want to get your thoughts on where is the industry going. Are you noticing some trends in the franchise industry as a whole? What are some of your observations?