Franchise Advisor Erik Van Horn's Secrets to Investing in Franchises and Achieving Franchise Success | The Big Success Podcast

0:00I love the franchising model and I love how we get to learn from each other the founders can take successes that they've seen with other franchisees and learn from them. Eric Van Horn buys franchises, builds franchises, and he's teaching you today exactly how he's built multi-millions of dollars. Once you start making money, take that money and start investing that money. Really, the goal is go back to Robert Kiyosaki and the cash flow quadruple, and really to have your money work for you. Success and freedom kind of go hand in hand for me. You're going to learn from Eric today. So Eric, what is your definition of success?

0:37Man, I think it's freedom. It's freedom to be able to do what you want, when you want, not tied down to a job or even tied to having to make more money to have that lifestyle that you have. So it's just success and freedom kind of go hand in hand for me. How did you evolve to that? Because I doubt as a young man, freedom was the goal. Like as a young man, it must have changed over the years. Or did it gradually shift? Or was there a day it changed? What happened? Dude, when I was making$20 ,000 a year, that was definitely not my definition of success. And then I became a franchisee, started selling franchises.

1:24And as I was selling franchises, I hit my first year, I made$100 ,000. when I was, you know, early 20s. And a guy that worked at that corporate office, he said, Eric, and he knew, he's like, you didn't have any money before. Now you're early 20s. And, you know, going into six figures, like, don't change your lifestyle. It's like, if I gave you one piece of advice that I wasn't asking for, but he said, don't change your lifestyle when you hit a new level of income. And I took that to heart and I didn't change my lifestyle. And I think that's kind of where it started because even though I had the money to be able to buy a little something, I didn't really buy anything that was significant.

2:13And then when I had my first million dollar year of net income, it was the same thing. I'm like, I'm not going to change my lifestyle. And I think it was at that point, Brad, when that first million-dollar year of net profit or taxable income, I had a great lifestyle. I don't need to change anything. So what would$10 million a year look like? What would I change if I had$10 million a year? I would probably have another house somewhere or have more stuff. but I realized I would not change anything about the time that I would have with my family. Like, I would want more time with my daughters, more time with my wife, more time with my friends.

2:59And so I think that's when it was really solidified. Yeah. Where do you think you chose success? Was it in your 20s or was it earlier than that? Where did success become your standard? It was, I think it was early on. So I, my dad had a construction company. My parents had a small little construction company and i was like digging fence post holes digging out rocks just all this manual labor and i would look at you know i was doing a long construction project so as they were building interstates and things like that and i used to get jealous of the guys driving a tractor i'm like oh man that looks amazing that's air conditioned they're they're not pulling out rocks they're not beating up their body and so i i'm like i need i want i want more than than this and then I decided, well, I probably should go to college.

3:46And so I went to college. So I didn't have to be a construction worker my whole life and got a business degree. And then I'm like, you know what? I want to start making a lot of money. And I was registered and ready to go to law school. And then I really looked at this. So lawyers equaled a lot of money to me. But then I realized how many hours they had to work and they weren't necessarily building an asset. and they had to be really good at what they did do to be able to build a law firm, but they were still working a ton of hours. And so I started to think at that point, I would rather go start a lawn company than be an attorney.

4:25And that's what I did. And that's how I came into my first, you know, little bit of money to buy my first franchise. But I think at that point, I've always wanted success. I saw my parents being entrepreneurs, but it was just how I was going to do it and when I was going to do it. So I, yeah, I liked money. I liked, you know, the freedom to be my own boss. And I just didn't know how it would happen. But from a, from a kid, man, from a kid. What's your current, like after all these years succeeding at many different businesses, investments and stuff, what's the formula, Eric's formula for success?

5:02Like what's got to be there to make something happen and be successful? I think for me, it's starting to, once you start making money, take that money and start investing that money, whether it's into your business to grow something or to grow income passively. Really the goal, it goes back to Robert Kiyosaki in the cashflow quadrant and really to have your money work for you. It's so easy to get into the trap of, I'm going to work passively for my money, but you're still working for your money. If something was to happen to you, you couldn't be on podcasts. You couldn't talk. You couldn't sell.

5:38You couldn't influence. You couldn't do all of these things that are easy for me to do now. For some reason, something happened that would all go away. But my passive investments would not go away. That's where my money's working for me all the time. And my friend Justin Donald really taught me that, like get into these passive investments and just get started into that. So I think just getting started into making investments that produce passive income. And then that passive income really, you know, getting to the point where it covers, you know, your monthly expense and so on and so forth. So that would be my answer.

6:15Yeah. I feel good this week. I got both of my eldest daughters to finally deal with setting up their Roth IRAs. And it's like, yes, you know, I've got, and they're doing it themselves. It's not me doing it for them type thing. It's like, I'm succeeding. I'm winning at this thing. Buddy, what in your mind is the relationship between failure and success? How do they go together or not go together? I was on a podcast with John Lee Dumas 10, probably eight years ago. And he always asked this question, always asked a question like, tell me about your biggest failure. And at that point, I didn't have a big failure.

6:53My failure, my answer to that was I had an investment house and that I bought as an investment property. And all of a sudden I was losing money on it. So I decided to sell it and I lost$10 ,000. And that was the beginning of the big real estate, you know, depression that happened, you know, many years ago, like 15 years ago. And so I look back, I thought, if that's my only failure, I know something's coming. And I knew it wasn't because I'm so good that I haven't had a failure. I'm like, I know entrepreneurs that are really successful have big failures. So I was just ready when I was going to lose a hundred thousand or multiple hundreds of thousands of dollars.

7:31And then it happened and it happened in franchising. And so I was just ready for it, but I wasn't excited about it. I'm not happy that it happened, but like I learned so much through having a failure in franchising in this thing that I'm known for. I had a big failure and I had the opportunity, like either just kind of bury it, not really own it, not talk about it and and just kind of pretend it didn't happen because at the time I was a consultant. I was the guy that knew how to pick the best franchises in the world. You know, like I was that guy. And here I picked one for myself that wasn't a success.

8:10And so I just owned up to it. And so I look back at that. And not only was it my failure, but now my failure could help so many other people. And it helped me at what I do because I started to to to do my business differently because of the failure that I had. So it made me much better today as I have like the decisions that I make today aren't going to lose a hundred thousand dollars. They could lose multiple millions if I was, if I hadn't learned those lessons. So they go hand in hand. I don't love them, Brad. I don't love the failures, but I am not afraid of them. So you didn't stop going into franchises.

8:50Didn't stop. And I've had a couple, I've owned like seven, eight different brands as a franchisee or a franchisor. As a franchisee, I've had two big failures and some of it was my fault and some of it wasn't my fault. But yeah. And, but I didn't, I didn't give up. I didn't, I learned from those. Like immediately I'm like, I'm not blaming the franchisor. I'm not blaming all these outside circumstances for it. Like where was my contribution to the failure? Yeah. And otherwise it's like a failure, you know, compounded by failing again, by not learning from it. Like that's the worst thing that can happen.

9:31And I see so many people out there, they fail and they blame. And that wasn't me. Like I'm going to fail, but I'm going to learn. You're on the big success podcast. Eric Van Horn is going to take us into investing in franchises and the secrets to franchise success. There has never been a better time to become successful in life than right now. Creating success in your life isn't about chance. It's about learning what it takes to create a great life. And that's why Brad Sugar's put together 30X Life. You get his 30 years of success in 30 minutes a day for 30 days. You only get one shot at this thing called life.

10:01Let's build an amazing life for you. Eric, I got to ask franchising, what got you into it? What keeps you in it? I started that little lawn business. I walked away from a job fixing up a lady's lawn, and I walked away with a deal in my hand where I gave her$100, had an option contract to buy her condo down by the beach with no money down, just assuming her 20-year mortgage. I didn't have $5 ,000 to actually pay for the closing cost, which she wanted me to do. So I said to my parents, 50-50 partnership. We do this together. And they thought it was too good to be true until they realized it wasn't.

10:39Fast forward three months, I had$20 ,000 roughly in my bank account that I didn't have before by matching that together. And then I was around a franchise founder and had friends involved in the tax franchise. And I'm like, I'm going in. These people, I want to be around them. They're learning, they're doing things. And I want to be around this and a franchise seemed like a safer thing for me to do than doing something on my own. So I just went all in and then continued to grow that, had success, built that for 10 years, had a really good exit as a master franchisee in the Austin, Texas, and took it from four locations, sold it.

11:18And then the next 10 years, I did about six different brands, some as an area developer, some as a franchisee, all of them with partnerships, and then got into the franchisor side of things. So just, I love the franchising model. I love the model and I love how we get to learn from each other. The founders can like take successes that they've seen with other franchisees. And a lot of times I was that franchisee or I'd go find those top franchisees and learn from them. So, and then once you're in it, it's a small world, like franchising is not a huge world. And I got to know some of the big players in franchising and is just something that I absolutely love.

11:57And I think it's just one of the smartest ways to scale a company. You mentioned something there about when you first chose franchising, you saw it as a safer way. Tell me more about that. Well, they had these locations that were already up and going. And the founder of that company had already built a brand before. And so he built a brand. Now he's on to a second brand in the same industry. And they had all these people there that were going to tell you how to market, tell you what to do. And they had all the branding figured out. They did everything figured out. At least what I thought everything was figured out.

12:26Now, not everything was completely fleshed out. It was continuing to grow and evolve, but it was like, I could just plug in. And then really what helped me understand that on a different level than helping me is I can now partner up with an operations partner in franchising and that franchisor can now train that person. I don't have to learn an industry, train a person or partner on an industry. I can have the franchise or do that for me. And so like what I do now is I find successful franchisees in a successful franchise system and we partner up together. I'll be the money. I'll invest. I'm fully passive, but we have a partnership like that.

13:08I wouldn't be able to do that to that level with a mom and pop company. And then to take that full circle, I know there's going to be an exit as a franchisee someday in that particular business. Another franchisee is probably going to buy us out or we're going to expand by buying other people out. So just seeing how all of that works, it's just, it's the easy button to be able to grow and scale. You know, whether you grow, scale and sell, or just continue to grow and scale, like it's the easy button for me. Yeah. I want to help people understand exactly that because I think your philosophy and your strategy is genius.

13:44You go to a particular franchise and throw out any brand that you've done and we'll give them a plug right here. Stretch Lab. We'll throw out Stretch Lab. Great. So Stretch Lab, you go in, you find someone who's great at running one location and you say, I'm going to give the money for us to buy multiple locations. You just got to run them type thing. That strategy is genius, but you've taken it one step further. You're not only just finding successful people, you're finding other people that you can put into the business and operate and be your partner. Share with us, how did you come up with that?

14:18How did that happen? And what are some of the secrets to making it work? Because of a failure, because I thought I could go in into these semi absentee franchises and just plug in an ops person and it would magically work like it's working for us there. So I realized, yeah, the brand is good. The brand makes money. It's a good market. But if I put in a paid employee, it's not going to have the impact in that business that it would if I had an actual owner in there, a partner that had a lot of skin in the game. So then I started to look at other, there were people that were in my mastermind. So I've got a mastermind for franchisees.

15:00They were successful stretch lab franchisees in my mastermind. They weren't partnered together before. They partnered together as they got to know each other in that system. I knew both of them and I'm like, okay, if they could partner together and that partnership works, because not everybody can be a good partner. They have a partnership that works and they want to grow and expand more. I want to be a part of that. So I went to them and like, hey, if I buy these territories and we put them into a portfolio, start a new company and you guys operate it, how do we win? What's a win-win in this situation?

15:34And so there's multiple different ways to do it, but that's the essence of it. I saw good operators in a good brand that was making money and they were top operators within that brand. They just needed help growing and scaling in terms of capital and some advising and different things like that. And they knew how to be good business partners. So all of those things were like, I want to do, I want to do that. And so we're getting ready to, like we're going to open up at 10, 12, 15, 20 of these things. And then we'll see where it goes because of another friend, David Shuck, who has private equity behind him.

16:11That's doing, doing that in a similar way with club Pilates. And Dave's a good friend. He started out at that same company, Brad, that I did Liberty tax way back in the day. So you talk about franchising, I've got amazing friends that are doing really cool things in franchising that we were getting our teeth cut in franchising early on at Liberty Tax 20-something years ago today. And now so many of us are doing really cool things within franchising in all kinds of different areas. So, yeah. I got some guys and gals that have been with me 20-plus years that own multiple Action Coach franchises.

16:45They're now in Mosquito Joe's. They're in Massage Envy's. It's almost every dang thing. They just love franchising as well. Now, you've done area development and master franchise. Firstly, give people an understanding of what those two different types are, because some people might be brand new to franchising. So, and that's evolved over the years. What I mean when I say area development, regional development, or master franchising, my definition of that is you buy a region, Austin, Texas, and that region can put 50 locations of a brand in there. For us, it was Liberty Tax. And so I bought that region as a master franchisee or as a regional developer.

17:29And my role was to sell franchises, bring in new franchisees and support those franchisees as they opened to help them be successful. So I paid a lot of money to buy that area. I would get half of the franchise fee and half of the royalty. So it was and they had 14 royalty so we're getting seven percent or seven cents on every dollar and then i started to understand as i could just grow that area the the the the more that it grew the less work that i had to do because you get a franchisee that owns three locations they open up one and then that's a lot of heavy lifting they open up a second one they kind of do it on their own they open up that third one or more they don't really need your help and they're just doing it so as that region grew It was less work that I needed to do and more money I was making.

18:18So it ended up being this passive income stream. But you take that, that's what I mean by area development, master franchise, regional developer. But then I started to understand that was my entry into being a franchisor and to understanding the franchise role. And I did really well there. But being a franchisor, you can do even better. But that was my entry into that part of franchising. Yeah, it's fun, Eric, because not a lot of people have played at every single level of franchising. So now as a Zor, the franchisor, you're investing, you're picking companies that have a great concept or a great idea and putting the funding and the knowledge behind them to be a great Zor.

19:02What do you look for in a concept or what do you look for in that thing to be something that you would invest in? Uh, one, the founder has to be amazing. Like if that founder says, Hey, I just want to kind of hit, be on cruise control. It's a hard no for us, like an amazing founder that just wants to grow something and they are going to be in the weeds hustling to do whatever it takes to make that a success. That's one. And then we don't really look for me to brands. There's like, you know, we're okay. Getting a brand that's kind of a me too, but we like things that are unique. They're maybe first to market or they're in this new marketplace.

19:42And they have to have great unit economics. Like you put in the numbers of the P &L and item 19, and it really makes people, it makes a compelling argument like this is a good thing to buy. And so great numbers, great founder, and this is a really cool concept with ways to be able to grow it. Um, and so, uh, no, like goglo is, is one of our brands and it's a spray. It's like a, a, a spray tan, but it's, it's, it's much more than that. It's a goglo is what they say, but they're, they've got this unique position in the marketplace. Now there's some others that are coming along, but she, um, manufactured her own equipment when she was a mom and pop, she went and manufactured her own equipment.

20:29That was way better than anything else in the market. So that gives you an idea. Like when we talk about an amazing founder, I want someone that went all in and already started to manufacture their own equipment because there's nothing on the market that's good enough. And now the franchisees have this access to this piece of equipment that makes it way better than anything else out there. So that's what I mean. Amazing founder doing really cool things and just all in on their business. You're on the Big Success Podcast. Subscribe for us. We'll be back. And Eric's going to talk to us about the difference between a good franchise and a great franchise and how you can be the great in that industry.

21:04Eric Van Horn is a leading franchise advisor and entrepreneur known for his profound impact in the franchising sector. To learn more about Eric Van Horn, please visit scalablefranchise.com. And we're back. Big success is here. Eric Van Horn is teaching us how. Eric, I got to ask the question, what in all of your years in franchising, what's the difference between those that are okay or good and those that go amazing, those that are really great? I think that they're just focused on franchisee success, not meaning they do everything that the franchisee wants, but they're thinking the filter is how does this help our franchisees versus how does this just help us at corporate or how does this help me as a founder?

21:47The decisions that are being made at the corporate office at the founder level, how does this help my franchisees, whether it's getting discounts for them or creating systems or just creating a pool of successful franchisees to teach other franchisees how they deal with conflict resolution. But if they have that filter of anything that everything that we do here at the franchisor level, how does this help our franchisees be successful? And it's not always money. Sometimes, Brad, it's like, let's put a technology fee in there let's charge him a thousand dollars a month to have a technology fee and at first glance of fact we've talked to early founders and they're like i don't want to put a technology fee in there well what do you think is going to help a franchisee be incredibly successful and then they start talking about all this technology stuff and and how this would help them and they wouldn't have to hire as many people and they can automate this and they can do this and that and the other and it's going to help them work the leads better whatever it is and we're like Well, that's where you might want to put in a technology fee because you're not thinking, how do I get a technology fee just to make more money as a franchisor?

22:56You're thinking, how do I do this at scale to help all of these franchisees? So the franchisees put in a thousand dollars or whatever that number is, and they can and they're paying that. But the franchisee is getting two, three, five, 10x on that because the franchisor is doing that. Now, not all franchisors have that mindset, but they have that mindset of franchisee focused mindset. And how does this help a franchisee? And they implement a fee like that with the goal of giving the franchisee really good ROI on that. Like that is a good mindset. And that's a franchisor that is making good decisions for their franchisees.

23:32Hey, just a quick one. When I look in the back end of this, something that's quite surprising to me, I noticed that it says that 82 % of you who watch the channel regularly haven't hit the subscribe button yet. So one favor, click that button. If you've watched this show before and enjoyed it, just please click that button to subscribe, hit the notifications bell, and make sure you're part of it. Because as the show gets better, your success gets better. Imagine I'm a first time person looking to invest in a franchise. Top two or three things I should consider. In terms of what? Like the brand or?

24:10I'm going into franchising for the first time. I don't really know what I'm doing. What should I be considering? You should be careful on who you get advice from, first of all, because there are going to be people out there that sell you anything and are going to tell you how great their thing is. So I would start to look at industries that are profitable industries, period. And if it's a profitable industry, meaning they're for sale on biz by sale, this particular industry is, and they have good P &Ls and business, and you can talk to a business broker and they're actually selling these things as a mom and pop and they're making money, then go look at the franchise that's doing the same thing, but it's a franchise.

24:51And so now you know that one, it's an industry that makes money. And you also know kind of the the kind of money that that should make. And so what I mean by that is you start investigating the franchise and they're telling you how you can make twice that amount. Maybe instead of making $200 ,000, you can make$400 ,000. And you're like, well, the industry standard's$200 ,000 off of a million dollars of revenue. How can I get$400 ,000 off of this? So you start to understand that that franchisor may not be telling you everything, or they might be, you know, padding some of the numbers, or there might be something very unique about that thing.

25:30So I think you start to go into these industries that are interesting to you, and that will give you the lifestyle that you want. And then you're able to validate that with industry leaders in mom and pop businesses, see how the franchisor can make you better than being a mom and pop in that particular industry. Fantastic. That's not the standard thing that you hear out there, but I figured that's an interesting way to go about it. Yeah. Let's flip it over for a second. You have your equity business as well, investing in companies and making investments. You touched on a little bit of that, but first thing, how do you pick a great partner to invest in?

26:13How do you pick someone to invest in? I think if that person's been a partner with somebody before, that says a lot. All my partnerships that have been amazing successes, they've been partnerships with other people before. And I think what makes an amazing partner is they're always going to put that business first. You have a business, we'll just use mine for example, Front Street Equity Partners. There's four of us partners in there. If people start making decisions, a partner starts making a decision, what's going to help them? They need money right now. So they want to pull more money out of that business or they don't want to invest into something because they need the money for taxes or whatever it is there or they want to sell it because for whatever reason that that that's not best for the business, the best time to sell the best time to invest more into it, the best time to make hires.