Why This Franchising Entrepreneur Sees Opportunity in a Recession

Transcription:

Leslie Kuban:
Erik, welcome to the show. It’s so great to have you.

Erik Van Horn:
Les, it’s so good to be here.

Leslie Kuban:
Absolutely. And for our viewers who are meeting you for the first time, Erik, it’s a long background. I know, but maybe just a smidge about your history in our world of franchising, and what you’re focusing on now.

Erik Van Horn:
Yes, the quick, the very quick CliffNote version is I quit law school started a landscape company, bought a house, made a bunch of money in a short period of time, a bunch to me. I turned that money into an investment in a franchise and that was 20 years ago. I grew that franchise brand as a franchisee and an area developer to 42 locations.

Erik Van Horn:
And then over the next 10 years went into more brands, six other brands as a franchisee, been a franchisor, consult with a lot of different franchise companies right now. Just I’ve done it all in franchising. I look back, I’m like, “I can’t believe it.”

Leslie Kuban:
And how we know each other is you’re immersed in and a creator of a lot of different masterminds and online communities. There’s Franchise Secrets and Franchise Tribe, Tribe of Investors. And I’d love to hear you talk a little bit about these communities, and who are they for and what happens, and what are their benefits.

Erik Van Horn:
These are all paid communities so people are paying to be a part of these communities. And I remember about 10 years ago, I was paying a couple thousand dollars to go to this event. And I told my wife, “I can’t believe I’m paying to go to this event.” And then fast forward five years later, I was paying six figures to be a part of different communities and getting an ROI on all the money that I spent, like actual ROI.

Erik Van Horn:
And so I really opened up my mind to paid communities or masterminds. And a couple years ago, I created my first one for franchisees. So right out of COVID, COVID hit, franchisees didn’t know where to go, didn’t know what to do. And I had access to so many high-level entrepreneurs and thought leaders. I created this Facebook group called Franchise Secrets, and people started coming in there, and getting a lot of free help over COVID. And then I went in there one day and I said, “Who would like more help and would pay me for it?” And a bunch of people raised their hands.

Erik Van Horn:
And so that’s how the Franchise Tribe got started with franchisees and those original members, most of them are still in there. So it’s just this an amazing community of franchisees across many different brands and industries, and all helping each other. And then I got the idea like, “Well, franchisees want this, franchisors may want this as well.” And so I have a mastermind. It’s more of a group coaching program for franchisors.

Leslie Kuban:
And you talked about you part of how you like to introduce yourself as a lifestyle investor. Will you unpack that a little bit more? What does that mean, Erik, a lifestyle investor?

Erik Van Horn:
A lifestyle investor, to me, I love to work on my businesses. And a lot of times as entrepreneurs, we get involved in our businesses and we never get out of our businesses. So lifestyle investor to me, I am having my money work for me, first to get to the point where my passive investing income is more than my expenses. So I’m making more every month through passive investments than I am through anything that covers all my expenses. And then I want that to cover my lifestyle, vacations and everything that would include.

Erik Van Horn:
But what it affords me now in terms of lifestyle on July 5th, I went to the lake all day with my family because it was beautiful out outside, there was nobody on the lake, and I was able to do that because my calendar allowed me to do that. So I focus on building my family even more than I focus on building my businesses.

Leslie Kuban:
And what’s so interesting is entrepreneur, lifestyle investor, franchisee, franchisor, these things are not mutually exclusive as a member of the Tribe of Investors. Most of us are involved in all of those things. So having your fingers in these different entrepreneurial pots. And I want to kind of take that collective experience you’ve had Erik and ask you recession, recession, recession, it’s the word on the street. It’s all over the headlines. And you’ve been through these before.

Leslie Kuban:
And I’m just curious. I mean, what does that mean to you when you hear that, you read that? How does that land on you and what do you think, and what do you do with that as an entrepreneur?

Erik Van Horn:
I’ve lost money in a recession and I’ve made money in a recession. And through that experience, I started to talk to other people about how they’ve built massive wealth. And I interviewed somebody on my podcast the other day, and he told me a few years ago, he’s like, “Erik, I made more money in the last recession than I had in basically my life up to that point.” He said, “In other words, my net worth exploded” because he was taking risks and deploying money, deploying capital into businesses and passive investments.

Erik Van Horn:
And so coming out of that recession, his net worth exploded through all those different avenues because here’s the thing, I don’t know if we’re into recession. I mean, we might be. We’re going into uncertain economic times for sure. And we need to make really good decisions. And I want to have enough dry powder, enough capital, enough access to capital to be able to buy things, buy assets, make investments, start businesses, buy businesses as we’re going through tough times because that’s when the money’s made.

Erik Van Horn:
You’ve just got to make smart sound decisions along the way and play like the averages. Like I’m not going to go all in on one thing thinking it’s the bottom. I’ll dollar cost average in is a way to say it.

Leslie Kuban:
And Erik, if you can try to put yourself in the shoes, a lot of our viewers on Atlanta Franchise Today are future entrepreneurs. They’re thinking about entrepreneurship, business ownership, maybe franchising for the first time. You’ve been through this a lot, but try to put yourself in the shoes of that person who’s just starting to really think about this seriously. How can you translate into some tangible advice for them on how they would think about it right now?

Erik Van Horn:
My advice is if you’re the kind of person that believes in yourself, you bet on yourself. And it may be a part-time like semi-absentee-type franchisor it might be all in, and you go all in. And I think people that have made it really big and have done really well, they’ve gone all in. I just talked to the largest franchisee of a fitness concept, over 140 locations, sold the private equity, a portion of it. Made an absolute ton of money where he never has to work again.

Erik Van Horn:
But he was making fantastic money at his job, basically a wealth manager and took it away, just gave up that job, and went all in to franchising. He’s like, “I went all in, Erik.” And now his life is the life that most people would be absolutely envious of, but it’s all because he took a risk, and he bet on himself,, and he went all in.

Leslie Kuban:
And I think the key to that, Erik, it’s believing in yourself, but also recognizing that you don’t know it all. But having enough grit and belief in your ability that you’ll figure it out and you’ll surround yourself with people who can help you figure it out. Maybe like a mastermind.

Erik Van Horn:
Yes, just like a mastermind, but that’s a great point because he even said that. He’s like, “I had great people” and he was bragging about his franchisor, and he is part of another one now, but he was bragging about them and how they helped him get to where he is today. And I think that’s another thing. If you can’t listen to other people, and get advice from other people, and ask really good questions. And if you’re the smartest person in the room, you’re going to be a bad franchisee. You’re going to be a bad boss really, a bad leader.

Erik Van Horn:
But if you’re the kind of person that knows that there are people are smarter than you, that there might be a Warren Buffett that knows a thing or two more than you do, then that is where franchisees thrive. So there’s so many different ways to look at franchising and I love that about franchising because they, the brand, the franchisor is the one that can train so you as the entrepreneur don’t have to do everything yourself.

Leslie Kuban:
And these are such good examples, Erik. Sometimes people I think they have a fear or a perception, “Well, if I own a franchise, that means I’m behind a counter 18 hours a day slapping mustard on bread.” But clearly there are many, many examples where people are able to really go in and go big with the right franchise brand if it’s right for them. Those are great examples.

Erik Van Horn:
I’ve seen it and I’ve seen people expand and just grow into massive companies. Some of them are my best friends and they’re doing amazing things and they’re more successful than I’ll ever be and it’s so cool to see, but the sky’s the limit.

Leslie Kuban:
Erik, let’s switch gears for a second. So you do a lot of advisory to early stage franchise brands. And so let, let’s unpack that a little bit and I’m, I’m sure you see and hear the gamut, but what are the kinds of common misperceptions that you encounter and have to kind of coach people on when they’re thinking about stepping into the shoes of being the franchisor

Erik Van Horn:
If you’re a successful entrepreneur, you’ve probably had someone tap on your shoulder and say, “Hey, is this a franchise?” And you say no and they say, “Well, it should be because it’s an amazing experience, you got amazing branding, and I would be your first franchisee. I would buy one of these.” And then they get 10 of those people and 20 of those people over the years that tell them that. And so they think because their customers love it so much that they’re ready to be a franchise. And I’ve had people say that and tell me that, and they actually become a franchise. And like, “Erik, nobody bought. All of those people that said they were going to buy and nobody bought.”

Erik Van Horn:
Or you have the successful entrepreneur that is very successful at one, two or three or 10 locations or vans or trucks or whatever the thing is, they’ve built a really, really good successful, profitable business. And then they want to franchise because franchising is one way to scale. And it’s a great way to scale, but they may have been an amazing operator. And if that’s the case, can an average person come in and make the kind of money that they’re making? And the answer might be no on that because they’re so amazing at what they’ve done.

Erik Van Horn:
So that’s a common misconception or like an aha moment for some people. Another one might be, “I have this amazing business, we’re doing very well, and I just want to step back from the business, enjoy life, and let somebody else run the business and will franchise it.” And they, those people need to understand that you’re going from a successful entrepreneur to building a franchise organization. It’s not time to go onto the beach to just enjoy lifestyle. It’s time to start a new business.

Erik Van Horn:
And many times, you are in the business of being a franchisor. You’re not in the business of selling your widget, selling your service, or doing whatever it is. You are a franchisor and what that means is you are responsible for all of these franchisees to have an experience that you had. They’re coming in with an expectation to make X, to do X, to whatever it is. And you are now responsible for them doing that. And they’re probably not going to do it as good as you are and you have to be okay with being the punching bag as well.

Erik Van Horn:
Because most people, human nature, franchisees will say, “If they’re successful, they’ll take their credit for it.” And I get it. They’ll take the credit for it. If they’re not successful, it’s 100% the franchisor’s fault and are you okay with that? So those are some of the mindset things that people need to do, but there’s a lot of other things kind of more tactical and practical that they need to think through.

Leslie Kuban:
And on that point, Erik, just what does having your house in order look like? Any top two or three, four things that you look at a brand and you’re like, “Yeah, they’re ready. They can make a go at this, and be a successful franchisor, and have successful franchisees”? Where are the hallmarks?

Erik Van Horn:
SOPs. You’ve got all of your SOPs in line, the businesses are basically running without you, you have a great staff. And if you step away to start a franchise and start that side of the business, your businesses will not suffer. The training’s really important. SOPs translated to training franchisees will be really important.

Erik Van Horn:
The other thing is just the mindset that we talked about. So if you have the mindset like, “I want to build this business, and I want to serve franchisees, and I want to help them, and I want to be in that type of business.” That’s great. And then I think you need to really look at your business and say, “Have I tracked everything financially? Am I successful because I’m in Beverly Hills and this is a high-end thing? Or am I successful because I’m in the best area in the best market of the country? Will it work in the most average market out there?”

Erik Van Horn:
So you need to think through all of those things and maybe test some of those things out. So the best people that are ready to franchise their business have different brands or different locations in different markets opened up in different timelines to really stress test that system to see does it really work. Because I’ve heard too many stories of, “Oh, I didn’t realize the location was absolutely amazing and that’s why this thing was so successful.” They thought it was them and it really wasn’t.

Leslie Kuban:
Having these proof points in multiple markets with different income levels, different demographics, different population densities. Having that proof of duplicability across different regions is critical.

Erik Van Horn:
100% And you get to test that as you open up new locations, you get to test how well is my training, because you’re training the manager. If you train that manager how you would train franchisees, you get to see what’s broken and what’s not. It’s so tempting though, once you start thinking, you start to see dollar signs, you hear franchisors exit for 50 million, 100 million, and then it gets rinse and repeated. And it sounds so easy, but there’s a graveyard of franchisors that did it the wrong way, that didn’t have that successful story.

Leslie Kuban:
As we start to wrap up here, Erik, just any kind of closing words of advice that new entrepreneurs, whether they’re going to be the franchisor they’re going to be a franchisee what challenges they should be prepared for, and have realistic expectations so they’re setting themselves up for success. Any closing words of advice for entrepreneurs?

Erik Van Horn:
I would know who you are and be comfortable in who you are. In other words, are you an operator where you love operations and you’re good at operations, or are you more of a visionary where you’re thinking higher level at a different level? And they’re very different. The operating business owner and the visionary business owner very different, and you kind of need both on your team.

Leslie Kuban:
So a healthy dose of self-honesty and self-awareness, and doing what you’re good at, and surrounding yourself with others who can help you round out where you’re not so good.

Erik Van Horn:
One last thing on that, Leslie. One of the things that I try to do is I try to be the dumbest person in the room, at least not the smartest person in the room. At different times, I’ve been the smartest person in the room and I recognized that I realize it and I said, “I need to get into a different room” because that’s how you get better, and that’s how you learn, and that’s how you grow.

Leslie Kuban:
Which is again the beauty of the communities and the masterminds that we’ve talked about. And I’m sure some of our viewers are going to want to know more about that, Erik. So how can viewers start to learn about that, the different masterminds that you’re offering?

Erik Van Horn:
If you’re in franchising at all, check out franchisesecrets.com, franchisesecrets.com. We got a podcast, a great community on Facebook. There’s over 3000 members in there. You can check that out. It’s free. You can apply to be a part of the franchisee mastermind, the franchisor mastermind. And then I have the Tribe of Investors, which is the passive investing mastermind, which is amazing.

Leslie Kuban:
It sure is. Well, Erik, thank you so much for joining. I know you only have about five minutes of summer out there in South Dakota, so we’ll let you go enjoy the lake again, but really appreciate you spending some time with us. We’ve had a lot to learn here today. Thank you so much.

Erik Van Horn:
Thanks, Leslie. This has been fun.

Leslie Kuban:
And folks, thanks for joining me on a very fascinating episode of Atlanta Franchise Today and I look forward to seeing you again next week.