I’m joined by a good buddy of mine by the name of Erik Van Horn. Now, Erik is not only an incredible business owner and expert at helping other business owners grow their companies, but he specializes in one of the most unique forms of business in the world. The world of franchising.
Adam: Would you mind just explaining to people a brief history of who you are, why are you good at business, and what the hell is a franchise?
Erik: So I am a straight C student who didn’t go to law school because I would’ve probably failed law school. I bought a house, flipped it, made about 30 grand, and rolled that into my first franchise. Eventually, I took that from 4 stores to 12 stores, to buying an area development in Austin, Texas. We grew that to 42 stores in Austin then sold that back to the parent company, and that was about 10 years ago. I exited and now I’ve had about seven other franchises. I’ve been a franchisor and now do so many things in franchising and passive investing.
What is a franchise?
Adam: I think many of us get your idea of what a franchise is, what is a franchise? Why would somebody want to do that over having their own business?
Erik: Well, there are two reasons. For one, it can be for the person that’s not ready to be a real true entrepreneur. It’s an easier way to get into business with somebody else helping you as a mentor. They’ve got the systems down, they’ve got the processes, and they are there to help you. I think it’s just a safer way to do it. You pay for it, you pay for it through fees and royalties, but that’s why a lot of people get into it.
On the other side of it are people that are entrepreneurs. It’s in their blood and they’ve scaled businesses before because It’s easier to find a partner that can do the operational part of franchising. You can buy a franchise, put in an operational partner, who’s trained by the franchisor, and you can continue to scale it. So it’s easier for the true entrepreneur to be more hands-off in a franchise business because a franchisor trains the team, and trains the manager or business partner
Adam: And now when you teach people, do you teach them how to sell their franchises, or do you teach them how to get a franchise and grow it?
Erik: I’ve done both of those. I’ve done a lot in the past about how to get a franchise, how to buy a franchise, the ways to do it, and the things to avoid. It really opens up their eyes to the whole franchise buying process. I’ve done a lot of that in my past, and I have friends that continue to do that, so I’ve got a lot of resources on how to do that. But really what I spend my time doing now is helping franchisors grow and scale the franchise or side of things. One of the things I spend a lot of time on is how you can take somebody that wants to buy a franchise, buy your franchise, and make sure they’re the right fit. Because for a franchisor to be successful, they need happy successful owners or franchisees.
A lot of people when they first start getting into business as a franchisor don’t have a lot of interest. They start allowing just anybody to buy and just anybody buying a business and starting a business is not a good recipe to have a really strong franchisor. So I like to help emerging brands get in there, do things the right way, help the founder or sell franchises, bring on excellent owners, and then help them scale that brand as they continue to grow, ultimately for a nice exit with nice multiples.
How to Become a Franchise Owner
Adam: So let’s just say I’m a business owner, let’s say a fitness expert. I’m a fitness coach and I’ve decided I want to turn my fitness company into a franchise. I’d love to have a whole bunch of people pay for my franchise so they can become fitness coaches using my brand in their city. What would be the first step?
Erik: For me, the first step is if you’re a fitness person that’s really good at fitness, maybe a coach, that may not be a good model for a franchise. If you own a fitness business or you’re a coach of coaches, then you have a business that somebody else could plug and play into. If you have a business that’s in fitness and it has a gym, and a personal training studio, whatever it is, a lot of people think is this a franchise?
And then you, as the owner, think, this should be a franchise! I should create this as a franchise! But the first question or statement that I have for somebody like that is, are you really good at the business and do you enjoy the business or do you want to get into a different business? And that business is franchising.
Because now instead of growing your fitness business, you are helping other people become successful business owners and it’s a very different business model. Someone good at baking cakes, game shops, fitness studios, etc. wants to replicate that around the country as a way to scale. But if you do that through franchising, now you are responsible for people who probably never owned a business before, to become successful business owners themselves. And that can be difficult.
So the first thing to think about is if that business owner wants to create a franchise to help other people grow and skill businesses. If so, franchising might be a really good thing for them.
How to Get Started in Franchising
Adam: So how does somebody get into it? Like, say I’ve decided I want to do this. What’s the first step first?
Erik: The first step is to create an FDD, a franchise disclosure document, and you can hire an attorney for that for 30, 40 grand, or you can hire other companies out there that help you start a franchise. They can put together your ops manual, a not as robust franchise disclosure document, and help you with some of the marketing and things like that. You can go to a consultant where they’ll do everything for you or you can kind of piece it together yourself.
I help people with that. I don’t do it for them, but I point people in the right direction. Either I point them to a consultant or I point them to an attorney if they want to do more of the work and get somebody to write their ops manual, someone to help them with franchise sales, or have someone help them with the different aspects of their business. Then I would piece it all together with the best of the best attorneys, the best marketing people, and the best vendors.
If you want to do it on the cheap, less expensive, dip your toes into it, you can hire a consultant that will generically put it together for you for about $30,000 to $50,000. Then you are a franchise officially, but man, that doesn’t mean you’re going to be successful. That just means you have the ability to sell franchise locations to people that want to buy.
Are there low cost franchises to buy into?
Adam: So there’s a flip side, for people who don’t even have a business yet and are thinking about starting a business. And I know as you mentioned earlier, franchising or taking over a franchise could be a great way to start. I’ve heard that there are a few low-cost franchises that may be a good way to start and I figured I would run some of these by you to get your expert opinion on what you think about them.
So at number one, we have Cruise Planners, a franchise representative of American Express? Apparently, it’s a franchise fee of $10,995. What do we think about that, man?
Erik: Anytime I think of a small franchise fee, it kind of concerns me because, why is it so small? That’s the number one concern because It might be a bunch of part-timers. If it’s a part-timer that’s coming in as a side business, they might be attracting people that just want to have a little business.
So I would find out if the owners are part-time or full-time and how much money they’re actually making, and if it’s congruent with what you want to make and your expectations of time in the business, then it might be a good thing. But that’s kind of wishy-washy. I don’t know that business very well, but that would be my first concern. It’s very low. So how much support do they actually give you? And then obviously I’d have industry concerns.
Are all franchises a good deal?
Adam: Let’s try the next one. So I had a buddy that did this one and I’m curious what you think. Superglass Windshield Repair, the fees from $5,000 to $17,000, with a few weeks of training any business owner can learn the necessary skills to become a Superglass Windshield Repair franchise owner. Based in Orlando, they focus on mobile service, allowing them to keep pace with customer demands. What do we think about that, man?
Erik: I think if a person needs that franchise somebody to kinda hold their hand then that’s probably a good thing. I don’t like things that start to get geographically locked in, for instance, if you can only surface round rock or Flickerville, or South Austin, I would want to have the entire market. I would be okay doing something like that, because what is the barrier to entry for something like that? There’s very little barrier to entry.
However, if I’m serious about buying that one, I would also Google how to do this on your own and then go pay someone to teach you how to do it, because now you have something that you might be able to turn into a franchise or license it at some point. So if I’m looking at something like that, I would look at how easy it would be to do on my own, and is there any benefit to the brand or the network of the franchise or is there a licensing play? Here’s the other thing with something like that, suppliers in those types of businesses usually offer a lot of training. So I would try to find suppliers that might be extremely helpful.
Adam: Last one. The Mosquito Squad, $15,000 to $32,000, most people think of mosquitoes as an annoyance, but some are a danger to our health. Could saving your neighbors from this backyard pest be your ticket to a profitable business?
They’ve got 200 franchise locations and $50 million in sales. The franchise fee is cheap and mosquitoes squad has a third-party lender relationship to help facilitate financing.
Erik: So you kill mosquitoes and you save people from West Nile? I mean, you get to kill things and save things? It’s a beautiful business! I know people in the mosquito business, so it’s only good if you wanna make a lot of money. If you like making a lot of money, it’s excellent. I know people that are not in that one specifically, but they have seven-figure plus businesses in the outdoor mosquito-killing business, and brand makes a difference. I’m a big fan of the mosquito business. I’m a big fan of the franchisees and franchisors in the mosquito-killing world.
It’s a cheap franchise fee and they like to put in a really low number for different reasons. It’s usually more expensive for the startup. If you are looking at an inexpensive franchise, I would also look at some of the ones that are the most expensive to see if they have a better ROI. Do you have a better ROI on a $10,000 investment or better ROI on a $100,000 investment?
So don’t just look at the fee, think of that as an investment and where you’ll get the most ROI out of that initial investment. But I do like the mosquito-killing business, one other thing though, different markets have different rules and different regulations, and that has an impact on the kind of money you can make in that business.
Which is better franchising or licensing?
Adam: You mentioned something I want to touch on, which is franchising versus licensing. Is one worth more than the other? What’s the difference?
Erik: Here’s the thing, if you have a business I’d like to be able to license it, but to do that and to have control over the brand and be able to help the owners, you automatically go from a licensing model to a franchising model in the eyes of the government legally. There’s no gray area. Most of the time when you’re thinking about having owners, supporting owners, and giving them direction, you’re probably going to be a franchise. What I like about franchising though, is the multiples.
When you go to sell as a franchise or you have a business and you bring in a bunch of franchisees, they’re really happy, they’re successful. You go to private equity, the multiples on that can be 10x to 22x!
What gets Erik Van Horn fired up?
Adam: So what do you focus on nowadays? What gets you fired up at the moment?
Erik: Two things, I love helping franchisors create sales processes to get really good franchisees to scale their businesses so they can exit to private equity at the highest multiples they can. So their franchisees can be served better with more money and more experience.
And then passive investing. I love passive investing, buying back my time, you know, the whole Robert Kiyosaki, cashflow quadrant, you go from employee to self-employed to business owner, to investor. I spent a lot of time working on that investor quadrant with my buddy, Justin Donald. And we’ve got a mastermind for passive investing and it’s just been a lot of fun doing that.
Seeing and helping people get into passive investing, there are so many strategies that the ultra-wealthy have that the normal wealthy person or successful person could use, but they just don’t know about it. So I love learning those strategies, teaching those strategies, and helping people get a ton of time and freedom back.
Adam: If somebody wants to find out more about you, where could they find you?
Erik: Two ways, Tribe of Investors. Tribe of Investors is passive investing. There are some good resources there. And then Franchise Secrets, franchise secrets is my podcast. If you’re looking at buying a franchise, franchising your business, or you’re a franchisee there are many free resources there, so that’s a good place to connect.
Adam: I always ask everybody at the end of every podcast, if you were going to say one thing that S.M.A.R.T Businesses do in your words, S.M.A.R.T Businesses, do what?
Erik: I would say S.M.A.R.T Businesses, create systems and processes to scale.
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