Many lifestyle investors don’t just want to live life on their terms – they want to use their skills and knowledge to help others do the same. It’s why so many of us use our time to focus on building incredible networks, launch masterminds, and work to become better spouses, parents, and friends. It’s also what naturally leads some lifestyle investors into the world of franchising.
Today’s guest, Erik Van Horn, understands this well. He’s founded the Franchise Tribe, a mastermind for franchise owners, as well as the host of the Franchise Secrets podcast – and he consistently brings real value into people’s lives while generating very serious ROI. He’s also a participant of Clubhouse, a platform where people can join virtual rooms, share stages, and listen in – and participate in – real conversations about life and business.
In this episode of the podcast, I’m excited to talk to Erik about the power and value of networks, doing work because you want to (not because you need to), and the ins and outs of franchise deals.
- How the Franchise Tribe helped countless business owners when the COVID-19 pandemic hit.
- Why Erik got “back into the game” and launched his mastermind despite having reliable streams of low-maintenance passive income.
- The biggest mistake that young franchisors make.
- What to look for when bringing in team members and partners as a lifestyle investor.
- Why the magic happens when your time no longer has to produce income.
Tweetables“Don't pull the trigger too quickly and let the wrong people into your world.” – Erik Van Horn Click To Tweet
- Franchise Tribe
- Franchise Secrets website
- Franchise Secrets Facebook Group
- Franchise Secrets Podcast
- Clubhouse App
- Front Row Dads
- Mighty Dog Roofing
- Cashflow Game by Robert Kiyosaki
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Connect with Justin Donald
Justin Donald: All right, Erik, it is great to have you on. Thanks for joining me today.
Erik Van Horn: Dude, it's good to be here, my friend.
Justin Donald: Well, it's always fun getting together. And when I just think about who I want to spend time with on these podcasts, it's people that I want to hang out with anyway. So, whether I'm doing a podcast or not, you're the person I want to have coffee with or, I mean, technically, I don't drink coffee. So, you're the person I want to have a cold pressed juice with or a smoothie with or go have a meal with. And so, it's cool having you here and being able to really just glean some valuable information from you.
Erik Van Horn: It's so good to have friends, just like what you described. So, man, it's so good to be here. I always enjoy it. I'm on your podcast, but I guarantee I'm going to be learning something from you because every time I'm around you, I learn something.
Justin Donald: Well, thanks for the kind words and I can easily pay that back to you, I always learn from you. I mean, my goal is to learn from everyone, but you're an easy wealth of knowledge to learn from because you're always giving and you're always sharing, and hence the reason I want you on the podcast, I want people to be able to listen in and just kind of hear some gold. I mean, I have really been able to take a lot from you.
And I have shared this before with you and with others that I invest in a lot of businesses and I'm not an owner/operator, I'm more of a capital partner, I want to be able to jump in when I feel like jumping in and most of the time, not jump in. I want my capital to work for me to protect my time, but my operators need a really good place to go and a really good resource and these business partners, they're active on the day to day of the business, they love what you do and they love what you've created. And so many of the people that I've tried to network into your sphere and circle of influence rave about you. So, I just think that's cool.
Erik Van Horn: I created that network. We all have networks and there's so much power in our network and I really started to understand that the last five years. And then I've understood why people create masterminds as I was starting to create my own mastermind, it became really clear to me and I've heard the masters that created masterminds, I've talked about it before, but the value is in the network, they say they make way more money out of doing deals from the relationships that they have in the mastermind they created than just the mastermind itself.
And I'm finding that to be true is, I created a tribe of franchisees and it's incredible to have a network. I always say you got to be in the right rooms and never be the smartest person in that room and I definitely do that, but yeah, your network is incredibly important.
Justin Donald: Yeah, there's no doubt about it. And I know you're a guy that loves to give value and give back and I think that's great. I mean, one of my favorite things to start any podcast with and really, any conversation with, I model my podcast after my conversations that I just want to have with people and one of my favorite things I ask people is what's going on in your world? What's exciting? We're in a brand-new year, we're in 2021 right now, what's new and what's cool and what's fresh in your world, Erik Van Horn?
Erik Van Horn: It is without a doubt a new app called Clubhouse. And we're probably going to look back at this podcast and we'll be like, remember when we said there was this new app called Clubhouse? A year, two, or three years from now, they'll have massive followings on that, or it'll be like, what was Clubhouse? It was popular for a month. I don't know, but here's the thing. There's this app called Clubhouse, where it's audio only, you go into rooms and you share stages or you're in the audience with people and there's real conversations taking place.
And it's kind of like what we did yesterday, we did a fly-on-the-wall-type conversation. That's very much what a Clubhouse is like. And I think that is somewhat the future of some of the influencer stuff, some of the expert-type people giving advice. When you are a fly on the wall, it's unscripted, it's Q&A, it's giving raw advice without video editing and all of this stuff, that's when you get to see who the smart people are and the value that is actually given.
So, I've been on that thing as just giving on that, Justin, going in there and I just hosted a room with a friend of mine who built an online business and sold and we were in there for 75 minutes just helping people with their questions on selling their businesses or building a sellable business. But as I've done that and I've given, I've seen so many people give back to me and I've had incredible conversations with people already and people are reaching out, but the point of all that is, it's a giving platform. And so, what I'm hopeful for, as we go into 21, what I want to do more of is help people.
And so, that's one of the things that's on my mind, like, how can I help more people? Before we got on, somebody was struggling in their business and I knew their business and the comment was, I don't know what to do next, that's a struggling person. And so, I'm just thinking, how can I help more people? And it's funny, the more people that you help just out of a giving heart, the more people help you and add value in your life. And so, that's one of the things in 2021 that I'm looking for.
Justin Donald: That's cool. And you've built the perfect platform for that. I mean, obviously, you specialize in franchises. You've got your Facebook group, but you have recently built a mastermind, we both kind of did this together at the same time, which is really fun. And I remember, we were both bouncing ideas back and forth, like, hey, should we do this? Could we do this? Hey, what would it look like if we design this?
And so, now, both of us have masterminds, we've been sharing contacts back and forth, because we know the benefit that each type of community brings. And so, I'd love to hear you speak some on that because I have been thrilled with your community and it's been an honor to be a guest a couple of times with your community, but I've learned a ton, I think it's incredible. And several of the people from your community have joined my mastermind and are some of my most active, hungry giving, just community minded people.
Erik Van Horn: And I know you're telling the truth on how active some of those community members are that we both share because I joined your mastermind and I get to see it real time. I'm like, that's so cool. And what's crazy is before COVID, I didn't know some of these people that are now in your mastermind and my mastermind, I didn't know them. So, just the speed that relationships can happen is amazing.
So, I started this mastermind called the Franchise Tribe, COVID hit, businesses were in trouble. And that's when we heard PPP for the first time, EIDL for the first time, and nobody knew what to do. The word pivot was invented. And what I did is I had a following of franchisees just because I've been in the franchise game for 19 years with six brands and a bunch of different states and had exits along the way, but I had a community of franchisees that kind of followed me because I started a podcast on franchising called the Franchise Secrets podcast.
So, what I did is I said, whoever wants to join this Facebook group, if you're a franchisee, come on in and I eventually opened it up to everybody in franchising, but for the longest time, it was just franchisees and I would bring really smart people in there, like Cameron Herold came in, Bedros Keuilian came in, Kevin Harrington stopped by, so we gave value. And that's where the whole value thing really started to happen. These people that are used to traveling around the world, speaking on stages, living that kind of life, are now at home and at their core, they want to give value to people. So, they did that through COVID and now they're doing it through this app called Clubhouse. So, that's where this thing started. The genesis of it was to help struggling business owners or business owners that didn't know what to do.
So, then, out of that group of about 700 people in that private Facebook group, and I said that, does anybody want more from me? I'll do 290-minute calls every month for you. And I had 60 people raise their hand and I gave them the price and they said, we're in. And then, out of that, this is what I learned from you, there was a group of people and now, there were 80 people in there that wanted more. And there's always somebody in your groups that want more than what you are giving. And I had to make a decision on how to give them more.
So, I created the scale version of that mastermind, which is a $10,000 a year price point. And then I had 20 people that joined, but they wanted more. And you know what's really cool about something like that? It puts the pressure on me, it puts the pressure on you to deliver that kind of value to them. And you and I've had these conversations, when you have someone giving you X amount of money, like for me, I want to double that in value, I want them to have tangible ROI on it, but we all know at the end of the day, it's up to us how the individuals of what they get from an ROI on whatever it is, but like I want to provide the opportunity for people to have massive ROI on the mastermind. So, it's just been fun.
One of the things that I remember out of all these different meetings that I've done with these franchisees, one that you came on. And we were talking about some of the things that you watch for investments, it's basically your book. I mean, you went in and gave a little bit of what was in your book and the comments were, when it ended, how do I get access to deals like that? And I know, I have access to you and I have access to others like you, that's my deal flow.
And deal flow doesn't just happen overnight and you have to be connected and you have to be in that game for a while and you have to be doing deals to get deal flow, too. And so, once I heard that, I’m like, these guys need more deal flow. And that's when you and I started working together more on providing value to my community through deal flow. And that's one of the reasons I joined your mastermind is for deal flow.
Justin Donald: Yeah, deal flow is tough to come by. And a lot of people say, Well, how do I find these deals? I call them invisible deals, right? I mean, these are deals that most people don't know about. Maybe they are private deals. So, there's no competition or very little competition. These are deals that you have to pay to play or they’re deals where you have to have the right relationship or they’re deals that typically only institutional money gets in, but because of having the right relationships, you can kind of swoop in which I've done on a bunch of different investment opportunities. And so, yeah, it's all about who you know, the community you're connected to, your peer group, the advisors in your world.
And when I say advisors, I mean, like, who are the smartest people from a legal standpoint, from a tax standpoint, from a financial standpoint, from an investing standpoint, like who are these people? Because that matters, but I want to back up real quick because, Erik, you and I, we met and by the way, we share a special bond because we're both dads and husbands and we met at a war room event that our buddy, Brad Weimert recommended both of us to come hang for. And so, we got a chance to meet and Jon Vroman was there at that time. And so, we got you into Front Row Dads which has been a huge passion of mine since day one. And so, you and I've had a bunch of chances to hang.
And when we first started talking, it was an interesting thing because neither of us had our masterminds or the people we're coaching. We've done coaching over our career, but you are in a place as I was where you were taking time off, you weren't sure what you were doing. You didn't have to work, you may have gotten bored, I got bored. There's only so long you cannot work for and you can travel the world for it, I think those things are important. And to be able to get that time and that space to think and figure out what it is that you want in life, to clear your schedule of all the things you have to respond to, so you can proactively design your life and be intentional with where and how you spend your time. I think that is imperative and most people don't do that, but you made a conscious choice to get back in the game. And you don't have to, you make enough money that you don't need to have a mastermind. And so, I'm curious why you got back in it and what the draw is for you?
Erik Van Horn: Yeah, it's interesting, I think anyone that's getting ready to exit their company, because I had a good exit and in one of the last companies that I own, anytime you have a really good exit, there can be a big void on the other side. I had things that I wanted to do with my family and I wasn't in a hurry to do something next. So, I had things to occupy my time which was great. So, I exited a company that took nine months to exit, sold it to private equity. And then, the bank account fills up, I had passive income and some active income that was really not working hard for it that was coming in. So, I had a bunch of time.
I was living the four-hour workweek and I didn't want to continue to work the four-hour workweek. And I'd done that before and I knew that it got old for me after a while. My wife needed me to get out of the house at times. I thought you got to go mountain biking. I thought, wait a second, I thought I was being a good husband and a dad by being around all the time, but they needed space. And I needed something to occupy my mind, I wanted to build something again.
And so, one of the things was the Mastermind. I bought some other franchises and then I started the Mastermind. So, I was doing some smaller franchises with operating partners, so I’m much like you, the financial partner and strategic partner. So, I'm a bit more strategic, not more strategic, but I'm a bit more involved than you are on some of your deals, but pretty much just for money and strategy. And then, some of those started to do bad through COVID, they weren't in a great COVID-type industry and that's where the Mastermind was born.
Again, that was truly born to help people and then, if you want to continue to help people, the people that execute on the advice and the help that you give them are typically the people that are paying money for it. And that's what I've seen, I saw it in myself. If I get free advice from somebody, I usually don't execute like I do when I'm paying $20 or $30, or $50,000 for a particular type of advice or to be in a group. So, I've seen that with myself. And then I saw it real life in front of me with the Mastermind group.
Out of 800 people, 80 joined the Mastermind. And then out of those 80, 20 joined the higher-level Mastermind and you can just see it all along the way. And those 20 people that are in the high-level Mastermind, they are all action takers, so I've enjoyed being around that group, but then, that's just kind of a side project. I started Mighty Dog Roofing, it's a franchise and then I started that as a franchisor because here's the deal, I wanted to have an impact bigger than just a single location of a franchise.
So, I'm really good at marketing, really good at business strategy. And if I'm doing that inside a single location, I'm impacting that location, but I've impacted a lot more than that in my franchising career. So, I wanted to do that as a franchisor. So, how can I do that as a franchisor? Take my skill set. And now, every franchisee is going to be impacted by that. We'll have 40 new franchisees in 2021 for Mighty Dog and they're all going to be influenced by my marketing strategy and business strategy and business building strategy that I just don't have to keep to myself anymore. So, the answer to the question is, I wanted to have a bigger impact in business.
And then, I also chose partners wisely for me. I didn't need a title, I didn't need to be the only guy, I didn't need to be that main guy or the head guy. So, there were four of us partners and these three main partners. And we each have a role in the company, one's basically the CEO, one's a COO and then, I'm the CMO. And we're equal partners, we go and acquire brands that are like a single or two or three-unit location of something typically in the home services space and they want to grow and scale, they want to franchise it, but they don't have the know-how and they want somebody with a track record, like we have.
My partner, one of my main partners, has built two successful franchises, one from scratch and one by acquisition. So, our strategy is to acquire a number of home service brands over the next five years and build them, scale them through the franchise model because that's what we're good at.
Justin Donald: And it's interesting, like I hear all this, I know your partners, too, you've got really sharp, really smart partners. I even remember a deal that you brought to me, where you're like, All right, let's just dissect this thing. Let's start from zero. And what would make this attractive? What would make this attractive on the investor side or on both sides of the coin, basically. And that was really fun, it was a good exercise to say, Well, hey, if I were to invest in this, here's what I'd want, but then at the same time, if I was the owner of it, here are the terms that I'd want.
And so, it's figuring out a happy medium between the two of those things, so that everyone wins. No one wins when someone has too much advantage. It's about finding a happy medium that everyone can feel good about, maybe you don't get everything you want, but you’d get terms that are good enough that you feel good about. And the goal here is you want the terms to be so good that repeat business happens. That's you, especially in your history.
Erik Van Horn: Yeah. I mean, like you said, if it's about winning and you are acquiring something there, you're investing everything or whatever it is, if it's about you winning and you getting everything that you want, that's probably not a fair deal to everybody. Franchises are lopsided, the agreements for the franchisor. And it's a lot of power that the franchisor holds. And the agreements are weighted towards the franchisor, so they can take out and remove bad franchisees.
So, some people think, well, that's too heavy sided to the franchisor. Well, a good franchisor is going to protect you as a good franchisee if your neighbor is going rogue. So, everything's going to be weighted at some point to somebody and the franchise is weighted to the franchisor, but it's really for the franchisee’s benefit if it's a really good franchisor, meaning the franchisor wants happy successful franchisees. If that's their goal, then you want them to have that power, but if it's not, then you don't want to, you just shouldn't even be in that particular franchise.
But I remember looking at that deal with you kind of analyzing it and I was looking at another deal being on the side where I was investing money and then I was looking at this deal thinking what have we are attracting investors and we even had some phone calls to attract investors and when I sat in that seat on both sides of the coin, looking at both sides, I really got to understand things from both sides and why brands would do different things. And we talked about it the other day, just privately, but that's why I understood the Pier 1 deal, why they would pay such high interest because they're playing a different game, like the game’s different that they're playing. And the game was different than we were playing in this particular franchise that we were looking at acquiring. It wasn't just to get some money, it was a different game, and understanding that just really opened my eyes up to so many things.
Justin Donald: Yeah, there's no doubt. When I think about like, why would someone pay such a high interest rate on your money? I mean, it almost sounds too good to be true, but you'll see this in the cannabis, hemp, CBD space, you'll see this in a lot of the, let's call it, SAS startup tech world and it doesn't just have to be SAS, but in a startup technology, you'll see this in marketplaces. Marketplaces are selling with some of the highest multiples and not on EBITDA, but on ARR and MRR, monthly recurring revenue and annual recurring revenue.
And so, when you look at it and you see the massive growth that these industries are having and the same thing is happening with retail brick-and-mortar that's being scaled online, as opposed to keeping the brick-and-mortar portion of that business, the faulty portion of it as a mainstay, it's kind of getting rid of that, but these are industries that are taking off their prime for disrupting whatever markets or industries they're in and they would rather pay a high interest rate because they don't want to give up the equity and so, that's it. And so, they realize they're going to make more money than paying out 20% or 15% or 25%, which sounds crazy.
In the cannabis and hemp and CBD space, there are very few lenders that exist, I mean, banks can't lend in that space. So, you have private groups and private funds that are able to do this, that can charge an exorbitant amount of interest, but the companies are happy to pay it because they know they're making more, they know they're still making their profit, they're not leaving the equity on the table for the investors because they know how big it's going to be. Or some of the things I love to negotiate where it's like, all right, let's do a debt deal, but let's do an equity kicker and that's one of my favorites. So, it's like, all right, I'll give you what you want and we'll do a high interest rate, but I'd like a piece of equity or I'd like some warrants to your company because I want to participate on the upside, it doesn't have to be dollar for dollar.
Erik Van Horn: When you first told me about that, I thought you're crazy. What are you talking about? You are crazy. And then, like, I've seen it and I participated in it. And not only that, but I understand it now. And I think that was probably the biggest aha for me is starting to understand it. And like, on the franchise side, there's been multiple times that I've had the opportunity to acquire a brand strategically. And I think that's one of the key things, it's a strategic acquisition because they could come into my world where I can help out. It's worth more in my world than it is in their world, it's worth more in my world, like Pier 1, worth more in the world that it is in today, because of Tai and Alex and what they have and what they're building, it's worth more to them because of what the ecosystem that it comes into, and their expertise.
So, it's more valuable because of those guys than it is to another brick-and-mortar store trying to do something stupid to a brand. So, there's strategy involved and that's one of the things that I started to understand is why it's a good acquisition for a particular buyer and then, when it comes into that particular buyer, what they can do with it and how they can add value so quickly. And that's one of the reasons why these companies can pay out high interest. And so, I see it now on that side as somebody that's investing but as a guy that was looking at a couple different franchise companies to acquire knowing franchisors, they sell from a multiple of 7x EBITDA to 15x EBITDA normally, like that's a normal multiple 7x to 15x. And then, some of them are over 20x, depending on the space, like you're talking about these spaces, in general, how cannabis is higher and software and monthly recurring is higher.
In franchising, there's certain industries, there's certain sectors that go from a 15x multiple on an exit to a 20x or 25x and you just have to know what you're getting into, but if you are connected with somebody like you, who knows what's going on with a particular investment, you know why it's worth that and why someone would pay 15% to 20% interest and get your money back in a short period of time and be able to keep equity because we were going to do that with a particular franchise that we're going to buy because we knew it was worth x once we acquired it.
Justin Donald: Yeah, I'm in the middle of a transaction right now that could be pretty massive. And again, it's another debt play with an equity kicker and the opportunity on the equity side is pretty nice. There is a very generous offer on the table for the equity kicker that's greater than any equity kicker I've ever gotten. So, I'm excited about that.
Now, let's back up here for a quick second because you had said that there are certain industries or sectors or spaces in the franchise space, where you're going to increase in multiple and obviously, the more studios or locations or businesses that you have as a franchisee or as a franchisor, the more that you can sell it for, right? So, your multiples are going to increase if you go from one to two locations or to five, obviously, the more the merrier, but what are some other ways that you're getting from that 7x to a 15x on EBITDA? And like you said, these niche franchise markets where you could even go to a 20x or higher?
Erik Van Horn: You like that.
Justin Donald: I love it.
Erik Van Horn: So, you're right, like I've sold, when we had 12 locations in the salon suite business as a franchisee and we were not working in the business at all because we had someone managing the business for us and we were literally just doing a weekly meeting with them, we got a higher multiple because of that. So, you have to get to scale, whatever scale looks like in your business or your niche, you need to get to that scale to get the highest multiple. So, that would always be my goal whenever I'm a franchisee, whatever it is, I'm like what is that point where I can remove myself from the business and to get the maximum multiple when I do go to sell it. So, my goal is to get there as fast as I can to make the business sellable, I may or may not sell it at that point.
But now, to your question on the franchise or side of things, franchise owners want a lot of franchisees. The more franchisees you have, the more monthly recurring revenue that you have because you, as a franchisor, are getting royalties from all that. Now, as a franchisor, you should be providing more value than you're getting paid in royalties, but that is your income. So, if you can provide more value to the franchisee and be making money, that's a win.
There's other things that you can do as a franchisor, you have buying power. So, if you are in the garage door business and you have relationships with the biggest manufacturers and you can actually guarantee that you are going to buy X amount of garage doors from different manufacturers, well, they're going to give you a better deal than anybody else. So, you get rebates on that typically. And now, this is where franchisors go wrong, they don't pass on some of those rebates to the franchisee. So, I think it's always wrong of a franchisor, if it's more expensive for a franchisee to be in the garage door business because of the franchisor, that's wrong, they should be getting a bigger discount than they would be getting normally as a mom and pop business. So, that's one way that franchisors make money besides just growing with royalties because here's the thing, if you're growing with just royalties as a franchisor, it's really hard to make it, so you need to have other revenue streams.
And the way that I like to look at it as a franchisor, if I can have other revenue streams that provide value ROI to the franchisee, then it's a win-win for everybody. Not everybody will understand it like that, but that is the best thing a franchisor can do. So, now you're a franchisor, Justin, you have multiple revenue streams coming in, if you used to buy from a manufacturer, maybe you are the manufacturer or you're doing things at scale for the franchisee, so they don't have to do it themselves. You have a call center, you are the call center, you don't outsource it.
There's so many different ways to do that, but now, the franchisees are happy because they're making more money, they're having a better service because you're helping them. You're making money as a franchisor and then you have the opportunity to have a higher multiple. Reason is because you have multiple revenue streams, it's not just tied to opening up more locations. That's not the only growth mechanism, that's not the only growth lever. So, I think multiple revenue streams as a franchisor gives you just the buyer safety.
Here's the other thing with that. I know a franchisor that sold to a private equity company and they made more money on providing direct mail to their franchisees than they did on royalties and they gave the franchisees a better deal on direct mail than going to Valpak themselves or whatever the direct mail vendor is, but they became a direct mail company and a franchisor. The company that bought them knew that and that's one of the reasons they bought that. Now, what they did is they went and bought other franchises that use direct mail as their main source, but the franchisor was outsourcing that to different people. So, they were able to buy a franchisor at a lesser multiple, bring it into their ecosystem, and then their franchisees started using the new direct mail vendor, which is there as getting a better deal and now, the franchisor just immediately increased revenue.
So, that company, if it's going into a company that is excited about direct mail and has a direct mail company, they're going to pay a higher multiple than the one that doesn't. So that's an example of something that you just wouldn't think about, but here's one last thing, people that are buying franchises typically, let's say it's the home services space, if they already have a painting company in there, then they're not going to acquire another painting company. So, there's a bunch of painting companies out there, that's probably not going to be the one that has the highest multiple. Let's say they have nine franchisors in their portfolio and they want to add one more that needs to be kind of a niche franchise, so, there's a number of them.
That's one of the reasons we're in the roofing franchise because we're going to be one of the biggest roofing franchisors out there and there's not many of us. And so, it's going to be more attractive when the time does come to sell, if we sell it or when we sell it. Everything's for sale strategically, but that's not our goal is to sell, but that's why we chose the roofing industry. And there's multiple other industries that we have our eye on that are more niche, not the main and plain industries out there.
Justin Donald: That's awesome. And you're doing, like the strategy here is what the Rockefellers did and the Carnegie's did, they would buy up businesses, they would combine them, they would have this business over here that did the direct mail, for example, they didn't buy direct mail company, but well, then they can scoop up all these other companies that don't have anything to do with their original business, but use direct mail, and then they can cut out all those expenses and they can even cut out those divisions and repurpose them.
And so, in some cases, maybe you're cutting out employment, but in other cases, you're repurposing that employment. And I just think that that is tremendous when you can have such a big picture vision of what you, your brand, your business, let's call the holding company, what you're about that you're bigger than just that single business that you can expand into a bunch of different avenues. And so, it makes sense why you're able to sell at a higher multiple, like you talked about, different revenue streams for sure is going to do that. And you made a really important point and that is to not pass on the added expenses. That part of the perk is the franchisee relationship to the franchisor is that you can piggyback on their pricing.
And so, like, I think it's something real simple, like my Mastermind, I've got a bunch of deals that come through and I negotiate unbelievable terms for the group, but I don't negotiate extra good terms for me. My terms are the same as everyone else, I'm paying forward to them the same thing that I'm getting, so that everyone gets a great deal. And by the way, because of that, there's alignment, I'm not misaligned. And I think that that's so important because, and I've been in businesses like this, I bought businesses like this, when your people feel like you are not in alignment with them and you're trying to nickel and dime them, it creates a horrible chemistry and culture and that is a bad foundational problem for building a company, scaling a company, that trust is so important and to have good relationships with everyone possible, but especially your key people, your key hires, the people that are your boots on the ground running the operations, that is imperative to really be walking arm in arm.
Erik Van Horn: Culture is so important. And I think as an owner, I just hired my director of marketing at Mighty Dog and as much as I was looking at her great skill set, a marketing background, social marketing, a digital, and then just boots on the ground guerrilla or neighborhood or whatever you want to call it, and then roofing experience, but that was all great, but you can find that, I wanted to make sure she was going to be able to work with me, I wanted to make sure that we were going to fit well together, and I wanted to make sure that she was going to be the right cultural fit for the organization because that trumps just the resume, the things that you see in the resume.
And it was really quick for me to understand if she was that person, but I went through a whole process. I want to get better at hiring, but that was important. I want the right cultural fit, the right person that can work with me. We’re all different. I'm not a micromanager-type person. So, if somebody wants to be micromanaged, we're not going to fit very well, that's not going to be the right fit for me as a boss, but she's not that and I couldn't have that. And so, we're very upfront with that, but culture is so important, even for us as we bring on franchisees.
Biggest mistake young franchisors have, this is one of the things that we try to help people avoid because I talked to a lot of people that want to franchise their business or they are a young franchise and it's not as easy or going as well as they thought, the biggest mistake that people make franchising a business is their first 10 franchisees. They're taking people, maybe even just one person with a pulse versus the right cultural fit or the right work ethic or whatever, they just have the ability to write a check and they have a pulse and they may not be the right fit for the particular franchise.
So, the right culture is so important on your team and as a franchisor building franchisees and as you build a mastermind. I was talking to Perry Belcher who's founded War Room Mastermind, and I was talking to him in Austin, the last time I saw you, and I said, “Perry, what's the best way to build a higher ticket, higher level, more expensive mastermind? He's like, “Erik, those first 10 people are incredibly important.” So, it's like that with everything as you're building out your team, it's got to be the right team from the beginning. If you're building out a franchise or a mastermind, the first tiers of people are critical. Perry told me, it’s like, if you start your mastermind, you have one bad apple in there, it will ruin the whole bunch. And you might as well start over in three years because it just ruins it. And I took that to heart, I know that you took that to heart.
And then, as a franchisor, we're taking that to heart, but the problem is, it's the harder thing to do. When someone's getting ready to give you money and you need the money, it’s really tempting to take it and I think that's one of the things, as I said that I realize I don't need the money, you don't need the money in the mastermind, we don't need a franchisee. So, just a quick takeaway for anybody that is in building mode that does need the money, don't do pull the trigger too quickly and letting the wrong people into your world.
Justin Donald: So true, I couldn't agree with you more. And you and I've had plenty of experience with this, but to me, my livelihood is based on in many cases, I mean, I have ownership in a lot of different companies. So, the success of that company is dependent on those operators. And so, I have my own list of qualities that I look for on operating partners that is imperative to me. I mean, work ethic is top of the list, I need someone that is going to bust their tail and grind and do whatever it takes, that they have that hunger and that desire. I need someone that takes initiative.
So, it's like what you said, I don't want someone that needs to be micromanaged, I want someone that's going to take action on their own. It's like, Hey, I wasn't sure if I should reach out to you. So, here are all the things that I tried. What do you think of this? I'd rather people take shots and try and if they miss will address it, I'd rather someone take the initiative and take action. And if they make a mistake, great, at least you went for it.
Another thing I look for is loyalty, people are going to be loyal to me, loyal to the team, obviously, loyal to me first and that's important. I need to know everything that's going on in the organization that could be detrimental. So that's detrimental.
Erik Van Horn: Just to piggyback off of that, because that's great to give the audience just a little bit of the list of things that we look for, one of the things I look for in partners are partners that they put the business ahead of their personal agenda because the business is an entity in and of itself and if you start putting your personal needs above the partnership or the business, I don't want that and I wouldn't do that myself. So, I want partners that understand we're going to put the business first because that's the thing that that living entity is what we're taking care of and we make decisions together, but my personal situation is not going to impact that.
The other thing I look for in my team and partners, people that are unafraid of mistakes. I want them to be okay making a mistake. And I was just telling my director of marketing the other day, I said, “You are going to make mistakes. My goal is to help you not make critical mistakes or mistakes that have an impact more than what they should, but if you're making micro mistakes along the way, that's okay with me because that's how you're always learning.” And so, I want to have this culture of it's okay to make mistakes, I will make mistakes because if we're not making mistakes, we're not pushing hard enough, we're not doing things aggressive enough, we are just not moving forward or executing fast enough. So, mistakes will be made, but I just want them to be the micro mistakes and that's what I'm looking at. I told her, I said, I'm just going to be looking out for you to help you avoid making the mistakes because she's in the minutiae of it, she's dealing with things all the time, she's going to be seeing things that I don't see, but I'm going to be looking at things from a different perspective, not a higher level on some ways, but just from a different vantage point. And I have a different experience than she has. So, I'm going to be able to see things that she doesn't. But if she's afraid of making the mistakes, I don't want somebody like that on my team.
And the other thing, the last thing I'll say with that is I want people on my team that are solution focused. Don't come to me with the problem. Too many people just come with the problem. I do that with my girls, like I want a solution, don't come up, tell me the problem, because anybody can come up and tell you the problem. If you tell me the solution, one, you've thought about it, two, you're okay being wrong and then, three, you're open to learning, and that's what I like. So, you state the problem, you tell me your solution, and then I'm going to just give you a thumbs up, a thumbs down, or let's talk about it and let's look at some different things, but that's a mentoring opportunity as well. Also, it's an opportunity to just discuss it and we both might be wrong. And that's the other thing, I tell them, like, I don't have to be right on stuff, like I'm wrong half the time, but I will make a decision, I will solicit advice from other people, and then make a decision when the decision needs to be made. So, those are some other tidbits.
Justin Donald: I love it, it's so good. And it reminds me of one of my bedrock foundational qualities I look for is that they care about the success of the team and the organization just as much as you, if not more than you. And part of what I'm looking for is what you said right out of the gates, you have to enjoy working with them and others have to enjoy working with them, that their leadership skills are at a point that people want to follow them and even to the point where I want that, where I feel like they could lead and take the reins. And so, I think you just shared some great, great wisdom there and I really appreciate it. It's awesome. So awesome.
So, you and I have talked a lot about lifestyle investing. And what you do is lifestyle investing and you have a number of different income streams and some of them are related to businesses that you've bought, some of them have been maybe you're a franchisee of a number of locations, you moved into franchisor, you have other businesses and other opportunities. So, to you, what is lifestyle investing, because it's a term that I coined, but you and I, we riff back and forth on this all the time?
Erik Van Horn: I tried to get the trademark for that, but it was already taken, but yeah, I love, like when you told me the first time I heard you talk about lifestyle investing, it just resonated with me so much and it was just such a clear picture of how I want my life, how I was living my life and I want to continue and protect my life to have that type of lifestyle. One of the things, it doesn't mean having the most money, I don't have to be the richest guy in town, I don't have to be the richest guy out of my friends, I don't have to have the most income or the most money or the most wealth. So, I go back to playing the game Cashflow with Robert Kiyosaki.
Justin Donald: Love that game.
Erik Van Horn: It's like the doctor had the hardest time winning that game, but the person that had the lower income, they were many times the easiest one to get out of the rat race. So, in simple terms, to me, lifestyle investing is getting out of the rat race. Building my companies, so I'm not the key person in that company, that's number one. Number two, take the money from these companies. Don't just buy stuff, but buy things that I will enjoy as a family with my lifestyle and then invest in things, so I can continue to enjoy things so delayed gratification. So, making money delays the gratification.
I learned that early on from a mentor that said, when you have a significant bump in your income one year, you go from, for me, it was $30,000 a year to $100,000 a year, that was a big bump to me back then. And I remember him, what he said and I didn't change my lifestyle at all. I didn't have much of a lifestyle, but that's a significant jump, right? So, I didn't change my lifestyle and I still do that to this day. So, to me, at the end of the day, I want to spend my money, invest in opportunities like you always present to me.
And then, also, like we have a boat, cost six figures for this boat. We just got a new one, we had one for the last three years and just got a new one. I'm out on the lake with my kids, no cell phone. I'm tempted to get on the cell phone, sometimes there's service and usually there's not, but like that is lifestyle. I invest into this depreciating liability that gives me such incredible time with my family that they will never forget. So, that's one thing, but at the end of the day, Justin, it's controlling my calendar via passive income coming in and it's way more than my expenses. So, I don't have to worry about it, not just covering my expenses, but way more than my expenses, then I can fully control my calendar.
So, at the end of the day, if I have that money coming in that I'm not working for and I have full control over my calendar, I look at it. And if I want to take a vacation next week or in two weeks or in three weeks, or if I want to take a two-week vacation versus a 10-day vacation or a seven-day vacation, I can do it without even thinking. That's what it is to me. And those are the things that I've realized, a lot of people don't have control over their calendar like that and that's important to me. I've had it for so long, I don't know what it's like to not have control like that.
Justin Donald: That is music to my ears. And I love hearing you talk about that, Erik, because that's it, it's freedom of time. We talked about wealth. I talked about this all the time that wealth, it spans far beyond money. The most important component of wealth is that you own your time and you can spend it how you want to spend it. And so, I want to make an important point because some of our listeners, they might be really hands-on in their business, they might be new, maybe having just started a business and maybe they're just getting their feet wet in a new franchise even.
And so, I think that there's a time and a place to work hard and to be in the business before you learn to transition yourself out of the business, but I also think it's smart to heed the advice that Erik shared, where he wants to make more money than it costs him to live and not just to buy stuff, but to then reinvest that into other things. And so, what you can do is you can upgrade your life. So, at a period of time, you might trade time, your most precious resource for money, but if you are diligent enough to save and invest, you can eventually get to a point where you're buying assets that produce enough income, that your time doesn't have to produce income. It can, but it doesn't have to. And that's where the magic happens.
And anyone that's ever experienced that knows what I'm talking about, this true, most liberating feeling that you're ever going to experience until you experience helping someone else to do it which is an even greater feeling because I tell people all the time, they're like, what does it feels like to have financial freedom? And I say, I worked so hard at it and when I achieved it, it felt so good. And then, the next day, I was like, Okay, I'm there. What's next? Because it's just a destination on the journey, it's like, you're just part way there and there's so much more in life and it's not just about that. And it's really fun when money and investing can become a game and not survival.
Erik Van Horn: Yep. And then, where I see people, friends of mine, people that I know, people that are acquaintances, they're doing some really cool things and it's so easy, even if you get addicted to the income and all sudden they sell their business or they are just scaling their business, they want a little bit more and a little bit more. And how many millions is enough? Whether it's tens of thousands or hundreds of thousands or millions, it doesn't matter, if it's never enough for you, it's never going to be enough when you reach the point where you have hundreds of millions.
So, I know people that have gone through that and they were in the multiple hundreds of millions of dollars and they kept going and going and going and then, they regretted it. So, I never wanted to do that. And my dad really taught me this lesson when I was in high school, middle school or high school, I think it was in middle school and he came out and he had a construction company and he started to come home early from the construction company. He let the crews go do their thing, which means things would break, things would happen, people would take breaks, nothing good happens when the boss leaves the construction site, but he would leave that to come home and spend time with me when I got home.
We would play basketball, we'd play volleyball, we would do all those kinds of things. And I didn't realize it at the time, but I realized it even as I was a kid in high school, that my dad made a conscious choice to show up when I got home from school and that meant less money for the family. So, I knew that he did that back then, and I've had a lot of success from a monetary standpoint, but that's always stayed with me. So, at some point, I was never driven about the money.
And it really hit home to me that it was true. So, I was really excited when I made my first six figures, but it was even better when I gave away my first six figures one year. And that was the tipping point for me. So, I'm like if I could be at the point where I can give away six figures a year, for me, that's why I arrived, I don't have to strive anymore.
Justin Donald: I love that. That is so amazing and poetic. And I mean, really what you're speaking about here is, it's what my book’s about, it's about buying your time, buying freedom, and it being your most valuable resource, how do you buy that back? So, The Lifestyle Investor is literally that, how can you buy your time back and live life on your terms? And I'm really excited because all the proceeds from the book are all going to go to charities that impact people's freedom.
And we're talking basic, bare needs freedoms, just a lot of people, their freedoms are stripped away because of human trafficking. And so, I want a lot of those funds to go to organizations like that and organizations that help support kids and give them a better shot at life. So, I just think it's awesome. Thanks so much, Erik, for your time. This has been tremendous. Can you share with us where our listeners can learn more about you?
Erik Van Horn: Two places, one, if you're just interested in franchising in any way, you're thinking about franchising your business, you're thinking about becoming a franchisee, or you're just interested in franchising in whatever aspect, go to franchisesecrets.com, on there, you'll see my podcasts, I've had some really cool guests on, like Justin Donald. And then, on there, at the bottom, you'll see where you can join my free Facebook group, that's probably the best place to go. It's a really great active community that's helpful to any business owner. You're welcome. You don't have to be in franchising. You'll find value out of it, so come check it out.
Justin Donald: That's awesome. Thanks for being a resource for sharing, for joining us. This has just been an amazing podcast. I'm sitting here taking notes, learning some great things as well. So, you are a wealth of knowledge and I appreciate it. And to our listeners, you guys and gals, take some form of action today towards financial freedom and really building the life that you truly desire and on your terms. So, thanks again and we'll talk soon.
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