They Both Failed At Their Past Franchises. It Taught Them How to Break the MoldZach Beutler and Josh Skolnick pooled their hard-won knowledge to start Horsepower Brands.

When Zach Beutler and Josh Skolnick met in 2017, they'd both had their share of franchise failures. Skolnick, 38, had failed as a franchisor: He foundedMonster Tree Serviceand acquired Redbox+ (a waste management company), but both companies struggled. Meanwhile, Beutler, 34, had failed as a franchisee: He opened multiple Complete Nutrition stores in Florida, but was forced to close after growing without sufficient capital. Both men believed they bore responsibility for their flops, but also thought they'd hit problems that were too common in franchising — and wanted to fix them.

So in 2020, the duo launchedHorsepower Brandsin Omaha, where Beutler is from. It's a portfolio company that currently owns four home-service franchise brands (Mighty Dog Roofing, Blingle!, iFoam, and Heroes Lawn Care), as well as three vendors that service franchises (including Franchise Rocket, a marketing company). Here, thecofoundersflag the major traps thatfranchisorsand franchisees can fall into — and how to avoid them.

What failures informed your leadership as franchisors?

Skolnick:When I started Monster Tree Service, I thought I knew what I was doing and quickly franchised 28 units in the first two years. It was half-baked. I didn't have the processes. I didn't have the infrastructure. I wasn't transferring industry knowledge that the franchisees needed in order to become successful. And most importantly, I didn't have the team to support the number of franchisees I brought on. Our team paused franchise development for almost two years after identifying that additional training and infrastructure was necessary. This turned out to be paramount to the long term success of the franchise system. (Monster Tree Service has since been acquired by Authority Brands which now operates over 200 franchise units across the US.)

Beutler:I was a franchisee that failed. I went down the path of building up a large multiunit business. I got up to $8 million in revenue. Then I lost everything because I wasn't prepared for the capital needed to grow in that industry.

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You say that many others experience the same problems. Why?

Beutler:New franchisors get taken advantage of by vendors and suppliers, because they're naive to the amount of capital you need to compete at a high level in franchising. Josh and I have acquired two businesses that initially worked with consultants to franchise their businesses. The consultants got them sold on this random idea, but the franchisors only had $150,000 to do it. It just doesn't work that way.

And franchisors can accidentally perpetuate problems, right?

Skolnick:The biggest one is that new franchisees are oversold on expectations and territory. It happens often in retail business models. Someone will buy into a gym concept and buy 10 studios. But the likelihood of them actually opening 10 studios is slim to none. This creates a negative culture, because when a franchisee comes into the business expecting to achieve a certain goal and they're not able to, there's a lot of buyer's remorse. Then it becomes very difficult for the franchisor to maintain a high level of integrity and confidence among their franchisees.

Beutler:Josh and I have noticed that a lot of times, companies are investing less in their franchise business model than the franchisees are investing when they buy in. Franchisors fail to understand that the way they built their business 15, 20 years ago is far different from how a franchisee would build their business in today's world.

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What solutions have you built into your own business that you think others could learn from?

Skolnick:Part of the reason we have vendors in the Horsepower Brands umbrella [such as Franchise Rocket] is because we recognize that vendors are a big extension of a franchisor support system. For franchisors who grow and scale at the pace that we do, it's very hard to find people that are financially able to add the infrastructure to scale alongside you. We need to take control and acquire certain businesses in specific industries to ensure that the infrastructure and capital is there to grow alongside us.

Beutler:If you're not buttoned up and don't have a lot of intellectual capital in your organization, you're definitely feeling the pressure today, and it's coming right from the customers. But companies that provide a great customer experience, communicate well, and set better expectations are going to thrive during this time.