At this stage in the housing cycle, you have to be firing on all cylinders to make money. Those who made decisions solely based on gut feel and experience are gone and have been replaced by those who are also experienced but have created new processes and procedures to make absolutely sure that their decisions are right.
Here are some successful strategies we have observed:
- Investments in Technology: One unsung reason that big builders have fared better than many smaller builders are their ability to invest in technology. I’m not talking about cumbersome accounting systems, but rather very nimble tools to:
- quickly assess a market for depth of demand,
- survey prospective buyers for the design features they will pay for, or
- strip excess labor cost out of a very energy efficient house.
Some of these processes have been developed by consultants or contractors, so builders of all sizes can benefit.
- 100% Focus on Sales: From the CEO to the framer, the most successful companies are all about sales. Roll out the red carpet for anyone who takes the time to visit your website or community. Tell everyone you know about the well-designed and well-built homes you are selling at fantastic prices.
- Manage the Balance Sheet: Many of the investors we have worked for over the last five years have been amazed by the lack of financial sophistication in the home building industry in comparison to other industries. It’s true that many companies took on as much debt as possible, from too few sources, and with real disregard to covenants. However, most of the publicly held builders were much more disciplined and sophisticated than perceived and should be widely applauded. Given what this industry just went through, their balance sheets look fantastic.
- Focus on the Details: At every level of the organization, the best companies are focused on detail. They know everything about the land they are buying, the home they are building, and consumer they are selling too. Mistakes are costly, so mistakes are to be avoided.
These are just a few big picture ways to fire on all cylinders. When I meet with those actually doing the work, they can spout in excruciating detail how efficient and careful they are. The passion to do a great job is very apparent. What is left of the home building industry is an amazing group of people who care deeply about profitably building great homes for our nation’s families.
