Smaller Builders Can Compete Against the Giants
Experts at an International Builders’ Show seminar in Orlando, Fla. laid out several "David and Goliath" strategies for small and medium-sized builders to successfully compete against the large and regional public builders who enter their local markets.
“Goliath is not the most efficient. It’s a case of the supertanker vs. the speedboat,” said Charles Shinn, president of the Lee Evans Group.
Shinn said that the giant home builder firms tend to be bureaucratic instead of entrepreneurial, are more risk averse, must maintain large land inventories and often look toward short-term results to satisfy the quarterly earnings demanded by Wall Street.
“While Goliath sells undifferentiated product to numerous segments, David can be satisfied with small market segments, be much more customer focused and design products and services for its target customers,” said Shinn.
Citing specific examples of putting this philosophy into action, Richard Elkman, president of Group Two Advertising in Philadelphia, explained how Atlanta’s Damascus Homes established a branding position that enabled it to stand out from its competitors.
“The owners sell in a deeply faith-based community and close their operations on Sunday because they believe people should be in church,” said Elkman. “They sell single-family homes priced between $110,000 and $170,000 and their company tag line is ‘Grounded on Faith. Built on Excellence.’”
Elkman created an advertising and marketing strategy consistent with the firm’s beliefs. The stylized ads, headlined “Heaven knows you’ve been looking for the perfect home” and “Your prayers have been answered,” attracted attention.
To help sell homes, Elkman also advises builders to send e-mail blasts to Realtors®.
“The key is to outsmart your competition, not outspend them,” he said.
While the cost of capital for large builders may be less and they are often able to purchase large land parcels, that does not mean the small builder must be at a competitive disadvantage, Shinn said.
“Large builders have to feed the beast and many can be found sitting on an inventory of 7-10 years. If the market slows, they will be forced to get rid of the land, which may present an opportunity for small builders. It’s up to the small builders to utilize better inside information on their home markets, and establish relationships with land owners.”
A Leg Up With the Planning Commission
In dealing with municipalities, city councils and planning commissions, local builders can also get a leg up on their larger competitors, according to Shinn.
“Goliath has a hard time adapting to local requirements and often attempts to use strong-arm tactics to get its way,” he said. “City council planners don’t like that. David, on the other hand, has local knowledge, knows the political landscape and is perceived as part of the community.”
Stating that the purchasing power advantage of large builders is a “myth,” Shinn said that small builders can utilize such effective counter-strategies as developing buying cooperatives, purchasing volume discounts and maintaining strong and loyal relationships with vendors and trades.
And in the important area of quality control, Shinn said the small builder can more easily utilize the personal touch with their customers, oversee quality inspections during construction and build the home right the first time.
“Goliaths tend to be more impersonal. David has been doing a better job in this area,” he said.
Finally, Shinn said that David need not be worried about being acquired by Goliath.
Citing U.S. Census statistics, he said that there are 79,100 builders nationwide and that those who build less than 100 single-family homes annually comprise 98.5% of the market.
“Most of the increase in market share of the top 100 builders is concentrated in the top 10 builders,” said Shinn. And they are only looking to acquire firms who build 100 or more homes annually. This market consists of 1,200 builders.”
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