How to Grow in a Slowing Market
A region that’s heavily reliant on the troubled auto industry. Six straight years of employment declines. Building permit activity at a five-year low.
Not exactly the place you’d pick to grow a successful home building business.
But Michael Bosgraaf, of Bosgraaf Homes in Western Michigan, sees it differently. His company, which builds single-family homes and condominium townhouses, ranchers and villas, is not only increasing its local volume and market share in the region, he’s also expanding his business model into warmer climes.
Bosgraaf took his experience to the International Builders’ Show in Orlando, Fla. earlier this month, where he offered advice on how to survive — and thrive — in a slowing market.
Bosgraaf spoke during an education session sponsored by the Business Management & Information Technology Committee.
First, he told builders to take several basic steps that would be needed to create, manage and sell a better product than the competition and set the stage for company growth:
- Offer a better home.
- Offer a better community.
- Offer a better experience.
- Buy better than your competition.
Do It Right, or Die
“In a down market, there is nothing more important than customer service or customer focus,” Bosgraaf said. “If you run things well, there’s just as much opportunity in a slow as there is in a stable or growing market.”
The key is to run things well. “In other words, do everything right, or die,” Bosgraaf stressed.
Running things well, he said, doesn’t just mean keeping costs down, although that has certainly been an important part of Bosgraaf Homes’ formula for success. For Bosgraaf, running things well also means keeping up with changes, streamlining and staying ahead of the curve.
For example, Bosgraaf Homes pays on purchase orders, automatically re-bids when notified of a price increase (usually the proposed increase is retracted) and belongs to a builders buying group.
The company also manages its trades through a subcontractor rating program in which subcontractors help determine the scopes of their work and how they will be rated. In addition to price, the rating system includes performance and other factors.
Pretty vs. Cheap? There’s a Price to Pay for Both
Bosgraaf builds three styles of single-family product lines; the Traditional Series, an affordable home with classic styling; the Classic Series, a more flexible home with estate-like appointments; and the Millennium Series, homes in the new traditional urban design style.
He also offers three styles of condominium communities — townhome condominiums, ranch condominiums and villas.
“In a slowing market, you’ve got to be pretty, or you’ve got to be cheap,” Bosgraaf pointed out. “Cheap has horrible margins.”
So Bosgraaf Homes focuses on the “pretty” — in all its marketing, home designs, exteriors and community plans.
Pretty does have its costs. While Bosgraaf found out that he could vastly improve the elevations of one of his 2,200-square-foot homes for about $3 a square-foot — pulling back garages, adding roof lines and making other aesthetic improvements — it allowed him to raise the home’s base price without sacrificing market share. It also cost him $25,000 to develop the new plans.
“It’s expensive,” Bosgraaf conceded. “What’s even more expensive is a plan that doesn’t sell.”
Offering More Than Just Attractive Homes
Eight out of 10 homes sold in Bosgraaf’s market are resales. His competition has cut back or abandoned community amenities as the market slowed, but Bosgraaf said he has taken his company in the opposite direction. He has added streetscapes, clubhouses, pools, even a “cruise director” to orchestrate neighborhood activities.
“A lot of it goes contrary to what people were telling us,” Bosgraaf said. But the sense of community helped him sell in a weak market.
Branching Out or Out on a Limb?
Bosgraaf also suggested that builders in slow markets consider diversifying into new geographic markets. Builders can branch out into new markets by community, school district or state, he said, but he cautioned, “As you’re jumping markets, you’re only as good as Google makes you look.”
When Bosgraaf first started to expand into Mississippi — a market demographically similar to his market in Michigan — he was confronted by local community members, builders and a local newspaper that had found one of his older house plans on the Internet and charged that he was going to lower property values with “cookie cutter” homes.
Bosgraaf eventually overcame his opposition, but he also learned from the experience. When first building in a new market, he said, do not leave open an information void about your company that could be filled with damaging misinformation.
Instead, he said, improve communication by having a local face to negotiate for land purchases and local staff in the new market for every customer interaction.
Branching out into new markets is expensive, Bosgraaf said. A builder can expect to spend “twice as much as you thought” to finance the expansion. His company went an entire year without revenue, he said. “Once you’re in, you’re in for five years; there’s no takedown strategy.”
NAHB Has More Than 170 Resources to Help You Run Your Business More Profitably
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NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find the information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
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