Don’t Be Hard-Headed About Investing in Software You Need
You may have started your home building business 20 years ago by taking your dad’s Skil® saw, tossing it into the back of your El Camino and going out to frame garages. But growing a home building business into a sophisticated enterprise, or inheriting a business from your family that you intend to grow, can present serious challenges even to the most seasoned business professional.
Potential problems that can result from growth normally fall into three categories: retaining key employees, managing capital and margins, and IT infrastructure and software.
Let’s focus on IT, since, for a $330 billion industry, home builders spend a notoriously small fraction of their revenue on software, IT infrastructure and training. Builders are sometimes reticent about purchasing new software, even though good software can:
- Demonstrate a good return on investment
- Make the building process more transparent and easier to control
- Order steps in the building process
- Enable building businesses to automate data collection
- Trigger reports
- Determine the optimal arrangement of tasks on a critical path
- Help builders scale up or scale back more quickly in a dynamic market
Keep in mind that each home you build has 40,000 components, between 500 and 1,500 purchase orders, and takes about 80 people to construct. You can’t keep that all in your head — and you shouldn’t.
What’s Standing in the Way
Let’s look at why software purchases are regarded as costs, rather than the investments that they really are.
First, builders may believe that software systems are too difficult to implement and that the process will distract them from making money building homes. This is the equivalent of saying, “I’ll stick with this canoe paddle because if I stop paddling long enough to shop for an outboard engine, I might fall behind.” Builders are scrappy; they endure wild swings in markets; they build in all kinds of weather; and they’re subject to unpredictable changes in commodity pricing. But rather than dive into the admittedly hard work of properly implementing a software system that’s ready for the future and that will put a business on a critical path, they’d rather gut it out, because that’s what worked for them in every other aspect of their business.
Second, builders often are already running software that has worked fine in the past, and they don’t want to sacrifice capital to upgrade. But while an off-the-shelf accounting program may suffice for a business with one or two builds a year, a larger business or one that is looking to grow needs systems designed for a larger enterprise, as well as a team of qualified people who know how to use systems to improve business practices.
Finally, builders think they can grow their way out of any financial problem. Booming markets and high margins have poured cash into their coffers these last few years, making software just seem incidental. Ironically, software sales tend to spike during a market downturn. As markets tighten, builders realize that with margins on the line, there is little room for error. They have to tighten up their processes and identify wasteful practices if they want to be ready for the next cyclical boom.
Are You Ready for Prime Time?
Following are a few indicators your business is not quite ready for prime time, and examples of how a good software system can help you get your systems humming:
- You don’t know your margins? If there’s cash left in the till after all the vendors and labor are paid, you’re a profitable business, right? But did you make money on home building or just on land? A good software system will categorically show where you are making and losing money, and even suggest process optimization to achieve higher margins.
- Are you reprocessing or re-handling information? If your data has “portability,” it can be shared easily among disparate computer systems. For instance, a digital purchase order should be able to be shared with subs and vendors, and compared against a material signoff slip — just by clicking a mouse. If you are physically transferring data by re-entering it or faxing PO’s to and from lumber yards, you’re losing money. A phone or a fax should be used for ordering pizza, not solving material discrepancies.
- Is general ledger data proliferating through the enterprise? The data housed in your enterprise resource planning (ERP) system is the authoritative data for running the enterprise. If you have data (e.g., sales data, option selections, lot dispositions, estimating figures) housed elsewhere, or “batch processed” with your ERP, then you are running some kind of “middleware” that is violating the integrity and authority of the core business data.
This costs you money in two ways: 1) your employees may be working with erroneous information that the ERP contains (e.g., the paint color in the living room on Lot #4 is wrong in the PO but right in the option selection profile); and 2) your employees are working with correct information that hasn’t batched over to your ERP (e.g., the paint color in the living room on Lot #4 has changed, but the PO hasn’t changed and a change order must be billed.)
Avoid software systems that depend on batch processing, or extraneous inputs from outside data repositories. Use software that taps into the ERP data and preserves its integrity.
- Are you real-time wireless? Lots of software companies say they are “mobile,” but they depend on a desktop hot sync at the end of the day to get the data back into the ERP. True wireless systems integrate with the core ERP in real time. This is essential for maintaining the currency of data on every job site and with every crew member and supervisor. Don’t accept anything less.
- Can you manipulate your processes without costly consultants? A good software system with accounting, process management, warranty management and a sales front end can easily cost you between $60,000 and $100,000. This is money well-spent, and if you are building more than 25 homes a year, you’ll likely earn your costs back within 12 months. But look for a software system that you have command over and that you can change without booking a costly consultant to fine-tune for you. Drag-and-drop process configuration is available with some leading software systems, so changing a process can be as easy as playing a computer game.
These are just a few suggestions for tackling your technology needs as you prepare for growth. Your individual needs — as well as those of your business — are critical considerations, as well. However, don’t be afraid to make prudent, carefully vetted software investments that offer your business transparency, control and the ability to configure and reconfigure to suit your company. Without that, you may be growing, but you’re flying blind.
Tom Gebes is president of BuilderMT and has 25 years experience serving home builders’ workflow management needs. Contact Gebes through www.BuilderMT.com.
“Growth: ‘A High Class Problem’ or the Biggest Challenge of Your Career?” is provided as part of “Managing Your Workflow,” a series of articles produced jointly by Sage Software’s Sage Timberline Office and BuilderMT. The series offers home builders, their employees and managers a step-by-step guide to implementing best practices throughout a home building organization. Topics in the series include marketing, estimating, accounting, customer and warranty service, purchasing, sales and organizational development.