The Official Online Weekly Newspaper of NAHB
Small builders who retool their businesses to complete their homes faster will have a sizable advantage over their local competition in today’s housing market, which remains challenging despite signs that things are getting better, according to speakers participating in a Sept. 16 webinar on “Doing More With Less.”
With the understanding that they needed to do things differently to move out of a survival mode and position themselves for longer-term prosperity, builders in Phoenix made the commitment to build homes in from 30 to 40 days, from start to close, said George Casey, Jr., president of Stockbridge Associates, LLC in Paradise Valley, Ariz.
That is roughly the same cycle time that has been attained by big production builders in the area who used to take from 120 and 150 days to finish a home, he said.
“You need to be tracking your cycle time, working with the construction trades and doing your schedules on a day-by-day, sometimes hourly basis,” said Casey.
Custom builders, he said, don’t have the production builders’ advantage of being able to fine-tune their construction schedule from building the same product over and over, but they can build their homes just as quickly and efficiently. “It’s not that it can’t be done,” he said. Habitat for Humanity homes go up in five days, demonstrating that the key factor is “the organization of how you do it.”
Turning over homes more rapidly is also a good solution for builders who are straining to find loans at a time when lenders are notoriously averse to making them, enabling cash-strapped builders to get more use out of the limited capital they do have and “go further on that tank of gas,” he said. “Any hour you don’t have something productive going on in the house, you’re wasting money.”
Making It With Niche Markets
Also essential in the self-examination process that every small builder should be submitting their business to, he said, is coming up with a product that can stand up to the competition from the public companies, the bargain-basement foreclosures and short sales that continue to flood the market and the other new homes that are being built.
“Private builders have to make it happen with niche product,” Casey said. “The winners will be those who are entrepreneurs, who figure out how to be different and contribute something people value.” His advice: “Understand what the customer values and give it to them instead of trying to throw everything at them.”
Niche possibilities include multi-generational housing, remodeling, small rental or commercial properties, adaptive reuse, retooling foreclosures for investors, and more.
Casey also recommended having a few spec homes on hand available for short delivery. A semi-furnished model helps a builder establish a presence in the marketplace, he said, and can bring in sales when it is a home that is “different in a meaningful way.”
Casey cited a builder in California who is seeing success in a home with a multigenerational design aimed at middle-aged home owners who are looking for housing that enables them to be joined by their young-adult children and their aging parents. “People see it, brokers know it is interesting, it is different enough in the marketplace, it serves a need and it is a great way of putting yourself out there.”
“If you’re trying to build the same house as everybody else, you’re a commodity and it is very difficult to get a margin,” he said. Possibilities for generating profits include houses with ideal designs for members of Generation X or Y, or a single mom. “Put yourself out there and figure out what the market segment wants.”
Little Prices Add Up
Webinar speakers stressed the importance of thoroughly re-examining businesses to enhance revenue and reduce costs.
Joe Pfeiffer, president of Business ROI Now, Inc., in Bradenton, Fla., said that when he goes in to examine a business these days, for the most part he doesn’t uncover huge problems. “It’s the little pieces on the floor that collectively add up to quite a bit.”
Builders can take cues on how to become more efficient by looking at what other builders in the vicinity and beyond are doing to cut expenses and reduce overhead. “It’s extremely important to know how the local competition is doing,” he said, and a lot of contractors are relying on project planning tools to stay on a critical path.
“People need to become efficiency experts,” he said. With the site manager, “walk around and look at the performance of subs and their efficiency, speed and quality.” Where job performance is lacking, builders should take their best employees or tradesmen and make them a model for the practices that the rest of the crew should be emulating.
When waste is found on the construction site, the builder should find out why, and provide training so that workers can become more conscientious about how they use materials, he said.
“Spend more time on the site paying attention to details, not sitting in the office,” Pfeiffer said.
Builders should be focusing their marketing efforts where it costs the least — on their websites and by establishing a strong presence through social networking on Linkedin, Facebook and similar media, he added.
Professional networking with other builders from around the country who have the same business model and complementary or different skills is also a good idea. Monthly roundtable meetings will spur creative solutions on issues that may be plaguing a business, he said.
“I literally just got back last night from a Builder 20 meeting” among noncompeting peers from various parts of the country, said Stephen Hann, of Hann Builders. “We spent one morning just talking about branding. We are all passionate about what we do, but when we were forced to articulate to our peers it caused us to look at the message we are putting out, how we put it out and how we are supporting it, and this was a great opportunity to get their feedback. This is not the time to be a one-man show or hide under a rock.”
The Sept. 16 webinar was the first in a new four-part series, “New Horizons Webinars: Setting a Course for Success in the New Market,” from the NAHB Business Management and Information Technology Committee and Builder magazine.
The next webinar is on financing, and will be held on Wednesday, Oct. 27 from 2:00-3:00 p.m., ET.
For more information on the webinars, click here.