Death of Small, Medium and Large

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It's hard not to wonder as the third year of the 21st century begins what the questions will be that dominate discussion in our industry in 2003.

January 01, 2003

 

Heather McCune, Editor in Chief

 

It's hard not to wonder as the third year of the 21st century begins what the questions will be that dominate discussion in our industry in 2003.

Will it be the economy, as it has been for the last 12 months? We all wonder and wait to see if new housing can continue to prosper even though every other economic indicator waffles - up one month only to drop like a stone the next.

Will it be the continuing shortage of skilled labor and talented, experienced managers that dominates discussions three, six, nine months from now? Demographics continue to work against the industry. Simply, there are too few males (and females) 18 to 24 years of age. Of that already small group, too few see the construction industry as an appealing career choice, let alone a desirable job.

Then there is land. Land is the one component of home building that no one can manufacture. Will it continue to be in short supply? Will prices keep rising and the entitlement process grow longer still? A year ago when PB asked the 1,000-plus companies in the Giant 400 database to name their biggest hurdle to continued prosperity in the next year, land - its availability, price and the attached approval process - topped the list. Has anything really changed?

Will liability insurance - the subject of this month’s cover feature - continue to dominate the news? Will the prices brokers quote builders double, triple, quadruple or worse in the next renewal cycle as they did in the last? Reporting by senior editor Bill Lurz suggests that any return to more reasonable rates might be a long way off, though that doesn't mean there isn't anything a builder can do to improve the company's risk profile. For recommendations that can help you make your company a more desirable risk for today's - and tomorrow's - risk-adverse insurance market, see page 74.

Will the buying binge of 2002 remain red-hot through this new year? Last year had some big deals among home builders. Last year also gave rise to a lot of speculation about just how consolidated the home building business could or would become. The genesis of the speculation was an Andersen Corporate Finance report predicting that by 2011 the top 20 builders will complete 75% of all U.S. new home sales.

Then and now, the right question for our industry isn't how far consolidation will go, but what size really means. Is a big builder necessarily better just because it's big? Likewise, is a small-volume or single-market builder more agile just because it doesn't have to deal with decision-making at a faraway corporate headquarters?

In looking at the questions and the situations with which builders have wrestled in the past few years, size has been neither an advantage nor a liability. A tight labor market touches all builders equally. The same is true with land. National builders - Andersen's top 20 - might have the cash to finance deals more quickly, while local builders have the relationships. Insurers are the great equalizers; they view all builders as risks to avoid.

It's time to bury once and for all the small, medium and large designation when talking about home builders. Volume is only one measure of a company, and not the best one. If you want to change the conversation in the industry, in your business this year, focus on the measures that matter. Talk with your suppliers and your trades about something other than price and learn just how much money flows to the bottom line as a result of productive partnerships. Talk to your sales agents, your construction superintendents, your warranty reps. They can tell you real ways to improve the numbers that matter - customer satisfaction scores, direct costs and homes sold.

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