Last month, I attended NAHB’s midyear meeting in Miami and had the pleasure of sitting in on a presentation by Daniel Swift, president and CEO of Des Moines-based architecture group BSB Design.
One on One With Bill Pulte, Pulte Homes Founder
One on One With Bill Pulte
Q: You started your company as so many builders did and still do - with a single house. What has propelled your company to become one of the Giants in the industry?
PULTE: Three major things have helped me succeed. First, I’ve always had a strategy - even when building my first house. Today I call it strategy; then I didn’t even know what the word meant. But I always had a definite idea of where I wanted to go. My first goal was to become a tradesman builder. I work on the house myself and have a few men working with me. Throughout America, that’s how homes get built today.
I knew while still in high school that I wanted to be a builder. To keep gas in my first car, I answered an ad in the paper for carpentry work. I showed up at a job site and said to the owner, "Give me a job for one day, and if you don’t like me, you don’t have to pay me for the day."
Now, I’m 16 years old, smart as hell and roughing houses for an old Italian builder who probably wasn’t over 45. He showed up at the job every day in an old clunker car with a U-Haul trailer behind it. The last week before going back to school, I’m up on the roof, getting my macho tan, nailing roofing. Carlos comes by, and he’s got a brand-new Cadillac with a glass of iced tea on the dashboard and his old U-Haul trailer. I say to myself, "Hell, I’m smarter than he is. I want to be a builder."
That’s when I really decided to be a builder. I was going to do the thinking and let somebody else do the work.
The second thing is diversification. I never wanted all the eggs in one basket. I started in business in 1950 here in Detroit, and by the early 1960s we began moving to new markets. That saved my tail more than once. We also went for product diversification. When I first got into production building, I built move-up suburban houses for the baby boomers.
The third and most important was people. I have never been afraid to hire people who are smarter than I am, and if you hire good people, treat them well, and give them the opportunity and authority to do their jobs, you will succeed. I don’t think I’ve ever gone to work a day in my life. I have always gone to play every day.
What did you decide you are really good at?
I’m good at buying land. When I started out, a lot of other builders were buying land based on price and terms. I bought land based on location. I know how to design a product, how to make it more attractive without spending a lot of money. I know the trade side of the building business - how a house goes together and how to cut costs without cutting the structure. I know how to sell and mortgage a house.
There are a lot of brilliant financial people here because, while I’m good at arithmetic, I’m not a genius at finance. We also have marketing people who are much more talented than I am. The list goes on.
I think there are five talents that every company, big or small, must have or have access to, or they are not going to win. The first is an understanding of the trade. Somebody must understand what brings the customers in, what you do to make them happy and keep them happy.
Second, you must have business finance expertise. An individual with these skills is the first person I hired after my first meeting with Wall Street. A lot of people think, "I got a bookkeeper, an accountant and a CPA. I’m covered." No, you’re not. Those three professions are really like newspapers the day after the game is over. They report the news after it’s happened. A skilled finance person is an assistant coach on the bench. He or she looks at the big picture and offers sound financial advice. I have seen subcontractors and tradesmen get into the building business and go bankrupt because they don’t understand finance. They get the interest bill at the end of the year, and all of a sudden all their pocket’s gone because they forgot that they have to pay all these invisible guys. On the other hand, I have seen MBAs get into home building without anybody who understands the trade, and they’ve gone under, too.
The third is what I call people skill, and in my book, the most important people skill is knowing how to hire the right people. If you hire the right people, then you can you motivate and train them. You’ve got to have somebody who can hire good people. I was good, but not good enough. I needed the best.
The fourth must-have is leadership. So many entrepreneurs think they are leaders, and they are, but leadership is really about strategic thinking, knowing where you want to go and how to get there. It’s not saying, "Well here, you guys go, do it."
The last is management. Lots of entrepreneurs, after they get to a certain size, fail because they can’t manage. Managers figure out how an organization gets where it needs to be, but on their own, they don’t know where to go. Leaders work with people; managers work with systems and processes. A company needs both.
How does Pulte Homes develop the right product for the market?
We have a system that has never failed us. Seven sets of eyes review every new product. In no order of importance, they are marketing, sales, construction, land development, architecture, interior design and business.
Marketing is understanding who the customer is, what they want, what they can afford and, most important in our business, where they want it, because you can’t pick it up and move it. Also important is what message you use to merchandise. For example, a few years ago a few of us from Detroit toured a model home for yuppies in California. The saleslady, who was in her late 60s, took us through the master bath, the most gorgeous master bath I had ever seen. It had a huge bathtub that could hold 80 gallons of water and four people. This woman turned to me and said, "I don’t understand why you would want a tub this big." Was she the wrong person to sell this house! This builder did everything right for their buyer, but it had the wrong person selling.
Construction and land development go hand in hand. Construction looks at a plan and knows that if we didn’t put this header here, we would save $300, and a less expensive collar would accomplish the same thing. Land developers look at a piece of property and know, for example, that 50% of the housing will have walk-out basements because the ground falls in all directions. That’s what those eyes tell us up front, but then is that extra cost a plus or a minus in that market?
The next two are the architect and the interior designer. So many people leave the interior designer out in the early stages. Big mistake. Not too long ago we are all walking a model during framing. Everyone comments on what a good size the secondary bedroom is for a smaller house. While everyone is saying wow, the interior designer points out that because of window placement she can’t even put a pair of twin beds in this room. That is a big negative when we’re trying to sell usable space to a value-oriented buyer. Needless to say, we took out a set of windows.
The last set of eyes is the businessman. We can develop the land, design and furnish the product, build the house and sell it, but only the businessman can combine all that and know if we’re going to make any margins. We run the numbers, and we either find a way to cut five grand out of the house or we can’t build it. A lot of times we don’t build it.
Is most of the innovation in housing today in design or in construction?
Truthfully, there’s not much there in either area, but one of our goals is to revolutionize the way houses are built, and we’re close to doing just that. We are not going to play in the same sandbox that anybody else is playing in. My baby is Pulte Home Sciences, and there we are developing the products to fulfill that goal.
For example, we’ve developed a prototype fiberglass trim product that reduces maintenance for the homeowner and reduces installation time during construction. It never needs painting, and there is no expansion and contraction, no matter what the temperature variations. This is just one example. We’ve got stuff like this all over the place. We really are going to revolutionize the way houses are built. The goal is to make a better-quality house. The cost will be about the same or maybe a little more for this product, but if I can indirectly save on warranty costs or customer dissatisfaction, the total cost will be a lot less.
Did you ever imagine your company being where it is today?
No, but I still think this is the best industry a young person can be in today, and hooking up with a big builder is a good way to start. In 1990 the big five home builders had 2% of the closings. Today we have about 12%. In 2010 we’ll have 25%. By 2010 I want to be at least $15 billion in annual revenue. I will be very disappointed if we don’t hit that target and if we don’t do at least 20% margin.
Those are big numbers. Yes they are, but we have plans to get there. We want to be General Motors in 1950 with 62% market share and let the next guy down do 30%.
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