When home builders are asked which information they deem most critical to the improvement of their businesses, info about new products is always near the top of the list. And for good reason.
Everything seems to happen faster today than ever before.
Everything seems to happen faster today than ever before. And that includes both problems and opportunities in the home building business.
Business is booming, then skilled labor shortages hit, seemingly without warning. Now it’s easier to get houses sold than to get them built. Keeping serviced lots in the pipeline is suddenly a problem. Competition for ‘A’ locations is fierce. And then there are the no-growth, slow-growth, and smart-growth political initiatives popping up all across the country. You borrow money to buy land, and then can’t get your project approved.
What to build is not as simple as it used to be either. Consumer demand is getting harder to read. Traditional market segmentation is as passe as Ozzie and Harriett. Have you got a house for the second family, when the first kids visit every other weekend? Do you have spaces designed into your homes for computing stations for every resident? How about one for guests? What home buyers want, and are willing to pay for, seems to change overnight. And quality expectations-driven by the ever-improving performance of manufacturers of consumer products such as computers, automobiles, and appliances-are way beyond anything your father ever faced.
Then there’s the information and communications revolution-web sites, virtual reality selling, computer-aided design, and mass customization by Giant, publicly traded home building companies that now build even on the buyer’s lot, in rural areas and small communities, far from the big cities. These guys buy land with cash and doors, windows, and appliances by the thousand.
|A wellspring of new construction methods are flooding the American housing market. You can find a better way to build.|
Who knows how to organize and grow a new home building business in this crazy, fast-paced world? Professional Builder does. Because we see what’s working (and not), and because the best builders and consultants return our phone calls. We’re able to put together the following do and don’t list for the young entrepreneur who wants to be the next D.R. Horton.
Here’s how we set it up for our interviewees: A young (but seasoned) executive in a production building firm takes the plunge and starts the first new home building company of the new millennium. The goal is to grow it quickly into a major force in the market. How would you advise this young entrepreneur?
We started with our own list of 21 dos and don’ts, our best analysis of opportunities and pitfalls in the home building business at the dawn of this new era. The list didn’t include everything. For instance, we didn’t say the first, most fundamental step is to write a business plan. What we’re mostly concentrating on here are the things that are new in 2000, not those that remain unchanged from the 20th century.
We then showed the list to many of the most successful builders in the industry, and to some of the top management consultants. As you might suspect, not everybody liked the whole list, but we got enough positive response to it that we didn’t delete anything. Rather, the list grew to 24 items as the best and brightest made three additions. Here’s the final version:
- Do overcapitalize your new firm.
Undercapitalization is the number one reason new businesses fail. Anticipate that more things will go wrong than right in the first year. Home building is becoming more capital-intensive by the day.
"Just remember what my father told me," says David Hill of Chicago-based Kimball Hill Homes.
"Everything will take longer and cost more than you plan."
"If you think you need $1 million, get $2 million," says Denver builder Pat Hamill of Oakwood Homes. "If your business plan says it will take you one year to reach break-even, assume it will take three.
"Most new builders won’t have that kind of money in their bank accounts, but the capital markets are flush with cash today, and looking for investment opportunities. However, I still think private investment partners are the best way to go," says Hamill.
If you find a partner with experience in the housing industry (as Hamill did with Las Vegas builder Larry Canarelli), your partner will also be an adviser, maybe even a mentor, Hamill reasons.
Design leadership is either a great way to make a name for a new company in a hurry or it is a risk that a new home builder can’t afford, according to today’s best builders.
Don Horton, chairman of Builder of the Year D.R. Horton Inc., says diversity in sources of capital is just as important as the amount. "You need that, in case one of your sources dries up," he offers. "That certainly happened to all of us in Texas during the late 1980s."
While everyone sees undercapitalization as a huge danger, Houston Giant David Weekley warns that getting too much money can also be dangerous: "Don’t get carried away spending money," he warns. "Even if you have $2 million, you need to behave as though you’ve only got $100,000. I’d set up a budget that’s very tight on overhead. Be frugal."
- Do try to control land, as much as possible, without actually buying it.
In hot metro housing markets across the country, this may be tougher now than ever before. But the builders we talked to insist it still can be done. And in the case of a start-up, with limited capital, it’s risky to the extreme to do it any other way. The idea of using rolling options, or separate land investment partnership may be an oldie, but it’s still a goodie.
"The big key to me is equity and lot positions. You’d need to control as many lots as possible without tying up all your available capital," says Houston-based builder Lonnie Fedrick, who launched Giant Newmark Homes in 1983 at the age of 38. "Rolling options are still the way to go. But it would take somebody already in the business to pull it off. You’d have to have contacts in the development community."
Fedrick started in the business as a super with Norwood Homes in the mid-1960s. He sees big differences between the world of 1983 and the one a start-up would face today. "It didn’t take nearly as much equity as it would today. You couldn’t launch a company today without a good computer system for one thing. It would be very tough to do it out of the back of a pickup truck like I did. To start a production building company today, you’d need $5 million."
- Do organize your company, and your production system, to embrace change and product diversity.
Whether it’s true custom or an elaborate system of pre-priced options, develop systems to deliver choice to buyers. Blame it on Dell selling computers built to order. Regardless, today’s consumers expect it at virtually any housing price point, and they don’t really understand the difference between custom and production building. After all, a house is the highest priced consumer product most people ever buy. It seems logical to them that they should be able to get exactly what they want in a house if they can get exactly what they want in a computer. The higher the price, the more belligerent they become.
This movement toward more choice is driven by consumer demand in the sales office. As a result, most production builders now impose an option or customization process from the sales office to the construction trailer, and then, via the superintendent, to the trades working on site. Bad idea. Few bother to explain to the trades why all the changes and complexity are necessary. And fewer still get input from trade crews and supers on how to structure on-site processes to deal with complexity and avoid chaos.
Treat this as an opportunity, not a problem. In a new company, you can start from both directions-sales office and construction trailer-to create a delivery system that allows maximum choice to the buyer and glitch-free construction operations. Develop esprit de corps, across the gulf between sales and construction, with team-based goals and rewards.
- Don’t try management by screaming and yelling.
‘My way or the highway’ won’t work. Employees don’t have to take it anymore. They have options. They will choose the highway. This is the area of greatest difference between the new millennium and the 20th century: The relationship between business owners and the employees who actually perform most of the work is changing dramatically, not just in residential construction, but throughout the economy. But our industry is one of the last bastions of hard-charging, no-holds-barred, John Wayne-style management. Many competitors will find converting to a warm, fuzzy management style daunting. But a new company carries none of the old baggage. It can be launched with a fresh, new approach.
"We’re now looking at the prospect of a negative unemployment rate," says management consultant Michael Anleitner, who works in both the auto and residential construction industries. "We are in the midst of the most significant change in the way people work together since the industrial revolution."
"If a new builder is smart enough to buy land well, he can make money in this business, but how long he lasts will depend on how well he does with people."
Don Horton sounds like a Bible scholar when he cites his approach: "Treat people the way you want to be treated. We always tell our people, ‘You work with our company. You don’t work for anyone.’"
- Do recruit every day, because talent is thin in more than just the skilled trades.
Our economy is growing so fast, the talent pool for every job--estimators, receptionists, handymen, sales agents and supers--is running dry. "Shortages of management talent are just as acute as those in the skilled trades," says Atlanta-based people consultant Martin Freedland. "It’s the biggest problem we’ll face this decade. Based just on the demographics--the declining numbers in the ages that feed young managers and trade workers into the industry--we’ll see 40% to 50% shortfalls in most positions."
Today’s home buyers want what they want and a builder better be prepared to deliver. However, a builder without a system to clearly communicate options to field crews is inviting chaos and cost overruns.
"And there are other factors besides demographics," Freedland warns. "Even Harvard and Princeton are having trouble getting the best candidates into their business schools. Kids see all these stock option millionaires and want to go into high-tech right now." Even a recession will not change this situation much. "If we don’t have a recession, it’s going to be worse than you can imagine," says Freedland, "And builders are even telling their own kids not to go into the housing industry." Florida builder Barry Rutenberg, himself the son of industry giant Art Rutenberg, admits he’s wondered about the same thing. "This is a tough business. People think you’re in charge when you’re running a company, but it’s an illusion."
- Don’t just try to buy people with more money.
That’s definitely not the right recruiting strategy. You’ll go broke. It’s more important to have a glitch-free organization designed to easily deal with the elements that create stress and chaos among competitors.
"This is another reason today’s new builder ought to be a little bit seasoned," says Lonnie Fedrick. "It takes time in the industry to learn how to manage people, and even longer to learn how to attract talented people. That would be critical for a start-up today."
That’s especially so when you consider that any start-up will have to recruit not just against other small builders, but also against the big public companies, who are desperate to bring in new managers and keep the ones they have now.
"Every big builder in the country is searching for management talent," says Martin Freedland.
"It’s the single most important limiting factor keeping public builders from expanding. Last decade, they were all moving into smaller and smaller markets, but they just don’t have the people to do that anymore."
"It’s certainly one factor limiting the growth of public builders," says Toll Brothers chairman Robert Toll. "Maybe the most important one. But there’s no mass production solution to those shortages. We are recruiting young, raw talent directly from the colleges. We let them tag along on the jobsite for the first year, make them an assistant the second year. By the third year, we hope they’ll be able to run a community. Some will run construction, some sales, some both.
"By their third year, they’ll each have an assistant to start mentoring, and that’s how we’ll grow."
- Do develop profit sharing and deferred compensation plans for all employees.
Radical as it seems, such plans are about to become standard practice in the third millennium economy. Give employees a stake in your success and make it painful for them to leave, because your toughest competitors recruit every day. Keeping the best people will be the most important success factor in this decade.
"No question it sounds strange to those of us who have been in the housing industry for years," says Redmond, Wash.-based management consultant William Allen. "But just consider that the average cost of replacing an employee is now $50,000."
There’s always been a lot of job-hopping in home building, but in the old 20th century, builders only had to compete with each other to retain employees. Today, the competitive net is cast much wider. But this is not all bad news for a young entrepreneur starting a new company. Shed your 20th century mindset, deal with these new realities, and every one of them can be a competitive advantage over established builders who can’t-or won’t-accept the new millennium world.
"We’ve always created equity positions for our people, right from the start through today," says Don Horton. "And they are long-term positions. Before we went public, we did it by forming separate corporations, one and the same as partnerships, very much like Trammell Crow and Wal-Mart. We had common financing, common controls, but entrepreneurs out there working for themselves as well as us."
- Do invest in training everyone in your company and also those of your trade contractors.
Work is not a ‘grind’ if employees are upgrading the skills that make them more valuable. Make your company a learning center, and reward people when their improved skills lead to greater efficiency.
"Train your people? Yeah, absolutely," says Bob Toll. "Train the trades? Nah."
California-based consultant Steve McGee sees it differently: "Right now, builders are making faulty decisions on their options and customization processes because they are missing vital data on how those procedures impact field operations. The reason is simple; the trade work crews are not trained to feed back data to the builder. That will be the big breakthrough of the next ten years. The potential to impact profits is enormous. Training those work crews will yield better returns than almost any other form of training."
Association involvement, be it at the local, state or national level, has benefits for a new builder, however the time devoted to these activities takes time away from the business -- and that’s not good.
Michigan-based consultant Scott Sedam weighs in on the side of trades training: "The major thing to remember is that your company can only be as good as the suppliers and trades you recruit. Absolutely you need to train the trades; they’re 98% of your workforce!"
"Builders don’t explain to the trades that elaborate options packages are driven by the demands of buyers in the marketplace," says McGee. "So they don’t understand that it’s in everyone’s best interest to develop good communications tools that improve accuracy and speed the work. And it’s so easy to do.
"Anybody starting a new company would be very wise to make training the trades to gather data, and feed it back to the builder, an immediate priority. Do that before beginning full-scale building operations."
- Don’t let worrying about the competitors who try to recruit your well-trained employees deter you from making training investments.
Your training programs are one more tool you’ll be able to use to recruit people away from them. We got virtually unanimous agreement from the builders we spoke to that training is essential, that the rewards outweigh the dangers of losing trained people to competitors. However, virtually all of them acknowledged that worrying about theft of trained employees is a constant byproduct of training investments.
"You’d better worry about it," says Bob Toll. "Or it will happen more than it should." Toll discounts the elaborate training programs of many competitors in the national home building arena. Instead, he favors mentoring as the primary training methodology. "You can’t buy training. You can only mentor it. You learn it and then you teach it, one on one. That’s how a young builder starting up should structure his company, mentors and proteges."
- Do cross-train among departments, especially across what can be a schism between the sales and construction sides of the organization.
Team building across functional lines can reduce that schism to a manageable seam. But there may be a way for a new company to preclude development of such schisms. Project management as a form of organization is worth considering, as a means to break down a growing company into smaller components that more easily facilitate cross-training and teaming.
In such a system, a project manager responsible for a limited number of locations has full profit and loss responsibility, and both sales and construction personnel report to the PM. Thus, the person with P&L responsibility stays closer to customers because of the flat, decentralized structure.
The problem with PM organization is that talented candidates for the project manager position are hard to find and even harder to recruit. Candidates should be management generalists, with the ability to relate to both sales and construction employees.
A new builder will not need to commit to PM or function-based organization until the firm reaches multiple location operations. Availability of people capable of filling a project manager position may drive the decision. For a young entrepreneur, tilting toward project management may hinge on whether or not he or she has a protégé ready for the challenge.
- Do develop mentoring relationships.
If your company is to grow, your people must grow. Promoting from within is better for esprit de corps than recruiting from outside. All key employees should be mentoring their own replacements.
Once again, on this point we found virtually unanimous agreement among both consultants and builders. However, an organization brimming with mentor/protégé relationships is easier to theorize than to achieve.
The hardest protégé to find will be the one for the builder himself. Even huge public companies struggle with that one. A small, fast-growing builder who finds a good protégé may have trouble keeping that person from indulging his own entrepreneurial ambitions.
"As leader of a new company, you need to figure out your own unique ability," says California-based management consultant Doug Wilson (Next Solutions LLC). "Don’t try to be someone else."
Legendary Florida builder Art Rutenberg echoes that theme: "Build your company as an extension of your own personality and strengths. Then recruit people to fill in the gaps as you grow."
- Do your own consumer research, or pay someone else, but get your hands on data that shows what people are buying- price point, architecture, features, options and upgrades-not what they say they want.
Purchase decisions for most buyers require tough choices, because they don’t have unlimited budgets. When it comes time to decide between a fireplace and a lofted ceiling, which one wins? "In this decade, customer knowledge is going to be more critical than ever before," says Colorado consultant Chuck Shinn (Lee Evans Group Inc.) That’s because the market is fragmenting like crazy.
"You’d better know your target market inside out. How many builders do you know who sold their houses to completely different buyers than they targeted? You may not be that lucky in the new millennium. If you don’t put into your house exactly what a specific group of buyers wants, and leave out what they don’t want and won’t pay for, you will not sell houses." Atlanta Giant John Wieland sees the same picture. "If you’re not staying very close to the customer today, you’re going to be in big trouble."
David Weekley thinks the best consumer research is done personally. "In a start-up, you don’t need formal studies. You need to get down and dirty about how your product will be better for the buyer. Just get out there and walk the competitors’ product and decide how you’re going to beat them."
- Don’t just build what everybody else builds.
There are big profits associated with being the design leader in a market, finding the right product for an emerging demand, as long as you’re able to handle such innovation without creating confusion and loss of cost control on the production side.
This is the one point where we found a lot of disagreement among the builders we spoke to. About half thought shooting for design leadership is a good idea for a new builder because it offers the prospect of creating name recognition much faster.
Infill housing is high margin, but it’s also high risk because the land is expensive. To succeed in the infill market, a new builder had better be real good with product, and that’s hard because few in the industry are skilled in this niche.
Not surprisingly, most of those who like the idea have a track record as design leaders and innovators.
"That’s how I made my mark," says Florida builder Joel Channing, who was an architect before he became a builder and developer. "It’s still the main source of our success. That plays to my personal strengths, which is something any new builder should do."
Those who came down against seeking design leadership cited the dangers associated with innovation. "Pioneers are the ones with arrows in their backs," says Don Horton. "You need to be careful not to get too far out in front of the market."
"There are more losses associated with design leadership than profits," says Bob Toll. "Let somebody else be first. Be second, then do it better!"
- Do build to niche markets on infill sites.
Buyers of every age and description are tired of spending time stuck in traffic. Get your project closer to where they work or play and you put money back in their pocket that can be spent on a better house. In metro markets all across the country, there’s a budding movement of baby boomers heading back to the city.
Old city neighborhoods are gentrifying, offering possibilities for builders to do one or two houses at a time, or small, high-density projects if they can pull together land. It’s a natural for a new builder to us.
But there’s another big split of opinion on this one. "A start-up should look for a good niche that limits competitive exposure, and infill is a prime one," says John Wieland. He also likes the fact that most infill projects are small in scale, which helps limit risk, he says. "It’s one of the best start-up strategies of all."
"Not necessarily, says David Weekley. "It’s high margin, but also high risk, because land is expensive. You’d better be real good with product if you’re going to do upscale infill. There aren’t many in the industry with a feel for that product," Weekley maintains. That should make Denver newcomer Scott Axelrod, 37, feel very good. He moved to Denver a couple of years ago to build upscale infill houses in Denver’s posh Cherry Creek neighborhood. "I was happy to limit my upside if I also limited my risk," says Axelrod. "So I raised a ton of equity."
He bought a 22,000 square foot site, subdivided it into three lots, and built three houses ranging from 6029 to 8169 square feet. All three sold between May and September last year, for $639,000, $649,000 and $689,000. Axelrod returned 27% to his equity investors.
- Do find ways to overcome the traditionally seasonal nature of home building by regularizing the flow of work through every department, especially construction on the jobsite.
"Even-flow production" is now a buzzword for all the big production builders. But the concept, based on the model developed in the early 1990s by Rayco Homes in San Antonio, is just as beneficial (and easier to achieve) at 20 homes a year than at 2000. For example, centralized scheduling is a major element of even-flow, which is a real challenge for big, production builders with dozens of subdivisions. For a small builder with one or two locations, not so tough.
What other steps will help? "It would be a good idea for a new builder to process map the entire production system before ever building anything," says Canadian author and management consultant Jim Clemmer, whose latest book is entitled Growing The Distance. "It’s a whole lot easier to put together an effective production system from scratch than to fix a faulty one." Chuck Shinn also emphasizes getting all systems and procedures down in writing before launching the company. "Don’t try to develop them on the fly," he warns. "Standardize all your processes-from sales, to estimating, to construction methods-in writing. If you have each super building houses differently, you’ll certainly never get even-flow," says Shinn. "Centralized scheduling is a must, and all those systems are built on the premise that every house is built the same way."
- Don’t sell yourself into a hole you can’t produce your way out of.
Sell to pre-planned construction starts that allow you to stay on your even-flow schedule. This is the heart of the Rayco model. If you plan to build 24 homes in a year, that’s two per month or about one every two weeks. In today’s booming economy, many builders are doing themselves and their customers a disservice by selling beyond their capacity to produce. That’s a formula for quality failures and customer relations nightmares-the last thing a new builder needs. Before Rayco sold to Kaufman and Broad, the firm would sell only up to a fixed limit for construction starts. Once that limit was reached, Rayco cut off sales. Even-flow sales and even-flow production create steady activity that dramatically aids achieving quality construction and customer satisfaction. The whole concept is a good one to build a new sales and production system around. We had universal agreement from our interviewed builders and consultants.
"Not knowing your costs when you price the product is the biggest danger from getting sales too far ahead of production," says Don Horton.
- Do include sales people and sales management in all key strategic and tactical decision-making processes.
Selling is not a problem for most builders right now, but you know it will be some day. And selling is the most critical skill a new organization must cultivate. Nothing happens until and unless the sale is made.
"One of the key things is to be able to articulate to all of your people-including sales-what your goals are, and how their goals mesh with the larger goals of the entire company," says Don Horton.
Sales people have their fingers on the buying pulse of the market. If you don’t believe it, spend a weekend in a sales office. Come to think of it, that’s exactly where a new builder should be spending weekends, if the experiences of our interviewees hold any value. Horton never took a day off in the first three years he was in business. On weekends he sold houses.
- Do become a leader in your local HBA, because the associations are the instruments of change that will help this industry overcome labor shortages and no- growth political movements.
There are some things you can’t do by yourself, and overcoming a no-growth referendum or convincing high school students that framing carpentry is a good career choice are certainly two.
The builders we talked to were split over whether this kind of activity is a good idea for start-up builders. Not so, said Weekley. "That’s crazy. It would just suck time away from the business, which is where a new builder needs to be 14 hours a day, seven days a week." Even Barry Rutenberg, who now sets records for involvement in NAHB and Florida HBA affairs, said he might skip national activities for a few years if he were starting a new company today. But Lonnie Fedrick was all for local HBA involvement. "It’s critical," he says. "It’s where you make contacts, meet developers, and get your name known."
NAHB has a task force working on the skilled trade labor supply problem. "One of the things we’ve learned about the challenge of bringing more young people into the construction trades is that our problem is more recruitment than training," says Kansas City builder Tom Woods, who chairs both the labor shortage task force and Home Builders Institute.
The task force is pushing for ad campaigns to overcome the negative perception of construction work among high school students, teachers, guidance counselors, and parents. "We’ll have a very aggressive public relations program all this year, called ‘Home Builders Care,’ appearing each day in USA Today," notes Al Kamikawa, senior vice president of HBI. "That gives us another forum to bring the labor supply issue before the public."
The task force is also marshalling NAHB’s legislative affairs and economics committees to push for relaxation of social security laws to allow aging workers to receive benefits and also work part-time. "We’re also looking at the immigration laws to see if we can bring workers in from other countries," says Kamikawa.
Meanwhile, HBI recently received a $1 million grant from the U.S. Depts. Of Labor and Education to launch model school to work programs in mainstream high schools in Kansas, Indiana, and Florida.
And without any federal, state, or NAHB help, Sarasota, Fla., high school principal Dan Kennedy has tripled enrollment in his own fledgling construction technology program, launched last year with the help of the Sarasota County HBA. "We went from 27 students last school year to more than 100 this year," he says.
Kennedy’s program will build its second Habitat For Humanity house in the school parking lot later this year. "We’re only two years from sending our first highly trained class into the industry, and we know they will be snapped up."
- Don’t ignore either of these problems.
Builders have plenty to gain-or lose-on these issues. Housing has always been largely a local business. But labor supply and growth management may well become major issues in the 2000 national election campaigns. One proposed solution to the skilled labor problem is changing immigration policy. And Vice President Al Gore is already focusing his campaign on "urban sprawl." Get active. This is the big leagues.
- Do search for and experiment with new technologies that promise to reduce site labor, shorten build times, streamline scheduling and production, and open new avenues for selling homes.
This is no time to stick you head in the sand. Many large production builders are spending millions to upgrade technologies used to sell houses, build houses, and communicate with trades, suppliers, and buyers. But it’s really the biggest firms who are at a disadvantage in technology wars. They are driving battleships that are hard to maneuver.
This point caused another big split among our interviewees. Many believe experimenting with new technologies, especially for construction, is way too risky for a start-up firm to chance. "There’s so much risk associated with a start-up. Why throw pioneering technology into the mix?" asks David Weekley.
But Michael Anleitner counters that much technology that could be very beneficial to builders has already been pioneered in other industries. "Existing builders have rejected it," he says, "but all it will take is somebody with the guts to do it to set this industry on its ear." David Hill sees communications technology, rather than construction, as the most significant contributor to improving business operations: "I can fly to Houston or Denver and back to Chicago in one day," says Hill. "I can fax or e-mail everyone in my company instantly. I can reach all my customers with our web page. That’s all current technology. There are those of us crazy enough to try using all this technology and capital resources to grow without geographic limits.
"If you don’t do it right, you can lose a lot of money in a hurry. But because it can be done, it will be done. Somebody will do it," says Hill.
- Don’t continue to build houses the same way you always have, counting on the innovation-resistant nature of the industry to keep it stuck in the mud.
The times they are a changin’. Concrete building technologies from Germany, panelization systems from Sweden, and American ingenuity all contributed to a wellspring of new construction methods flooding the American housing market in 1999. It’s no fluke. If you search hard, you can find a better way to build.
For example, Pat Hamill’s fast-growing Denver company decided three years ago to purchase three Argos three-dimensional CAD workstations to get control of takeoffs and lumber purchasing. "Before, we were at the mercy of our turnkey framers," says Oakwood director of product development Don Carpenter. "They were dictating how much lumber was needed for each house." Carpenter says the new three-dimensional CAD systems are expensive ($20,000 per workstation) and not particularly user-friendly, but he’s sold on the results. "We now do all our architectural construction documents in Argos. We build each house, stick by stick in three dimensions, in the computer before we ever build it in the field."
"Every framing condition is visible. We see construction problems before we get to the field. We run comparisons of various solutions-actually value-engineering right on the computer-changing structural components, adding windows, taking them out, etc. We make very educated decisions."
But Oakwood didn’t stop there. Armed with Argos to produce detailed drawings of every wall section, Hamill moved his company into panelized construction. "We design every house on a custom-style basis," says Carpenter. "There’s an individual drawing for each house, with every option the customer selects in place. We produce individual wall section drawings that our component manufacturer uses to produce panels."
The panelized wall sections are built in a plant and shipped to the site. "We erect houses from sub-floor to roof in three to five days," says Carpenter. Oakwood cut framing cycle times by 12 to 15 days, and in three years, the company has gone from building 400 houses a year to 900. "I can’t imagine how we’d have gotten all those houses framed, in this (tight) labor market, if we hadn’t gone to panelization.
"We’ve saved about $1 per square foot in hard costs," he says, "but the biggest saving is in time. Just as important, our quality is much improved, because all the houses are built exactly the same."
Individual house drawings include every option a buyer selects. "We call it ‘solving’ the house. The designer chooses each option from an Argos menu, and the computer regenerates the house right on screen. It’s really neat to watch," says Carpenter.
The big builders, many with huge investments in obsolete technology, see this happening and it scares them royally: "The scariest thing is that the technology innovations that will really be revolutionary will probably be pioneered by small companies," says John Wieland. "Big companies have too much invested in existing technology to be experimental."
- Do develop a strategic plan to access the capital needed to grow your company.
Going public may be one option, although it doesn’t look promising today, but there are many others. Today, you don’t even have to take a company public to access the capital markets. Investigate all the options and find the combination that works best for you.
It’s certainly not necessary to go public, says Joel Channing, a pioneer in using pension fund financing for housing development. "We got started by doing workouts with various financial institutions in the 1970s. It was an easy jump from that to joint venturing.
"But today, there are no workouts, because nobody’s failing, although that could change sometime soon. If I were starting today, I’d find a niche and become a specialist. The good thing about a small start-up company today is that you can be very nimble with computer technology, and the big builders can’t."