When Home Builders Go Virtual

McStain Neighborhoods' designer, Tami Noel, is one of the employees using the sales center home's study as an office when she's not working in her own home, on the road or in a vendor's showroom.

It's August 2008, and Tom and Caroline Hoyt don't know what to do. Their home building company, McStain Neighborhoods, is faltering like the rest of the industry, and they have to consider shuttering. Meanwhile, their beautiful, green headquarters — just a few years old — contributes to an operational budget of about $1.2 million, an obvious drain on finances. Then one day Tom remembers an article he read about Jet Blue's customer service call center strategy, in which employees work from home and take calls when they're available, essentially working virtually. Could McStain go virtual, too?

By November, the company would abandon its Louisville, Colo., headquarters in lieu of a virtual company run by a much smaller staff working from its sales center, business partner's offices and, in some cases, staff's own homes. Technology and weekly meetings would keep them together. Everyone would learn new tasks on top of the jobs they had been doing.

The plunge into virtual territory was necessary, Caroline says, but she acknowledges the upside to the quick transition. "In some ways, it's almost better, because we could have worried it to death. The market just forced us to act as quickly as we needed. We just took a leap. We said, 'We're going virtual, and we'll figure it out on the fly.'"

The Hoyts reorganized quickly and on their own, but they aren't the first to go virtual. Peter Pflaum, a developer in the Twin Cities, Minn., area, went virtual after he sold Lundgren Bros. Construction in 1999. Sarah Peck of Progressive Housing Ventures, a niche builder that focuses on infill projects outside Philadelphia, founded her virtual company around 2003 after 15 successful years running traditionally operated builder Rouse Chamberlain Homes.

Pflaum wanted have as lean a business as possible with little overhead; Peck wanted a flexible schedule so she could be the parent to her kids she wanted while turning to specialize in urban smart growth development. The Hoyts just wanted their company to survive. All say they're more efficient, flexible and smarter because of going virtual — and they don't see themselves ever going back to the old way.

A new staff structure

Virtual companies' business is bound by technology instead of cubicle walls, and staff is as slim as possible. Pflaum and Peck are one-person operations, contracting roles outside their expertise and hiring part-time staff when needed for things like accounting or filing. Peck, whose specialty is directing the entitlement process for urban infill building, takes care of everything from sales to design to marketing —— she even plans to learn Photoshop. "I essentially had to learn the whole construction world from scratch," she says, recalling it took a good year of absorbing the feedback of people she worked with. Gone were the trusted employees she leaned on before while she focused on a specialty.

McStain downsized staff from 120 to 17, hanging on to the most efficient, self-motivated and open-minded of the bunch. "The people we have are the ones who are saying, 'We'll make it work! We'll do what it takes.'" That includes employees like Tami Noel, McStain's designer who added finance to her responsibilities (see sidebar, "The Employee's Perspective"), complemented by subcontractors, many who have worked for the Hoyts for years. McStain's business structure is now horizontal now instead of vertical.

Pflaum and Peck — the sole full-time employees of their development and building companies, respectively — work from home when they're not on site nor visiting with clients, while McStain employees work across the 50-mile radius the company serves. Accounting takes residence in the sales center's study, and about six other employees work in the basement. Their technology expert works from home and near where the company mainframe is stationed, and Caroline and Tom, like the rest of the staff in the field, roam. Their operating budget now is around $325,000 — much more comfortable than $1.2 million.

Because of the virtual company business staff model, owners can focus on the most important aspects of their business, they say, because they're not managing other people (or in the Hoyts' case, have fewer staff). Prior to going virtual, developer Pflaum didn't have much time for the creative aspects of his business; he spent the majority of his time solving problems and issues among staff and projects. But the virtual structure "forces me to become really efficient," says Pflaum. "It allows me to spend my time of what I feel is most valuable."

Peck agrees, recalling the drive to get as many projects going as possible at Rouse Chamberlain: "I can take time to find the right projects instead of worrying about feeding the machine."

Keys to success

If you want to take your company virtual, you'll need to make sure you have these two keys to success, according to the sources we spoke to: technology and relationships.

BlackBerries, laptops and software will become your blood, so if you haven't been adapting, a virtual company is not for you ("I would crash and burn if I lost my laptop or PalmPilot!" says Peck). What helped McStain Neighborhoods, says Tom, is its push four years ago to convert to electronic filing systems. "You need to be well on the path of digitizing your business; you need to be technology-oriented," he says. McStain's tech expert is probably the most appreciated employee there these days, although Caroline — echoing Pflaum and Peck — stresses how important it is to troubleshoot on your own and just dive in.

Some of McStain's subcontractors had been hesitant to make the conversation to a paperless system but jumped on board when the company went virtual, realizing technology wasn't a choice — a cooperation that's essential, says Caroline. So much of the business world is digitized that Pflaum notes it shouldn't be that difficult to use some of the best technology. "When you're as lean as I am, you can afford to keep the best technology, the best engineering firms," he says, adding, "I can also pick the best people."

And those business partners you choose are critical. Pflaum credits his company's success in large part to Dave Newman of Bancor Group in Blaine, Minn. The two first met at a Professional Builder Benchmark conference in the '90s and later teamed up to develop a large site. They clicked, and Newman became Pflaum's main partner, feeding projects to Newman and his staff. Pflaum subcontracts everything but reminds us it isn't all that different from a traditionally structured developer.

Newman is thrilled with his first experience working with a virtual company: "The relationship works because there's a good level of mutual respect between us; it wouldn't work any other way." Newman has the expertise and the back office operation, and Pflaum brings 30 years development experience in identifying sites and putting the deal together. "The fact that it's a virtual company," says Newman, "doesn't make any difference."

Advice from the experts

Use technology. Tap relationships for everything from getting business leads to using office space for meetings. Be as flexible as possible. And check your ego at the door, a sentiment all sources underscored. Going virtual — which will force you to learn aspects of the business you or your staff might never have guessed — is not for someone who can't handle critical feedback. Once you get situated, you'll likely never want to go back to the old way.

So far so good for McStain Neighborhoods.

Says Caroline: "We just felt like, if we can survive through this, if we can get through this, we will be the premier green builder in America — that's our plan and our intention — and we will have every opportunity we can imagine."