Different, By Design

We look for a management method filled with ideas all builders can use. For 2004, our choice is Newport Beach, Calif.-based contrarian John Laing Homes (sometimes known as WL Homes), a private home builder more philosophically aligned with Southwest Airlines and carmaker Saturn than with the public home building Giants that once threatened to gobble it up. Laing refused to be gobbled. Now it grows.

Sell or Fight?
In this era of consolidation, private production builders face the question of whether to sell to acquisitive public GIANTS or to fight for market share against such formidable competitors.

John Laing Homes confronted this dilemma two years ago, when it really was WL Homes, an entity formed by the 1998 merger of the last vestiges of California housing pioneer Ray Watt's empire and British-based Laing. Both home building operations were already largely in the hands of investment bankers eager to take them public or sell them. The merger was intended to create critical mass that would make that easier. But a funny thing happened between 1998 and 2001. Out of the chaos of a messy merger, Laing CEO Larry Webb and Watt's chief financial officer, Wayne Stelmar, created a real company, one that literally refused to be acquired. One that is now controlled (and mostly owned) by its defiant management team.

"We had pressure from both sides to grow fast," Webb says. "In retrospect, it would have been better to have common accounting systems, office hours, benefits, payroll and a set of values before we pushed growth. But we did it all at once."

Webb and Stelmar had brought in Bill Probert in the summer of 1998 as executive vice president of sales and marketing. "We wanted to manage our sales process better than anyone," Webb says. "If you want to gain a competitive advantage fast, the best place to do it is in sales."

The dynamo that John Laing Homes is today rests on three strengths, which builders everywhere can emulate:

[1] Product. Laing builds fabulous communities that emerge from a unique approach to research and design.

[2] Culture. Fun, family values and learning define the workplace, but Laing's people have another, equally important trait: competitiveness.

[3] Customer coddling. Pioneering processes in sales, marketing, construction and warranty service nurture lasting relationships from the first contact with buyers until years after they close.

All of these elements combine to let Laing achieve a pricing premium that overcomes big public builders' advantages in cost of capital and economies of scale.

Design Leadership
Design forms the cornerstone of Webb's career as a home builder. He started in the housing business as a market research consultant in Washington and later Denver. Then he went to work for his largest client, developer Mission Viejo, with responsibility for marketing and product development in the early stages of Highlands Ranch, the master-planned community that still dominates the Denver market. "I love product and design," Webb says. "One of the challenges I face now is to stay out of it and let division teams do it on their own."

Design leadership is a hard nut to crack. To develop a reputation that carries a pricing premium, you must build houses that not only are architecturally stunning but also feature floor plans crafted to match the lifestyles of targeted buyers. And the construction craftsmanship has to match the design quality so buyers see commensurate value although the prices are higher. On top of all this, what works today might be passé tomorrow. Design leaders seem to anticipate, even drive style changes.

Now try to hit this kind of architectural home run, with every development, in Southern California, the Mecca of U.S. housing design. Laing pulls this off. In fact, JLH won architectural awards this year in all six divisions that had product to enter (the Luxury division's first communities are coming on stream now). Webb, Stelmar and Probert standardized the product development and design process and integrated it with land acquisition, marketing and even finance to let division teams repeat success.

How They Do It
Research. Webb cut his teeth on research, so he's a stickler for doing it well. "We have extensive consumer and market research requirements before we ever get into site-specific design," he says. These include data on population, in-come and employment distribution, and lifestyle research from Yankelovich Inc.

When Webb took over Laing in 1995, he found an entry-level production builder of detached homes with bad land deals and no market identity. Today, much of the product is very innovative but pricey on a per-square-foot basis.

It runs through a broad band in the upper middle of the pricing spectrum in most markets. Where Laing gets below median pricing, the product is usually townhouses or condominiums. Browse www.johnlainghomes.com and you'll see a variety of housing forms with one thing in common: cutting-edge design.

Many of the move-up communities, especially in the Sacramento, Calif., area and the Inland Empire east of Los Angeles, feature houses with astounding bedroom counts. Steeplechase in Corona, in the Inland Empire, has seven models ranging from 2,085 to 4,529 square feet, and the top of the line has 10 bedrooms and five bathrooms. Laing doesn't do such things on a whim. It's research.

"I insist that design be based on market research," Webb says. "Bill Probert takes care of that. He's the guru. We leave design to the division presidents. If the CEO and CFO are telling them what to build, we're in trouble. But we want them to know their buyers, so we insist that they use a process that relies on a team with input from staff and consultants."

JLH uses Eliant Inc. to measure customer satisfaction at 30 days, five months and 10 months after closing. That creates data to use in planning the next community. Laing also asks buyers who fit target market profiles to be part of "workshops" held in the models several months after the buyers move into their new homes.

"We get six buyers for each floor plan," Probert explains, "and then walk them through the model home of the plan they purchased and ask them to evaluate the floor plan, how they use each room, even what ideas they may have gained from merchandising - everything we can think of that may be valuable in the next product line at that price point."

The design process really kicks into gear when a "coming soon" sign goes up on a site. "That's where our marketing process begins and interacts with the design process," Probert says. "We build a pre-selling list via direct mail, phone calls from prospects and hits on our Web site, and we begin online surveys. One thing we focus on is, 'What do you want that you haven't found?' When people search our Web site, we pay attention to hits where we don't have what they want in that market. We compare that data with surveys of lost prospects from previous developments, looking for underserved demand." (Such as 10 bedrooms?)

Laing also does focus groups, but not the traditional kind. "We like 'interactional workshops' better," Probert says, "where we use projection techniques to show concepts and ideas. Pictures, images and words are presented that allow customers to pick what's important to them in a home. We ask them to describe who they are and what values they have.

"Regular focus groups are outdated. It's too easy for a strong personality to influence others. We want more independent thinking."

The research never really ends. JLH stays in constant contact with prospects through pre-sales techniques it calls "Advantage" marketing. Weekly contact allows prospects to critique proposed floor plans and design elements. "We've even gone back and changed plans after we thought we were done," Probert says.

Design teamwork. Laing believes in teaming. The firm pulls together a multidisciplinary team to plan every new community. The design team includes representatives of purchasing, operations, sales and marketing, along with outside consultants such as market researchers, architects, model merchandisers, land planners and landscape architects. A "product champion" leads the team. "It's usually the division president or V.P. of sales and marketing," Webb explains. "Whoever in the management team has the best feel for product."

The product champion leads the team through a disciplined process running from "ideation" to "place-making."

"We look at the research and the site," Probert says. "The number of lots drives plan diversity. The larger the project, the more plans. For instance, if we have 50 lots, we'd probably decide we need three or four house plans. Then we decide what we can put on that site that yields the greatest value to customers and profit to us. We look at the research for holes in the market in terms of square footage, bedroom counts, price, etc.

"We work right through the place-making book to decide what people want and what we should build. The architects and interior designers come up with conceptual plans. When we get to the working-drawing stage, the marketing design team positions the product for the people who will live in the houses."

Approximately 60 days after the grand opening, Laing brings back the entire product and marketing design team for an on-site meeting. "We want to assess how the entire program is working," Probert says, "from sales office to prospect flow to merchandising. We ask the first group of buyers to critique the houses."

The meeting is timed to permit changes that might improve performance. "If we learn something from the homeowners or lost-prospect surveys, we have time to make a difference," Probert says. "We had an attached product once where the upstairs flat wasn't working. We made a few simple changes to the entry, and that fixed it."

There's no such thing as an unassailable design leadership position, especially in Southern California, where Laing must protect its position every day. However, recent decisions to launch new divisions specializing in luxury and infill housing seem likely to enhance Laing's lead. Both divisions soon will churn out new developments that promise to combine density with architecture in extremes that will draw interest from across the country.