What happened to Arbor Builders when Jason Adams delved into data analytics?
Jason Adams jumped into buying and selling land to home builders after graduating from college in 2001 and had high ambitions until the Great Recession upended the value of the lots he bought for $220,000, reducing their value to a mere $37,000 when they sold. Adams pivoted by buying, fixing, and selling apartments and foreclosed homes. Eventually, he paid back all of his debt and started spec home building in 2010. His company, Arbor Builders, had three closings the first year, eight the second year, was in the teens by 2013, and is on track to close 50 homes this year.
As the business grew, Adams struggled to get his arms around its moving parts. Arbor Builders had a dozen software systems for accounting, purchasing, scheduling, sales, and so on, each with its own login and reporting functions. Rather than providing clarity, the reports generated spreadsheets of confusion. So Adams began to delve into data analytics, a realm where many builders don’t dare go because of the expense, man-hours, and learning curve that come with updating or ditching back-office legacy systems.
Adams encountered ups and downs in that endeavor before finally settling on a cloud-based platform to centralize his company’s data to automatically provide reports and actionable insights for managers and employees.
Q: How did you realize you needed to do something about your data?
A: When there was one house, I could walk it, review every invoice, calculate the budgets, and see the sales conversations. But as I hired people, I started losing touch with stuff.
I remember having a sales login, a purchasing login, and an accounting login. I would print out a report from each one of them and then try to assemble them and figure out, am I making money? Can I pay the bills? Should I hire another person?
I’m a big sports fan. I love to go online and check the stats of any sports team and any player. In just five minutes, I can open the website of my favorite basketball team or football team and get the info I need. But at work, I couldn’t even figure out when a house was going to be done. I just wanted to be able to move around with information. I wanted to be out on a job somewhere or looking at property and be able to access information without having to drive back to the office to log in to my computer to get it.
Q: What type of software were you using then?
Q: What were you looking for but unable to find when you started searching for a data analytics solution?
A: I had Sage 100 for a couple of years and had a really great Sage partner who opened my eyes to the data connections that he had set up. Sage’s Crystal Reports tool enables you to create whatever PDF you want, and it was super cool to be able to start timing some things I wanted to see regularly. But then we began to see that there was more debt calculation, especially when you get into things like cash flow forecasting or cash position forecasting. There are a lot of moving parts, and Crystal Reports are not really designed to calculate them. They’re designed to extract and show you data.
So we got a connection to Excel. We had a live data feed we were pulling automatically into Excel. You hit refresh and run all of these calculations, and I remember having my first cash position forecast, where I could look over the coming 12 months and see how much money I would have based on operating metrics and sales, and I could make some educated plans. But it was tricky to get other data in. Connecting data was a challenge. Sage had scheduling software, but it didn’t have CRM and some other dimensions we wanted. Also, it wasn’t mobile back then; it was on our server.
Q: What did you look for next?
They said Jet Reports lets you pull any data you want. You can get it in there and build these [data] cubes, transform it, and see it. They told me exactly what I wanted to hear, and I was like great, I'm in! Let’s do it.
So we started doing the move over for accounting, for sales. Soon we realized that it’s a lot of work. I had just three of the 10 Sage reports that I wanted in Jet Reports, and we blew through twice our budget for the first two reports.
We had a $10,000 budget to get started. When I got to $18,000 or $19,000 and we hadn’t even gotten 20% of the way there, I was like, timeout! They were vigilant when they said let’s push everything into one database. They have a lot of strategic partners' [software] pushing into the database. The problem was that their partners, or the connectors, began to outpace their database technology, and moving data was harder to maintain and pull. So I started searching the internet for other choices, and I found Domo.
Q: What did Domo offer?
A: Their model is that they are not a database; they’re a data link or a data warehouse and they are going to pull all of your data into one spot and connect to everything. They promised it would happen automatically. I was like; wow, if they could just deliver on that, it would be pretty amazing. It was easy and quick. They had prebuilt connectors and they had a little app you could put on the server. The part I didn't really understand was what it takes to manipulate the data, to make it do what I wanted it to do.
What I mean is there are visuals. There are pie charts, bar charts, line charts, funnel charts, wall charts ... . There are all kinds of charts, and you have to structure your data in a certain way for them to work.
You can’t just throw them into a random spreadsheet. Then I started my adventure into what we would call data science or data manipulation. I did get a book called “PHP & MySQL For Dummies” and I read through it. I don't claim to be a coder, but I can speak coding and began to navigate through this and started building a team around it.
Q: What kind of benefits did you see for Arbor Builders in terms of information that wasn't available to you before?
A: It’s not that the information wasn’t available; I could get it, it’s just that it took so long, and it was so much work that I didn’t. It was simple things for me. I remember it was so nice to look out at my production forecast. Of course, we talked about a slot schedule and starting homes on these dates, but to be able to see the gross profits of these homes and how things change ... So if we have costs go up for a line item, we can see the impact, or if we change a model or change pricing, we can look out the next six months to a year and ask what is the gross profit? You can look at any variable and be able to drill down to this in seconds and see the breakdown, which was so nice, and we could start dealing with scheduling.
The timing of building houses is a huge deal in our business. To be able to look at it and go, hey, based on this pace or on that pace, what kind of pace can we hold? What kind of paces are viable? This was just wonderful.
Another thing was when we got together to meet, our conversations were more advanced. Instead of talking about which house should we build on the next lot or what do we think we are going to make this next month, we started to get into topics like what’s our target market or how many houses do we think we can build during this period of time.
Q: It sounds like your meetings shifted from talking about updates to strategizing?
A: Yes, that is a big thing. Most people hate meetings. Say you have five people in a meeting and someone asks, "What’s going on?" Then somebody steps up and says, "Well, let me tell you what's going on." So someone is telling them and someone is listening. The other three people are sitting there, bored to death.
They already know what is going on. So they leave the meeting without getting anything out of it. They just got updates about what they already knew. We started challenging ourselves a bit. How can we walk into the meeting knowing what's going on? What would that be like? What is possible?
If you have what is called a single point of truth—this is what we all believe to be true—you can certainly discuss the assumptions built into it. The analytics are a point of reference, so you can readjust your assumptions.
But more often we started dealing with strategy, like should we buy these lots now? Is it a good time to buy? Should we option them or should we pay cash? Is it a good time to hire? We started calling our meetings "action meetings." Basically, updates are not permitted. If you walk into our meeting and say, "I’d like to give you some updates," everyone will be like no, we’re not doing that. So what are we doing?
We have KPIs [key performance indicators] or goals that we look at and if one is rated good or green, we don’t talk about it. We don’t have to talk about something you’re winning, but here is a red issue. It’s more helpful to figure out what made that KPI red. We talk about what action we should take on that so we don’t have this exposure happen again. When we started looking at actions and strategies, our meetings became a lot more exciting. For the most part, I really look forward to our meetings.
Q: Which business functions do you recommend builders automate first?
A: A lot of builders look at their size and say, I can’t do this. I would recommend what people do first is to get educated.
What does that mean?
Learn what these concepts are and that there are a variety of software solutions for getting there. But if you don’t know what you’re doing, you’re not going to get started.
I think the other thing I invite people to do is really get present to the value of time. People talk about working smart or valuing their time, but they end up doing a lot of repetitive things—particularly repetitive calculating and repetitive processes that are a big waste of time. They are spinning their wheels all the time and sometimes they do it just to look like they’re doing something. A person is operating at their best when they know what's going on and what to do about it.
Home building is not rocket science. It’s just that people don’t know what is going on or what to do about it. If someone could account for lost or low-value time functions, they would jump into the most expensive analytics system in a heartbeat because they would see—relative to the value of their time—that it would be cheap.
But most people don’t have any relationship to their own time or their staff's time. They just look at the price tag and say, "too much." I can make the argument that small builders are losing hundreds of thousands of dollars a year on opportunity cost time. If they could speed up and just focus, then analytics is the cheapest thing they could do. But it’s a canyon to cross, and sometimes it takes a bridge.
I think there are initially a lot of people who really value estimating. Like, I've been doing this for a while and I can estimate well. I can estimate cash flows; I can estimate cost; I can estimate the market. They get that gut-level feeling, but that energy is losing its competitive advantage to people who can calculate and be very precise. There are a lot of opportunities to calculate, automate, and take action accordingly.
I do have an accounting perspective, but I think builders should have crystal-clean accounting financial views. Generally speaking, revenue cures a lot of ills. You can never have too many sales. You can have too many houses under construction, but you can never have too many sales. I went into the analytics of purchasing a house, building, and scheduling, which is good, but I was behind, I think, on the sales side of things.
Maybe in the last year we've caught up on sales and actually helped out. I would encourage someone to get a really good view of their sales pipeline and have the problem of having too many buyers. Then go and figure out how to build homes for profit. Since you are building 40 houses, find 40 buyers and then figure out how to double your production rather than double your production first and not have enough buyers.
Q: You're building homes through Arbor Builders and you're doing data analytics consulting through Build Intelligence. How did you get into helping clients organize their data so they can generate meaningful reporting?
A: Basically it’s a spin-off. It’s a consultancy for other builders to help them make this happen. We have been doing some of that for other builders and that's another way we've been a bit more in touch with the industry.
But it has been shocking to me how little builders have been willing to commit to data analytics financially. I've felt more like an educator than a businessman, which is fine. We feel that we might be five to 10 years ahead of the industry, so as a home builder, that’s a great spot to be in. We are innovative as a consultant. I'm a believer that with analytics, we're just touching the iceberg on what is possible, especially for the smaller companies.