When the editors of this magazine look at candidates for the most historic and prestigious award in the American housing industry, PB's Builder of the Year, we search for a company with ideas our readers can use to grow the profitability of home building businesses across the country. We look for a business model that fits market conditions emerging in today's national economy, but with broad a...
When the editors of this magazine look at candidates for the most historic and prestigious award in the American housing industry, PB's Builder of the Year, we search for a company with ideas our readers can use to grow the profitability of home building businesses across the country. We look for a business model that fits market conditions emerging in today's national economy, but with broad applicability to every region and locale. After all, housing is a local business. To be Builder of the Year, a company must have a certain something builders everywhere can use to improve. We also ask, if this is the right company, why is this the right year?
In the case of Bigelow Homes, we found a company with ideas so profound they work on either side of the gap between affluent, fast-growing suburbs and Chicago's depressed, inner-city neighborhoods. You can learn a lot from Bigelow about how to please customers — even if you never adopt the HomeTown development concept. But make no mistake, HomeTown is a winner. It will play in Peoria, Pensacola or Portland (Maine or Oregon).
This is Bigelow's year because HomeTown now has a track record of success that's undeniable. And because the firm's breakthrough operation just west of Chicago's Loop, replacing city blight with energy-efficient detached homes that inner-city families can afford, is now up and running. Families are moving in, a triumph of political skill as well as production-building expertise.
Perry Bigelow is a deeply religious Christian and his faith shows in both locations. To bring that faith into home building, he has become a philosopher, sociologist and political scientist. But he is still the graduate engineer of his earliest professional training, a compatriot of energy efficiency guru Joe Lstiburek, a devotee of the hard-nosed Lee Evans/Chuck Shinn school of home builder management, compelling events to conform to plan. He's now a visionary, but before that he built operational excellence into his company, which is a marvel of lean production-building processes.
Efficiency Meets Innovation
Bigelow's homes sell fast because they create value that's easy to see. In the inner-city, that perceived value results from even-flow production efficiencies that allow Bigelow to build incredibly fast and market new, detached homes so energy-efficient they carry a guarantee to heat for less than $330 a year, yet sell for prices starting at $115,000 (for 1,140 square feet) in blue-collar, primarily African American neighborhoods where no new detached homes have been built in 60 years.
In suburban Aurora, Bigelow's value proposition is more complex. Added to the energy-efficiency and even-flow production that dramatically impacts housing affordability are mixed-use community planning and traffic-calming innovations that increase social interaction among residents bridging three (perhaps four) generations. By clustering detached homes in tight, "living lane" and "living court" neighborhoods, HomeTown Aurora makes room for 12 parks, prairies, ponds, a commercial town center, post office, church and general store. Interestingly, while the goal is to build a community where people talk to each other, one net effect of the higher density neighborhoods is lower per-unit infrastructure costs.
Bigelow develops and builds in two other communities in the suburbs, but not on the scale or with the same control as in HomeTown Aurora, which is the culmination of a decade of work.
"Most conventional, production-built housing subdivisions start with high sales driven by lot availability and attractive pricing," says firm president Jamie Bigelow, "then sales tail off toward build-out. The sales curve for HomeTown Aurora is just the opposite. We started slowly because, in the early stages, people couldn't see how different this community is. It's not a subdivision. It's a real town, the kind many people yearn for. We've now sold 870 houses here, at prices ranging from $150,000 to $300,000. When the neighborhoods started to reach critical mass, visitors could finally see what it's like to live in a connected community. As town attributes become more obvious, perceived value goes up.
"Our sales increased every year for five straight years, and our profitability went right along," he says. "Today, we've leveled production at just over 200 homes a year in the suburbs, because that's our capacity. To build more, we'd have to add another level of management, and we don't want to do that. We're growing our operations in the city. We think we can get to 150 units a year there, with one construction superintendent. We have our first closings in the city this month (Nov., 2004)."
However, profitability has not leveled off. The referral sales rate at HomeTown Aurora now stands at 30 percent and climbing. Buyers are eager to bring brothers, sisters and parents to the model homes, to share the home town experience, Jamie Bigelow says. "This is experiential selling," he explains. "The difference between HomeTown Aurora and a conventional subdivision is like the difference between buying Maxwell House at the supermarket and a trip to Starbuck's. Coffee as a commodity compared to a coffeehouse experience. The value added is reflected in pricing and on the bottom line.
"We're selling detached homes at townhouse prices. Much of HomeTown Aurora is very affordable. We can do that because we have really tight operations and our density averages 7.45 units per acre. Yet the experience of living in HomeTown vastly exceeds life in a conventional subdivision, let alone a townhouse development. One of the important attributes that makes a town truly pedestrian is walking destinations. As we open the mixed-use elements of our town center, our perceived value will continue to climb. Eventually, we'll have 150 employees in the town center. Most of them will live in HomeTown and walk to work."
Profitability Proves It
Bigelow Homes is a relatively small, family-owned production building company (No. 362 in PB's current Giants rankings, on volume of $38.12 million from 212 homes closed in 2003). This year Bigelow expects to close 215 houses for $40 million. But growth is not the story here. The firm is thriving in Chicagoland's massive housing market in competition with much larger companies, including many national GIANTS. That tells us the Bigelow business model works as a survival strategy for family firms across this country that are also not growth oriented, perhaps even struggling to compete against the behemoths of the industry.
Jamie Bigelow scoffs at the idea his firm ever needed a life-preserver: "We've achieved differentiation," he says. "That was our strategy. We never felt threatened. This kind of community development is much more profitable than conventional subdivisions at four units to the acre. It will work anywhere because this is the way a big portion of the population wants to live. Right now, in our market, HomeTown Aurora is the only place they can find it. We really have no competitors. I doubt the public builders will ever do what we do."
We're not sure of that. Even the Giants are up against increasing political opposition to conventional subdivision development. One of the obvious benefits of HomeTown Aurora is that it's a shining example of 'smart growth.' When Bigelow began the long battle to entitle HomeTown Aurora, in the early 1990s, the New Urbanist movement was in its infancy and few planners or politicians in the Midwest had ever heard of Traditional Neighborhood Design. Today, Bigelow finds many more allies because HomeTown, a hybrid TND, has proved to be smart for Aurora, Ill., as well as for Bigelow Homes. Assessed value per developed acre is 2.25 times higher in HomeTown than in conventional subdivisions in the area. And many suburban Chicago planners are now well-schooled advocates of New Urbanism. That puts Bigelow on the solution side of the battle over urban sprawl and builders of all sizes want to align with that side.
Bigelow's Profit Story
Chart 1 tells the tale. The "target" column is what builders should shoot for in each area of financial management. The "typical" column is the range most builders achieve. The last column is a strong contributor to Bigelow Homes' selection as Builder of the Year. By doing good, Bigelow is doing very well.
Over the last two years, Bigelow has improved in all financial management categories, but several stand out. Perhaps the most noteworthy is low lot costs, which are dramatically below the target.
"We paid more for raw land than we would have if we were developing at four units per acre," says Perry Bigelow, "but the price wasn't high in relation to what we got out of it in the way of density. We got more lots than the seller thought we'd get."
HomeTown includes costly community infrastructure elements such as sidewalks six feet wide (instead of four) and public streets 31 feet wide (to accommodate guest parking) and traffic-calming devices such as safety platforms, traffic circles and chicanes that draw endless sighs of disgruntlement from teenage drivers. "But we have fewer linear feet of public street per unit," Bigelow says. "That's why our improved lot costs are low, even with all the extras we include. And our perceived value is high because our streets are safe for kids of any age, throughout the whole 173 acres of HomeTown."
The increasing perceived value translates into a steady increase in profitability, Bigelow says, and the firm's net profit history shows it.
Lessons To Learn
In the following paragraphs, we'll detail some of the strengths we believe contribute to Bigelow Homes' success, ideas you can move into your own company.
1. Lean Operations
Bigelow is a land developer and production builder, but the company maintains an incredibly lean organization of only 50 employees by strict adherence to carefully engineered systems and work processes. While Bigelow is organized traditionally, along functional lines, it doesn't operate in the dictatorial style of most family-owned businesses.
Instead, managers at all levels contribute to all major decisions, including long-range planning and land purchases, in a collegial, almost familial atmosphere based more on consensus-building than top-down direction. Senior leaders in the functional areas are compensated with modest salaries, but derive the bulk of their income from profit-sharing. Everyone does well by doing good.
The operating principle is that Bigelow hires people at every level with the intention that employment is permanent, not dependent on the vagaries of the market. "We've never been excited about being big," says Perry Bigelow. "There's nothing in our principles or vision about growth. Stable employment is our goal. That means we have to get higher productivity per employee, so when the revenue is not there, we can still keep people employed."
If stability is the goal, it seems to be working. VP/controller Jim Smith has been on board 15 years. VP/construction Tony Spano has been with Bigelow 12 years. His brother Dave Spano has eight years in the firm and recently moved from the field to VP/purchasing. Jamie Bigelow has been in the company for 11 years, starting in sales, then VP of sales and marketing, and recently elevated to president within the framework of ownership succession that is now largely complete. "In another year, I'll be working for him," Perry Bigelow says. "He'll always have a job and he'll always be the boss," Jamie responds.
The real key to Bigelow's high productivity per employee is the consistency of what it builds and how. In the city, Bigelow is not the developer, but rather a general contractor for Ezra Community Homes. The non-profit developer is Chicago Metropolitan Development Association, an arm of United Power For Action and Justice, a coalition of primarily African American churches and service industry labor unions. Perry Bigelow is a long-time member of one of the churches. He agreed to take on the challenge of building affordable homes to fit vacant city lots, but only on the condition that he could bring his well-oiled production-building machine to bear on the challenge. The city acquiesced, but it hasn't been easy dealing with arcane codes and enforcement.
The city product line consists of only two floor plans, both two-story, slab-on-grade homes, one of 1,140 square feet, the other 1,380 square feet. Both plans have the same openings for windows and doors, and offer very few options. Construction is panelized and takes place on an accelerated schedule of 31 working days from the start of framing to closing. Each house is framed, windows and doors installed, locked and a security system engaged — all in three days — to create a safe working environment for crews who are in a sometimes dangerous neighborhood.
"We create affordability by getting the lots from the city and building very fast," Perry Bigelow says. "There are no color selections except for the floor. The elevation variations involve only porch and siding materials choices. The kitchen cabinet layout is the same for both plans. When construction is complete, we close the next day. We can't leave a house sitting empty."
In HomeTown Aurora, the complexity of four product lines, with three to six plans each and multiple option and upgrade choices, stretches the construction schedule to 54 working days, but selections are all made before construction begins. Bigelow allows no changes at all after a start. "We explain our processes very carefully to buyers," says Jamie Bigelow. "They understand that minimizing changes is part of our value equation and that they benefit from it. Once you set the expectation, that actually becomes a positive for customer satisfaction."
The contract to construction start process is machine-like. And unlike conventional subdivisions, HomeTown Aurora's point of differentiation is in the community experience, not so much in the architecture and features of individual homes. "There's a lot more variation in HomeTown than in the city," says VP of construction Tony Spano. "But we still have a lot more consistency than most builders."
Paperless P.O.s Stoke Efficiency
Bigelow recently achieved major gains in productivity by creating its own mostly paperless purchase order system in-house. "I knew from my own field experience just how much time our supers were spending — 10 to 12 hours a week — just signing and checking P.O.s," says VP/purchasing Dave Spano, who led the team that pulled together the new system. "When I came into this job, it was something I knew could be done that would be of great benefit. It also saves our trade partners a lot of time.
The old system required printing out three-part forms, two of which went to the trade, who had to separate them by community and job, then send them on to the appropriate foreman. "Then he had to get it to our field super when the job was complete, so he could check, sign and return it to the foreman," says Spano, "who had to return it to the trade's office for attachment of lien waivers. Then it came back to our accounting department for invoicing."
When Dave Spano came into purchasing, VP/construction Tony Spano had already put in place a computerized construction scheduling system. "I started thinking about tying the P.O.s to pay points in that schedule," Dave Spano says. "We could tie a P.O. to every line. All we needed was coding to link those two programs together. We wrote it, in-house, and the rest is history."
The trades were skeptical it would work because of past failures of paperless systems with other builders. "But they know we have a history of making innovations work," Spano says. "We still generate a P.O. that is auto-faxed to the trade. So there's still hard copy on their end. But I don't want it back. We are paperless. What generates the payment is a program we wrote to look at each of the computerized weekly schedules. When anything is marked 100 percent complete, it goes into the accounting system and searches for a P.O. tied to that task. If there is one, it pulls it out and invoices it automatically. If the trade is on 30-day terms, the check is cut 30 days later."
Bigelow is armed and ready to eventually begin e-mailing P.O.s to trades, but right now, Illinois' requirement for lien waivers hamstrings that possibility. "When our system prints a check, it automatically sends a lien waiver to the vendor," Spano says. "We can't e-mail lien waivers because they could be manipulated. Since the lien waivers are auto-faxed, we decided to just stick with auto-faxing the P.O.s for the time being. The onus is on the vendors. They have to get the lien waiver back to us to get their check."
The simplicity of the paperless P.O. system allows VP/controller Jim Smith to handle the entire accounting function with one full-time and one part-time clerk.
Gains In Customer Satisfaction
During 2003, Bigelow reengineered its quality assurance program to add a new, internal quality walk, conducted by the assistant super, one week before the warranty manager conducts the orientation walk with the customer (two weeks before closing). Through the course of 2003, that change dramatically impacted outstanding warranty items, as shown here:
That improvement in warranty operations, carrying into 2004, reached a low point of 35 items in October this year, and is one of three factors Bigelow identifies helping to dramatically improve customer satisfaction scores. That improvement is reflected in third party customer satisfaction survey scores in the first half of 2004.
The other factors are better setting of customer expectations by the sales team, and the effects of the paperless P.O. system in freeing field supers to spend more time focusing on customer issues.
2. Elements of Community
To catch up with Perry Bigelow on the philosophical, spiritual and social underpinnings of his HomeTown design concepts, you'll have to do a lot of reading. Start with Christopher Alexander's The Timeless Way of Building and A Pattern Language. Then there's Robert Bellah's Habits of the Heart, Wendell Berry's Unsettling of America, Home Economics and Sex, Economy, Freedom and Community, and Randy Frazee's The Connecting Church.
America's New Urbanists are well-represented in Bigelow's library, which includes Peter Calthorpe's The Next American Metropolis and the Duany, Plater-Zyberk, Speck collaboration Suburban Nation, as well as Peter Katz's original definition of New Urbanism.
Don't forget Housing as if People Mattered (Cooper Marcus/Sarkissian), Tony Hiss's The Experience of Place, James Kuntstler's The Geography of Nowhere, David Sucher's City Comforts—How to Build an Urban Village, and Allan B. Jacobs' Great Streets. And Sarah Susanka's The Not So Big House and William Whyte's Social Life Small Urban Space are also represented.
In the midst of all this study, Perry Bigelow reached a conclusion: "I decided the lives of pedestrians, especially children, are more important than the desire of anyone to drive fast, including fire trucks," he says. "And the social life of every child is more important." Bigelow identified dangerous streets as a suburban evil that inhibits children from the freedom to wander as they used to 50 years ago, leading to parent-managed lives and stunted social development. "We keep our kids in fenced back yards, like cages," he says. "Parents are not going to let them play out front when cars are driving 50 miles an hour on suburban streets. And that happens everywhere."
The elaborate traffic-calming technology in HomeTown's streets comes from Bigelow's worldwide search for ways to force cars to drive slow enough that drivers and even the youngest kids can react to each other and avoid harm. It's Bigelow's most obvious, and profound, innovation to pedestrian-friendly TND planning. And HomeTown buyers embrace the concepts, although teenage drivers we witnessed seem less than thrilled.
Bigelow had to fight for traffic-calming, especially against fire officials concerned that the devices would damage their trucks and reduce response time to fires. "We argued, and won, on the basis that our system of interconnected, electric smoke detectors—as many as five to a house, all with battery backup—means the fire department is never fighting more than a property damage fire in HomeTown," Bigelow reports. "We argued the life threat is greater from speeding cars, and the impact they have on the lives of children a greater cost.
"Today, we have aldermen from other jurisdictions visiting HomeTown because their citizens are clamoring for traffic-calming after seeing what we have," Bigelow says proudly.
3. Energy Efficiency & Green Building
Perry Bigelow started his company in the early 1970s and built his reputation for quality by pioneering energy efficient homes during the backlash to the first energy crisis in 1974. He became an innovator in environment-friendly construction in the same time-frame. "I started building spec houses, one at a time, like most builders," he says. "Eventually, we became a design/build firm, developing property as well as building. We found a niche building on sites that were difficult for others because of topography and woods."
Bigelow even invented a 'plant spatula'—a device that attaches to a front loader, allowing him to move seven square feet of vegetation at a time in transplanting operations. "Any tree smaller than three inches (diameter) we save," he says.
Bigelow developed a line of houses he called "Solar-Therm" that were U-shaped, with a two-story solar-therm room at the center. "It had a huge glass wall we called an 'insulated curtain wall.' Almost all of the rooms looked out toward it. The curtain wall went up for solar gain during the day and came down at night. It had an R-value almost equivalent to a 2x4 wall at night. Those houses heated for $30 to $40 a year.
Finding ways to build energy-efficient houses that are affordable became Bigelow's quest. The breakthrough came when Perry Bigelow heard a young Canadian building scientist named Joe Lstiburek battle audience abuse at a meeting of the Energy Efficient Building Association, in 1983, to present his then-radical concept for using airtight drywall to seal houses from air penetration.
"We were achieving really tight houses," Bigelow says, "but they were almost impossible to build and expensive. Joe Lstiburek's approach was like a thunderbolt. I wasn't smart enough to come up with it, but I was smart enough to see that by using the drywall as an air barrier, you could control quality much easier—just seal the connections to the drywall at all the openings. This allowed us to take energy efficiency into production-built, affordable homes."
Now based in Massachusetts, Lstiburek is one of the world's foremost building scientists, certainly the top practitioner in the American housing industry, a consultant to many of the public builders producing thousands of homes a year. He credits Perry Bigelow with launching his career. "I wasn't getting much traction on my airtight drywall approach in 1983," he recalls. "I was telling people that wrapping houses with polyethylene vapor barriers was really stupid, but nobody wanted to listen to me, except Perry Bigelow. He started building dozens of airtight drywall houses. He just went off and did it.
"I was getting crapped on by all the environmental people,"Lstiburek says. "If it were not for Perry, I'd be an asterisk in the history of building science, a footnote. Perry Bigelow is my hero. He was the first to guarantee energy bills. Now it's hard to find anyone who will admit to ever putting polyethylene vapor barriers on the inside of basement walls. I'm still trying to get poly out of the codes in some Chicagoland jurisdictions.
Bigelow Homes is still working with Lstiburek and still in the vanguard of energy breakthroughs. "Joe now believes it's better to let buildings breathe both ways," Perry Bigelow says. "In our city houses, we're not depending on the drywall as an air barrier anymore. We now depend on the house wrap we apply to the outside of the building. It's not a vapor barrier, but it is the air barrier and drainage plane.
"In the old days, we didn't separate the two, but now we know that the vapor barrier can be one material and the air barrier another," says Bigelow. "In the suburbs, we still use airtight drywall, but in the city, the construction technology we use allows us to make the change Lstiburek now advocates, putting the air barrier on the outside."
Bigelow Homes remains dedicated to delivering energy efficient homes that stretch shoppers purchasing power and improve homeowner comfort. Every house in HomeTown has a heating and cooling system that is zoned by floor. In the summer residents are educated to close the first-floor duct to push cool air up and in winter heat is distributed through the first-floor registers since warm air naturally rises.
"We have yet to have one heat distribution complaint in HomeTown," says Perry. "The engineering works."
Some specifics of Bigelow's energy efficient building practices are:
- Every room has a cold air return that runs all the way back to the furnace through the floor joist system.
- Constant, continuous whole house ventilation from a continuously operating mechanical ventilation system.
- Raise energy heel trusses that allow more insulation in the attic above the joint of the exterior wall and ceiling where there is very little air movement.
- Insulated basements (an option on certain product lines) structurally engineered, foam-insulated precast concrete.
- Ductwork installed within the home's thermal envelope.
- R-38 attic insulation; R-13 or R-20 exterior wall insulation.
- Edge slab insulation (a copyrighted detail!) that provides a thermal break and three to five times more insulation.
- Engineered advanced framing system that combines optimum structural strength with optimum insulation.
In addition, Bigelow employs energy technicians that inspect every home for compliance to company standards and performance criteria. This one-two combination allows Bigelow to deliver what no other builder in the area can: a three-year $400 heating guarantee. In the city housing product, because of a slightly smaller square footage, Bigelow's three-year heating guarantee is $270.
4. Even-Flow Production
One of the most profound changes Bigelow made in recent years to improve operational efficiency was the move in late 1999 to a modified even-flow production system.
"Ten years ago, builders in this market would tie themselves in knots every December because weather issues would compound frantic efforts to get extra closings onto the books at year-end, says Bigelow VP Tony Spano. "The builders would all put themselves through hoops trying to get those last closings, then spend the next two months recovering from it. We don't do that anymore."
Many smaller production builders think even-flow is a high-velocity concept suitable only for builders starting and closing high multiples of houses every day. Bigelow puts the lie to that urban myth. "That's nonsense," snorts management consultant Chuck Shinn. "All you really need to make even-flow work is a consistent construction schedule. A lot of builders who say they tried even-flow and it didn't work never got past evening the starts. They still had completions all over the place because they left scheduling to the supers. 'Flow' means you have to do the same things at the same points in the process on every house. You can have even-flow at six houses a year if you start one and complete one every two months."
Bigelow's even-flow system, facilitated by computerized construction scheduling, creates a number of efficiencies not possible if closings come in bunches. "For one thing, it allows us to have one closing officer," says VP of construction Tony Spano. "She can't handle eight in one day, but she can handle one every other day. Remember, our goal is steady employment.
"It also allows us to quote accurate move-in dates to buyers, and that improves our customer satisfaction," says Spano. "And probably most important of all, it gives us regular cash flow, which is a big load off Jamie and Perry, that they don't have to worry about juggling cash flow."
Bigelow Homes is a wonderful model for small and midsized production builders with land development operations to benchmark against, almost anywhere in the country. Even without an interest in HomeTown Aurora, there's a lot to learn here about operational excellence and financial management. But HomeTown is certainly the crown jewel.
We could write a book about it: sublime in its simplicity, yet intricate in layered complexity. Our best advice has to be, if you're really interested, get on a plane and visit. You really can't appreciate it until you walk it.