Careful reinvestment leads to steady growth and increased prosperity for Lancaster County builder.
101-400 units; Keystone Custom Homes; Willow Street, Penn.

Recession is Jeff Rutt's favorite subject. Surviving one, that is. Rutt is all about careful stewardship of the success he credits God with blessing his production home building company. A devout Christian, he has made a point of donating the profits of at least one luxury house per year to a Christian charity that makes small no-interest loans to struggling families in economically depressed regions of the world, including the Ukraine and rural China. "I have learned in life that what goes around comes around," Rutt says. "If I am careful with what I earn, donating some and reinvesting the profits in the company, I can create a business that will outlive me and continue to provide employment and high-quality, reasonably priced shelter for southeastern Pennsylvania residents for years to come."

After spending his first 10 years after graduating from high school as a dairy farmer, Rutt became a Realtor-Associate with a Century 21 broker. He hired Lori Miller as his aide when he began selling new homes for a local home builder. After spending hours working prospects and closing deals, and providing customer service gratis for the builder, Rutt decided to try his hand at building. For the next three years, he continued selling new and existing homes while a crew consisting of a construction supervisor and mostly Amish tradesmen built houses as a sideline business. Miller stayed with Rutt, eventually workinher way up to her present position as director of finance.

His young family lived hand-to-mouth during those years, as he invested nearly every dime he made from selling real estate into buying lots and building supplies for Keystone. "When we closed our 50th home in our third year, I knew it was time to give up real estate sales and concentrate full-time on building homes," Rutt says. His hard work and scrimping and saving from his days as a struggling dairy farmer and the dual careers he led in real estate and home building were beginning to pay off.

Sin not
In 2000, Keystone posted sales of $32.3 million on 177 closings. Each year, the company has managed to grow by better than 10 percent, Rutt's goal, while maintaining a miniscule debt to equity ratio of .50. Having grown up working very long hours on his father's dairy farm to eke out a modest living, Rutt learned the secret to success as an entrepreneur is to keep expenses down, reinvest profits, and save for rainy days to keep out of debt. Leaning heavily on the biblical mandate: "Owe no man any thing, but to love one another," Rutt has an aversion to borrowing money to finance growth. Though it may be acceptedbusiness practice, it is a sin to Rutt, who would rather go without than incur debt, even to secure office space.

"We rent in a nice complex, but our offices are not elegant and not large," he explains. Cutting costs has become a way of life, one he cannot shed even though he can now afford to ease up a bit on expenditures. "I still cut up old documents, and we use the backs as scratch paper in the office. Our furniture is serviceable but nothing special. I guess when you're brought up to pinch pennies, it's a habit you just don't easily unlearn."

But while he watches every dime, Rutt is no Scrooge. For years now he has built one or two houses that are sold and the proceeds given to a Lancaster County faith-based program called Hope International. He donates his labor and many of the home's materials and actively seeks the same of the subs and suppliers involved in each year's Hope houses. And the resulting attention in a county in which pollsters report the majority of residents attend church weekly and consider themselves devout Christians certainly doesn't hurt.

"This year, Rutt not only built and sold two Hope homes himself, he has also convinced builders in Hanover and York, Penn., to build a Hope house each and helped get two Hope homes built in Minnesota," says Lancaster Sunday News real estate writer Paula Wolf. "You cannot imagine the goodwill that has resulted from his doing that. I would say he gets much of his sales from people reading our stories about his donated homes. He really does build some of the finest homes in the county."

Each year, his Hope homes are entered in the county's Parade of Homes. This year, one of the Daniel III models, listed at $184,000 and featuring 2,127 square feet, four bedrooms, 2 1/2 baths, and a two-car garage, won best of show, best decorated, best exterior, best interior, best kitchen, and best bath in the Division 1 category ($150,000 to $199,999). His second donated house, the Joseph III, sold for $295,117. It featured 3,303 square feet of living space, five bedrooms, including an in-law suite on the first floor, 3 1/2 baths, a three-car garage, a Jacuzzi whirlpool tub, a stone fireplace, a front porch, a rear deck, and exterior stone accents.

Ten commandments
Not only does Rutt give time and money to faith-based charities and name his houses after biblical characters (Daniel, Joseph, Rebecca, Sarah, and Solomon), but he lives by 10 business commandments. The first is to build a quality house. The other nine are all to provide the best service in the industry. "We put tremendous emphasis on service," says Mike Cahill, Keystone's director of production.

Cahill first learned about service working as a laborer helping his grandfather build homes 18 years ago. He worked his way up to construction supervisor before going out on his own. One day, while leaving his home in York County, just west of Lancaster, Cahill stopped by a Keystone subdivision under construction to compare notes with the construction crew.

"I was really impressed with the quality of their work and the can-do attitude they all seemed to express. I mentioned I wanted to one day work with a production builder because I wanted to be involved with building a lot of homes. I knew it would take me forever to get there myself." A week and three rounds of interviews later, Cahill took over as construction supervisor for all Rutt's projects in York, Lancaster, and Chester counties. He eventually supervised construction of 117 homes before he told Rutt he had to have help. "There's an instance of watching out what you pray for--you might get it," Cahill says, chuckling. "I wanted to be involved with building a lot of homes--not do it all myself." Now, Cahill supervises four other supers, whom Keystone calls "builders." To spur each one to excellence, Cahill employs a simple flow chart that tracks points for each builder based on every measurable performance category. "They all start with 100 and get points taken off for things like having temporary heat cranking away in a house in the winter while the drywall is going up. If they want to excel, they have to have the electric and natural gas hooked up before they drywall. So far this year, all four builders have stayed in the 90 to 100 range."

Bonuses are based on each quarter's standings, while Cahill adds extras like tickets to Baltimore Ravens football games to the point leader and gives the overall winner each year an all-expense paid trip for two to a tropical resort.

Housing bible
To ensure his builders are constantly searching for new ideas they can implement throughout the company, Cahill buys a BUILDER magazine subscription for each. "Each builder is given a section of the magazine to read and analyze and come up with two or three new ideas every month that we can consider trying out," Cahill says. "We're not a huge company that can constantly be sending people to seminars and meetings. But while studying BUILDER may not be the most thorough method of researching innovative ideas, it is very cost effective and pretty darn useful."

Another low-cost innovation Cahill and Rutt have developed is their Trade Partner Council, which they started last spring. Using Keystone's Job Ready/Job Complete form, trade contractors report each week to Rutt, Cahill, and Jim Hostetter, Keystone's director of operations, whether they have electricity at the jobsite; left their jobs spotless; scheduled well so trades weren't in the way; kept the house on schedule; and had clean access to and from the house instead of a muddy trail. One of the trades is elected chairman of the council by the others and runs each meeting. "We're just there to listen and solveproblems," Cahill says.

Cahill walks a different jobsite each afternoon, after working until noon at the office. "I want to see each house at every stage of construction. I check to see if the floor joists are ending up flush with the parallam beam. If the bottom of the 2x10s doesn't hit the beam perfectly, you end up with a wave in the ceiling and a shadow effect. There is no excuse for that. I want each house to be perfect and won't accept anything less. In this business, building a quality house that buyers know they can move into and not worry about nagging problems is everything."

In the rolling hills of picturesque Lancaster County, Keystone Homes is modestly building a home building business to last generations.

Winning Vanguard Practices
Frugal and focused is the name of Keystone's game. The builder:

  • Avoids cutting corners in a slow market to make margin; uses all the same materials in good times and bad.
  • Offers extensive service program that includes calling home buyers 30 days, six months, and 11 months after the sale.
  • Keeps overhead low by doing things such as renting modest offices with "serviceable" furniture.
  • Borrows as little as possible and pays off its debts quickly, including allocating corporate profits to pay off debt and fund a "rainy day" stockpile.
  • Builds one model in each community rather than spending a lot of money on spec homes that might not sell.
  • Offers buyers 600 options over the Web with software the company developed itself.
  • Gives back to the community, donating at least one house to charity, which maintains a positive image in the community.
  • Treats employees like family.


Keystone Custom Homes

Jeff Rutt, president

Spouse: Suzanne

Children: Alisa, Benjamin, and Leah

Hobbies: tennis, water-skiing

Management team:

Lori Miller, director of finance

Mike Cahill, director of production

Cameron Davidson

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