A big difference between the then and now is this. We are now forced to deal with issues that were obvious all along. How do I know this? I've lived in a pressure cooker for the past 12 months and have worked for a company that was forced to confront every issue and problem head-on to survive. At each meeting, someone inevitably says, “If we only knew then what we know now.” Yet, here are nine things we learned we already knew:
1 Developers had no business dictating a “lot-to-package” price for their lots. Market forces should have driven what we paid for lots. Gutting profits to pay egregious lot costs destroyed the long-term financial strength of developers' clients, and thus destroyed the developers themselves.
2 Bankers can be your friends. But the relationship with their institutions is only a money deal, and friendship isn't going to rule the day. The fact that you can (or could) borrow has no relation to whether you should borrow. Thankfully, building speculatively isn't in the cards in the near future; it shouldn't have been a big part of the past either.
3 If you're a builder, build. If you're a developer, develop. If you are banker, loan money. Do what you do best, nothing else. Never do anything that someone else is better at just to try to gain a competitive edge or make more money.
4 You can't eat wood unless you're a termite. Holding on to real estate in a slumping market is a bad plan. It was bad in the 1920s, the 1970s, the 1990s, and certainly in 2007 and 2008. You can't get away from taking your lumps.
5 There are only 52 weeks in the year. Make every one of them count. I'm not just talking about the obvious, like selling houses and closing quickly. Manage better and constantly. Innovate, create, motivate—anything but stagnate.
6 It's not what you make, it's what you keep. Profit is a worthy prize. Unit volume, dollar volume, and other bragging rights measurements are worthless if gained at the expense of fiscal performance.
7 There's no substitute for the un-filtered truth. Don't take this to mean that we're not truthful. We're just really good at dressing up the truth in fancy presentations, award-winning brochures, and other really wonderful disguises. Subtlety isn't necessary with your tradesmen, your bankers, your lawyers, or your employees—and even more so when a crisis looms.
When it was finally clear that we had no choice but to reorganize under Chapter 11, we approached the situation with open doors and full candor. We armed everyone who would be affected by our filing with facts and clearly stated our intentions to stay open and find a way to continue the company. In the end, our survival has cost everyone involved dearly. We are forever changed by the experience.
8 Make a list of things to change. Tick them off one at a time quickly. You don't need a market study or a consultant. You've gotten where you are with street smarts; prove your worth.
9 Find something that you'll never, ever do again. There's an old real estate joke about the real estate prayer: “Give me one more great market, and I promise that I won't buy a boat and a plane.”
My brother Bob, the owner of St. Lawrence Homes, has one thing he'll never do again. He told me that if he ever bought another piece of raw ground I should hit him over the head. Under my desk right now is a Louisville Slugger.
Rich Ohmann is COO of North Carolina-based St. Lawrence Homes. He may be reached at email@example.com.