16) Training and Development

Create programs for internal promotion and employee retention.

"Do the Right Thing" has real meaning at Holiday Builders, in Melbourne, Fla. "Every employee-owner is empowered to act on what he or she thinks the right thing is, and I will back them up every time," says Richard Hawkes, company president.

Employee-owners all, the 250-plus staff members strive "to exercise our own decision-making" ability. They are aided in that goal by the company's ongoing in-house training as well as a complete tuition reimbursement program. Employees participate enthusiastically because the training leads to increased opportunity within the company.

Indeed, one reason for Holiday's excellent retention rate is that the company looks first within its organization to promote. One stockholder/ employee just received a promotion to construction coordinator. "We knew she had the talent. We have the training coordinators to help her develop the skills," Hawkes says.

Trade Secrets: Paths to Perfection
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Binki Kaiser is one of those long-term employees. She was also one of the company's first customers and purchased her Holiday Builders home in 1984. "I was in human resources," she says, "and they called me up to offer me a sales position. I told them, 'I can't sell.'" The response, she recalls, was, "Yes, you can, you've referred pretty much everyone you know." She started in sales in 1986 and has held a variety of positions throughout the company, learning as she went. Currently, she's vice president of sales. "When we were small, we pretty much mentored ourselves," Kaiser says. "We developed more formal plans about five years ago."

The mentorship program is now in full swing. New-home consultants, for example, train their newer colleagues. Trainers receive small stipends for their training duties, but using senior employees to train junior ones in a formal fashion helps the company to nurture their employees' managerial abilities as well. "Both the teacher and the student learn," Hawkes says.

Haydn Cornner

The company also holds quarterly and annual meetings. The quarterly meetings are profit-sharing meetings in which employees receive performance bonuses. "We bring in speakers such as sales trainers, but the real reason is to get people together--they are bonding sessions," Hawkes says.

To reward change and improvement, the company pays quarterly profits and monthly performance bonuses. If you reward only yearly, Hawkes believes, you only get the performance yearly. You need to set the standard regularly so everyone knows what to do to achieve or exceed the standard, and then you reward the results. One of the most talked about rewards is the marble event. Rewarded employees get to draw a marble, with each marble worth varying amounts up to $1,000.

The annual meeting is the two-day vision meeting. Staff sit at tables in groups to discuss and learn. "We mix people up," Hawkes says. "We think we get more truth in the discussions because there is anonymity in the group." The 2001 meeting resulted in the company's focus on "driving force." Our driving force is "production capability," Hawkes wrote in his monthly column in the company's newsletter, "The Holiday Heartbeat."

Ask Kaiser what she remembers most about Hawkes and his management style, and she says, "Richard is always reading and suggesting that we read something." At Holiday Builders, development starts right at the top.

17) Sales Management

Hire an application service provider (APS) to run your sales system.

When Palmer Homes in Bend, Ore., stopped relying mostly on brokers and hired its own in-house salespeople last year, it knew it had an opportunity to implement even more far-reaching change. Every aspect of the sales process--from options and selections to contracts and follow-up--was paper-based. And all the background information on the company's models was kept in cumbersome paper binders.

Running a business that builds 20 homes a year that way is fine. But Palmer Homes hopes to close at least 120 homes this year, so the status quo was not an option.

Melissa Hochschild, director of marketing, says the company had looked at non-Web-based automated sales systems over the years, but decided against them because it didn't want to hire an information technology person to manage networked servers.

The solution was signing on with Builder1440, a Web-based application service provider (ASP). The ASP markets an outsourced sales system that features document management, order configuration, and customer relationship management all in one package. Launched in August 2001, Builder1440 now has more than 100 customers and 500 users.

Hochschild says for $120 a month per site license--the company has five in all--Builder1440 manages Palmer Homes' sales system and provides a dedicated customer service person. Palmer also paid $1,500 for startup and customization.

"This system gives us traffic tracking, sales tracking, options pricing, follow-up management, and contract generation and ratification in the same Web-based system,'' say Hochschild. "We're a growing and changing company. It doesn't make sense to invest in a big program that would have to be overhauled when we add a new community."

Hochschild is also quick to add that using the Web doesn't mean Palmer Homes loses the small-town feel the company tries to exude while selling homes in Bend, one of central Oregon's more charming and tony locations. "When people come in we don't sit them in front of a computer," she says.

Instead, a salesperson first walks prospective buyers through a model home, taking notes the old-fashioned way. Typically, customers come back a second time to price out options and selections, so after the initial walkthrough, the salesperson enters his or her notes into the Builder1440 system. When buyers come back to select options, the salesperson sits down with them at the computer to work through their choices.

Hochschild says one big benefit of the Builder1440 system is that the company's estimators can enter price changes on products in real time. This gives the salesperson access to up-to-date prices, cutting cycle time. All the contracts are generated online, and the system also has a contact management system for generating follow-up correspondence based on the type of prospect and the customer's status in the sales process.

Sales management is easier, says Hochschild, because she can look into each account and get a view of the customer's history. And salespeople can access the system on the road--all they need is a computer with an Internet connection.

"Now, I know what zip codes people are coming from, what people are looking for, why they are considering different communities, and when they plan to move," says Hochschild. "We have a much better grasp of who our traffic is."

Next up: integrating Builder1440 into its Timberline accounting system, starting early next year.

18) Define Quality Work

To better prepare scope-of-work guidelines for your subs, start with

your own database.

By almost any standard, Don Simon Homes of Madison, Wis., is a pace-setting builder. Not only does the company (founded in 1956) build all of its homes to meet the state's strict Energy Star compliance, but its management team has learned to track and fix minor problems in the production process before they reach a crisis level.

The company's current commitment to scope-of-work grew out of a few bad months a couple of years ago, when it got some bad survey responses.

"One month in particular--we now call it Black October-- we got some very negative surveys," notes Jeff Simon, vice president of Don Simon Homes, which recently merged with another Madison builder to become Veridian Homes. "What we found was that people were getting complacent and forgetting about disciplines and standards. We needed an audit process in place."

Haydn Cornner

So company heads introduced a circular process aimed at isolating and removing common customer complaints before closing.

"To start with," notes Simon, "we track all of our variances that show up through the inspection process. For example, if we have a pre-walkthrough three days before closing, we have a checklist of items to look for. All defects found go into a punch list, which is then entered into a database, sorted by trade contractor, and each month we issue a report card showing the number of defects per square foot for each house. We also track the data on a quarterly basis."

That level of detail, he says, is what makes the company's scope-of-work contracts with subcontractors so effective. Items listed on these documents are based on errors or problems found on past jobs. But the company also maintains a hot spots checklist, to address recurring problems. These are added to the scope-of-work once the root of the problem has been identified.

For instance, says Simon, the company recently had a recurring problem with certain toilet seats, placing them on the hot spot list. When special instructions to the trades didn't fix the issue, the company eventually ended up switching manufacturers. "Now it's off the hot list," Simon says.

"Another situation involved our electricians," he adds. "We had a lot of reports of cracked light switch plates. So we did some research and came up with an unbreakable switch plate."

Don Simon Homes started its scope-of-work program less than two years ago, and results have been tangible. "Before we started, we used to have five punchout home finallers--people who would go in and address punch lists. Now we have only two, and they primarily work on after-sale service."

Don't Forget Sales

"We're also working on scopes-of-work for our sales team," notes Jeff Simon, vice president of Don Simon Homes. "They have a hot spots checklist all the way through the process. It's about underpromising and overdelivering--giving them a house where everything has been done to prevent concrete from cracking, for example, yet letting them know that concrete does crack and that it's to be expected."

19) Revenue Sources

Improve margins and increase control over closings by capturing the mortgage.

Six years ago, Golden Heritage Homes handled the overlap between its closing process and its customers mortgages as best it could. But it wasn't pretty for the Phoenix-based company, which builds entry-level through luxury homes in New Mexico, Arizona, and Utah.

"We were working with 10-plus mortgage companies. Each community was on its own. It was very much the shotgun approach," admits Todd Rogers, vice president and general manager of HFS Mortgage, which is now the builder's in-house mortgage company. Established in 1998, Golden Heritage's mortgage operations are run in partnership with Homebuilders Financial Network (HFN), a Miami Lakes, Fla.-based company that handles mortgage operations for national and regional builders around the country.

For Golden Heritage, which closed 574 homes last year, the program has surpassed expectations. Closings have become more manageable and predictable, which has improved margins. The mortgage company, which employs nine people, has become a significant source of revenue, generating $900,000 last year. And it has exceeded the company's initial hopes of capturing perhaps 50 percent of its buyers' mortgages. Instead, Golden Heritage has seen a capture rate averaging about 80 percent, a dramatic increase from its early years (the figure for 2000 hovered around 37 percent).

Rogers attributes the upward shift to more effective marketing of the program to Golden Heritage buyers, going beyond the one-stop shopping appeal. "You have to show the public more than one benefit," he says. "It's easy, yes, but they want a good deal too. You have to show them how it's a benefit to them."

Golden Heritage has done this by not only stressing convenience and reasonable rates (HFN is one of the top 10 mortgage lenders in the country by loan volume) but by offering an incentive to buyers who use its mortgage company: a discount of 0.5 percent to 1 percent off the sales price. "It's valuable enough to us that we're willing to give a significant discount for a home when someone decides to use HFS," says Mike Richards, central services operations manager for Golden Heritage, who adds that the incentive is "not a makeup for bad financing. We offer very competitive rates and terms to home buyers."

The company has even been able to attract business from non-customers. While Golden Heritage does not market its mortgage offerings to the general public, it does provide them to employees at an affiliated company owned by Golden Heritage's corporate parent. Approximately 15 percent of the builder's mortgage business comes from these employees, who are refinancing their current mortgages or purchasing existing homes with loans from Golden Heritage.

20) Flexible Options

Push the envelope of mass customization while maintaining production efficiencies.

As more builders integrate some form of "mass customization" into their product offerings, those at the forefront are literally stretching the envelope by offering buyers maximum flexibility without sacrificing production efficiencies and profit margins.

In addition to presenting a market-leading selection of optional and upgraded finishes to its buyers, Maracay Homes in Phoenix also offers buyers the opportunity to alter the location and layout of certain areas in each of its 45 plans.

Called Flex Design, the concept allows buyers to move the kitchen from a centralized location to the back or front of the house, reconfigure walls to create a new secondary bedroom layout, or create a great room from a formal living/dining room plan, among other revisions.

The cost for Flex Design changes ranges from as little as $50 to several thousand dollars. "There are so many different combinations that no two homes are alike in the same master plan," says Kathy French, vice president of sales and marketing for Maracay Homes.

For a new release of smaller homes this year, the company upped the ante even more by enabling buyers to change the actual footprint of the 1,300-square-foot detached units. Specifically, buyers can add 2 feet along one side of the house to enlarge the secondary bedrooms, or expand the garage 5 feet along one side for a shop or extra storage.

To keep costs and production efficiencies in check, Maracay Homes determines Flex Design changes from individual lots and approved blueprints, then pre-engineers and pre-prices each plan change. Subcontractors factor in Flex Design alterations in their construction estimates, which helps determine the eventual price of each revision.

As a result of such upfront planning, sales associates can suggest and show buyers what changes can be made to a given plan and quote a price on the spot, just as they would with upgrade options for flooring, cabinets, or other finishes. Meanwhile, the company can accommodate structural changes while maintaining production schedules and costs.

Under the tag line, "No two families are alike," Maracay demonstrates Flex Design in its sales centers and literature, while its Web site enables visitors to experience the concept in action. As the cursor hovers over one of several designated areas within a sample floor plan, the layout changes to reflect its altered configuration or show its new location. Accompanying text explains the Flex Design concept and the specific changes offered on the sample plan.

Since implementing Flex Design five years ago, sales for Maracay Homes have increased 300 percent; this year, the company will close about 600 units in 10 communities around the Phoenix metro area, with prices ranging from the low $140,000s to nearly $300,000. "We're the only one in Phoenix that makes pre-engineered plan changes," says French. "It's become a nice niche for us."

Profitable, too, as the builder is able to maintain or even boost margins for relatively low-cost changes. For instance, enclosing a volume area over a living room to create an upstairs loft may cost Maracay $40 or less per foot, but the value to a home buyer is often worth a healthy markup.

But as much as French attributes the company's recent growth to Flex Design, she admits that few buyers actually make the changes. Most, she says, go with how the models are presented in a given community and "customize" more so with finishes, including a choice of 16 different cabinet styles and special-order interior paint. "Even if no one made Flex Design changes, we'd still make it available," she says. "Buyers like having choices, even if they choose not to take them."

Learn more about markets featured in this article: Phoenix, AZ.