(The Saga of RB Builders©, written by Fletcher Groves III in 2007, looks back futuristically from the perspective of 2012. It is being republished this year, as a nine-part series in Big Builder. It is a glance into the process of continuous improvement, a glance into the never-ending quest for better operating performance and higher economic return)
With the housing market finally expected to rebound somewhat, RB Builders’ 2010 GI Baseline and GI Target now looked like Table 2 (below). The 2010 GI Baseline was considerably higher than the 2007 GI Baseline, reflecting the different (better) market and economic conditions; as such, the baseline representing "business-as-usual" and "expected" performance had moved up, but it was still just that, "the performance expected under current reality," and the differences between the 2010 GI Baseline and GI Target reflected those expectations.
RB Builders achieved its 2010 GI Target. Viewed over time, the company’s results clearly speak for themselves.
Under the new program, the company’s revenue had increased by more than 80%, from $50 million in 2007, to $91 million in 2010. Gross Income had more than doubled, from $11 million in 2007, to almost $24 million in 2010. The growth in revenue and gross Income occurred with only a 23% increase in the level of operating expense, from $8.5 million in 2007, to $10.5 million in 2010. As a result, RB Builders’ Net Income had more than quadrupled, from $2.5 million in 2007, to $10.4 million in 2010.
Because the level of invested assets had not changed, RB Builders’ return on assets had also quadrupled, from just over an 8% return in 2007, to almost a 35% return in 2010. Distributions to teammates (employees) had increased from $450,000 in 2008, to $2,025,000 in 2010, while additions to Retained Earnings and distributions to owners had increased from a total of $900,000 in 2008, to more than $4,000,000 in 2010.
And-–what of RB Builders’ intrepid results-based consultant?
Her firm received more than $1.2 million over its three years of involvement with RB Builders, more than it would have received under a conventional, fee-for-service arrangement. However, its compensation was proportional to its partners at RB Builders, commensurate with the risk it assumed, and reasonable in view of its role in the business outcomes it had helped RB Builders achieve over that period. After all, RB Builders had pocketed $12 million in additional gross income above the GI Baselines--gross Income that RB Builders acknowledged it wouldn’t have otherwise earned--which it was then able to allocate in the form of $3.6 million to additional retained earnings, $3.6 million in additional distributions to owners, and $3.6 million in performance compensation to the company’s employees under the RBC.
Confident the company had learned from all of its projects and was now capable of going forward on its own, RB Builders’ intrepid, results-based consultant turned a valued client loose at the end of 2010, and moved on to new and different challenges.
For its part, RB Builders bid farewell to a trusted advisor, whom it viewed as the architect and project manager who had guided and sustained the company’s turnaround, a partner (in every meaning of the word), and a consultant whom it admired for having the courage to invest in results and learning.
- Part VII: Pre-2012: A Changing Market (September 2016)
- Part VIII: More-for-Less (October 2016)
- Part IX: 2012: Beyond Current Possibility (November 2016)