John Forbes Nash plods still along the sidewalks of Princeton, N.J. Not alone among Princeton's mathematicians and physicists whose "great wits are sure to madness near allied," his mind these days is mostly somewhere else. His legacy, though, is very much with us, especially in the home building business community, especially now.
Here is a real-life example from the trenches last month in Orlando, during the home builders' show. Many home builders' efforts to survive and–they hope–position themselves for growth opportunity on the other side of the abyss are looking non-stop for cost cuts. No sooner does a cut take place than the next two or three expense reduction efforts queue up behind it.
Every vendor who interacts with the home building community has felt this. Some vendors have been swept into the terminal vortex of builders' debt woes and have gone under. "Our trades just have to get used to the notion of not making money for the foreseeable future," says the head of operations of one public home builder with more than a dozen communities in the Orlando market. "If they can survive without making money, and just not lose money or go out of business, then we can work with them. We're 'selling' houses now, but it's more accurate to say we're 'giving them away.' We're moving them, anyway. Our vendors have to realize that and work with us."
One executive who heads up strategic sourcing for a major regional home builder looks to streamline purchasing by aligning with fewer partners via national contracts. National contracts–optimized for both service and pricing–are largely a cost measure, especially as floor plans and elevations get reduced and efficiency becomes the rule. Fewer brands in each category mean greater upside for those who make the cut.
"We met with a vendor in one product category where we're trying to streamline from four or five down to one or two," this executive says. "We outlined their strengths and weaknesses, some areas of concern, and then explained that we're fully behind our trades, and we love them, and we're going to do everything we can at this point to stay behind our trades as we go forward. ... This particular vendor then launches into a finger-pointing tirade that puts the blame for all of the items we identified as concerns squarely on the shoulders of the trades. Can you believe how poorly they listened to us?"
The blame game might be a forgivable instinct, but in this instance, the blame for the state of things in housing is with each and every one of us. Pundits would have you'd think the cause of the unwinding of the financial markets traces to a few young hedge fund hot shots. Not so. The chief executive of one of the largest privates in the business says, "Every single person who bought a house in the last five years was an investor." How many of us did not get caught up in exuberance fueled by quickly appreciating real estate and stock prices? Not too many. Although it may seem otherwise, home builders would hardly wish any vendor to do poorly in this or any real estate environment. Home builders want to do what it takes to be around so that they, too, can learn to be better partners in a relationship business rather than a transaction business.
If each player understands a little more about what the crazy genius from Princeton was saying about the thread among the players that entwines their fates, it might contribute to a higher survival rate among both home builders and vendors in the next year or more.