Standing inventory levels and cancellation rates are spiraling upward. Orders are down. Closings come full of incentives and discounts. Affordability is a concern, but so is paying more for a house today than you'll pay in a few weeks, that is, if you're patient.
It's widely assumed that this downturn, as in downturns past, favors the biggest players, at the expense of smaller, local home builders. The biggest, mostly public players boast a distinct advantage over most local home builders because of their deep pockets, but their market dominance may be slowing because the stock market is their boss.
Let's see how the pros and cons add up for high-volume home building's national players, and compare them with your own challenges and opportunities as a smaller, more nimble, and more focused competitor in today's tougher market.
The vaunted advantages of being a top 15 national home builder are known:
At the same time, enormity is no guarantee of staying power. The fact is that size can be a major hindrance:
Meanwhile, smaller local players can make size their advantage the same way a basketball team can “play small” and win. How are the “nationals” employing local talent to further increase their geographic foothold? Lately, as the market falls and analysts grow unhappy with the builders stocks, the public players have lost sight of what is arguably the most important asset of our business—the people.
Recently, I have been hearing some war stories of alleged people mismanagement among larger companies. One builder let go over 100 people in a just few weeks. Another one allowed a neophyte manager to fire a guy for playing golf. One big builder let go of five presidents within two years because they entered the market too quickly, bought everything in sight at inflated values, and, subsequently, lost millions.
The employees are not the cause of company losses as much as the start-and-stop mentality of the corporate office, which is not sensitive enough to local ideas. Sacrificing scapegoats and blaming others for what is the responsibility of all creates low morale and a “cover your ass” mentality among the team. Big builders aren't creating a trusting team, which is woven into the fabric of the local economy.
Here is the biggest competitive advantage for locals. You must take care of your people, and your people will take care of the business. Think McStain, Orren Pickell, Enterprise Cos., Sea Island Cos., Crescent Communities, and other local heroes who understand how to nurture and grow a team. They'll be around for 100 years and weather any market downturn.
Tom Ryan, former co-CEO of Town & Country Homes, can be reached at email@example.com.