Home builders are like other people in a lot of ways. But in some characteristics and habits, you’re just different. And that’s mostly a very good thing.
Home builders are generous-souled, incredibly driven, and hard-working people who want their efforts to result in filling a deep human need that often has an almost permanent (decades-long) set of implications for use of part of the planet. Good work means work that lasts, stressed by the elements of nature, economic ups and downs, and incessant use.
There’s something in the DNA of a home builder—whether it’s an entrepreneur working at a kitchen table, via Starbucks WiFi hookup, out of a truck, or in an office full of white-collared MBAs—that appears to be comfortable with what is cognitively tough. Risk, for instance.
Home builders take on risk both in what they buy—land, labor, materials, processes, and products—and what they sell—improved residential properties. There’s reward for excellence on both sides of that equation, and there’s punishment for either miscalculation or misfortune on both sides as well.
Value varies, after all. Sometimes it all but disappears in time, only to come roaring back.
Observers would say home builders may be good at a lot of things, but they’re not skilled at mapping risk into their businesses. This probably traces to a now well-known phenomenon that people, by nature, are more optimistic than reality warrants that they ought to be.
Home builders need to get better at putting risk where it needs to be in a business plan. Now. That is an area of operational excellence that may have been an option in bygone cycles, but that’s no longer the case.
Risk involves taking stock of worst-case, and worse-than-worst-case, scenarios solving for a home builders’ four precious areas of value: money, time, land, and talent. Bankers and investors find that home builders don’t map financial risk properly. Pro formas smooth out across time, and pushing them into a more distant perspective that fails to pick up sharp, dislocating periods of volatility that can rock or even kill a business.
Where is risk right now for home builders—a couple of dozen big public companies, hundreds of medium-sized privately held enterprises, and thousands of companies that build in subdivisions everywhere?
Risk, as we see it, is in believing external forces will lift you and create demand for what you’re set up to deliver.
2015 is a line-in-the-sand year for operational excellence. It means buying what you buy brilliantly, and marketing and selling what you sell just as ingeniously.
It means running your teams as you never have before. It means “why we care” underlies all of the details, all of the behavior and attitude, and all of the intentions with respect to your home buyer, investor, associates, and the most important customer in anyone’s career in any type of organization—you.
Home builders are different. You have a four-letter word for everything. A company principal I know tells the story of recruiting a super for one of his communities who was brimming with charisma, attention to detail, project management skills, business strategy and tactics, and ideas. Only thing is, he had not one iota of jobsite experience. So, it gets to be this fellow’s first day, and he calls this friend of mine who’d hired him, and says, “I’m nervous. I don’t know anything about what the guys are doing, and I’m supposed to manage them.”
“Don’t worry one bit,” says the principal of one of the top 25 private home building companies in the U.S. “Just yell and curse a lot and ask them what the hell they’re doing, and that should work like a charm.”
Buying lots, hiring people, sourcing materials, building home systems, and featuring your homes with products has more risk in it than ever. So, too, does programming, marketing, and selling against this largely invisible wave that everyone refers to as the “millennial buyer.”
We hope this issue of BUILDER gets you and your team focused so that you can map risks appropriately into your model and then, simply, overcome them.