Albert Einstein said, "You cannot solve any problem in the same state of consciousness in which it was created." So how are big builders going to get themselves out of this housing mess without getting out of housing? It won't happen if you don't change your thinking.
Quality leadership cannot be reactive. Anyone can run an organization in a reactive mode. Leadership is not about making day-to-day decisions. Focusing on the long run requires you to know–or sometimes guess–where the market is heading. If you are in tune with the market and/or a good guesser, you can move your organization out of harm's way.
Your current situation, good or bad, is a reflection of your past strategic decision making, or lack thereof. As Einstein said, you cannot solve a problem of your own creation unless you change your thinking. Builders must change their thinking to survive in this market environment.
No one in the past 30 years has dealt with a downturn of this caliber; every company may need to change its strategic thinking to be a long-term player. As you look ahead in 2008, consider the following:
- Count on fewer sales. Whatever market you're in, sales will decline further. Sales are declining; fallouts are rising. Don't think sales can't get worse. Count on it!
- Evaluate corporate overhead, and determine if profitability can be maintained if your sales volume is only 40 percent of your 2005 net sales. This is a big one. Many companies don't have the ability to be profitable at such a drop in volume, but this is a very real possibility for 2008.
- It's all about price. Today's home buyers are looking for the best price for the money in every market segment of home building. Buyers will need to know they have the best deal for their money. This will be more relative in some markets than others.
- Evaluate your own market. There will be far fewer first-time home buyers and more builders in this market downturn. In previous years when the market slowed, builders focused on the first-time home buyers. With credit quality and availability issues, this market will most likely be impacted the most. There will be fewer buyers and more builders in this segment, and profitability will be hard for any builder to attain.
- Management of talent will make or break your company in today's market. A strong management team making the right decisions to increase productivity and efficiencies will greatly improve your bottom line. In past years, no one really noticed the talent between one manager and another. In today's market, it will be very visible in the company's bottom line.
- Don't expand into new markets unless profitability is strong and you can carry a new area for a minimum of three years.
The time to expand is when the market bottoms–which it has not yet done. The grass is not greener, and no one is getting rich, so why rush it?
Opportunity awaits builders who have been proactive. Companies that anticipated this market can jump at future opportunities. They can become national players in a very short period of time if they read the market environment and time it accordingly.
If you have been in a reactive mode, your options may be limited. Your lack of foresight may hinder your performance in the days to come, but it shouldn't limit your ability to be proactive. You need to change your thinking, start anticipating future events, and look for opportunities before the other reactive players catch on.
–Richard Hawkes, former CEO of Holiday Builders, currently heads his own consulting firm. He may be reached via e-mail at firstname.lastname@example.org.