Lifelong pals transformed this mom and pop home builder into a corporation "built to last."
31-100 units; Simonini Builders
Charlotte, N.C. Alan C. Simonini and Ray A. Killian Jr. sell a lot of homes to famous sports celebrities. Former Green Bay Packer and Pro Bowl defensive end Reggie White owns a Simonini home, as does NASCAR drivers Jeff Burton and Ernie Irvin, Seattle Seahawks' Levon Kirkland, New England Patriots' Anthony Pleasant, Houston Texans' coach Dom Capers, and former Marlins' relief pitcher Brian Harvey.
Athletes don't buy from Killian and Simonini because they build homes that include indoor basketball courts, Olympic-sized pools, or batting cages. Busy, well-heeled athletes primarily deal through business agents who want to minimize the hassle. They want to work with home builders who are quintessential businesspeople.
"The majority of builders shoot from the hip," Simonini says. "Everything is, 'Well, this house will cost you about this much, and I should be able to get it done in this period of time, and we should be able to get these options. Just trust me.' We don't operate that way. We have established policies and procedures that we implemented after careful study and testing, and which we constantly tweak to improve. Whether you're a star athlete, a corporate CEO, a small business owner, or ma and pa and the kids, you appreciate dealing with people who handle as a business transaction what often is the largest investment you'll ever make."
Simonini, president, and Killian, CFO and executive vice president, are partners in Simonini Builders, a once family-owned home builder started in 1973 by Alan's father, Alfred R. Simonini. The father gave his two sons each one quarter of the business and kept the other half. A few years later, the father retired, his brother wanted out, and Alan needed a new partner. Real estate developer Killian was a longtime friend, and the two owned shares of the same sailboat on Lake Norman.
"When Alan came to me and asked me to buy out his brother's share, I said, 'Why don't we just buy out your dad, too, and split the company 50-50?' That's what we did," says Killian.
The marriage of Killian--a deal maker, strategic planner, and administrative czar skilled in finance and development--and Simonini, a college-trained fresh water biologist who has spent his career building homes--was perfect to convert the family-owned enterprise into a thriving business. The duo have grown the firm into a $38 million enterprise, with $2.6 million in net income on the sale of 44 luxury homes priced from $400,000 to $4 million. Each year they invest 70 percent of the net income back into the business.
"Too many times when the builder who founds a company dies or retires, the company comes apart because it hasn't been run like a business," Simonini says. "There are no rules, no policies, and usually little technology is used to get the work done. Those companies just fade away."
Instead, what Killian and Simonini have created is a home building business that has established procedures, its own Internet-capable sales and scheduling system, and a highly educated workforce whose skills are continually sharpened at home building seminars and conferences. Having read Built to Last by James Collins and Jerry Porras, two Stanford University Graduate School of Business professors, Killian and Simonini took the description of successful habits of visionary managers to heart. The book is now required reading by Simonini personnel.
"Our entire management attends whatever training we can get to that will help us operate a leaner, more profitable, and more responsive business," Simonini says. "This helps us keep our focus during the good times and helps us keep our shirt during the bad. Ray and I hired a home builder headhunter who helped us find the smartest, most capable supervisors and managers. We wanted people who can think. People who can figure out if something is broke, and not only how to fix it, but how to keep it from breaking again."
"I have to take 40 hours a year in continuing education to maintain my CPA license," says Bill Saint, vice president of operations and controller. "But management here takes at least 80 hours of what I call home builder continuing ed. We attend TeamBuilder conferences, Builder 20 symposiums, and the Benchmark Conference, among others. We learn from the best economists, the best marketing minds, and the leaders in customer service and production. It is like earning a masters degree in home building."
The payoff from all that training is that Simonini Builders has a tight handle on costs. It realizes economies of scale on back-office functions by using its own computer software program called Structure, which schedules jobs, handles buyers' questions, and provides regular construction updates.
To ensure quality remains high, each of the 11 supervisors are expected to handle no more than 40,000 square feet of construction at a time. The company uses estimate tracking reports to balance workloads by analyzing the correlation between projects and estimated sales in the following quarter. This process not only helps supervisors, but it also reveals market turn-ups or slowdowns, an important forecasting tool.
Quarterly analysis of available specs and price per square-foot costs also identify trends in inventory increases or price spikes. Sales analysis by communities identifies buyers' wants and needs and overall market trends. In Monday management meetings the team reviews sales and prospects, then estimates and starts. Wednesday lunch meetings with vendors and supervisors keeps the staff updated on new products and warranty problems. Thursday estimator meetings explore job proposals with the construction manager, purchase agent, and the company's three job estimators.
This year, the luxury home builder expects to close 45 homes in Charlotte, N.C., and in its recently opened Charleston, S.C., division. Because both areas have proven in the past to be more recession resistant than other areas of the nation, Simonini expects to sell about the same number of homes in 2002 as it did last year.
"It all really depends on the national economy as to whether we can increase our annual sales. But the moderate climate makes this a destination for retirees, athletes, and telecommuters. Plus, Charlotte is the nation's second largest banking headquarters, which helps this area to do better during down times," Simonini says. "Besides, if the stock market continues its current gyrations as it trends lower, more people are going to see housing as a good investment that often outperforms the market and is much safer." Many economists believe the housing industry is better prepared to weather this downturn than the 1991 recession because most builders have greatly reduced their inventories of spec homes, Simonini is an exception: Its business relies on spec housing.
"At any given time, about 35 percent of our homes are spec. Last year, more than half of our sales were to relocation buyers, with many purchasing spec homes and the others buying custom homes," Simonini says.
The company relies on spec homes because many of the newly minted stock market millionaires and other wealthy home buyers looking to relocate in the Charlotte area often want immediate housing. "They'll buy existing if they cannot find new," Killian says. "But we have found if we have a well-built luxury product ready to go, they'll buy it and hire us to make the changes they want."
While builders in other areas of the nation are complaining that both first-time and luxury homes are not selling as well as they did before the Sept. 11 terrorist incidents, Charlotte's builders have been doing well in both categories and everything in between. "We sold $4.3 million worth of homes in two deals on Sept. 11 and then sold another house before the week was over," Simonini says. "There has been absolutely no negative impact."
Even with a vibrant local economy, wealthy buyers, and high-quality products, Killian and Simonini are not resting on their laurels during the current recession. Instead, they have created a high-end remodeling division to handle projects valued at $100,000 and more.
While juggling new construction and remodeling jobs is a challenge, Phil Hughes, vice president of construction, says he is able to provide the highest customer service because he lives by a code that all Simonini employees must follow. "Alan and Ray believe if you operate your business by the Golden Rule, you'll be successful. We build each home as if we were going to live there, and handle each warranty question as if it was a problem in our house," Hughes says. "You treat people the way you want and expect to be treated when investing what often is the bulk of your net worth, and your customers will rave about you to their friends and families."
Alan C. Simonini (front), co-owner, president, and CEO; Ray A. Killian Jr., co-owner, CFO, and executive vice president
Photo: Charles Harris
Winning Vanguard Practices
For Simonini, it's all about operating like a business. The company:
Alan C. Simonini, co-owner, president, and CEO
Children: Julia, Nina, and Alan Jr.
Hobbies: Sailing, spending time with family, water and snow skiing
Ray A. Killian Jr., co-owner, CFO, and executive vice president
Children: Rally and Gates
Hobbies: Golf, Boy Scouts, and sailing
Management team: William E. Saint, vice president of operations and controller; Phil Hughes, vice president of construction
Learn more about markets featured in this article: Charlotte, NC.