In June, Steve Roberts became the new CEO of Alpharetta, Ga.-based McCar Homes after spending six years with the family-owned company as CFO. Once only an Atlanta-area builder, McCar expanded organically into the Carolinas and Florida over the last 7 years. The move allowed the company to grow closings to 2,265 in 2006, with 60 percent of those coming from outside Atlanta. In August, Roberts shared his insight on building relationships, managing through a down cycle, and rethinking the industry at large with news editor Sarah Yaussi.
SR: There are two thoughts on that: One was the business or operational aspect and the other was leadership. On the business or operational [side], when you're in a high-level financial role for a number of years, which I have been, you get to see how a business runs. In our industry, I've been able to see how our business is run in both experiences I've been in and how our industry operates, too.
And then there's the leadership side. I've worked with family businesses, private businesses, being in a financial role for as long as I can remember either directly with or closely to either the owners or the direct decision makers. So, I've been able to observe different leadership styles and leadership skills through good times and downturns and how people react to that. I think it's been a terrific learning tool for me, coming up through those ranks.
BB: Can you tell me a little bit about what it's like being in the top seat at a family business? And how do you plan to continue that legacy?
SR: For me and for my management team-and I've got a great management team group, they're actually colleagues and they're friends-for us, it's always been focused on the company. If you go straight down the middle and see yourself as employed by the company-not necessarily acting for one particular unit, whether that's a shareholder, or a family member, or even an employee-then I think that helps you make those decisions that are just right for the growth of the company. As a result, I think everyone's a little happier to detach it a little bit from the personal side. You just try to view it a little bit like "this is a business."
As far as the legacy, to me, the legacy is about people and relationships. That's what the McSwains have been about. And the senior management definitely down through probably a couple of ranks has been with the company a number of years, and they already embrace that type of legacy. We all think the same way, which is about people and relationships.
BB: What would you say is unique about the McCar culture?
SR: I think that's a tack-on from the second question. The McSwains are about relationships and about people and having been here and worked with them. They're constantly emphasizing that, and I feel that way, too. We just incorporate that into everything we do. When we were growing, the challenge was to hire all those new people who had a similar philosophy and download that philosophy to them. And that sometimes gets tough when you grow quickly. But I think now that I look at it, during the slowdown, it's probably even more important because we're actually having to lay people off. And you've got to try to protect that-that it is about the people-but there are people losing their jobs. Because we are managing our business on the pure business side, there are relationships that are a challenge as well. We're trying to keep the legacy of the relationships and the people while we're trimming our balance sheet. And that goes to developers, or banking relationships, or subcontractors, or whatever it is. It's actually more of a challenge in a downturn than it was when we were growing.
BB: Some of your main accomplishments as CFO were raising a syndicated revolver to streamline financing and improve liquidity and entering into off-balance sheet transactions to bring revenues in line with costs and de-leverage the balance sheet. How have those strategies prepared McCar for this downturn, especially some of the cash crunch issues that are cropping up for publics and privates alike?
SR: What our capital restructuring did was introduce some disciplined order disguised as covenants, and that affected how we ran the business. We had to run the business as a business, not necessarily as a number of houses or communities. And through those covenants, we were able to recognize the slowdown fairly quickly because there were trends. When you project out and have those covenants in place and have some ratios and quantifiable statistics that you can look at, it definitely helped us to predict what was coming and manage ourselves down to the right size, which I think we've done quite successfully.
On the negative side-and there is a negative to it-by setting up a flexible capital structure, it probably gave us the green light to go and do one or two land deals that I think we regret doing or we wouldn't have done if our capital structure hadn't been this flexible.
BB: Where do you think the biggest challenges for private builders like McCar remain? In reducing debt-to-equity levels? Generating cash flow? Renegotiating option contracts? Reducing inventory?
SR: Well, we can all repeat it by now: It's about managing the balance sheet, whether you're a small builder or a big builder or even mid-size like us. So the answer really is all of the above, including intangibles. For us, again, it comes back to managing our relationships and keeping as many of those in tact or even enhancing them while we're managing our balance sheet at the same time.
BB: And when you say relationships, do you mean employee relationships? Customer relationships? Trade partner relationships? Lender relationships? Or all of the above?
SR: Yeah, all of the above. Everyone goes back for push back on construction costs, and that affects our subcontractors. We have to push out lot options, and that affects either our off-balance sheet relationships with equity or debt or external developers. We have cutbacks and salary freezes, and that affects our employees. It's really comprehensively everyone.
BB: Back in early 2006, BIG BUILDER talked with former CEO Keith McSwain about McCar's growth plans, which at the time included some expansion into new markets. He characterized his strategy as being "cautiously aggressive" with a focus on organic expansion. Is this how you would describe the plan going forward?
SR: Yes. I think the "cautious" refers, especially now, to positioning ourselves with the right human and financial resources, so that goes down to the people and the relationships and also the right balance sheet. And then the "aggressive" is that we believe there will be opportunities in our existing markets for us to capitalize on over the next year to 18 months. As well as in new markets, but certainly in our existing markets, if we position ourselves with the right reputation and relationships and the right financial structure to work through some of those situations.
BB: Once only an Atlanta-area builder, McCar expanded into the Carolinas and Florida with start-up operations. How have those moves impacted the business in this environment? Has it given you the volume to sort of hedge the areas that have been affected by the downturn or given the state of things in Florida, has it been a drain on the balance sheet?
SR: Overall, it's been very positive. Our Carolina markets have held up well for us. Atlanta is oversupplied and competitive. And Tampa is a just a tough market. But if you take everything in our footprint and our relative volume, it's given us options to manage our balance sheet. So we've got a wider palette of being able to successfully balance volume against margins, for instance, from division to division, market to market, or community to community. And because we did expand into the Carolinas first before we went into Tampa, our exposure is higher in the Carolinas than it is in Tampa, which is good. That's generally a more stable market; our cash flow is stronger, and that's helped to balance our repositioning and will do so going forward into 2008.
BB: Any plans for further expansion? Any plans to exit any markets?
SR: We're going to stay in that rough Southeast footprint with the exception of any of the other Florida markets. We do well in Greenville, Charlotte, Greensboro, and Raleigh, and there are untapped markets still within that footprint that we would like to go into. We recently entered the Columbia, S.C., market, and we are running it out of the Greenville market, which has enough permits or activity that we feel we can get a good share of the growth. There are some other markets along that I-85 corridor-there are still some untapped markets that we can get into. And that's still just using what we refer to as the franchise concept, where we think the buyers are pretty much the same and the product is pretty much the same and the business environment is similar, so it's fairly easy for us to open up there, to get a foothold in there.
And then the second level of expansion is we haven't even tapped the age-targeted market in any of our markets. I think there is additional market share to be gained for us to start to tap into that without even going to a new market. So if you look at the next year, we've definitely got 18 months of just managing everything, looking for opportunities, and then beyond that, we've easily got two or three years of growth in the current footprint we're in.
BB: How would you describe your leadership style?
SR: I respect people, and I try to give them opportunities to make a difference, within some guidelines. And I think to do that-now I'm getting philosophical-you have to be sincere and transparent, consistent. I think you have to have integrity. You have to be a "real" person for that respect to be felt. And then if people feel that respect, they take the offer of the empowerment you give them.
BB: Tell me a little bit about your personal history.
SR: I was actually raised in Zimbabwe, but I was born in Zambia. I've lived in six different countries. My ancestors on both sides go back to the original settlers. Some go back to the late 1700s in South Africa, and then they moved up to what was then Rhodesia, and then it became Zimbabwe in 1980. I was raised there, finished high school there, and left about a year after high school and moved to Canada. I lived in Toronto for a number of years; that's where I got my college and graduate education in public accounting. I joined the Great Gulf Group, which is the parent of Ashton Woods, and that's how the circle was completed; I came down here with Ashton Woods, and then moved to McCar in 2001.
BB: Given your Rhodesian roots, what's your take on Leonardo DiCaprio's accent in the movie Blood Diamond, where he plays a Rhodesian diamond smuggler?
SR: He does a very good job. I can tell he's not a native, but he does a very good job because that's not an easy accent to pull off. It's such an unusual accent. And there aren't too many of us. It's not a well-known accent, whereas everyone can do a sort of knock-off English accent or Indian accent or something like that. He did a good job there.
BB: Going back to what you were saying about being team-oriented and that you call a lot of your senior managers not only colleagues but friends, how do you promote that spirit?
SR: We don't have an employee satisfaction committee. It's more grassroots. I just like to laugh and have fun, even at the worst of times. And I don't take myself too seriously. I'll admit mistakes. If you show that you're ready to get in the trenches with people, and you're true to what you say and what you show, I think it attracts or motivates people.
BB: What would you say is your proudest moment since joining the McCar crew in 2001?
SR: You know, I don't dwell on achievements. But I would probably say right now, it's every day that we meet our covenants.
BB: Going back to covenants, are you finding you're learning some new negotiating skills?
SR: I would say no. But there are probably others saying I'm wrong. In general, what we've done is be very, very focused on all of our relationships, and I think it's true to say that-and I think they'd all agree or most of them would-we have a high standing in their eyes. So when you get into the need to negotiate, it's more like there's a trust level there, and that replaces the need to really negotiate as much. We're more relationship driven, and I think you can be very successful that way. I think the people we deal with, for the most part, are like that, too. There's give and take when we need something; we can usually get a concession without really being hard nosed about it.
BB: What do you like best about home building?
SR: It's never the same. That's the one thing, on a day-to-day basis. And then big picture, I see us as being a pioneering industry. We're not sophisticated yet. We're still creating ourselves, and that's really exciting because at some point in time, we're going to be able to look back and be proud of being part of the growth of an industry.
Much like transportation at one point in time. The steam engine came in the 1800s, and it revolutionized the industry. And there were a lot of people who capitalized on that. I see home building as being somewhat similar to that.
The subcontractor base is still very inefficient or unsophisticated. And one of the big things is that it's really not an international industry. It's really an American industry; there's a reasonable industry in the U.K. But it's not like the telecommunications industry where it's actually global and there's global competition. For us, it's just an American industry.
The industry itself of whatever you want to call it-1 million single-family units or 1.5 million units-there's really nothing like it in the world. That's what I'm referring to. Nokia is out of Finland, but they're a competitor for Erikson or Motorola, etc. But there's really no foreign competition for the actual home building component itself. The closest you get to that is probably high-rise construction. But outside North America, our industry really doesn't exist to the same extent as it does here. So there's never really any direct competition.
I think the international markets are not as conducive from the top down, from the government down, to the value of housing as it is here. We've got Fannie Mae and Freddie Mac. They exist to provide financing instruments for people. You've got tax deductions for property taxes and mortgage interest. Those things don't exist in many international markets, so the ability to get in and increase the homeownership rate in those markets is not accepted because the infrastructure isn't there, the mentality isn't there for that. That will change, but I don't know if it'll change in my lifetime.
Learn more about markets featured in this article: Atlanta, GA.