True to form, the intractable, growth-hungry companies on our Fast Track list continue to astound with their triple-digit revenue growth. The top 10 on this year's list boast an average 150 percent increase in gross revenue over the past three years. And as a whole, the 95 builders listed had an average compounded annual growth rate of 45 percent. Compare this with the growth in the value of new single-family construction for last year--which grew less than 10 percent--and you get the high-growth picture.
To be sure, this year's No. 1 ranked builder, World Development, probably didn't make it onto anyone's radar screen with its modest revenue of $14 million (52 closings). But when you consider it has parlayed its lucrative niche of building in California's Coachella Valley to drive up revenues 274 percent in the past three years, it's easy to see how this smaller company, in a bid to live up to its name, could take on the building world. And that's its plan: double its closings once again in 2001.
World Development proves that size isn't everything. This year's list, in a sense, is about the smaller builder. If you do the math on the top 20 fastest growers, you'll learn they closed an average of 345 homes in 2000. But slide out just one builder--Habitat for Humanity, with its hefty 4,285 closings--and the average dives to 137 homes closed. For the top five builders, the average number of homes closed is a paltry 82 (versus 185 for the top five in '98 and 151 for the top five in '99).
There are many reasons small builders are so fleet. They're small enough to turn on a dime. They sneak in under the radar and build on parcels too small for the big guys. They try new processes, plans, and markets (and sometimes toss them out) without bringing the company to a standstill in the process. But perhaps there's another reason: Could it be that technology, long touted as the ultimate playing field leveler, could be making its presence felt?
Builder size aside, we think that future growth--especially the no-holds barred acceleration experienced by this year's group--will be fueled by technology. Cycle-time reducers--like handheld wireless Internet devices--will shave time off construction schedules, enable instantaneous communication, and allow for automatic schedule and ordering updates.
We look at how five tech-savvy builders gather, access, and act on updated information that today's high-tech tools provide. As these innovative--and fast--builders have found, high-tech goes hand-in-hand with high growth.
By Alison Rice
Paul Asfahl sees a touch of irony in the intersection of builders and technology.
"With all this technology and innovation we talk about, it's not the real work we're automating," observes Asfahl, president and founder of Boca Raton, Fla. based Sterling Communities. "We're not automating the plasterer, who still has to come in and do the drywall. We're just automating the information."
He's right, of course.
As powerful as technology can be, fast-growing builders know it's no substitute for finding the ideal property at the right price, building a quality home correctly the first time, and opening a desirable community in a hot market. It's simply a tool for getting all this done.
In Texas and Atlanta, computerized scheduling has pared five days from a fast-growing builder's cycle time. In the Midwest, handheld computers provide critical data to superintendents at the jobsite, allowing them to make decisions on the spot. In Florida, Chicago, and elsewhere, Web-based systems will soon save time for builders and buyers as customers get the opportunity to choose colors and options when and where they want--even on a Sunday evening when they kick back with a drink after the kids have gone to bed.
This ability to gather, access, and then act on up-to-date information imposes order on the chaos that growth often brings. For fast-trackers, it's a critical edge that helps them increase volume without sacrificing profits.
"It doesn't matter whether a builder is big or small," says Chuck Shinn of The Lee Evans Group in Littleton, Colo. "He ought to be making the technology investment."
Follow the buyers
The Web is a multipurpose tool for fast-trackers, whose sites market product, generate leads, and serve buyers.
On the Web site for Todd Wallace Builders, buyers can check out virtual tours, photos, floor plans, and more from the Akron, Ohio, move-up builder. "We feel like it allows our customers to get to know us," says founder Todd Wallace, who expects to build 30 homes this year, an increase of 25 percent from 2000.
Others use their Web site to get to know their buyers. At the site for Roswell, Ga. based Ashton Woods Homes, visitors register to use an interactive personal planner. After asking questions about price range, number of bedrooms, and other requirements, it suggests floor plans and neighborhoods in Atlanta, Houston, or Dallas. Meanwhile, Web visitors' contact information is captured for future sales use.
And Web sites are attracting prospective buyers: Ashton Woods estimates that 10 percent to 20 percent of its sales traffic comes from the Web.
As these prospects become customers, these growing, tech-oriented builders continue to use the Web, encouraging buyers to report warranty issues or, increasingly, make color and option selections online.
In Chicago, the Belgravia Group plans to introduce just such a Web-based system for a townhouse development in the South Loop. Buyers will get a password, a tutorial, and a certain period of time to make their choices, which will be saved as they go along. After the deadline passes, the builder will take that information and get started on the home. "We believe it's going to save several hours per buyer," says executive vice president Alan Lev. "It's going to make the process easier for the buyer, and because it's automated, we won't have mistakes."
In Florida, Sterling is developing a similar system, where Asfahl expects to provide top-line benefits. "It's our greatest area for growth," he says. "We believe that the ability to review options in the relaxed atmosphere of the home will enable buyers to have candid interactions between themselves, on their schedule."
Out of the office
Fast-trackers know technology can't be confined to the office, especially when volume is doubling. They need accurate data in real-time rather than hard-to-read faxes that contradict the paperwork in their hands.
So, as quickly as they can, fast-growing builders are extending their computer networks to sales offices, design centers, and jobsites. "The ability to call up any contract with any buyer and see all the options that have been ordered helps us a lot in terms of building the house right the first time," says Donn Eley, president of Village Homes of Colorado in Littleton.
At Christopher Homes in Newport Beach, Calif., remote offices rely on a virtual private network (VPN) that gives remote offices secure access to company servers via the Internet. Using the VPN, sales and construction staff update everything from customer requests to home status reports, all of which are kept online. "Our goal is a paperless office," says Dan O'Bannon, CFO.
Other builders turn to personal digital assistants to carry crucial information onto the job. With Palm-based software such as Project@Hand and Documents to Go, Wallace and his field staff keep construction schedules, cost estimates, customer contacts, and more on their handhelds. "By having contracts in the field, my superintendents can immediately write change orders for clients who make alterations during construction," Wallace says. "If changes are noted on the spot, the [revenue] does not get lost."
Some have moved beyond wires and network cables. By this fall, Village Homes expects to have converted its field offices from cumbersome dial-up, frame-relay, and DSL connections to a faster wireless network, allowing field staff to access company servers from as far away as a mountainside development 140 miles from Village's Littleton offices.
"Sometimes it's difficult to get even a phone line to a construction office or sales trailer when you start ... and trying to get DSL or frame relay or T1s into any community has been a nightmare," Eley says. "The wireless gives us consistent connectivity ... enabling our field people to communicate and operate more efficiently."
Such instantaneous access to information makes a quantifiable difference. At Ashton Woods, high-tech helpers such as handhelds and online scheduling have shaved the typical 140-day building cycle by five days, with more time savings expected.
At the same time, these technologies have improved quality for Ashton Woods, allowing the superintendent to concentrate on the job and not just the scheduling of it. "The less time he spends on the phone, the more time he can spend on the house," says Bob Salomon, CFO for Ashton Woods' U.S. operations. (The company, a subsidiary of Canadian company Great Gulf Group, also builds in Canada under the Great Gulf name.)
Adopting such processes isn't cheap. Spectrum Skanska of Valhalla, N.Y., spends $1 million annually on information technology, developing customized applications that handle scheduling, buyer selections, and customer service as well as using standard programs such as Palm-based PunchList Manager for warranty work.
But the company, which has seen its closings and gross revenues nearly quadruple since 1998 to 255 units and nearly $200 million in 2000, respectively, believes tech investment is worth the return. "Technology has always been a major focus of the firm," says Mitchell Hochberg, president and CEO. "We'd never been able to grow as fast as we have without technology."
Such a performance makes one wonder about the possibilities technology holds for all growing builders. If a tech investment like Spectrum Skanska's could drive such growth (a mere .5 percent of revenue, compared to the average 3 percent other industries spend), how fast could builders grow if they upped the ante?
Number of units closed: 1998 - 67; 1999 - 175; 2000 - 255
Gross revenue: 1998 - $56 million; 1999 - $149 million; 2000 - $198 million
Number of employees: 175
Founded as the Spectrum Group in 1985, this Northeast builder went international in 1996 when it became a subsidiary of Swedish construction company Skanska AB.
The move proved a capital one for the builder, which got the financial base it needed to grow. And grow it has. In 2001, Spectrum Skanska, which builds at prices from $200,000 to $4 million, expects to close 300 homes.
Technology has assisted that growth. Customized project management software provides real-time scheduling data. Handhelds make warranty work easier to order and track. And, "power users" in key departments (like a design-center employee with IT training) ensure that new initiatives incorporate the needs and ideas of the workers who will actually be using them.
So has the old-fashioned idea of serving an overlooked market niche: the New York suburbs. "Traditionally, a lot of national builders did not pay attention to the New York suburbs because they couldn't buy enough land to do big communities," explains president and CEO Mitchell Hochberg, who founded Spectrum. "And smaller builders didn't have the sophistication to put together the community development and amenity package."
Number of units closed: 1998-9; 1999-18; 2000-24
Gross revenue: 1998--$2 million; 1999--$5 million; 2000--$6 million
Number of employees: 8
Like many builders, Todd Wallace began as a remodeler, doing residential and rental rehab projects. That changed in 1989, though, after he built his first house. "They always say builders build their first homes for themselves," Wallace says. "I was bit by the bug."
Today, his company does 24 homes a year, with plans for 30 closings in 2001. Priced at $250,000 to $350,000 and up, his move-up homes appeal to Akron families looking for "the look of custom home without the headache or wait," he says. But they're not seeking trendiness, just quality. "This is a local market, not a regional or a national one," he says.
That hasn't kept Wallace from approaching his business--and his tech plans--like a larger builder. In addition to their info-packed Palm Pilots, field staff carry cell phones with datebook programs, so there's no excuse for missed appointments. Employees encourage customers to e-mail them with questions or concerns, saving everyone time by eliminating telephone tag. The company Web site provides everything from photos to floor plans.
"Technology is not only making us more efficient, it's making us more available," Wallace says. "The Internet is putting our name out there in front of more people."
Number of units closed: 1998 - 35; 1999 - 79; 2000 - 99
Gross revenue: 1998 - $6 million; 1999 - $26 million; 2000 - $37 million
Number of employees: 22
As big builders flock to the active adult market, especially in Florida, this young company has focused instead on the family.
"Rather than compete head-on, we went after a new niche," says president Paul Asfahl, who knows big builders well after more than 24 years with Centex and Hovnanian. "There are fewer and fewer builders going after the family market."
Yet it remains a strong one. Sterling expects to close 115 homes this year, an increase of 15 percent from 2000. Most of the builder's sales come from entry-level to moderate houses starting at $250,000, but not all; this year, nearly one-third of Sterling homes are luxury product running $600,000 to $1 million.
Firsthand research keeps these prices competitive; Asfahl spends four days of each month visiting sales centers to see what the competition is doing. "The market can change rapidly, pricing-wise," he says. "We've been able to react quickly."
Number of units closed: 1998 - 620; 1999 - 728; 2000 - 804
Gross revenue: 1998 - $145 million; 1999 - $180 million; 2000 - $235 million
Number of employees: 270
Technology is more than a tool for this builder, it's a brand image, thanks to Village's choice to offer structured wiring as standard three years ago.
"That associated us with leading edge technologies in the Denver area," says company president Donn Eley. "Techies bought from us because we offered this, and other builders didn't."
It's been a lucrative strategy for Village, which builds move-up, luxury, active adult, and vacation homes from Fort Collins to Castle Rock.
With structured wiring as standard, the builder has been able to price its homes, ranging from the low $200s to the high $400s, at a premium compared to the competition.
The revenue boost doesn't stop there. Even after spending an average of $13,000 for options, Village buyers tend to pull out their checkbooks again to upgrade their "TechTouch" homes with another $3,000 in security systems, surround sound, and other high-margin, high-tech features.
Those aren't the only margins that are up at Village. In 1997, the builder's pretax net margins were about 3 percent, which gradually increased to more than 12 percent in 2000.
Gross revenue: 1998 - $1 million; 1999 - $4 million; 2000 - $14 million
Number of units closed: 1998 - 9; 1999 - 30; 2000 - 52
Number of employees: 32
This California builder has grown like a Silicon Valley start-up. Unlike its dot-com counterparts, however, World Development is making money--just over $14 million in 2000, a 274 percent gain since 1998.
It's helped to be in the Coachella Valley, which at 100 miles from San Diego and Los Angeles, attracts both retirees and hardy commuters. So has access to capital, which has allowed World Development to break ground on larger communities of 130-plus homes in the fast-growing area.
But World Development wants to leave other Valley builders in the dust. So it concentrates on high-impact features in its homes, priced from the $100s to the $400s. "We add a few more upgrades than the competition: Corian countertops; 8-foot-tall sliding glass doors, so buyers can see the views; second-floor fireplaces; vaulted ceilings," says Scott Stokes, executive vice president. Buyers are responding: World Development expects to double its closings again in 2001.