At the International Builders’ Show in Las Vegas in January 2009, HearthStone Homes of Omaha, Neb., won the award for best TV commercial in The Nationals sales and marketing competition. Its 30-second spot, titled “Your Story,” emphasized that it’s a good time to purchase a house, but barely mentioned the company itself. “Don’t get bogged down in the national story,” the ad advised potential buyers. “There’s never been a better time to have a larger life.”
That sentiment comes close to matching HearthStone’s own story, too. The company hasn’t gotten bogged down in the national turmoil: It’s been doing its own thing under the radar, in a city that hasn’t had the soaring highs and crashing lows of other housing markets.
And if customers detected a metaphysical undertone in the ad’s message, that probably was no accident, either. For at least the past five years, HearthStone’s operations have been humming along to a playlist of New Age philosophies that John Smith, its 59-year-old owner, uses to guide the business, which his father founded in 1970. Smith went so far as to intentionally slow HearthStone’s growth earlier this decade so he could remold its corporate culture along these disciplines, which he believes will lead to greater profitability.
New Product, Same Process
So far, the plan seems to be working. HearthStone Homes enjoyed a 44 percent jump in closings and a 15 percent increase in revenue in 2008. A big factor in the recent run-up has been a four-year contract to construct 457 duplexes with 914 housing units at Offutt Air Force Base. As a subcontractor to Kiewit Building Group, HearthStone built 408 units last year, will build another 400 this year, and expects to wrap up this contract by March 2010.
Scott Kincaid, HearthStone’s vice president of operations and innovation, says his company makes this low-margin project work financially by using the same methods, trades, and processes as its single-family home construction. “They have one of the most stringent systems for building, but it works,” observes Barbie Wickman, executive director of the Metro Omaha Builders Association. HearthStone’s bottom line also benefits from the fact that there is no extra overhead for this job because the company neither markets nor sells these houses.
The Offutt project was the first time HearthStone had built duplexes, a product it might extend to its own subdivisions. The company is also considering building on other military bases and recently looked at one project in Pensacola, Fla. Kincaid feels confident that HearthStone could build outside of its existing market because of its relationships with its vendor-partners, which have helped the company reduce costs through a “continuous value improvement” program.
HearthStone’s officers say that matching last year’s 882 single-family closings is achievable in 2009, too. But they’re also exploring building villas and rental apartments. “The steadier our production is, the more profitable we will be,” says Kincaid.
“No Excuses” Customer Care
The entire company’s production is now focused on energy efficiency. All of HearthStone’s new homes are Energy Star certified, and the builder guarantees lower utility costs over two years to new-home owners. “We’re looking forward to the day when our homes are giving back to the [energy] grid,” says Dave Vogtman, HearthStone’s chief sales officer and vice president of relations. But Kincaid and Vogtman don’t think net-zero-energy homes will be affordable for most buyers until mortgages can take into account a home’s energy efficiency.
Company officials also think energy efficiency reinforces HearthStone’s reputation for quality and customer service. Referrals account for about two-fifths of HearthStone’s sales, or more than double the industry average, says Charlie Scott of Woodland, O’Brien & Scott, which monitors builders’ customer satisfaction ratings. And the importance HearthStone places on customer care is evident in how it manages warranty issues: The builder requires its production and vendor teams to submit paperwork within two days of completing a construction defect repair; if they’re late, HearthStone will delay production on all of its new houses.