In time, the builder's prosperity seemed certain. None could challenge his mastery of masonry. Then the king erected a tollhouse between the stone quarry and the village. Best Defense: Rotate Your Crops.

Variety Pack

Put all your business in a single crop, such as one region, product, or market, and any negative change may put you out of business--for good.

By Christina B. Farnsworth

We thought builders would diversify, especially into remodeling," says NAHB vice president and economist Gopal Ahluwalia, "but the new-construction market was so good, we haven't seen it."

And therein lies the rub. When the market's good, no one's thinking about what happens when it's not. The market was good in the late '80s, too, when many builders were caught up short and squashed by the savings-and-loan crisis. It was the savings-and-loans that were in trouble, but builders were caught in the cross fire. With nasty rumors circulating about the culpability of major banks in the Enron debacle, can it happen again? And if it does, will builders be prepared?

Fatal FlawsContents

Defining diversification depends on a builder's size. For the biggest builders, diversifying may mean doing business in the town next door or acquiring or merging with a smaller builder in order to enter a new geographic market or obtain precious land. (In the past, the classic protection for hard times was to build and hold apartments. They provided a steady rental- income stream when building activity was stagnant.)

Other builders look to diversify by product or market niche--attached product rather than detached, building in town versus in the suburbs, for example. J. Robert White of Scheurer Architects, in Newport Beach, Calif., points out that the success of projects like Brookfield Homes' Strada lies in satisfying an unserved niche. Even those remodeling/renovation companies building the occasional custom home as part of a diversification plan are embracing other opportunities. For example, remodelers Dakota Builders in Tucson, Ariz., and Case Design/Remodeling in Bethesda, Md., operate successful handyman services.

Builders large and small all have diversification opportunities that, properly executed, will save them from extinction.

Diversity Dos and Don'ts

Doput diversification plans in place before the market shifts.Dochoose diversification types that won't harm the core business.

Doseek opportunities to spin off from the core business, such as remodeling homes or providing handyman services to existing clients.

Do learn the ropes and make a real business plan before engaging in a new business activity.

Domeasure effects. More work doesn't always equate to more profits.

Don't ignore the competition. Too many players in a narrow niche leads to market saturation and disaster.

Don'tspread your company too thin by giving too few people too much to do.