Through the downward spiral of the housing economy,attention has been focused almost solely on the nation’s biggest builders. And for the general public, this makes sense. The staggering revenue losses, huge employee layoffs, and ever-increasing sales cancellation rates suffered by the big builders,coupled with the prospect of these previously incredibly successful businesses teetering on the brink of financial failure, is front-page-worthy, to be sure. Their situation is news, though, not only because of its shock value, but because it affects the U.S. economy as a whole and, thus, the lives of each and every one of us.

There’s another story that’s gone untold, however, and that is how the downturn is impacting the rest of the housing industry.

It would probably surprise many of the headline readers, but the majority of you, the single-family home builders of the United States, build 25 or fewer homes per year.

And despite the differences in the size of their businesses, smaller builders are facing many of the same problems and challenges as their larger counterparts: lack of consumer confidence, declining prices, and the need to reduce overhead. According to our “2008 State of the Industry” survey, in the last year or two, many small builders also have closed fewer homes, laid off staff, and suffered severe financial loss. Sure, it’s on a smaller scale, but with no less of an impact for the business owner. Laying off 50 percent of your staff is painful, whether it represents two employees or 2,000. It hurts just as much when you’re smaller, and perhaps more. As one builder put it, when you’re faced with having to let a person go, and that person is either your wife or your super of 20 years, that’s a tough decision.

And there’s lots of other downside for small builders. Lacking economies of scale, you can’t make use of the big builder stock in trade: supply chain influence, wider operating finance and capital support, expensive technological innovations, and so on. Which means, basically, that all of your systems must be accomplished manually—by you alone or with just a few others. Ordering, scheduling, supervising, financing, accounting, selling, designing, and marketing are just some of these very large and nontrivial tasks.

But there’s an upside as well, and that’s where you need to focus your energies. The small builder must concentrate on what it incomparably does best: cater to niche markets with specific needs and desires. In order to achieve those economies of scale, big builders have to accommodate the largest common denominator. They need to attract thousands of buyers with little variation in their offerings. As a small builder, you can select a narrow band of buyers and focus solely on what they are looking for.

You have the ability to know your market like no one else. You live there, and probably have for a long time. Every time you go to a party, PTA social, or charity event, you can find out what people want in a new home. Believe me, they have opinions and they want to share.

A small custom builder told me he holds a “Meet the Builder” open house when he’s finishing a project. He advertises in the local paper and draws a lot of traffic. Some visitors just want to see that particular house, but some are interested in having a house built for them. Others want to sell their current home to him as a teardown or are interested in building a new home on the site of their current one. And if real estate agents show up, he asks them what their customers are looking for that they’re not finding.

Best of all, small builders are in a much better position to build brand recognition. You can become known for a particular style of home, for beautiful trim and finishes, or any number of different features that appeal to a group of buyers. But most important, you have the ability to offer individual customer service and quality in your brand proposition. With so many new homes now offering upscale products and finishes, it is, without a doubt, those attributes—service and quality—that can elevate your homes above the mere value of their components.