Keystone Custom Homes, Willow Street, Pa.
BUILDER JEFF RUTT, WHO spent 10 years working 100-hour weeks as a dairy farmer, is quick to point out the similarities between raising cows in the bucolic fields of Lancaster County, Pa., and raising subdivisions. “There are a lot of challenges in farming,” he says. “The weather, market changes, pricing—there are a lot of unknowns.”
Accepting the fact that you can't control everything, learning to be flexible, and looking for ways to make things work through every challenge are keys to success, Rutt says—in residential construction as well as in farming.
Seems to be working so far. This fall, Rutt's company, Keystone Custom Homes, was named a winner in the 2005 America's Best Builder competition, earning the 12-year-old company a record third win.
The accomplishment is even more impressive when, as Keystone's director of information systems Steve Holzer notes, the company's top managers had little to no industry experience during its first 10 years. He, like others at Keystone, points to Rutt as the driving force behind Keystone's success. “He does not take no for an answer,” says Mike Cahill, Keystone's director of production.
“He's always selling,” says his financial manager Doug Hostetler.
“He is almost continually saying, ‘Keep striving for excellence!'” says Keystone's director of estimating and options James W. Hostetter Jr.
Rutt has a simpler answer: “I write things down.”
Not only does he carry a notebook in which he writes every phone call to be returned and every to-do task, but last year, the company began writing down everything it does—and tracking the results.
It started with formalizing standard operating procedures for every aspect of the company. “We needed these because of the size we're becoming and the quality of what we were trying to achieve,” Rutt explains.
Today the company uses printed checklists that both outline every step required for every key point in the home building and buying process, and assign specific responsibility. For instance, the standard operating procedure to release a new community to sales involves eight individuals and 52 steps. Each individual must complete his or her tasks before the project can be passed to the next person.
“A checklist seems so simple, but it's extremely important that you don't miss a step given the number of steps that go from looking at a piece of property to finishing the 11-month walkthrough,” says Rutt.
The ability to track tasks led, in turn, to the company's Dashboard program. The proprietary, computer-based program, updated in real time and available to every employee, provides a snapshot view of the company's progress in meeting its goals. For instance, one morning in early November 2004, Dashboard showed that in the past three months the company's customers spent an average of $47,729 on options, and that by settlement, 88.3 percent of customers said they would refer Keystone to another home buyer. The goals, however, were $50,000 in options and 96 percent of homeowners saying they'd refer (a goal that was raised to 98 percent in December 2004).
The system also tracks defects by vendor and type, sales by community, even the number and cost of weather delays in the past 30 days. Missed goals appear in red, giving new meaning to the term “get out of the red” at Keystone.
The company then ties bonuses, raises, and other incentives to the Dashboard results. For instance, if the sales team is “out of the red” during its weekly meetings, each member gets $50.
“I always believed you get what you measure,” says Rutt. “But when you measure it and communicate the results to everyone on a real-time basis, it's amazing what you can do with it.” In the first six months of Dashboard, for instance, overdue post-closing service requests from buyers dropped by half because employees could see exactly what the goal was and how close (or far) they were to meeting it, Rutt says.
Building on that premise, Keystone implemented its “Zero Defects” program in early 2004. It posts a “1st Time Quality Home” checklist at every jobsite. As each trade contractor completes a phase of construction, he or she completes a portion of the checklist, which the construction superintendent signs off on after inspection. “This has brought tremendous accountability within the trades and the company,” says Cahill. Keystone doesn't have a specific way to measure the effectiveness of the checklist—but it's working on it.
Keystone took its emphasis on technology directly to the customer. Two years ago, in an effort to streamline and simplify the company's home options process, it developed an online, point-and-click program to replace the old paper trail and in-person meetings. Today, customers receive a password to the “Key Choice” program and can sit at home in their pajamas as they select everything from kitchen cabinets to door handles from more than 30,000 options.
“Not being afraid to spend the money necessary and letting us run with the project began a long journey towards the Key Choice system, which has revolutionized the way we do business,” says Hostetter, who first approached Rutt with the idea. It's also resulted in a 160 percent increase in the average dollar amount of options a homeowner chooses. “It's convenient, fast, and easy,” says Rutt, explaining the jump.
Lest the emphasis on technology lead one to think that Keystone is all high tech and no high touch, however, just consider how the company conducts its final walk-through before buyers close on a house: with the scent of baking cookies wafting through the new house.
It also provides “We've Moved” postcards with a picture of the buyers' new house that buyers can send to friends and family, offers financial incentives for buyer referrals resulting in a sale, and maintains customer relations with a quarterly newsletter.
“The customer is why and how we are in business,” says Rutt. “Everything we design, every feature we create, every process we develop is done with the thought ‘How will the customer benefit from it?'”
Rutt entered the business from the sales side and still recalls “the look in customers' eyes when they were excited or disappointed with the product, the process, or, more importantly, the attitude of the people who were serving them.” So whether Keystone employees are sitting in product development meetings or deciding on customer service policy, he says, “we are always trying to look through the eyes of the customer.”
Those efforts pay off, notes Rutt. For instance, even though the company is just 14 years old, it recently built the third Keystone house for one family. “We love being America's Best Builder, but it's really cool to have a family come in and say they're going to buy their third Keystone home. That's truly the stamp of excellence.”
While most community-based builders become involved with local charities and fundraisers, Keystone Builders looks just a bit further afield: to Ukraine.
Inspired by a church gospel mission to the region in 1994, Rutt formed a nonprofit organization called Hope International. It began as a fundraising organization, pulling together money and supplies to send to the former Soviet Union republic. Once Rutt saw the temporary nature of that solution, however, he started thinking.
“We needed a way to help them help themselves in the long term so they weren't so dependent on us,” he recalls. So he started a micro-credit program providing small, low-interest loans. The program, which started with 10 loans of $500 or less to Ukrainian residents, has now grown into an initiative in four countries, including Afghanistan, that will have made more than 20,000 loans by early 2005. It boasts a 99 percent repayment rate.
“The cool thing about it is that the 20,000 loans we've already loaned will be able to help another 20,000 poor people in the months and years to come,” says Rutt. “It's a gift that keeps on giving.”
Rutt helps finance Hope International coffers through Houses for Hope, a program in which residential builders and subcontractors donate their time and materials to build houses, which are then sold at market rates in the United States, with Hope International receiving the proceeds.
“His passion for the program just oozes,” says his friend and advisor, Hostetler. Hostetler sits on an advisory board for Keystone that meets quarterly to provide counsel and feedback on the overall direction of the company based on its short- and long-term goals. Right now, one of its long-term goals is to create a corporate structure so Rutt can spend more time with Hope International and less time on Keystone's day-to-day operations.
Focus On The Basics
For all the emphasis on computer tracking, customers, trade relations, and employee training, Rutt never loses site of the numbers. In 2003, the company posted sales of $59.7 million on 272 closings.
He is nearly fanatical about maintaining a barely visible debt-to-equity ratio (it was .24 in 2002), financing raw land acquisition only, and paying for development and construction costs through operations. The low debt levels are important to him, he says. “We always want to be expecting the best, but preparing for the worst because you don't really know what's going to be around the corner,” he explains.
That “delayed gratification” approach—pouring most profits back into the company through land acquisition, employees, and software—“is just good stewardship,” Rutt says.
It will stand him in good stead as he faces the challenges of the future. The major one: land. Ideally, he'd like to keep Keystone communities within an hour radius of the company's Willow Street, Pa., office. But as the rich farmland of Lancaster County is transformed into communities, that's becoming more and more difficult.
The company has two strengths that will help it through the coming challenges, says Hostetter. “We focus on solutions, and we have developed a culture of information leveraging.”
Keystone has also made the sometimes difficult transition from an entrepreneurial company to a corporation with 75 employees, says Holzer. “Many entrepreneurs are not able to transition from an entrepreneurial-based business model to a process-managed business model,” he says. “This is an essential step in the life of a growth-based home building business. Jeff seems to be working intently in allowing this to happen.”
As for Rutt, he puts a lot of faith in, well, his faith. A strong Christian, he says he's more likely to pray about a problem than to worry too much about it. “I really trust in God and His ability to give me strength. And I try to let it go at that.”
Debra Gordon is a freelance writer based in Nazareth, Pa.
Keystone Custom Homes
Founder and president: Jeff Rutt
Focus: Builds move-up homes in the Lancaster County, Pa., region.
Notable: Supports Hope International, an international micro-loan program that provides low-interest, small loans to business owners and entrepreneurs in four countries; three-time winner of America's Best Builder.
Keeping The Trades HappyLike most successful residential builders, Keystone realizes it couldn't do what it does if it didn't have a good relationship with its trade contractors. To that end, it goes the extra mile to make its contractors feel part of the team. “Our trade partners are our success, our keystone, they make it happen,” says company president Jeff Rutt. “In the long run, they improve our quality and schedules and help us bring our product in at a value that's affordable.” To keep its trades happy, Keystone follows these trade tips:
- Use the right name. At Keystone, says Rutt, “the word ‘subcontractor' is taboo.” Instead, tradespeople are called “trade contractors.”
- Involve them in the business. Keystone formed a trade partner council three years ago. It meets every other month to discuss upcoming plans, new communities, challenges, and long-term projections. “We want to push the decision-making out as far as possible to the people who should be making the decisions,” says Rutt.
- Share the news. Keystone publishes a weekly newsletter about and for their trade contractors. Called “The Buzz,” it covers everything from who is having a baby to who has begun working with Keystone. It also includes news about Keystone and Keystone events.
Learn more about markets featured in this article: Lancaster, PA.