Remember the story of David and Goliath? Based on all the standard external measurements—size, track record, market position, etc.—Goliath should have cleaned David's clock. But David played to his strengths—speed, mobility, confidence, and the element of surprise—and took home a pretty big payday. All in all, it's not a bad operating strategy for single-market builders who face off daily against industry giants with seemingly superior resources and buying power—with one important difference: Single-market builders who compete successfully in markets swarming with national builders aren't looking to take out the big guys. Instead, they use strategies like these to help them coexist with national builders—and occasionally knock them down to size.
ROUND 1 Play the home-field advantage. In virtually every sport, the home team has an automatic and undisputed advantage. It's also true in home building, says Home Builders Network's Trellis. “The [national builders'] weakness is lack of hometown expertise,” he says. “This is your turf. You have to defend it. You know the market, the land, the buyers.”
Local boys such as Mike Nino know that and play it for all it's worth. President of Nino Homes in Hollister, Calif., he competes with Standard Pacific Homes in Greenfield, Calif., near Salinas. He relates to farmers selling acreage, he shows them the projects he's done locally, and he points out that at his company, he makes the decisions. “When I go to talk to these farmers, I've got the agricultural background, and I'm the guy making the deal instead of this 30-year-old suit hired out of college,” Nino says. “[The farmers are] sitting across the porch from the guy who's going to be putting his name on it.”
He also does some digging into what's important to the sellers, such as naming a street after a family patriarch, preserving the homestead, or, in one case, building a park named after the seller's favorite charity, the Rotary Club.
Product design is another area where home-field advantage looms large, says Nick Lehnert, vice president of sales and marketing at Distinguished Homes in Anaheim, Calif. Having come to the company after eight years of heading up architecture and product design development at Centex, he knows that big builders like to reuse product to control costs. “But is it the right product for the market?” Lehnert asks.
Rob Lee, a partner at infill builder Chesapeake Development in Chamblee, Ga., agrees. His company buys scattered lots in neighborhoods the big builders pass over because they can't get whole blocks. Lee draws on his background as an architect to achieve ultimate flexibility in making plans fit unique sites. “We design our own product,” he says. “We can change it on every plan and build a house that is very responsive to the market.”
ROUND 2 Put together creative land deals. The big guys may have more bucks at their disposal, but small builders can still snag some great land deals. Most notably, land acquisitions have to make their way up the approval chain at a national builder, and deals can be tabled once they get to headquarters.
Roger Pollock, president of Buena Vista Custom Homes in Lake Oswego, Ore., is an acquisitions team of one. Everyone in town knows that if they bring him a deal, he has the authority to make it happen quickly. Plus, real estate agents in town bring Pollock deals on finished lots because they know they'll get the listing on the house he builds on it. As a result, agents are “out looking for land for us all the time,” Pollock says. “There are deals we never would have gotten if we weren't listing back ... . To find a really top-quality piece of land in the Portland market is very difficult. To turn it over to a builder and never profit from that isn't in the agent's best interest, so they call me first.”
Jim Manning, owner of Manning Homes in Newport Beach, Calif., has avoided going head to head with a slew of national builders in Orange County by targeting remnant lots in developments. “Our chances of getting a project are greater if there are a fewer number of lots,” Manning says. “If there are 50, the publics will want to go at it. If it's 20, they say, ‘Nah, that's too small. Let Jim go at it.' ”
Manning also has a reputation as a go-to person for family trusts. When they decide to sell property, they want to move in a hurry, he says. That's something the publics often can't do because their deals require multiple layers of approval. “I try to do as much due diligence as possible so I can give the best bid and the shortest time frame possible,” he explains.