WHEN YOU ASK CEOS ABOUT THE ISSUES that keep them up at night, it's no surprise to hear them cite land acquisition, labor shortages, and rising interest rates as some of the roadblocks they are grappling with.

Nevertheless, this year has seen record-breaking numbers for many big builders—D.R. Horton alone, for example, estimates closing 2004 with 43,000-plus units. Yet the Arlington, Texas-based builder, which at one time was an acquisition machine, achieved those numbers despite virtually halting its growth-by-acquisition strategy within the past couple of years.

D.R. Horton isn't the only builder looking inward in order to grow. A common theme among many builders is that they expect to maintain fast-paced growth by creating substantive, diversified business strategies, with many shifting toward more organic growth and less expansion through acquisition.

Acquisition Slowdown Perhaps one of the biggest shifts in strategy has to do with what many builders are not doing. “Acquisitions have definitely slowed over the past two years,” says Barbara Allen, senior analyst at Natexis Bleichroeder. “In some ways, geographic expansion has been easier. You acquire someone and, low and behold, you're there.” However, Allen predicts that the next few years of growth will come with builders focusing on penetrating existing markets more deeply and learning to work with different buyers and different product offerings. “After you have gone to all the big markets that make sense for you, what else can you do?” she asks. “The difference is that these new strategies take a different set of skills.”

For D.R. Horton CEO Don Tomnitz, a future without plans for acquisitions or mergers is clear. “We are going to continue to aggregate market share from the 80 percent of the U.S. home building market that's still in the hands of the small, medium, inefficient, and undercapitalized builders,” says Tomnitz. “We want to be the Wal-Mart of the home building industry.”

New Business Initiatives In looking at strategic trends going forward, it's important to consider what builders were doing only a few years ago. If you had asked a production builder about doing an urban infill project five years ago, chances are it wouldn't have gotten much consideration. Two years later, most executives might admit that they were “experimenting” with such alternative strategies. In contrast, today's top builders are more likely to say they are committed to infill strategies.

More than ever, the nation's largest builders are increasing in flexibility and leveraging their structure and track records to broaden product offerings and capture the unique opportunities that each market presents. From embracing a wider array of price points to tackling mid- and high-rise infill to diving into the resort and second-home market, these new business initiatives are becoming more critical than ever to support future growth.

For companies such as D.R. Horton, which predicts an annual growth rate of 10 percent to 15 percent over the next five years, being flexible is imperative. “It all depends on the market,” says Tomnitz.

“Today we're building everything from 800-square-foot condos in San Diego to 8,000-square-foot homes in New Jersey. Our goal is to capture 24 [percent] to 26 percent [market] share in every market we're in.” In California, that means creating mid-rise divisions to support the trend toward urban renewal and higher density. “We don't go in full-bore, full steam ahead,” says Tomnitz. “We stick our toes in the water first to make sure they don't get burned.”

In 2005, with the experimental learning curve already behind them, Tomnitz and others predict that their non-traditional business initiatives are going to take off—and soon contribute significantly to unit count and the bottom line. Clearly, such initiatives have become more than just something to dabble in: Executives at Horton, Standard Pacific, and Toll Brothers have said their respective companies look for infill, urban, and attached housing returns that total anywhere from 10 percent to 20 percent of their overall home building business.