The high tide hid mistakes. For too long, it's been all about taking orders and delivering product. But now, the new-home market is undergoing an adjustment–as it has several times since the late 1960s, and it will inevitably do again. Every one is different, so accurate predictions of an adjustment's depth and length are impossible. Tough decisions are unavoidable. Each time, though, a manager has to reset his business plan, creating a chance to build for the future as he remembers lessons from the past.
To survive and prosper now, reach out to your best people, your “leaders of tomorrow.” Invest in this next generation: Give them the big tasks, but watch them like a hawk. Periods of adjustment are the times that they'll really learn how to build quality within a budget, make the sale, and deliver a profit. Allow the not “best in class” employees to move on.
Cut out big paychecks. If the company is not buying new property, designing new product, or starting new projects, how many key decision-makers do you need? Pass the buck up the chain of command. Questions to consider: Could one regional person double his geographical area? Or can one division president run two divisions? Or should you fire all division presidents and let regional people make key decisions? Bring the “A” team leaders-of-tomorrow into your office and let them participate in the process.
Also, bring key consultants and suppliers into the discussion. They may know where you can save money and/or time. They may have been through this before and be able to offer insights. Share with competitors. This is a very public industry and has prospered because leaders have been willing to share.
Teach your salespeople how to sell, not just take orders. They must know their product and their neighborhood as buyers become more selective. Companies that recognize this shift and emphasize the old tried-and-true school of selling to a buyer, and not to a speculator, will prosper.
Drop the land you don't need, change the plans, stick with the “A” locations and the “A” team, and let the “B” team go. If current senior management is not prepared to do this, some will need to go. Experience shows that those who bought the land, hired the people, and designed the product are hardly going to tell you that all their decisions made the previous year are now wrong. This is why banks have work-out teams and companies bring in turnaround pros. Sometimes you'll have to bring in new senior people who have managed in down markets and are unafraid to make hard decisions fast. The turnaround guy is not smarter; he is just less emotionally involved.
Know your numbers, and be sure your lenders and stockholders know them, too. You do not want to make new plans and then have to revise them downward again next quarter. Now is the time to adjust everything to your new vision of reality. If you overshoot the downward adjustment, you are soon rewarded with the new better upside. If you underestimate the downside, you may not get a second chance.
If you have managed through market adjustments, remember what you did that worked. Avoid making old mistakes. Plan for the future: Know who your leaders of tomorrow are and train them.
Taylor Grant started in real estate at age 10, riding with his dad to look at land. He has run his own home building company through good and bad times and worked for the seventh largest home builder in the nation. E-mail: firstname.lastname@example.org