William J. Pulte retired March 31 from Pulte Homes, the company he created, named after himself, and grew to be the largest home builder in the country.
It's been 60 years and 500,000 houses since the 18-year-old Pulte went down to the Detroit building department to pull a permit to build his first house, never crossing his mind that it was an unusual thing to do.
Big Builder spoke to Pulte, 77; his successor, CEO Richard Dugas; and company spokeswoman Caryn Klebba on March 10 about Pulte's past, from boy builder to behemoth builder, and a little bit about the company's future post-merger with Centex.
BB: Why retire now?
WP: I had always had 60 years in mind. I was going to wait until I was 80, but then I decided there was no real value of waiting until I was 80. So I decided 60 years was the ideal time.
BB: We heard the story recently from someone who was touring one of your old neighborhoods with you that you had used the same floor plan throughout the community.
WP: Every house was the same house with a different elevation. Everybody said it couldn't be done, but it was one of our most successful. We had a great floor plan, and we just had a lot of different elevations. We could pump that house out so fast it would make your head swim.
BB: How quickly could you pump out that house?
WP: Probably 60 days. And at that time, that was pretty fast. This was in Rochester, Mich.
BB: You had similar success in Washington, D.C., when you first moved into that market at the Fox Hills community.
WP: Did you hear how much they were worth? We sold them for $34,900. These were 2,400-square-foot houses on 100-foot lots in Potomac, Md. So, I get this call, this was the [market] heyday--it was like 2005. The fellow who used to work for us, who is now retired, called to say, "Bill, I want to tell you this story, my mother sold her house." I said, "What are you telling me this for?" He said, "You remember where she lived? It was in your first subdivision, Fox Hill. The reason I called you was that she just sold it for $375,000." I said, "Wow."
Now I have to take that story one step further. Six months later, I'm in Minnesota, and Pulte is having a sales managers meeting or sales presidents meeting, and I was telling Cathy, who has been president of sales in Washington for years, this story, and she said, "Bill, she made a mistake."I said, "What do you mean she made a mistake?" Cathy said, "She sold too early, it's now worth $1.1 million." That was how fast it was going.
That was a sign right there for what we should have been looking for.
BB: You've kind of seen it through the most recent downturn.
WP: This is the worst downturn I have been through in the 60 years we've been in business.
BB: Surprise you?
WP: Well, the downturn didn't surprise me at all. The severity has shocked everybody. I kept telling Richard [Dugas] that we've got to prepare for the next downturn, and I kept telling him that for 15 years.
RD: I remember Bill saying how we needed to react in the downturn and preparing for that. But I think the severity of it caught us all by surprise. Fortunately, we had a strong balance sheet and really strong conservative management to see us through. But it's certainly been a learning experience.
BB: It's certainly something to tell your children about. Bill, you seem to be the only guy who is running one of the largest home builders in the country who actually started out by building houses.
WP: I was not a finance man. In fact, I am still not a finance man. I have always had to have a good finance man. I can tell you the story about how that all occurred.
I had just gone public, so it would have been 1969 or early 1970, and the industry was new to Wall Street at that time. And I think there were only about eight or 10 of us max who were public.
[One of the lending institutions] didn't know anything about the building business as such, so they invited all of us who were public. And so we were sitting at the biggest round table I had seen anywhere at this Wall Street place, and they started asking about price earnings ratios and dividends and all that stuff, and it was just going over my head--I mean flying over my head. And I had my finance guy there, and he wasn't that good at it either.
After a while, they shifted to the home building business itself, the trade side. Well, I never heard so much bologna in my life, but I was the only one in the room who knew it was bologna. Because these finance guys couldn't answer the questions at all, they were making stuff up, and Wall Street didn't know they were making it all up, and I said to myself, "You know, I'm the only guy in this room who knows how to build a house. Everybody else knows how to finance it."
On the way home, that was a big, big turning point. On the airplane I said, "You know, Bill, you are in the major leagues now, and I don't have a major league finance guy. I have got to get somebody equivalent to [Kaufman and Broad co-founder] Eli Broad who knows what the business is."
So, at that time, I had gone public, and I had a small hedge fund that was the owner of my stock, and the guy that ran the hedge fund was calling me every other day, like they typically do, asking me how I was doing, and I said, "What the hell do you keep calling me for?" Anyway, I decided I should ask him where I could find a top-notch financial officer.
So we started talking, and he gave me a couple of ideas. I checked them out, and they weren't what I wanted at all. One day, he finally called me and said, "I'd like the job." And I said, "Well, welcome aboard."
His name was Jim Grosfeld, who was really a big actor in how we grew at that time. Jim was a great guy and still is a great guy. The problem I had with Jimmy over time is that he wanted to be in a different kind of direction than I wanted so we decided to go our ways. But he was a great finance guy for me at the time.
RD: Bill has talked often about how it was kind of a three-person setup for many many years at the company. Jimmy was running the finance and the accounting side and managing the public money. Bill was handling construction and land and all the trades side. And then a fellow by the name of Howard Johnson was involved in sales and marketing and people, human relations.
I think Bill would look back today and say if we hadn't gotten Jimmy or somebody like him, we might have been a little bitty builder.
WP: We would never be the size that we are.
BB: At 18, you took a plan from the paper and built a house. What came before that? What was the lightbulb that went off that said what you were going to do?
WP: At 16 years old, I bought my first car, and my dad said to me, "I'm proud of you that you bought your first car, but how are you going to put gas in it?" I said, "Dad, I've never had an allowance, how about an allowance?" He said, "How about getting a job." This actually happened. So I went out and got a job as a carpenter, and I really liked being a carpenter. The carpenter worked for a tradesman builder.
The builder was a mason. He had a mason crew, which was made up of his brothers and sons. So I worked as a mason on Saturdays and the rest of the week as a carpenter.
The builder drove a clunker car just like mine, which I paid $75 for, which was a lot of money then. Or at least for me it was. He had exactly the same kind of car. And I'll tell you how bad it was. I had to put floorboards on it because you could see the street. I couldn't take a date out because she could see the street.
Anyway, I'm up on a roof nailing one day, and this builder drives up with a brand-new Cadillac with a glass of iced tea on the dashboard. Well, I could see the iced tea from up above. At 16, you're very smart, you have got to remember that. And I said, "I'm smarter than that guy, I want to be a builder," and I have never changed my mind since that day.
CK: What does he drive today? A Cadillac.
WP: Two years later, I'm going down to the city of Detroit to get the building permit, and I go up to the desk. It's a big operation; in Detroit, at that time, they were building a lot of houses. And the lady asked me, "What would you like young man." I said, "I want a building permit." And she said, "Well, how old are you?" I said, "18," and she said, "You can't have a building permit. You have got to have a license to build, and you've got to be 21 to have a license to build."
I said, "Oh, well, what do you need to build your own house?" She said, "You don't need a permit to build your own house." So I said, "OK, thank you,"and came back the next day. I waited until she was out of the bull pen, and I go up and say, "I want a building permit for this house." They said, "How old are you?"
I said, "I want to build my own house," and they didn't even ask my age. So I filled out this paper and got my building permit. And, by the way, I got it that day. Today, sometimes it takes a month to get a building permit.
BB: So you built a lot of houses for yourself after that?
WP: I was actually never asked that question again.
BB: So you didn't have to get a builder's license?
WP: No, I didn't have to get a builder's license until way later.
BB: That was 1950, right after World War II. There was a building boom going on. So it was a good time to be getting into the building industry.
WP: You couldn't get into the building business now the way I did back then.
BB: In all of these 60 years, what's the thing you enjoyed the most?
WP: Well, I think there are two things that I've enjoyed on a continuous basis.
One is the great people, whether they were tradespeople or businesspeople--the great people that I came in contact with back then and how solid they were. You know there were cheats and flakes in all places, but the majority of tradesmen, the majority of people that I was dealing with in business, were very good people.
And, second, the idea that on a daily basis you could see success. I mean, you would go to a job, even if you were just building one house, and it had progressed every day. I don't know how anybody could be a psychologist where they talk to a person day after day, week after week, and you don't know if you are making any progress. You can see it happening, and it's a great feeling that you can see it happening.
BB: It's not just building a widget either. It's a place where people will live their lives.
WP: The first house I built is still standing and lived in today.
BB: Do you visit it often?
BB: I hear it's not in such a good neighborhood anymore.
WP: Oh no, it's got a lot of burned down houses in the community. If you go to downtown Detroit, it's the typical neighborhood. It's right across from the Detroit City Airport.
BB: Which was a good location at the time?
WP: Yeah, for the working man.
BB: I think it had a fireplace also, which was an unusual amenity.
WP: Yeah, because in that small of a house you didn't put in a fireplace.That's how come I sold it so fast.
RD: One of Bill's things he's always taught me, that we have always tried to implement through the company, even to our branding strategy today, is you have to offer something unique, you know that unique selling position, that unique opportunity. Bill could tell you tales about all kinds of projects he has built over the years that were innovative at the time--first community that had trees in them, first community that had brick fronts or side-entry garages, all that kind of thing.
BB: I think it's interesting because in the photo of that house you see that chimney right in the front. It was sort of like an advertisement that it had a fireplace in it.
WP: It wasn't hidden. It made it more unique. If you drove up and down the street, all the houses were that size, but they didn't have a fireplace.
BB: How big was that house?
WP: I would say 800 square feet. Don't forget that the buyer of that house was a couple that just got married after World War II, and it had two bedrooms and an unfinished attic. So over the years, the unfinished attic became a lot of different kinds of rooms.
BB: Now we are going back to the smaller houses again.
WP: Temporarily. Everybody thinks it's gone for good. It'll come back as soon as everybody decides they have got a job. The biggest scare today is jobs. That's what's holding up our recession. You know mortgage money used to bring us out of a recession. Not anymore. You want to make sure you have got a job, or you aren't buying a house.
BB: So what are the challenges that you see for the future of home building?What are the things you worry about, if anything?
WP: The thing that worries me the most are the costs that are being added on by the government. They are tagging us with everything possible. It's just another form of tax.
RD: What about opportunities? Where do you think the business goes? How do you think builders of 20 to 30 years from now are going to be successful?
WP: Well, I think that the value is always going to be an important factor even if you are doing high-priced houses. Value is always going to be a factor.
RD: What about the factory component, built homes or manufactured products?
WP: I think that we are going to find a way to build a house in a much faster way. In other words, in three weeks you could build most houses. Not a custom house maybe, but a real house.
I think franchising is a great opportunity for somebody like Pulte. An example, we may have four brands for just discussion: the lower-priced brand, a high-end brand, and two in the middle. So we have four different sized houses, and we have 20 models each, so that's 80 models. And then we would have different elevations for these. So we could take some person in a small town of 250,000 people or less and offer the franchisee a book of our plans--not just the plans, but actually pictures of the house built.
And that guy could go to any customer that comes to him, and he could offer any of these houses and offer them to be built in 90 days because we're going to ship him the parts.
RD: So he's going to order the materials, the precut lumber, everything to this location, and we are going to be the potential supplier to that.
BB: Not unlike the Sears catalog.
RD: Not unlike that. One of the things Bill has talked to me about over the years is the volume of business that a builder does today in year 2010 doesn't allow for that because we are not big enough in a given city.
But if you fast-forward 15 or 20 years, and I'm just going to make this up:Let's say we're doing 5,000 houses in most of our major markets. Then you've got the potential for one of these manufactured ideas and facilities to be operational, and then the incremental business opportunity to ship that to the cities that are 100 or 200 miles away might make sense. And if you do it in a cost-effective way, it would make it better than the local builder could do it.
WP: What's a false thought in the home buyer's mind is that a stick-built house is better than a manufactured house. That is pure nonsense as you know. A factory-built house is much stronger, it's much more precise. It hasn't sat out in the weather for all these weeks. It's so much better a house. Normally you could say that you can't build a house in a little town of 1,000 people or 5,000 people, but the little builder is not the way to do it. The franchisee is the way to do it.
BB: You guys stuck a toe in the market a bit before the market crashed with your Virginia panelization plant, right?
WP: One of the big problems is cities make it more difficult. We had that panel plant in Washington that was building the best house America was building. But every time you went to a new jurisdiction, it would take 90 days to 120 days to get it approved, which is nonsense.
RD: That's one of the visions of the future.
BB: Let's get back to the part about how people say you're a builder's builder. I know people who have walked houses with you, and you would spot things that weren't quite right. You were known for your eye, for that kind of attention to detail. At some point, you realized you couldn't do that with every house. Was that a hard thing to let go of, and where did you channel that energy?
RD: One of the things that Bill has done, I think exceptionally well over the years, was to hire people that were very competent in many areas of the business. One of the things we have is a Pulte operating system. We are attempting to take what effectively was Bill's eye and build that into our construction standards, build that into our processes that are used around the company. I think that, like any big business that grows, it becomes impossible for the founder or one individual to put your finger on things.And Bill's never been afraid to hire smart people.
WP: I always try to hire somebody smarter than me and with more common sense.
RD: Bill, if you don't mind me tooting your horn for a minute, I think it's pretty rare for a guy to have as little ego as Bill does in the position that he is in. And Bill will tell you that everybody's got an ego, but some can control it, and some can't. I think Bill has been able to control it a lot through the years because it's never been about Bill Pulte making the decision, but it's about the company getting the benefit.
And I think that has, in my opinion, attracted people to the company over the years who have that same philosophy. So, I think that a big part of my goal is to keep that kind of innovation and the thought process going. Because who cares who makes the decision? It's about the company being successful.
WP: I don't think there is such a thing as a self-made man. It's not the man, it's not the people right around him, it's the whole team. The whole team makes the thing work, no top three people and no one individual. That's always been my idea.
BB: Well let's give you the chance to toot Mr. Dugas' horn. Can you talk about why you think he's the best to be succeeding you? Obviously he's had a long training period.
WP: Richard was working for us maybe eight or 10 years when I first met him, and it happened because we were remodeling my office section, and the only office they could put me in was at the other side of the building. But Richard was right next door, right across the hall. That's where I first saw this guy, and I said, "You know, that guy can think, and I like that. And you know he gets to the point fast, I like that." So I thought I really have to keep my eye on Richard.
I learned that he had a marketing background. That enticed me because I think marketing is a lot more important than people think in any product. So many husbands and wives design their own house, and they have only their individual thoughts in mind, not what the public wants, and they can't figure out why their house doesn't sell. It's because it's based on their wants, not what the public wants. And Richard was the one who started to help us go much further with that. I wanted Richard to get out in the field.
RD: Let me insert something here. All these years I thought that I chose where I went, and I didn't realize that I had a hand guiding me there.
WP: But he did, and it worked out very well for Richard.
BB: He must have been fairly young at that time.
WP: He was probably 35 or 36 because he got the top job at 38. Didn't you?
RD: I joined the company when I was 29, I went to Atlanta at 31, I came back here as COO at 37, and I got this job at 38.
WP: I made a mistake. I made the right move but for the wrong reasons.Because when I got the first job that I put him in here I was debating who to put in as CEO and who to put in as COO. And the fellow I put in as CEO was by far the oldest, and I thought we were headed for a recession then.
This was back in 2002 because we hadn't had one in a while, and the fellow that I put in had been through two or three or four recessions. He had been in the building business for a long time.
So, anyway, I gave Mark O'Brien the job, but I told him only for a couple of years as CEO, and Richard, we put him in as a COO, and that was a good thing because Richard went out and met all the divisions and had great rapport with all the divisions, so when we put him in as CEO, it fit like a hand in the glove because he had a rapport with them all, and they accepted him.
RD: We probably didn't recognize at the time how important that was.
WP: No, I didn't.
RD: It gave me some credibility.
BB: The merger is done. Was that a major achievement for you, Bill?
WP: Well, it was a major achievement for the team. Every time I have ever had an acquisition or a merger, we always took control. So, with this merger, everybody realized that our cultures were very much alike. And we made it quite clear from the beginning that this was going to be an acquisition, or we wouldn't do it. And, as it turns out, it's been an enormous success up to this point because of all the planning that Richard and his team did on how to put it together.
We had the experience of a merger with Del Webb, which didn't end up as smoothly. It was still the same way, we had total control, but we made a few mistakes in the merger of Del Webb, and it took us longer.
RD: We moved so much faster on the Centex merger even though it was 10 times larger. We didn't let any grass grow. We really learned our lesson with Del Webb. Let me give you an example. Before we even closed the deal, we had several layers of management picked. We had operating systems selected. We had the branding kind of sorted out. So, as I said today, it's only been six or seven months since we closed it, but I think a lot of the heavy lifting is behind us, and I think that's rather rare.
BB: It seemed somewhat seamless.
WP: You would be surprised at the number of people remaining with us from Centex who love to be with Pulte.
RD: One of the things that I think helped with that is that we made it very clear we wanted this to be one team and a better company. We didn't want it to be the old Pulte, the old Centex. We wanted the new Pulte. The leadership team expected us to work as one.
The major reason this has been successful for us is that we picked the right partner. I would tell you that the cultural integration that Bill mentioned is so important. Can you imagine if we were fighting ourselves on whether we believed quality was important or not or whether we believed branding was important or not? Or whether we thought we should be this location or that?Centex was the most similar culture, and I think in a lot of ways did things very similar, too.
BB: And you've learned some things from Centex?
RD: That has, believe it or not, helped a lot because it said to the legacy Pulte employees that we are not the best at everything. Let's not let our ego get in the way just because we are the acquiring company. Let's pick the best of both, whether it's people or sales process. I think we would be foolish if we assumed that Pulte was the best. It's been very eye-opening and helpful. When you get to what Centex was paying for shingles in one market and us in another, you would see that in some places Centex was paying less, and in some cases we were paying less. That's the best about going forward.
BB: It must be hard on you to see what has happened to the Midwest as far as jobs. It's your home. Any thoughts about that?
WP: The reason I started to geographically diversify was because, unfortunately, Detroit was a one-industry town--cars. So I decided, and it worked, to go to Washington, D.C. We were building exactly the same product in Washington that we were building in Detroit, but we were building four times more, and the reason is Detroit had only one-fourth the demand. At that time, Washington was a booming town, and Detroit was not necessarily a booming town. It was in one of its slow times. So very quickly Washington became our prime market.
Then in a little while we went to Chicago, we went to Atlanta, we went to Denver, and then all of a sudden Denver became the booming town. We realized that, until Denver, we were building for the first and second move-up buyers who were coming out of those houses like I had built at first in 1950 because those families had started to have four and five kids, and those little two-bedroom bungalows with the now finished attic weren't big enough.
But now their kids were getting to be adults and they had their own families, and it was a big time in Denver. So we went back to the first-time home buyer, which was really my second crack at it because the parents of those buyers were my first crack.
So, when we started to boom, we realized how important geographic diversity was. So I have never looked at Detroit as being sacred to me in any shape or form.
RD: It just happens to be where the company was founded. Detroit is our home. We want to be here. Detroit will be back. It's going to be a long time before this town improves, but it doesn't mean there aren't opportunities here. We are patient.
CK: Bill, what's the mark you hope you are leaving on the company?
WP: A great team.