How big is your company? What volume of work does it generate annually? How many people does it employ to get that work done? These are some of the most important and persistent questions custom builders face. Important, because the volume-and-staffing formula determines, to a large degree, both the nature of a builder’s job and the character of his or her company. Building one house a year and building 12 are rather different occupations, just as building 12 houses with a staff of 50 differs substantially from doing the same work with a cell phone full of subcontractors. The variations of volume, project size, and staffing numbers are nearly infinite. Questions of size are persistent because the factors that influence those variations—market conditions, labor availability, professional and personal goals—are continuously subject to change. Perhaps that is why, when the time came to ask, we found custom builders so eager to discuss the “right-sizing” of their companies and so varied in their approaches to the task.
Every company starts in growth mode; for those that succeed, the question becomes when to stop growing. After 27 years in the custom home business in Santa Barbara, Calif., Doug Ford answers, “Not yet.” “When we started out, there were two of us in this company,” he says, “and now there are 65. Every couple of years we say, ‘We can do this [amount of business] comfortably; if the market will bear it, let’s see if we can do more.’” Doing so has not always been easy, Ford adds, but his persistence has been rewarded, fueling an appetite for further growth. “We’ve hit brick walls where we’ve dropped back for a year and gone back and achieved our goals. We’ve never reached a point where we’ve said, ‘OK, we’ll never leave this plateau we’ve reached.’” Ford continuously tests his local custom home market and has found it generally strong, but to really push growth, he says, “You have to look for other opportunities within your market.” In recent years, he has added a service and maintenance division and begun marketing finish carpentry services to other general contractors. “There are also some [geographical] areas we’re looking at expanding into.”
Now 52 and doing $17 million in annual volume on projects that average between $2.5 million and $3 million in value, one might expect Ford to be ready to throttle back a bit, but he has no intention of doing so. “I question from time to time whether this is an ego thing,” he says, “but they can change the name [of the company] if they want to.” His main motivation for growth is to keep his people on board and growing in their careers. The bigger the company gets, the more opportunity it can offer its existing employees. “We’ve got more youth involved in the company now,” Ford says. “There’s more enthusiasm and more energy to continue in that growth mode.” And the formula has worked. “We have people who started out with us as laborers who are approaching management positions.”
But continuous growth is not the only way to skin this cat. Donald Heggenes, who builds high-end custom homes on Washington’s Whidbey Island, has put a strict ceiling on the growth of his company, at least in terms of how many jobs he’ll take on. “I try to keep it to a number I can manage myself,” Heggenes says. That usually means two large custom homes and one smaller renovation project. “I don’t like to have more than three.” Rather than find work to keep his staff busy, Heggenes runs with a core of long-time employees and staffs up when the workload requires more hands. When fully extended, his company employs up to 12 field personnel, he says. “But seven to eight, that’s almost perfect.” Natural attrition generally allows him to shrink back when necessary. “You get people, and you get them trained, and they go to work for themselves,” he says. “I don’t mind that a bit.” That’s probably because he has had little trouble finding qualified people when the time comes. “When I started this [current, large] project, it was three guys and myself,” says Heggenes, who is now in the process of hiring five more workers. “I’ve just been putting the word out, and I’ve got guys knocking on my door. They know that what I have has carpenter interest.” Heggenes’ reputation and market would easily support a substantially bigger company. “In the last year I’ve had four projects I had to turn down.” Not an easy thing for anyone who works from job to job. “But I like to do the work myself. I think the days that I have the most satisfaction are when I put on the pouches and do the work. And I think the clients appreciate that, too.”
Santa Rosa, Calif., custom builder Jim Murphy is also committed to limiting the number of projects his company takes on. “We are very particular,” Murphy says. “I’ve got a saying around here that the profitability of the company is directly related to the jobs we choose not to do.” But while Murphy and partner Jay True are committed to limiting the number of projects they take on—and their staff size—they are still steadily increasing their volume. “We try to do six or seven houses at a time,” Murphy says. “We are not trying to grow the number of projects, just the size.” Over the past several years, driven by the market and by the company’s selectivity, average project size has doubled, to between $4 million and $5 million. “That automatically increases your volume, and that’s the goal,” Murphy says. “I do not want to add a lot of overhead.” Running a short list of active projects allows the company to be geographically selective too, working only within an hour of its offices. Murphy knows there is more work to be had out there, but he says, “Our goal is not to be the biggest gorilla in town. It’s to be the most efficient, with the highest quality work.”
Wanting to be the biggest primate in the cage is not the only motivation for growth, however. Boston area builder/ remodelers Bob Ernst and John DeShazo are faced with a situation that is increasingly common among companies of a certain age: Their carpenters are too young to retire, but getting a bit—shall we say—mature for their current duties. “They’re in their 50s, and they’ve been beating themselves up physically for the last 30 years,” Ernst says, “and they feel like they have five more years in them.” Some would like to finish their careers in the field, but others would like to come indoors and take on management responsibility. For the company, that means selling and producing more projects. “To keep everybody on the bus requires a certain level of growth,” Ernst says. Quite a high level, it turns out. “We’re talking about doing $20 million by 2010,” nearly triple the company’s current volume. Given the strength of his market and his company’s capabilities, Ernst believes the goal is reasonable, but he still takes a deep breath before saying so. “We know there’s at least $20 million of work going on out there. But can we capture it?” Time will tell. In any case, the path ahead seems clear. “We feel if the company doesn’t grow, it’s going to stagnate and die.”
Aside from brains and profitability, what the builders above have in common is their commitment to grow—or not grow—by choice rather than at the whim of the market. Ernst and DeShazo went so far as to hire an outside consultant to help them develop a written strategic plan. The lesson is hard to miss: For builders who want to shape their own company, rather than leave the matter up to what business comes in the door or which employee goes out, size matters.
How do you right-size your company? Tell the editors of CUSTOM HOME what’s on your mind. Send your comments and questions to Bruce Snider at [email protected].
