It is the rare custom builder who comes to the job with a formal business education. Most earn their management skills through apprenticeship and trial-and-error experience, picking up essential bits of knowledge where they find it along the way. For these self-made MBAs, advice from colleagues, mentors, and consultants can mean the difference between success and failure. So when builders get a piece of advice that works, they tend to be both appreciative and generous in sharing it with others. We asked some custom builders we know to remember the choicest nuggets they’ve ever received. Their offerings ranged from the practical to the philosophical, and all of them were good enough to pass along here.
North Carolina custom builder Jocelyn Dienst says her Builder 20 club supplied the most valuable piece of advice she’s ever received: “Control your own land.” Dienst had been working in developments that tended to pit builders against each other. In one, Dienst Custom Homes was one of 16 builders, each of which was required to build at least two spec homes. “That sets up for a very competitive environment,” Dienst says. “All of a sudden, it’s negotiate, cut price, all the things you don’t want to do.” While it took four years of Builder 20 meetings for the advice to sink in, she says, “We are starting to control our own land by doing our own developments. We’re actually bringing out our own community come September,” a 6-acre, six-unit gated community. “I’m going to build a spec or two and hold out for the rest to be custom-build.” Evolving from builder to developer/ builder is a serious step—“You have development costs; it’s kind of an expansion,” Dienst says—but the advantages are more than worth the added risk. “You’re able to get out of a competitive bidding situation. You’re controlling marketing and sales. Every company is different, but for us it’s the right direction.”
Kelly Vogan, a custom builder and high-end remodeler in Silver Spring, Md., has transformed his approach to business by following an even briefer injunction: “Know your numbers.” Vogan started out in the business with his father, who taught Vogan everything he needed to know about production but passed along little in the way of management advice. “My dad was an incredible craftsman—I’d put him up against Norm—but he didn’t give a hoot about numbers,” says Vogan. And he followed in his father’s footsteps: “Working hard and not smart, not charging enough, losing money and not knowing it.” Vogan took over the business in 1999, when his father became too ill to work, but it was only after his father passed away that he began to question that approach. “About six months after he died it became clear to me that something was wrong here,” he says. It was a business consultant who first showed Vogan the light, and today he is a changed man. “I’ve become a bean counter first and foremost,” he says. Skill in the field is important, so he hires good people. “My guys are incredible carpenters. I don’t worry about that.” But an owner’s primary responsibility is “knowing what your overhead is, knowing what your direct costs are, and knowing what you have to charge. My role is making sure the numbers are correct and keeping up on them. A lot of guys just pull a number out of the air, like 50 percent markup. I mark up between 65 and 67 percent; 50 would be slim.”
Knowing what to charge keeps the business profitable. But even a profitable business can hit a cash-flow crunch, and custom builders are especially vulnerable. “I can go through $50,000 in a day,” Vogan says. “It’s worse than a drug habit. You have to have cash to back yourself up.” To make sure he is never caught short, he says, “I do serious cash-flow forecasting.” The key tool here is a simple three-page spreadsheet that tabulates payables, receivables, and payroll numbers. The spreadsheet keeps Vogan up to date on “what’s supposed to happen, what did happen, and what to do if what’s supposed to happen doesn’t happen. I can see almost a month in advance when I’m going to run into trouble.” And that long view has saved his bacon more than once. “I had a client bounce a $21,000 check to me last month,” he says. “And it was payroll week. And then they took off to Hawaii.” Without minding the money, “I wouldn’t have known what to do.”
A mere two words of advice gave Albuquerque, N.M., builder Paul Kenderdine both a practical standard for building houses and a broad philosophy of doing business. “Everything matters,” said Kenderdine’s late mentor, an architect he worked with early in his career. It was meant as a reference to detail work, but Kenderdine has found that the same wisdom applies to everything a builder does. “There are certainly projects that are not as desirable as others,” Kenderdine says, but he strives to give every aspect of every project the same thorough attention. He fosters the same approach in his employees and trade contractors: “Regardless of budget, always give your best to the client.” It is a simple philosophy, but it has served Kenderdine well. “All of our business comes from recommendation, word of mouth. It’s been 15 years since I’ve had a number in the phone book.”
To guide his company, Boston builder Grant Rhode draws on advice from two unlikely sources. “[Former British Prime Minister] Benjamin Disraeli said, ‘The key to success is constancy to purpose,’” Rhode says. “On every project, our objectives are clear: quality construction, good value, and timely delivery. In the midst of day-to-day crisis management, we try to keep our eyes on these simple, but difficult-to-deliver, objectives.” His second guiding light came from his Chinese teacher, Mr. Wang, who pointed out that the Chinese word for crisis combines the characters for danger and opportunity. “Remember, when you are in crisis,” Mr. Wang advised, “beware of the danger and take advantage of the opportunity.” And crisis management is the rule in this business, Rhode says. “Sometimes there is too much work. Before long, there is not enough work. The subcontractor doesn’t show. The client’s neighbor recommends a better way. The architect fails to supply information. Payment is late. Dig the hole, it rains for a week.” Chinese philosophy helps Rhode see the larger pattern in such day-to-day struggles. “In crises, we always see the danger,” he says. “But what are the opportunities? Become lean and efficient in a down market; plan to stay that way when the market opens up. Learn from mistakes. Learn from crises how to establish healthy procedures to collect bills, prevent injuries, manage insurance. Steer clear of situations with unmanageable danger signs. Occasionally, step in where others will not, when you think you understand and can control the danger and take advantage of the opportunity. In terms of business advice, Disraeli’s steadiness of purpose is our strategy. Mr. Wang’s explanation of crisis supplies us with tactics.”
Like Dienst, Vogan, and Kenderdine, Rhode was lucky enough to come across a couple of tight little kernels of wisdom and smart enough to put them to work for his company. Any one of these builders will tell you that good business advice is where you find it. You may have found some right here.
What’s the best business advice you’ve ever received? What other questions would you like to see probed in this department? The editors of CUSTOM HOME would like to hear your thoughts. Send your comments to Bruce Snider at [email protected].
