About 35 years ago, I predicted that before long the housing industry would bifurcate and, like a barbell, be heavily weighted at both ends and mostly empty in the middle. At one end, I said, would be a relatively small group of big builders and at the other end would be a relatively large group of small builders. Mid-sized builders—those building from 25 to 100 units—would be squeezed out.

Turns out I got it mostly right. Yes, mid-sized builders, while not extinct, are a dying breed. And, yes, what’s left is an industry of big builders and small builders. However, I underestimated how big and powerful big builders would become. How big? How powerful? Consider these facts:

  • There are 21 builders with revenues greater than $1 billion.
  • The recent merger of Lennar and CalAtlantic has created a $17 billion builder behemoth.
  • In most major housing markets, the top 10 big builders account for at least 50% of all closings.
  • The top 10 builders control 30% of all closings nationwide.
  • The top 100 builders control around 50% of all closings.
  • The top 1,000 builders control 75% of all closings.
  • And the top 4,000 builders control 87% of all closings.

Metrostudy, the industry’s leading data provider and BUILDER’s sister company, estimates that there are about 30,000 bonafide active home building firms. Do the math. That means that 26,000 small builders are fighting over 13% of all housing activity.

So do small builders stand a fighting chance? I say “no” if they build houses that copy cat the nice but unremarkable houses the big guys typically build. But I say “yes” if they follow the lead of successful, independent restaurateurs who compete against the chains that control 60% of total restaurant sales.

Think about it. I bet there’s spot in your neighborhood selling thick, juicy burgers with gourmet cheese on artisanal buns. They’re always busy. And never mind McDonald’s.

I’ll bet there’s a neighborhood with a cluster of small restaurants serving a variety of cuisines, and they’re hard to get into. Never mind Olive Garden or Denny’s.

And I’ll bet there’s a coffee shop you pass on the way to work that’s immensely popular. Never mind Starbucks.

My point, I hope, is clear. If you’re a small builder, do something different. Think of the burger spot in terms of building custom homes (or doing high-end remodeling). Think of the small neighborhood restaurant as a cluster of contemporary-designed detached or attached housing. Think of the coffee shop as a cottage-like starter home on a passed-over lot. In any case, think of doing something most big builders either can’t or don’t do.

So, if you want to survive and succeed as a small builder—and I think you can—don’t slug it out with the big boys. Dance away from them and do your own thing. And let the housing heavyweights exchange blows. They can take it. You can’t.