Scenario: After struggling for a year with too much work and not enough people, Barry had finally succeeded in hiring a new superintendent. And of course, as soon as he did that, demand slacked off, so that now his new superintendent half busy. “I'm tired of this feast or famine,” Barry told Molly, his office manager. “Everyone is either working 16-hour days, or else we're losing money from too much overhead. Maybe I should quit building these custom homes, and start stamping out cookie-cutter houses. At least that way I can have a steady supply of things to build.”
What should Barry do?
Solution: Barry is suffering from “the grass is always greener” syndrome. If he ever switched from custom to cookie-cutter homes, he'd discover a whole new set of problems—greater competition, boring design, and even periodic swings in demand. To even out his workload Barry doesn't have to switch from one type of house to another—he needs to do a little of both. Periodically, Barry needs to build a spec house to absorb any excess labor he has and to have an extra supply of product available for those spikes in demand.
Unlike production building, building a spec house while building your custom homes doesn't have to tie up massive amounts of capital and it doesn't require large tracts of land. All it requires is a little planning ahead. It means finding a nice building lot, selecting a plan to build, and obtaining all the approvals and permits ahead of time. Barry should have done the estimating and pre-construction paperwork so that he can immediately shift into production. Unless his subs are over-scheduled, they will welcome the chance to fill in their schedule with an additional house. Excess labor is like empty seats on an airplane—if they aren't filled by the time the plane takes off, they become worthless. When people sit around because they lack work, either they or their employer lose the value of that time.
In addition, the spec house should be the easiest house Barry builds. There shouldn't be an unreasonable client holding up the job or increasing costs with last-minute changes. If the house is delayed a week or two due to scheduling conflicts, there will be no angry clients wondering when they're going to move in. And best of all, if a potential client drops in and needs a house earlier than Barry could otherwise deliver, Barry has something to offer. Moreover, some people are afraid of the custom building process, and prefer to buy a home that is further along in construction.
If the spec house sells early enough it can be treated like a custom home, with upgrades, changes, and client selections. But this shouldn't be a problem, as Barry is already organized to deal with those kinds of customer interactions.
Once a spec house sells, Barry should be ready with the pre-construction preparation for the next spec house. He should already have the lot, the plan, and the pre-construction paperwork. The number of spec houses Barry can take on at any time is a function of his total production, his willingness to take risk, and staffing levels. But by building both kinds of houses, Barry spreads his overhead over a larger number of houses, increases the productivity of his staff and subcontractors, and creates additional sales and profit. It's really the best of both worlds.
Al Trellis, a co-founder of Home Builders Network, has more than 25 years of experience as a custom builder, speaker, and consultant. He can be reached at [email protected].
