I have taken the liberty of modifying the 1980’s adage of “Wake Up and Smell the Roses” which is probably the product of a mixing of metaphors – “Stop and smell the roses” (i.e., appreciate life) and “Wake up and smell the coffee” (i.e., get real).
The smell of roses and even coffee is usually quite enjoyable but what I am smelling lately in the homebuilding industry is something far less pleasant. And we all need to take a deep breath of that reality and let it sink in so that we fully appreciate the implications if we are to survive and prosper in the future. And that reality is the possible demise of the smaller, local production homebuilder who may well be forced into a permanent niche as an even smaller custom builder and remodeler.
When I started in this business the homebuilding industry in this country was totally localized and smaller local builders dominated. By the 1970s, the larger and more successful local builders expanded regionally and then, both through growth, merger and acquisition, the “nationals” came into being. In recent times, aided by the downturn of the last decade, these industry giants have grown to the point that within the next couple of years they will account for over 50% of all new single family homes built in the U.S.A. and that is in addition to their overwhelming share of the multi-family for-sale segment.
My uncle was one of those smaller local builders in the 1950s, 1960s and 1970s operating in the Chicago area and producing 30 to 50 new homes per year on in-fill sites. He was quite satisfied to continue with that operation as vacant lots were plentiful and construction financing readily available and he made a comfortable living.
Certainly conditions have changed – improved vacant homesites are scarce or non-existent in most locales and almost all of the choicest sites have been picked up by the nationals. Prices of land suitable for development are rising almost beyond reason and A & D financing often still remains elusive for smaller builders. Competition is fierce with the “nationals” typically often enjoying price advantages due to economies of scale and national contracts providing cost savings and also from economies of scale in marketing.
Instead of just rolling over and playing dead, however, I believe that there still substantial opportunities for smaller local builders to prosper in every market if they will make the commitment to properly research and analyze their markets and create a strategy for success! That strategy will identify realistic opportunities in the market and provide a step by step program for implementation and success. Read the rest of this entry »
Although I was not raised in the “South”, I am a southern transplant and I do a lot of business here. As I do not wish to offend, I am therefore cautious not to allow my “Northern” cultural heritage to show through. I lower the volume of my voice, reduce the pace of my speech and am as courteous as my less than genteel upbringing will allow. Therefore, my experience at lunch today was quite a surprise.
Having only a few spare minutes between meetings, I ran down the street to the local bar and ordered a “rare cheeseburger to go, please”. My server replied that it would be about ten minutes, handed me the check which I paid and I watched CNN while I waited. When the familiar Styrofoam box appeared, as I am somewhat cautious with takeout, I opened the box to discover that the cheese was missing. Placing my “Northern” reaction on hold, in my sweetest “Southern” posture I turned to the server and said, “I am so sorry but it appears the cheese has been omitted”.
My server replied, “If you wanted cheese you should have ordered it!” And, at that point, I unfortunately returned to form with my Northern cultural heritage and responded: “If I had wanted lip I would have ordered something close, like a tongue sandwich. But what I ordered was a rare cheeseburger – the key word here being ‘cheese’. If you had bothered to listen to my order or taken the time to verify it you would not have made the error. And then you would not have the occasion to further both insult me and compound your mistake by suggesting that the error was mine.”
A minor incident, certainly, but unfortunately one that is symptomatic of our society today, even in the South, and shows the lack of courtesy and common sense that often permeates daily lives and sales experiences. There are several choices for lunch in this city and you can be sure that I will choose more wisely next time – not because the burger was bad, in fact it was very good, but I truly do not need grief, especially from a server. So that is the last time I will eat there.
And the result is that this business has decreased it’s income, not due to a bad product, not because of high pricing, not because of lack of advertising, not due to lack of competitive strength. They have lost money solely because of the ignorance of an employee, one responsible for proper interaction with a customer – their sales person. And in retrospect it was not the original error that caused the problem but rather the failure of this individual to address the problem correctly. I got my cheese, but I left unhappy.
The solution to any problem with a customer is simple: first, apologize; second, accept and confirm responsibility for the problem; and, third, assume personal responsibility to have the problem addressed and, hopefully, corrected as conditions allow by following-through on that corrective process, keeping the customer informed and obtaining the customer’s agreement on the solution and confirmation that the solution was accomplished. In any business, especially homebuilding, there is absolute truth to the old adage, “if you are not part of the solution you are part of the problem”.
Housing today is increasingly becoming a commodity. There is little meaningful difference between the 2,400 square foot, two story, four bedroom two and one-half bath home of homebuilder “A” and the one offered by builder “B”, regardless of what their corporate image campaigns or advertising may suggest. The design is almost identical, the location is just down the street from the other, the pricing is practically the same, the same features are available, and today almost every builder delivers a quality product. Read the rest of this entry »
A homebuilding client called me last week to ask my opinion of his idea for a new community. He had just returned from a week at the “beach” and was impressed with the housing design that was featured in a new community there – a Key West theme. He thought that these designs would be innovative and appropriate for his market, creating a unique new look.
As this homebuilder operates in the Midwest U.S. I took a deep breath and then cautiously gave my opinion that sometimes, different is not better. A “pioneer” in our business can often be defined as the leader, standing on the hillside, smiling while gazing forward but with an arrow in his back. Typically there are local area preferences for home design and style in the market that should not be ignored. Within those limitations there are often many ways to provide cautious innovation to which the market will respond enthusiastically but I did not think that pastel colored exteriors with tin roofs would be well received in his market.
To properly create a new residential development with a likelihood of success, you must first determine what your primary market position will be – are you a “price” or a “quality” builder? Price is the ultimate amenity and, if you can be profitable while offering a visible pricing advantage, you have an absolute competitive edge. If you cannot be the low price builder, and there is usually only room for one or two price leaders in each market segment, then you must seek to offer perceived value through product differentiation. Here are a few ideas that may assist you in creating additional value for your developments: Read the rest of this entry »