HOMEBUILDERS – OPEN YOUR EYES AND SEE THE “800 POUND GORILLAS” IN THE ROOM

gorillaIn 1930, to most Americans, African animals were still exotic creatures from a little-known land. When an orphaned infant gorilla named Bushman arrived at the Lincoln Park Zoo in Chicago he quickly became an international attraction.  He appeared in newsreels. The nation’s zoo directors voted him “the most outstanding animal in any zoo in the world and the most valuable.”  He died on New Year’s Day in 1951 and for weeks thereafter mourners filed past his cage.  His mounted remains were then displayed at the Field Museum of Natural History.  

I only had the opportunity to see Bushman once when he was alive but I made certain to stop by his exhibit whenever I was in the museum for several years thereafter and probably due to his influence, with assistance no doubt from the movie King Kong, gorillas have always held a special fascination for me.   In my mind they are majestic animals to be admired so the phrase “the 800 pound gorilla in the room” has always seemed to me to be somewhat disturbing.  They certainly deserve to be recognized for what they are but they are not necessarily, in my opinion, to be feared. 

Returning to the subject of housing, my crystal ball is not perfect and I truly hope my vision is wrong but I am seeing in the near future the possible demise of the small, 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 first locally, then regionally, and then, both through growth, merger and acquisition, the “big boys” came into being.  You may know them better as the “Nationals”, the top of Professional Builder’s “Housing Giants” or Builder Magazine’s “Builder 100 List”, or at the very top as the component members of the several homebuilding ETFs.  But regardless of your choice of reference, they are individually and collectively the “800 pound gorilla in the room”.     

My uncle was one of those smaller local homebuilders in the 1950s, 1960s and 1970s, operating in the Chicago area and producing 40 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 very comfortable living.  

Certainly conditions have since changed – improved vacant homesites are scarce or non-existent in most locales with almost all of the choicest sites having been picked up by the national and large regional homebuilders with their lot inventories now in the tens if not hundreds of thousands. Prices of land suitable for development are rising almost beyond reason and A & D financing often still often remains elusive for many of the smaller builders.  Competition is fierce with the “big boys” typically enjoying price advantages due to economies of scale and national contracts providing cost savings while also benefiting from yet more economies of scale in their advertising and promotional costs. 

Instead of just rolling over and playing dead (one common defense to a gorilla), I believe that there still are substantial opportunities for smaller local homebuilders to prosper in every market if they will take the time and expend the energy and/or spend the money to research their markets and create an optimal strategy for success.  That strategy will identify the realistic opportunities in their market and provide a step by step program for implementation. 

Rather than trying to compete directly and head-to-head with the “big boys” (building in the same location with basically the same housing products and at the same price points) and accepting what will, at best, be their leftover sales, it is important for the smaller homebuilder to identify and create one or more “niches” that minimize direct competition.  Depending on the local market conditions and the actual strengths and abilities of the smaller builder, a few of the many opportunities would include:  Continue reading

The Vikings now and then

There is a new and popular TV series on the History Channel, Vikings, which tells of the adventures of Ragnar Lothbrok as he rises to become king of the Viking tribe.  I watched the initial year of the series in 2013 but my interest faded thereafter, possibly because new and less dark programs caught my attention or, more likely, as nostalgia from my youth interfered for I remember my original introduction to the world of the Norsemen. 

vikings - 1958 movie“Harken back to the bad old days of Technicolor film and The Vikings (1958 – starring Kirk Douglas, Tony Curtis, Ernest Borgnine and Janet Leigh), when men were real men, women were real women and a ‘cast of thousands’ really had a cast of thousands.” 

How on earth could any small child be less than profoundly moved by the images of eyes being ripped out by a hawk, people being eaten by crabs, wild wolves feasting on  people in a pit, hands being chopped off and so much more mayhem? 

And who could ever forget one of the most memorable screen lines ever, obvious even to a 12 year old as being so totally “wrong” – Tony Curtis’ wonderful “Yonda lies the castle of my fadda…”? 

Perhaps that movie created within me a goal of in some small way emulating the Vikings, certainly not as a pillager of defenseless coastal communities but, rather, as an adventurer, an outsider, traveling to foreign places (in this case new markets around the country) and finding the weakness in the competition within the homebuilding industry to develop the optimal strategy to “attack” the establishment and their often faulty customs and practices so that my clients can reap the rewards. 

The homebuilding and residential development industries represent to me the perfect opportunities for business success: 

  1. The end product, a new home, is as close to optimal as possible – it is something that almost every consumer desires. This is the one business in which we can deliver something that is actually wanted and needed and delivers long-lasting value and benefits far beyond the concepts of shelter and economic reward. 
  1. This is an industry in which the opportunities are virtually unlimited. A new company can compete head-to-head with established operations, even large regional and national companies, and profit and grow simply by following the old adage of “building a better mousetrap”, in this case creating a better home and community lifestyle.  
  1. In almost every local housing market and during almost every overall economic environment there are opportunities for success. The market is always replenishing itself as continuing population growth and household formation create ongoing demand.  Yet even when the local market is not growing there is still potential to prosper by “stealing” market share from the competition, either other builders or the resale market. 

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Can there really be “Too much of a good thing”?

Cato the elderMarcus Porcius Cato (234 BC – 149 BC) was a Roman statesman commonly referred to as Censorius (the Censor), Sapiens (the Wise), Priscus (the Ancient) or, more commonly, Cato the Elder (to distinguish him from his great-grandson, Cato the Younger). His most famous quotation is probably “Patience is the greatest of all virtues” which certainly has merit. But I have always been more interested in another of his maxims, “too much of a good thing can be a bad thing”, which I find somewhat ambiguous and vexing.

If “good” is defined as “of a favorable character or tendency; suitable or fit; commercially sound; agreeable or pleasant; well-founded or cogent; adequate or satisfactory, would it not seem that more would be better? In fact, one of Mae West’s most memorable quotes, and my second favorite after “You only live once, but if you do it right, once is enough” is “Too much of a good thing can be wonderful!” But I wonder if that is really true.

My opinion is that many consumer goods are specifically designed not to be too good. They often have built-in obsolescence and do not quite have all the features you really want so that the next sequential model, which includes new upgrades and bonus features, is attractive for purchase. Witness the iPhone 6 Plus which is arguably better (certainly bigger) than the 6 which is superior to the 5 which was better than the 4, etc. and once again created massive pre-orders and anxious customers waiting in line for hours to spend their money.

In the homebuilding industry we have usually not been able to create this same desire in the minds of the consumers although I remember several grand openings in better market conditions when buyers camped-out overnight to assure a place in line and lotteries where hundreds of potential purchasers eagerly signed up for an opportunity to buy. And while I see homebuilding continuously getting better with 2015 looking even stronger than 2014, I have to wonder if we as an industry are not that “good” and not doing all that we can to assure our success.

For my entire career I have been a strong advocate of prospect follow-up as it has been proven to be one of the most effective tools to produce incremental sales and profitability. But I have required proper implementation of this process with a consistent and positive approach. Today I received the following follow-up email from the concierge team at one of the largest national homebuilders:

Daniel,

Over the last several months, we have introduced you to our company and all we have to offer as a luxury home builder. However, we have only scratched the surface! Please let us know where you are in the process by answering the following questions:

Are you still in the market for a new home?
Have you purchased elsewhere?
Is there any reason or concern that is holding you back?
Can we provide any additional information to help in your decision?

If your situation has changed and you no longer require our assistance, please click on the link below our signature to access the Email Preference Center to unsubscribe. We would love the opportunity to connect with you again, so reply back or call us today!

(names omitted), Online Concierge Team

Perhaps I have misinterpreted this correspondence but I found it to be one of the most negative messages that I have recently received, lacking in the basics of what I believe would be proper prospect follow-up:

  • Other than the use of my first name, where is any part of this email that speaks to me personally?
  • Where is the positive “selling” message that would spur me to take action?
  • Why would you possibly wish a prospective customer to unsubscribe?

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