The Art of War applied to homebuilding

The Art of War is a 2,000 year old Chinese military treatise attributed to Sun Tzu.  Composed of 13 chapters, each of which is devoted to one aspect of warfare, it is considered to be the definitive work on military strategy and tactics of its time.  It has been translated into dozens of languages and is still read today for its military insights.

As a strategist and tactician, I respect and admire the principles of The Art of War as they are applicable to any competitive endeavor or business.  Perhaps the best example of these applications is in the auto industry where the Japanese automakers, virtually non-existent at the end of World War Two, quickly secured the “price” position worldwide through automation and other production efficiencies (plus government subsidies and incentives) at the expense of Ford, GM and Chrysler, They then attacked the quality position with Lexus, Infiniti and Acura soon also securing a major share of that market segment, again primarily at the expense of the American auto industry (Cadillac and Lincoln) while also making inroads on the German auto industry.  But inertia and lack of attention to maintaining a strong defensive position took its toll on the Japanese as the Korean automakers, with Hyundai leading the way, has made substantial inroads into the “price” position and has now also moved into the “value” position.

Following are a few selected quotes from The Art of War which, in my opinion, are especially applicable to homebuilding, along with some specific applications:

Speed is the essence of war. Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where he has taken no precautions.

Extensive research of the market and the competition is essential to creating a USP, a unique selling proposition that is the basis of the homebuilder’s strategy, bringing to the market what the buyers want and can afford and is different from the competition.  Most homebuilders are complacent, with inertia holding them back from making the changes in location, product, design and features and processes that the market demands.

Once you have identified the “hole in the market”, the opportunity that exists waiting to be served, then you must expeditiously provide the solution and bring it to the market while the competition is asleep.

In one market in which I am active, a local builder began to develop integrated communities – innovative land planning combined with new home designs that were rich in features.  While the competition continued to do business as usual, building the “same old” housing product in subdivision environments, this builder delivered a superior total housing package and became the largest builder in the market, continuously growing sales volume, market share and profitability while the two previous largest builders in the market slowly withered away.

He who knows when he can fight and when he cannot will be victorious.

Competing “head to head” in the same location with the same product and the same prices cannot achieve meaningful success.  If there is an established “price” builder in the market, become the “value” homebuilder providing meaningful quality, features and service.

When the choice land has been scavenged by the nationals at bargain-basement prices, look for infill locations, seek alternate housing products, and investigate all the other options.  Overpaying for land is what proved disastrous at the end of the last housing boom.  Instead, look for creative solutions.

One homebuilder bought a distressed townhome development in a great location at advantageous pricing.  After thorough research, instead of fighting against the voluminous townhome resales, they converted the remaining homesites into detached patio homes.  Providing the only opportunity in this desired area for the ready-made market of townhome sellers to purchase a move-up product single family proved successful and delivered the highest profit this builder had ever enjoyed.

Invincibility lies in the defense; the possibility of victory in the attack

Create a market position that is immune to competitive attack – your USP must be “unique” so that it cannot be duplicated.  The strongest opportunities exist in company identity and process, location and community design; the weakest in product design, features and pricing.

You must first secure own market position and only then can you look for a weakness in the competition that appears likely to be exploitable. Again, once you exploit that weakness the newly created position must also be secured.

One of the largest regional builders active in one market area was successful in the “price” position having secured several advantageous land acquisitions.  Looking to expand market share, they decided to enter the “value” position. While they were concentrating on entering this new position they forgot to look behind them and two new homebuilders took over their price position.  This regional builder also failed in their attempt to expand into the “value” oriented move-up market as they could not escape their established reputation as the “price” builder.

Opportunities multiply as they are seized.

Nothing begets success like success, even in the current market conditions and continuing challenges in obtaining development financing.

One local homebuilder who successfully sold out a small work-out community was immediately approached by two land owners to take over their larger developments on a joint-venture (no cash) basis.  Previously limited by financial capacity, this builder has more than doubled sales volume and enjoyed a 175% increase in profits.

In another market, a builder that had created and successfully sold out a creative small in-fill duplex community received some positive publicity in the local paper which made it into the hands of a venture capital firm looking for a place to park some serious money.  With funding in hand, this builder is now in the process of developing two major planned communities.

Regard your soldiers as your children, and they will follow you into the deepest valleys; look on them as your own beloved sons, and they will stand by you even unto death.

A homebuilding company is a family, a team working together toward a common goal.  The entire corporate culture and tone of the business operation is set by the leader of the company and the best possible performance of the team is fostered by the head of the “family”, the company president, treating each member of the family with trust and respect, providing the proper encouragement and always leading by example.

A properly motivated team works harder toward the common goal.  Although appropriate financial reward is one tool for motivation, it is insufficient by itself and usually not the most effective.  People will work hardest when they believe that they are part of a shared endeavor that provides recognition and positive reinforcement.

 

Contrary to the national media’s continuing negative coverage of the housing markets around the country where they concentrate on the recent increase in foreclosures, that is old news which had already been reported for months as the “shadow inventory”.  Most housing markets are poised for a recovery and that is especially true for new homes as inventories are at record low levels. Opportunities will abound for homebuilders who understand and utilize intelligent strategy and appropriate tactics.  But that’s just my opinion.

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