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Learn From the Big Boys
Small-volume builders don't have to get lost in the crowd when they compete with large-volume builders. The trick is learning from the big boys, and then using that knowledge to differentiate your company and retain market share.
Here are some proven strategies from an educational session presented at the International Builders' Show in Las Vegas in January by Patrick O'Toole, senior editor of Professional Builder magazine, and builders Tim Hernandez and Mick Galatio:
- Use local knowledge. Small-volume builders have a better understanding of market and sub-market nuances. A niche for a large production builder is a business opportunity for a small-volume builder. “We understand why it's better to be on one side of the highway than the other or why it's better to be near a certain school system,” says Hernandez, who used to work for Pulte Homes. He's now vice president of New Urban Communities, a Delray Beach, Fla.-based home builder that focuses on small infill sites.
- Control land. The big guys do, and you should also. “This is how you manage your destiny,” says Hernandez. ”If you don't control land, you won't have a future because you'll constantly be scrambling to keep your business afloat.” There are many ways to finance good deals, but controlling land is key.
- Be nimble. Take advantage of your company's size and move quickly when buying land. “We've been able to purchase land that some of the big builders didn't look at or weren't quick enough to buy because they had to get approval from their boards,” says Galatio, owner and president of Desert Wind Homes, which builds semi-custom homes in Las Vegas.
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- Keep your overhead low. This allows small-volume builders to pick and choose high-margin opportunities since they don't have to “feed big machines” like large-volume builders do. Making sure you don't grow too fast is one way to keep overhead in check. Tying spending to your business plan is another.
- Build relationships with several bankers. You need financing flexibility. “Banks can be fickle,” says Hernandez. “They may decide they don't want to do infill anymore or they don't want to lend to home builders.” Shop your projects to various lenders from time to time. You get better rates when they compete for your business.
- Offer one-of-a-kind options. It's the little things — and options — that buyers remember as part of the personalized experience of working with a small-volume builder. “So many home buyers put in doggie doors after they move in, but it's a lot of work,” says Galatio. “We offer a doggie door on our option sheet,” adding that he promotes the option by asking buyers what size door they want for their dog.
- Do joint ventures. Successful small-volume builders often spread their risks and enhance land-buying leverage by finding project partners or selling surplus lots.
Check out the myriad resources for new ways to run your business better and more profitably that are available online from NAHB's Business Management Department in NAHB's members-only Web site.
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