Analysis



Last week’s big announcement of the merger of StanPac and Ryland Group, creating a new member of the Top 5 Homebuilders, spawned a flurry of articles and blogs, most of them suggesting the kingdom and the power and the glory of mergers, forever and ever, amen. The truth of the long history of mergers is, with a few notable exceptions, that they are virtually always "less than meets the eye," sometimes dramatically so. Don’t believe me? Ask anyone who was an employee of one the firms, three years later.

The shortage of qualified trade contractors is a problem that vexes the entire industry and finally people are waking up to it, largely for the wrong reasons. Suddenly trade shortages as an obstacle to growth is appearing in articles and blogs and occasionally even cited by industry market researchers and engineers. Here’s the bottom line: we have tremendous structural demand at all price points yet there is ample evidence that in each segment and especially entry-level, sales prices are too high.

So who's going to build entry-level? Great question, but until it's solved, everyone else building the move-ups will see their opportunities restricted. The key issue here is cost and builders by and large live in a strict paradigm that says if land, labor and materials are all up – which they are – how can we possibly build entry-level housing at the margin we need? Now comes the scary part. Everyone is looking to a Fed rate increase this fall, and then what?

One of my “guilty pleasures” – you know, things that you should be embarrassed to admit you love – is the John Travolta movie, The Phenomenon. It is a sweet and sappy but scientifically intriguing yarn about an auto mechanic who has no idea why but suddenly finds incredible brain power that first astounds, and then frightens the local townsfolk. Robert Duvall, playing the country doctor, tends to Travolta as overzealous government agents try to steal him, while his girlfriend Lace tries to comfort him.

The Wells Fargo/NAHB Builder Confidence survey, for February, reported a historic drop in Builder Confidence. The report was hyped and in some cases further embellished on many television stations and in print sources. The apparent source of this drastic decline in Home Builder confidence was the 9% drop in February’s prospect traffic. Come on, give me a break!
 

I have taken quite the respite from my blogging activities, despite statistics that showed a growing readership.  For whatever reasons, I felt the blogging juice just didn’t justify the squeeze.  I wrote of topics ranging from referral sales, to customer service, to ultra-marathon running in an attempt to draw readers in.  Well, this blog post is different. 

During Operation Desert Storm in the early 90s, France’s decision to not support the U.S. intervention revived an old joke from the World War II era.  

It has been long been said that “homebuilding is a local business” and as much as I’d like to think that Lean always transcends locality, that is not always the case. Last week during one of our LeanWeek events in Austin, the head of a drywall installation company asked about using 54” width drywall—aka “stretch board”—in lieu of standard 48” widths for 9’ ceilings. Nine foot ceilings are rampant in Austin and so many other markets these days—unless of course they are 10’.

Do you remember the last time you received a piece of personal U.S. mail (not counting bills)? According to a recent study, the average American receives a piece of personalized U.S. Mail every six to seven weeks – and this includes birthday, holiday and other family generated cards. Wow, what a metamorphosis in personal communications in the past 20 years!

I read thousands of customer surveys every year – THOUSANDS!  This customer insight gives me a unique perspective on many home building topics, like today’s “Finding Your Special Agent 007s For Huge Sales Increases."

I wrote my first article on the coming trade shortages last October about the perils and politics of immigration policy. I wrote the second one in December providing a 10-step immunization plan to protect a builder from the effects of trade shortages. I receive so much mail, pro and con, that for February I published two of the best letters and commented on them.

When I travel with my wife, or sometimes just run to the grocery, cleaners or hardware store, she frequently has to remind me, “Scott, remember, you are NOT in charge here.” Many of you fellow Leanistas know the drill. You hardly ever see a restaurant, a checkout, a meat counter at the supermarket, a parking lot or God help us a TSA line at the airport – in our out – that we could not spend 5 minutes rearranging and save folks a ton of time and money.

When I was part of a growing home building company we learned to be on guard for the newest “technology” coming down the pike that promised to revolutionize our home building business. We called the condition of falling for these fantastic technology claims the “allure for the sexy lady of technology.”  Thirty years later, it is safe to say, some things never change.  Before I expand on the latest siren of technology, let me give you the results of a couple recent studies.

It is not a secret to regular readers that increasing a home builder’s customer satisfaction increases referral sales.  Many home builders blow away the 15% national average of referral sales and achieve 40-50%, by virtue of meeting the customers’ hierarchy of needs and having in place a respectful referral sales strategy.

The market bottom is clearly behind us, and this is validated by three very reliable indicators.  First, annualized home starts have more than doubled from the Spring of 2009.  Second, consumer confidence (and therefore builder confidence) continues an upward trend, and for regular readers, you know these are good predictors of sales activity for the next 6-9 months!  Third, and my favorite market turn around indicator, is that the Salesperson Auto Indicator (SAI) has turned positive.

There is no question that Lance Armstrong has one of the most unique comeback and sporting histories of all time.  He was a little known triathlete, cancer survivor, turned seven time Tour de France winner, and founder of an extremely successful non-profit foundation, before dramatically falling from public grace by virtue of the U.S Anti-Doping Association (USADA).  As a fellow cyclist and racer, I held Lance’s accomplishments in very high regard, adorning my office with Lance posters and a picture from our meeting after his 7th tour victory.


The first lesson that I learn

My December column just came out on HousingZone.com and you can read it here: http://www.housingzone.com/scott-sedam-how-do-you-lead-leader or in the Professional Builder magazine.

We all know that teamwork is an important ingredient in building great homes and great relationships with our customers. This importance is substantiated by Woodland, O'Brien & Scott studies showing that a builder's teamwork rating is a good predictor of future referral sales. Given the importance of teamwork, particularly as we head into a busier year end construction and closing season, the following teamwork fable may be helpful.


In the days before civilization, out on the prairie, lived four oxen: Randy, Todd, Scott and Chuck.

Performance bonuses have been around the homebuilding industry for a long time.  Salespeople earn commissions and bonuses based upon their sales productivity, and Superintendents earn bonuses for their Quality, Budget and Schedule performance.  For the most part, customer satisfaction bonuses were left out of the equation…until that is…a particular marketing company decided to venture into the home building industry with their version of “Customer Satisfaction” awards.  Regardless of the accuracy or merits of that award program, it proved to be a performance bonus game change

Team sports analogies have long been used in home building for obvious reasons.  They both have the common component of individual performances that roll up into team results.  Home building is the ultimate team endeavor, made up of internal employees and external trade partners numbering into the thousands.

Why is teamwork important in home building?  The answer is potent – customers' teamwork ratings are highly correlated to customer referring activity and future referral sales! 

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