Pirrello’s Law: Think Different, Act Local, Eat Someone Else’s Lunch
Mad props to Big Builder award-winning “Big Money” columnist Jamie Pirrello for another strong post, this one pointing up the hard but true reality home builders–particularly, privately capitalized home builders–face today.
It’s profitable sales or die, and there’s less and less ways to get there.
- A deleveraging economy, and a housing market that’s correcting a two-legs-up-with-no-leg-down 15-year span mean little to no rising tide of demand through the next planning cycle.
- People cuts have been done; while more costs can come out via more centralized structure, better matrix management, greater trust across disciplines and operations, slashing one’s way to profitability has more or less been accomplished by now.
Hence, if 550K S.F. home sales now represents a “good” year run-rate, there’s one and only one way to make it on a recovery trajectory with a slope practically indetectable to the naked eye. For the privately financed home builder, that is “eat somebody else’s lunch.”
Pirrello puts it more diplomatically:
The answer is through differentiation; providing the opportunity to charge a premium price because your value is noticeably superior in comparison to your competitor’s. It’s through innovation and staying ahead of your competitors in understanding today’s customer, not yesterday’s customer. It’s not imposing more rules, policies, and procedures on your people, but demanding and giving them the approval to act with common sense. It’s no longer accepting mediocre performers, but actively recruiting top talent.
Pirrello’s assumption is that within each price point range in each submarket, there is a position. Characteristic of that position is a balance of absorption rate and profitability. Thing is, there’s no way to get it without winning it.
Which means there have to be losers. (Which is good only for those who’re in the history business.)
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Jamie is right on target! It is just finding the right talent that is the real challenge.
Custom and independent builders must seek ways to improve the efficiency and effectiveness of their purchasing process. Like the nationals, most of these smaller, privately held builders have adjusted their staff/overhead to be in line with current market volume and further reductions on the cost side can only come from getting better at how they buy their sticks and bricks and run their operations. They must find ways to accurately compare pricing and leverage their purchases in the marketplace and reward those vendors and suppliers that are supporting these efforts. The well-run companies that provide labor and materials to the building community are just as focused on reducing their costs and increasing efficiency as the builders are, so therein lies an opportunity for working in partnership to lower the overall cost of a home. Custom and independent builders that recognize this opportunity and take the steps necessary to capitalize on it will be in a much better position to retain and grow their market share, despite the pressure that will come from larger competitors.