Leadership

The Outliers: Operators Who Excel And Thrive As Others Strive

Outperformers will reap higher returns through the series of harder bumps ahead, leaving the higher risk exposure to a greater number of their peers. The differentiator: Capability.

Leadership

The Outliers: Operators Who Excel And Thrive As Others Strive

Outperformers will reap higher returns through the series of harder bumps ahead, leaving the higher risk exposure to a greater number of their peers. The differentiator: Capability.

March 29th, 2022
The Outliers: Operators Who Excel And Thrive As Others Strive
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They were on the same side. Then they weren't. Time was on the same side as homebuilders, and developers, and investors, and their partners. The high-demand vs. low-inventory imbalance, and the financial outlook that imbalance empowered, spanned a decade or more.

For some five thousand U.S. firms – give or take – that deliver 10 or more completed homes each trailing 12 month period, the predictable opportunity could hardly have been clearer. The playing field tilted towards them, and better yet, it would happen in a strong but spread out stream across the years.

That same 5,000 companies produce nine out of 10 of the new single-family homes people will occupy for the first time as owners or renters. They were set.

How many of those 5,000 companies will be going-concerns by the end of 2023, when the impacts of winnowing, consolidation, and capitulation begin to alter the calculus of homebuilding?

Each one of them – small, medium, large – has striving at its soul, resolve to weather whatever turbulence and a mission to be better than the rest fueling its drive forward. Never have I heard a homebuilder claim to be the equal of his or her peers. Everyone I've ever spoken with asserts that it's necessary and obvious that superiority is the only way to succeed.

And that's when the tides are favoring. Now, though, the tides are making up their mind, and while they're doing that, a strong feeling is that it's going to be a fierce stretch of attrition among the 5,000 firms.

It's outliers – those with exceptional capability in the form of smoothed, patient capital, ironclad relationships with skilled trades, "ins" on the land side, etc. – who'll flourish, even as many others to the right, left, behind, and ahead, go down.

Those who'll figure out first and best how to displace time with greater throughput – with technology, with data, and with discipline – can survive a Hunger Games kind of scenario

All manner of 80-20 rules apply, as they always have, to the 5,000 firms, as do natural laws of location, the magnitude of access to capital and land resources, and relationship capital with land-sellers, municipalities, and building trades, not to mention brilliance, wile, and determination.

The particular array, characteristics and ferocity of challenges facing business leaders of those 5,000 firms add up to a high likelihood that some number of hundreds of those firms – whose value proposition and capabilities have been shaped in an extended period of slow inflation and a modicum of predictability over the past decade plus since the Great Recession – will not be around by the middle part of the 2020s.

The range of firm types, sizes, capital structures, experience, and relationships extends across a dizzying spectrum of corporate entities – from the tiny, to the locally consequential, to the regionally powerful, to the corporately important, to the enterprise elite.

The thing is, now, amid plentiful signs that the juggernaut of demand has only just begun to rev up to its expected level of impact spanning the 2020s, just as many signals of peril, caution and worry are flashing.

Volatility and uncertainty – especially unsettling for residential real estate's front-loaded capital investment draw, followed by long, slow, time-released returns – have butted in to the 2022 picture at a moment greater clarity, stability, and a gradual restoration of capacity were expected to define the near-term outlook.

What's changed specifically in the last 12-month frame of forces and factors that go into an outlook is that going into the 2020s, time appeared to be on builders of all stripes' side.

Now time in the wrong field of the ledger of what goes out in expense and what comes in as revenue is an existential enemy. Here's 10 ways time is putting a more intensified squeeze on both what comes in and what goes out of these 5,000 companies' business.

  • Invested or loaned capital's on a clock
  • Access to skilled labor's on a schedule
  • Supply chains have reset construction cycles, inspections, settlements, revenue
  • Materials price agreements lock for shorter time periods
  • inventory warehousing costs arc upward
  • carrying costs on homes not started or under construction add up
  • entitlement and zoning approvals take longer
  • mortgage interest rates are ticking up
  • impacts to consumer households' monthly budgets are eroding wherewithal
  • in each of the nine areas above, outlier builders are outperforming peers, which adds greater pressure over time.

Big national public builders, these days, hold a competitive edge in access to capital, local scale in building materials and products allocations, and the ability to give local skilled trades continuity, locking them into steadier, more predictable contracts into the horizon.

They hold a capability advantage in tangible resources and controls. Private homebuilding companies through the years have excelled in counter-punching above their weight class, bringing intangibles of customer care and a trusted reputation and local knowledge and that extra gear of operational excellence they can shift into to set themselves apart from their peers.

What smaller and privately capitalized companies have greater access to as a potential playing field leveler are technologies – ones designed primarily to displace time [waste] with throughput – such as the role REVIT and BIM modeling can play through the build cycle, from the ideation, to planning, to entitlement and approvals, to constructability, which in turn, improve a homebuilder's capability by wiring collaboration and workflows together with locally accessed skilled workforces.

For that kind of capability – which can bend the time-cost curve more favorably amid an onslaught of time challenges – firms across the size continuum have begun to turn to building-as-a-service partners like Phoenix-based Mosaic as a way to distinguish themselves as outliers, out performers, on both the horizontal and vertical development and construction front.

Mosaic co-founder and ceo Salman Ahmad notes:

In a way, Mosaic operates as two companies: There’s our homebuilding technology platform and then there’s our general contracting business. We serve as the licensed GC [general contractor] of record for our customers and our in-house technology team creates the integrated platform that powers our construction team to make them more effective and efficient in the field. This current structure is intentional as it’s one that our customers are used to, which is hiring a GC to build their communities.
One of the key benefits though is we’re not your traditional GC — we’re significantly investing in R&D to optimize field operations. Our customers are the beneficiaries of this investment. At the end of the day, they want someone to manage their construction operations so that they can focus on the value-driving components of their business, such as financing, land acquisition, design, sales, marketing and the customer experience. Empowering our customers to reallocate their time and focus to those parts of their business enables them to build more projects with us as their trusted construction partner.

Outlier capability may be a homebuilder's last best option to put time back on its side as turbulence builds.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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