Sunday, October 30, 2016

A Guest Columnist Speaks About Blu Homes' "Luxury" Announcement

Hi Gary,

thank you for your continued hard work on sifting the internet for news of all things related to modular construction.

In the press release from Blu Homes which you recently reported on, I noticed that that the term "eco-luxury prefab" was used to describe Blu Homes.  If this term is new, I think it signals a level of honesty which has seemed to evade this enterprise.  I think it is worth dwelling on for a moment (pun intended).  

What has been going on at Blu has always been luxury consumption masquerading as virtue - this tendency to wrap exotic, esoteric and expensive things in a mantle of "doing good", is unfortunately one of the worst habits that attaches itself to the "green building movement", a love child of architecture and environmentalism.  I don't say this out of any dislike of the aims of building green, but a rather a dislike of greenwashing and claims to be offering economical solutions to problems when really it is just luxury sold by another name.  In my mind, Blu Homes has always been a luxury brand cloaked in feel good story about pursuit of environmental virtue, so I think it is progress if they have decided to define their offering as "luxury".  

Let me state at the outset that there is nothing intrinsically wrong with being a vendor of luxury products, but Bill Haney has fronted himself as a visionary change agent who is challenging the homebuilding industry with new and better ideas - the word "luxury" has been conspicuously absent from many public claims of taking the building industry to school.  If there is any reason for being critical of his efforts it is that his approach to the building industry has had a dismissive and arrogant ring to it, and he's not able to make things that are both better, and cost less, which is more or less the hurdle that "industry" has to clear if it wants to say its "improving" things.  He may mean well, but the road to hell is paved good intentions.      

Seeing the term "luxury" in front of "prefab" signals that Blu Homes is not participating in the "homebuilding market", but rather is appealing to a customer looking for an exclusive offering, in their case this offering involves an exotic construction experience of the house being "delivered" and "unfolding" - the industry has generally rejected rube goldberg origami houses in favor of delivering sectional components (either volumes or flat elements) - which are widely used, especially in Europe where labor competition and performance standards favor them.  

There is no reason however that Blu can not offer a "luxury folding home" - if we think of them this way, I think the ModCoach's long running critique of their vaingloriously deluded claims, and the hyped marketing, might be justifiably recalibrated.

If Blu Homes is a brand concept that supplies an exotic experience for a luxury home, and not, as they've been claiming all these years, a better way to build homes, "founded" by a visionary who has better ideas than the rest of the industry, we need to judge them by the standards of luxury brands - and not by metrics common to the building industry.  If we accept this, the critique that Blu Homes is full of themselves, and aren't offering the building industry an example for how to drive efficiency, be greener, and smarter, etc ... is irrelevant.  What people are buying is a luxury experience, and the theater of nonsense that accompanies this experience, it is just part of what people are willing to pay. If we focused on this, Blu might even be praiseworthy, because, after all, they have gotten a lot of attention, and that's the gold standard in a brand.

The only reason this is not good is that I personally find that if I raise the subject of what I do (work with firms doing innovation in construction), at cocktail parties among college educated white people, invariably someone will say "oh, you mean like Blu Homes, I love them", at which I have to say, "no, not like that at all".     

Granted, Blu's founder, Bill Haney has not made has not made it easy to escape educated non industry people who think Blu's houses are some kind of wunderbar housing innovation, because he has not been reluctant to assert, in the popular media, that he has found a better way to build homes, and in the process acted as if the entire homebuilding industry was a bunch of yutzes, who simply had not thought of using the "latest technology" and hadn't thought of how efficient it might be to build houses in factories.  His creation story involves seeking out the best minds in design at MIT and RISD, and merging their insight with the best technology, and his entrepreneurial savoir faire, in pursuit of something game changing, that others simply have not been able to even imagine. These claims are every bit as seductive as cold fusion and perpetual motion, and rather than make the more unremarkable claim to offer "luxury homes" using esoteric methods, his brand has been launched from salesmanship, that he is both a builder, and a tech entrepreneur, and is shaking things up.  His claims, while grandiose, and unsupported by any verifiable metrics or evidence, have attracted venture capital, and awareness in certain networks that want to hear these things, because this is the currency of the age of disruption we're living in.  Being a "luxury brand" is ironically nowhere near as sexy.   

Let's take a minute to review the tapes:

In this pitch, the same year Forbes reported that he'd raised $25 million in funding from investors like Abby Disney, (Walt’s grandniece) to start his prefab homebuilding company. Bill does not use the term "luxury".  

He asserts that homebuilding is not efficient, but that his ideas are a solution.  He proposes to be a "one stop shop".  Now setting aside the absolute disconnection from reality to assert there isn't "one stop shopping" in the homebuilding industry (just what do D.R. Horton Lennar Group, PulteGroup and NVR do all day?).  He is definitely not proposing to be pitching at a luxury experience, he addresses "folks" and "homeowners" and talks generally about the idea of building houses for families.  He uses terms like "healthy and ecological".  He clearly says that he's offering something "affordable".   

He is plainly claiming that his better way to build homes. Luxury and exclusivity don't figure in this.

In another video, he presents, what has to be the best ever rendition of that chestnut wherein someone wonders what cars would be like if they were built like houses, the old "why would you build a car in a driveway" analogy:

Why this passes for insightful critique of an activity that soaks up 15% of GDP, is beyond me, but it just goes to show that if you deliver it earnestly enough, it will seem like a profound insight, "why are builders so backward"?  Don't they know that cars would never be built the way houses are built?  What if they were!  Oh, we'd never get where we want to go!  

Bill is not saying, if you're willing to pay more, I can have guys wearing the same contractor tool belts, inside an old submarine factory, hand build you a house more or less the same way your local contractor would, only using more materials and less elegant engineering, because we'll be going to great lengths to have this sucker unfold. The only valid comparison that might be offered between cars and houses is that most cars, and most houses fall out along some continuum of cost and value - there are economy cars and budget prices homes , there are luxury cars and luxury homes.  At the high end, when we start looking at the luxury end of the market, the prices go way up without any practical or functional benefit.  

Blu homes is like a car, if the car you're speaking about is luxury car, like a Bentley.  Not an efficient car, not an affordable car, not a car that is giving the kiss off to internal combustion engines - an expensive car that has a brand associated with luxury.     
Now fast forward two years, and who knows how much of the $25M is gone, but Bill is back, he's still not pitching luxury, but he is questioning the validity of of the time tested practice, especially in lower cost categories of construction that we call "housing" of using "price per square foot" to compare costs.  The overall feel of this is a kind of weariness that seems to dog him, in the sense that the idea of using a denominator to compare one thing to another thing is an intellectual affront to the genius that is Blu.  He could have simply told his customers, "Blu Homes is an exclusive luxury experience that will give you a unique unboxing experience, and, if you have to ask the price, you can't afford this", which is exactly the way you'd get treated if you walk into a Bentley dealer, and started asking the salesman to justify why Bentley's are really expensive.

Setting aside the absurd lack of intellectual rigor he's bringing to his analysis in rejecting "price per square foot" that can clarify what something costs, and can be reliably applied to a Blu Homes, he's still not using the term luxury to slip the trap of not being affordable.  He saying everything but!  He says his focus is on "a quality experience for family and homeowner", he's claiming that  "his products are timeless, and reflect the best of America values, of elegance and pragmatism".  He's not saying, "we produce things using very expensive materials and exclusive methods, and for this we command a premium".  Which is exactly what is implied, even if its not said point blank, about all luxury items.    

Bill says that families will have a sense of "serenity and comfort, but confident that the economics are compelling".  Compelling economics is a fancy way of saying "doesn't cost too much".  The video then puts up a chart that shows less than a 10% cost premium for "a labeled green home", but then claims that the resale value will be higher, which is another way of saying, "you'll get your money back".  Luxury on the other hand implies that something is expensive, don't ask, it doesn't matter, cost is no object.  Someone selling a luxury item just has to make you want it, not justify why the hell you pay so much for it.  

The pitch then closes with the claim that in distancing himself from this impractical talk about costs, that he's talking about "value per square foot, and to some extent, values, per square foot".  Whatever he means by that, he's still not presenting himself like a Bentley salesman, who would laugh at you if you ask about the economy of owning a Bentley, compared to the average car, because he is selling you something that is supposed to cost an arm and a leg, because it is designed specifically for people who have a lot of money, and who want you to know that they have money, because they have ... a Bentley ... and you don't.

I'm not sure that this use of the word luxury means Blu has dropped the pretense of coming up with a better way to build houses, but at least they're saying the word "luxury" (or eco luxury, whatever that means).  Let's hope that they can find customers in the nation's most expensive real estate market, where prices has have increased 82 percent over the last five years, and the average home sells for somewhere north of $675,000, perhaps in a market like this, focusing on convincing your customers that you sell luxury homes, is a far better sales strategy than claiming you sell affordable ones.

_Scott Hedges is the owner of Bygghouse, and is a US based expert on scandinavian construction, and works with process change and automation in the homebuilding industry.


Anonymous said...

That is a superb assessment of Blu Homes to date.

For all the dust up around Blu Homes, one eternal truism shines through: to find success, we all have to deliver value to our customers and value is determined by those paying for the "product".

It takes a lot of hard, grinding, unglamourous work to deliver value. I have to remind myself daily that short cuts usually get you where Blu Homes seems to be headed.

Anonymous said...

The amazing part is 70% of the Northeast modular factories can build very similar homes and then more. I would like to point out the success of Blu Homes in regards to marketing. Being a builder in the Northeast, eventhough Blu Homes gave up market share in this area years ago, people know the name. I constantly get asked about them more from a curiosity stand point so kudos to them on their ability to market. I mean lets face it if this was a public stock the industry would be shorting the entire company. We all know where this is heading and it is mind blowing that any investor in their company can't read the writing on the wall. Their few designs are very interesting, but the concept of trying to sell a "model home" approach in building is out the door. People want customization and that is a market I don't see changing.

Also someone mentioned to me their cabinets are from Ikea? If that is the case I am even more amazed at their ability to put luxury in front of their name with Ikea cabinets. Again another amazing marketing strategy :).

Wonderful article Scott. Very well written.

Anonymous said...

Wow - devastating assessment on reality. Reminds me of the Apple story, and why consumers will pay a premium for the iPhone "experience" and not an actual, tangible improvement over the competition.

Scott: when will you speak at an industry function for residential modular?