Sunday, March 15, 2020

The Case for Builder Consolidation

Andy Gianino, owner of The Home Store, one of the largest modular new home builders in New England and author of the best selling guide to modular home construction, wrote an article for this blog back in 2015 and what he expressed then is even more valid in today’s market.

With fewer new home builders entering the trade, his ideas of consolidation deserve to be reread today. Here is Andy Gianino’s remarkable blog post:

The Case for Builder Consolidation

Imagine that a new modular builder/dealer company called ABC, Inc. offers the services outlined below. If you’re a modular builder, ask yourself two questions. (1) How much would you benefit if your company were part of ABC? (2) How would your company fare if it had to compete against an ABC builder in your territory?

Here’s what ABC would provide your company:

ABC has a national website that appears on the first page of the search engines in your area. ABC also has a social media presence that is updated several times a day with rich content. Since 85% of all people interested in building a new home begin their shopping on the internet, ABC provides you with a wealth of leads.

Lead Nurturing
All of your ABC’s internet and phone leads are screened, qualified, and nurtured by a group of experienced “greeters” at the main office. These specialists engage the leads with the help of an advanced Customer Relationship Management (CRM) system. Greeters stay in regular contact with your leads using a series of targeted email templates and calls that are prompted by automatic reminders and guided by phone scripts. The greeters pass leads to your salespeople only when the leads are ready, willing, and able to take the next step. This enables your salespeople to stay motivated and focused on selling homes.

Modular and Contracting Design and Plans
Hundreds of ABC’s standard plans are drawn in Chief Architect. Each plan is drawn with multiple interior and exterior options and easily modified by your trained salespeople. Custom plans can be generated from templates that take into account modular design constraints. Neither your salesperson nor customer must wait for the manufacturer to draw the plans.

The design program also creates site-built drawings, such as for garages, porches, decks, foundations, finished attics and basements, etc.

Modular Specifications and Pricing
All standard plans and thousands of options are priced in ABC’s custom CRM program. Because ABC’s modular pricing program is tied to its drawing program, it can automatically generate detailed modular specifications and itemized prices without your salesperson or customer waiting for the manufacturer.

Contractor Scope of Work
ABC’s contractor pricing program is integrated with its drawing and modular pricing programs so it can automatically create a detailed contracting scope of work with specifications. It also generates itemized prices for both labor and materials.

Sales and Contractor Administration
ABC’s CRM system tracks all the details and to-do tasks for each customer so no one in your company has to remember what needs to be done or when.

Turnkey Project Management
Planning and contractor shopping are faster and more accurate with ABC’s CRM system, since it generates plan-specific instructions and drawings for your set crew, as well as project scheduling for your button-up crew. These tools are given to homebuyers who want to complete their own turnkey, ensuring they know their responsibilities.

Sales and Turnkey Training
ABC provides on-site classes and on-line webinars for sales and construction. It also provides manuals, videos, and podcasts of best practices for sales and construction and for contractor troubleshooting best practices. ABC’s CRM system has a built-in training and supervisory function to help your staff become proficient with using it.

Each one of these improvements will individually help ABC’s builders. Together they will elevate every ABC builder above their competitors – both other modular and stick builders.

I believe that such a package of services will allow ABC’s builders to lower their costs markedly, which will help them reliably beat stick builders’ prices. It will shorten the time from initial design to completion, increasing ABC’s builders’ advantage over stick builders. And it will provide ABC’s builders with better quality products as well as superior services, which will enhance their reputation. These improvements will enable ABC’s builders’ to grow their sales and profits considerably.

However, if we modular builders stand pat and try to remain independent, we will find our market share under attack from bigger, better capitalized, and more state-of-the-art modular competitors. If we continue to market, sell, and build the same way we do now, and with the same relationship to our manufacturers that we now (more or less) enjoy, I don’t believe we will reach our full potential.

How Do We Get There?
We could continue to wait for a manufacturer to provide these services. But as I said in my presentation to the Modular Home Builders Association last fall, most builders have such a weak commitment to their manufacturers that manufacturers have little incentive to invest in these services. They also don’t appear to have the financial resources at this time to make the necessary investments.

An alternative is for each builder to create some of these systems on their own. But as someone who has done this, I don’t recommend it because of cost and time.
On the other hand, if several of us join together, we can afford to implement these improvements. In fact, because the expenses will be shared, we can continually build on them over time.

Let me emphasize that these ideas don’t exclude a partnership with a manufacturer. In fact, our interests would be served best by a closer relationship with a manufacturer. This would enable us to integrate our builder systems with theirs, which would strengthen both of us. But unless this happens soon, I believe it is in our interest to move ahead on our own.

Finally, several of the modular builders I spoke with over the last few weeks asked how I saw the consolidation happening. It’s too early for any of us to say whether the consolidation should be secured by a merger and acquisition roll-up, a franchise system, or some other arrangement. It will depend on what those of you who are interested prefer and how the consolidation is financed.


Anonymous said...

Andy, that is a great list of advantages to join together to survive as small modular builders. What I don't see is any type of plan to begin working toward it, any group that wants to start the planning as most of my fellow builders are just like me getting old enough to retire and I don't care what happens afterward.

I've bought from three good factories over my career, had about a dozen sales reps, belonged to the NAHB for more than 20 years and haven't seen one thing that would make me believe anyone really wants to consolidate.

I build great homes, employ 8 fulltimers, 2 parttimers, pay my dues to NAHB and go to IBS every couple of years and read your book about 10 years ago.

I've watched as regulations and codes have expanded to the point that was once a fun business has simply become a sad business. No help fighting for us has been forthcoming and I don't see anyone actually wanting to help small builders.

Andy, great idea that could help modular builders but I don't think anyone wants it. Too bad for us.

VM said...

Anonymous ,
You mske some very good points. When you say “ worked and bought from 3 good factories , care to share the area of those good factories? Number one thing that makes us mod builders strong is a good reliable factory.
As for Andy’s ideas , I think we need more of those implemented into our Factories. Where that happens or not is up to them. Stay strong and ADAPT

Ken Semler said...

To VM. One of the things I have found is that most factories aren't the innovators in the industry. It is driven by builders specifying a product or a design and the factory doing what the builder specifies. However, they only do it for that builder. While there are a couple factory exceptions, that is the case for most.

One of our goals with Express Modular, as we are now franchising, is to be that factory partner that small builders just can't be. Small builders don't have time to learn about high-performance building techniques, learn smart home technology, implement Ageless Home techniques, know about Net Zero Ready Homes, and create homes using building science that creates a safe comfortable living space for clients given how fast the industry is changing in those areas. It's just impossible!

We have the time and resources and work with our factory partners to push those technologies into the factory. We are big enough to do it. We work with about 25 factories across the country. We have the ability to see how one factory builds a "better mousetrap" and then implement that better process with other factories to improve the industry.

The current issue is that the factory thinks that if they do something at the factory that will save me $900 on set and crane costs that I won't pay them the $300 more to implement that change because it makes their price higher. All of this because the factory only thinks about first costs, not final costs. This is just one example!

As the Coach shares Andy's thoughts on consolidation, Andy wrote about this before a franchising opportunity ever existed. Everyone that has thought about this before has said "If they come, we will build it". They sold promises. Express Modular is the first company to say "We have built it, let them come". We have the #1 marketing website in modular. We have the sales systems and project management/information systems in place. Factory relationships are in place across the country. Consolidation on the front end of the process where demand is created is here now. The next step is the tighter integration with key factory partners.

As Anonymous said, "my fellow builders are just like me getting old enough to retire and I don't care what happens afterward." However, many would like to sell their business and get something for all of those years of work. Most will only be able to sell the assets and take what they can when they shut their business down at retirement. With a franchise, it may mean following a different system and doing some things a little differently, but it also means you have a brand and a franchise in a market that has buyers for a business. You get to sell the business you worked hard to build versus parting it out for the cash you can get.

Modular construction gives the ability for many to join the construction field that maybe wouldn't have thought about it in the past. Express Modular Franchising is a system. It is essentially a "Builder in a Box" with everything ready to go and the much needed training to succeed!

Anonymous said...

It is always interesting to see comments that the factories need to do more to assist builders market and sell in their local market. Factories should deliver high quality on time product with a service program to address items that factories create during the production process and delivery. Factories are best viewed as assembly sub-contractors much like any truss or wall panel supplier. Builders should learn how to market off that factory brand identity. Any other contracting business uses national mfg brand identity to market and explain the why one product is different or better to solve a problem. Too many modular builders are chasing the lowest cost or price business.

Andy's comments were directed to local builders creating their own agreements to create a brand for regional name for buyers and to create more response from the manufacturers.

National and Regional companies learned this and essentially eliminated the medium size builder. The National brands have went even further acquiring and incorporating regional companies for two purposes - land positions and local identity. There are several franchise companies in the on site world which either assist in land development/brand identity or with brand identity. This consolidation has worked well for the national/regional modular and HUD providers who have promoted and protected their brand identity.

Small on site builders have adapted to marketing a niche custom or semi-custom buyer. If they have been successful they feed their operations by acquiring land positions or small JV agreements until they get noticed or acquired by a bigger fish.

I applaud Express Modular for their efforts in potentially creating a more regional or national program to encourage new entrants for modular construction and their support system.