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May-June 2004 – Climb for Bigger Profits

Got the home building blues? Even though there are scores of eager buyers, it’s likely that obstacles to your business are stacking up faster than OSB prices.An avalanche of governmental regulations, shortages of skilled craftsmen, increased competition and progressively longer construction cycles are all conspiring to take a bite out of your bottom line. Change […]
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Got the home building blues? Even though there are scores of eager buyers, it’s likely that obstacles to your business are stacking up faster than OSB prices.

An avalanche of governmental regulations, shortages of skilled craftsmen, increased competition and progressively longer construction cycles are all conspiring to take a bite out of your bottom line.


















Change Your Life Challenge 1: Follow Market Leaders Change Your Life Challenge 6: Compare Site To Systems
Change Your Life Challenge 2: Analyze Your Motivation Change Your Life Challenge 7: Buyers Are Starved For Time
Change Your Life Challenge 3: Understand Your Financials Change Your Life Challenge 8: Educate Others
Change Your Life Challenge 4: Develop Your Strategy Change Your Life Challenge 9: Determine Your Role

Change Your Life Challenge 5: Factory Building Benefits

Change Your Life Challenge 10: Be Strong Where You Once Were Weak



Change Your Life Challenge 1: Follow Market Leaders
If you want to employ a building system in order to climb over, through or around many of these obstacles, then you’re not alone in your thinking. More and more of today’s top publicly traded production builders are moving toward factory-fabricated wall panels, roof and floor trusses, either created in their own factories or purchased from independent component manufacturers.

Pulte Homes (Bloomfield Hills, MI) recently announced it has formed a strategic alliance with one of the largest framing and foundation companies in the Southwest to create Pratte Building Systems. Pratte will produce as many as 9,000 homes in 2004 in the Arizona and Nevada marketplace under Pulte and Del Webb brand names.

“Through efficient house designs, tightly controlled specification and purchasing processes and strict adherence to production scheduling, Pulte Homes can deliver a house of unmatched quality and value to our customers, while realizing increased returns for our shareholders,” says Richard J. Dugas, Jr., president and CEO of Pulte.

Other production builders are following suit. Toll Brothers (Huntingdon Valley, PA), which recently expanded into the Chicago, Detroit and Columbus markets, has learned that centralizing much of the construction in its panelized factory dramatically decreases cycle times and the associated financing costs while ensuring quality construction and lessening the impact of on-site labor shortages.

After employing modular technology to construct 22 townhomes last year, Triton Homes (Ames, IA) is exploring opening its own modular manufacturing facility. “We have over 500 home sites in three developments. We’re looking at running the numbers on a start-up simply because we discovered we can save an awful lot of money and time by going modular,” says Stanton Grubb, production manager. “People don’t buy ’til they see that sales center, and we’ve found that we can cut two months off our cycle time by going modular. The faster we get those models up, the faster we start seeing a return on our investment.”

If you’re a traditional site builder or entrepreneur seeking to add a greater degree of predictability to what has become an increasingly unpredictable building process, then you’ve come to the right place. Many builders and contractors are first attracted to using a building system because it offers a greater degree of control over labor, quality, scheduling and profit margins. They discover that they can build with confidence.

This Step-By-Step Guide was developed specifically to aid you in your investigation and research of this rapidly growing and changing industry. What you will find in the following pages are descriptions of the advantages of using systems technologies, an explanation of the different systems that are available and an analysis of the opportunities available in the sales and construction of systems-built homes and commercial structures.
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Change Your Life Challenge 2: Analyze Your Motivation
Where do you want to be in two, five, 10 or 20 years? Often, having an exit strategy or an end goal in mind will bring clarity to what path you’ll use to get there. Do you have the financial wherewithal to launch a new business? It’s easy to dream of moneymaking schemes (especially after that fourth beer). But the old adage is true—it takes money to make money. Without capital to invest, you’ll likely be operating on a shoestring budget. This can be difficult if everything doesn’t go perfectly—and how many construction projects have you seen go perfectly?

Do you have proven management and sales skills you can draw on? Stepping up to a building system means you’ll be more of a briefcase builder instead of in the trenches with a tool belt on. This may take some getting used to, especially when it comes to closing sales and managing people and processes.

You’ll also need to analyze and research what’s selling in your local market to determine which system (or combination of systems) will prove the most profitable and personally rewarding for your construction style. System builders often are the most successful in rural or inner-city markets, where developers or large production builders haven’t already locked up land.
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Change Your Life Challenge 3: Understand Your Financials
Thinking about how much money you have in your checking account is always of interest. Thinking about how much you spent last year on hard and soft costs for each project is boring. But to really understand how you can improve your performance as a builder, you’ll need to have a complete grasp of your financials. Yes, this is about as yawningly exciting as talking about insurance. Most veteran contractors think they know how much they make. “Oh, I make at least 15% gross. Maybe 20% on some,” they say confidently. Sure! And you’re also the author of the vast right wing conspiracy that was out to get Hillary and Bill.

To make the right decision on a system and a manufacturer, you will have to have all your numbers at your fingertips. Sit down with your accountant and bookkeeper and go over every project you completed last year. Have them explain to you in everyday language where all your money is going and why. You’ll want to understand your construction cycle time (and what led to delays), salaries, insurance, vehicle expenses, advertising, sales management and the cost of callbacks. You’ll also need an estimate of the time you spend doing everything. What you may find will surprise you. For example, you may find you spend an inordinate amount of time doing things you hate that don’t make you any money.

When conducting this analysis, it’s helpful to think of the money as energy. Then, look at your operation as a whole and discover where you’re leaking that energy. Finally, start thinking about ways you can be more energy efficient.
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Change Your Life Challenge 4: Develop Your Strategy
Making the switch from site to systems building takes thought, planning, a budget and a dash of creativity. You wouldn’t attempt to build a home without a floor plan and neither can you build a successful enterprise business without a business plan and established goals.

The more detailed your business plan, the better your chances for success. Moreover, setting goals and reviewing them annually with your manufacturer is increasingly a condition for enrollment in a systems manufacturer’s program.

Tom Fagnani, project manager at MVF Construction Company (Schoharie, NY), advises systems builders to keep their list of goals handy, not tucked away in a drawer. “Once your goals are set, you should review them on a monthly, weekly, even daily basis. It’s not that you should be obsessed with them—it’s just that evaluating them is a constant, ongoing process. So many factors will have an effect on it, like your local economy,” says Fagnani.

You’ll likely find that an honest appraisal of your business goals will lead you to examine your personal goals as well, advises Gale Harold, owner of Mountain Gale Log Homes Inc.”It comes down to the basic facets of your life and where you are in your life cycle. Who are you and what’s really important? Is it money, family, spiritual growth? What are your priorities? Once you figure that out, everything else often falls into place,” says Harold.

Four points to a good business plan:
1. Know what you want to accomplish.
• What motivates you?
• How will this plan affect others in your life?
• A specific goal can be summed up in one sentence.
2. What will it take to achieve your goals?
• What do you need to change about your life?
• What specific skills will you need?
• What do you need to do to make it happen?
3. Set deadlines.
• Break down your larger objectives into smaller tasks.
• Establish priorities.
• What needs to be accomplished and in what order?
4. Review your performance.
• What still needs work?
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Change Your Life Challenge 5: Factory Building Benefits
Every building system and manufacturer is different—how they buy, where they build, how they sell and market their homes, the depth of talent on their staff and how efficiently they operate their business. But while manufacturers’ systems differ, building in a factory environment does mean they share some common characteristics:

n Building materials are typically stored under a roof, away from the debilitating effects of weather. As a result, there’s minimal warping of lumber.

n Factory building means a reduced threat of job-site theft and damage—problems that have plagued site building in recent years and can add as much as 10% to the cost of a site-built home.
n Factory-produced components are constructed precisely using state-of-the-art equipment and tools, so the resulting structures are plumb and able to meet or exceed local wind and snow loads.
n Factories offer craftsmen steady employment and benefits, resulting in a consistent labor force that adds to the quality of construction.

n While the home is being built in the factory, systems builders can focus on site preparation. The builder is typically responsible for foundation and utility work, as well as for fortifying the driveway to accommodate delivery trucks and cranes.

Systems manufacturers typically sell their structures through networks of authorized builders. Builders often use standard marketing techniques for new homes, including model homes and the development of residential subdivisions to showcase their products.

Be aware that each systems manufacturer’s definition of a builder’s responsibilities can differ from company to company, even within the same industry.
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Change Your Life Challenge 6: Compare Site To Systems
When switching from traditional site construction to a building system, you’ll need to put aside any preconceptions about how your business should operate. This means you can’t hide behind the philosophy of, “we’ve always done it that way.” You’ll need to embrace new ways of doing things. You will also need to ask yourself some hard questions.


As a site builder, do you experience overruns of material and subcontractor costs? Most systems manufacturers guarantee prices for a specific period of time. Systems built structures can be up to 90% or more complete when they are delivered, minimizing on-site sub work. (Completion time varies with each systems technology, and from manufacturer to manufacturer. But invariably systems building is far faster than traditional site building.) With a shortened construction time, builders can increase profits and minimize exposure to escalating material or labor prices.
Do you spend excessive time estimating and making material takeoffs? Manufacturers provide ready pricing (usually with pricing and estimating software), which greatly reduces material takeoffs and eliminates both the chances for error in estimating and the need for an on-staff estimator.

Do you experience waste and pilferage? Most systems-built structures arrive on site with all the needed materials to complete a job. Modular building is the quickest—units are delivered, set and made weather tight in hours. Other types of systems building require more field work. But because the structures are completed in a fraction of the time of conventional building methods, pilferage is greatly reduced.

Do you carry a large payroll? By adopting a building system, you can make manufacturer’s staff of engineers, architects and experienced purchasing agents your new staff—without having to pay for their time and expertise. With fewer employees, especially during slow periods, your overhead savings will include reduced health, unemployment and worker’s comp insurance—to name but a few opportunities to save.

Since time is money, where is your time going? Faster construction times for systems-built structures means less construction money cost, more easily obtainable sales volume and better cash flow overall.

Do you have trouble finding qualified subcontractors and is scheduling trades a constant juggling act? Building systems require fewer job-site subs because projects go up a lot faster. Additionally, many manufacturers offer warranties on their materials and craftsmanship.

Do you experience seasonal shutd class=”text2″owns or weather delays? Built in controlled environments, weather does not affect quality or delay construction of systems-built structures. Provided foundations are installed before the winter months, systems builders can start structures year-round. This increases profits and building opportunities. Some manufacturers offer incentives for both buyers and builders for off-season building.

Is it difficult to find qualified superintendents? A building system requires less supervision over an increased market area, increasing land and buyer opportunities, sales volume and profits.
Do you build in inner-city markets where security and fast completion is crucial? Systems-built structures can be sealed and weather tight in hours or days (depending on the system), reducing the danger of vandalism or theft.

Do you have the price advantage of purchasing materials in truckload quantities? Systems manufacturers buy in volume with favorable terms and pass that savings on to builders. Carefully controlled construction in the factory means there’s little waste. Manufacturers have full-time staff members whose only job is to ensure that the company has the right materials and the most up-to-date designs.

Do you have time to sell? Are your sales expenses eating into your profits? With less time spent in the field supervising construction and subs, you can spend your time selling and earning more business. You will have the time to cover a larger geographic area with less capital investment.
Do you have new product offerings on a regular basis? Systems manufacturers update their designs and construction technology on an ongoing basis. Systems manufacturers also track changing code requirements, reducing the hassle for builders by ensuring cutting-edge engineering and design.

How much have you invested in training your sales staff? Many manufacturers provide training programs and educational seminars for you and your sales staff.

Do building codes cause you headaches? Systems-built structures are strictly built to preemptive state building codes and in most states are certified by independent third-party inspectors. Manufacturers also have knowledgeable code people on staff to assist builders with any code problems that crop up.

Is quality control in the field a problem? In addition to being approved by trained third-party inspectors, structures created on a manufacturing line are inspected as they are being built. This means any needed corrections are made before they’re covered up.

Do you have trouble getting subs to warrant or service their work? Manufacturers often provide service and warranty on the products they produce. Some manufacturers also provide service crews to make any needed corrections. And because of large-scale purchasing power, manufacturers command attention from building materials suppliers for honoring their warranties.
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Change Your Life Challenge 7: Buyers Are Starved For Time
We live in a sci-fi world. Consider that more than 204 million people in the United States now have Internet access—more than three-fourths of the population over the age of 2. Computers are ubiquitous, installed in everything from our vehicles to our appliances. Cellphones aren’t a novelty anymore; we can now take photos or track appointments with them. A small USB keychain device can hold more digital information than the entire Apollo space program.

Rather than something being wielded by Captain Kirk on the old “Star Trek,” lasers are used in levels on the job site and in surgery to improve our eyesight. GPS receivers tell us exactly where we are on the planet, which also enables us to tell where our employees aren’t through GPS-equipped cellphones.

In our takeout, drive-through, overnight delivery culture, quickness and convenience have become king. Increasingly, consumers are bringing these expectations to the home-buying experience and, as a result, they are changing the way builders do business. Many buyers are turning to the Internet first in their search for their next home. A full 70% have shopped online, according to one recent survey. Many are obtaining financing online as well.

“Buyers are starved for time. They don’t want to wait for bids, for long drawn-out completion times. They don’t want their lives disrupted while they wait for that new home to be built. They want a new home and they want it now,” says Jim Roberts, co-owner with his wife Vickie of Roberts Homes (Fond du Lac, WI), a longtime panel and modular builder for Wausau Homes (Wausau, WI). “A lot of customers end up coming to me because they are frustrated by the lack of service from the traditional site builders. Buyers get angry when they can’t get quotes quickly or the builder doesn’t return their calls. People expect that level of interest.”
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Change Your Life Challenge 8: Educate Others
There is a downside to building systems. If you decide to add a system to your repertoire, you’ll need to spend time patiently educating others about its advantages—clients, building inspectors, staff, your husband or wife, the postman—everyone. Even though factory environments create nearly every construction material in today’s homes, not to mention every appliance used within a home or office, most Americans have a perception that factory construction is somehow inferior.
While this is laughable in many respects, it can get tiresome to explain to the uninformed that modular homes aren’t boxy, boring or cheap; log homes don’t come with dirt floors nor can they be set aflame with flaming arrows; or that panels aren’t flimsy like a deck of cards. One has to be an ambassador for the industry as a whole, sharing information about the advantages of building systems in a clear, factual and point-driven format. This is in stark contrast to traditional site building, where most consumers understand the process intuitively.

This education must extend to any employees you intend on keeping, as well as with your subcontractors. As you take your company in new directions, you will likely have to match employee skills to new tasks. Many people don’t deal with change well—they find it threatening. If they are disenchanted with your new system, they may badmouth your system to clients or other subs. Either discourage this by education or replace them with someone who is more positive about your business model.
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Change Your Life Challenge 9: Determine Your Role
Some builders use one building system exclusively while others have found success by establishing a relationship with a manufacturer of each system so they can serve the needs of any buyer who walks in their office.

As you begin your research into the different building systems available, it’s helpful for you to realize that regardless of which system you choose, you will likely have to retool the way you do business.

To start, you can’t just order a home the way you order 2-bys from the lumberyard and have it delivered the next day. Much of the design process, hand-holding of clients and material specification is done on the front end, months before you start moving dirt. The turnkey time for construction, however, will proceed far faster than conventional site building and with better quality.

You’ll also need to decide on a system and a manufacturer—both formidable tasks. You can narrow the field by discovering which manufacturers ship their homes to your area. At the bottom of their ads they often list the states they do business in.

Then, open a dialogue with a company’s representatives to find out which system best fits your nature and needs, the design advantages and disadvantages and the target markets.
Tours of factories can illustrate why systems building is the most cost-effective way to build today and why quality is built in—not inspected in. You can also see, firsthand, to what degree the structures are completed.
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Change Your Life Challenge 10: Be Strong Where You Once Were Weak
Beyond the actual nuts and bolts of the building system, shop for a manufacturer offering a business system that can help you overcome any weaknesses. This can include sales and marketing training, advertising support or computer software lessons.

Talk with other successful system builders. Ask systems manufacturers you are considering for the phone numbers of six builders—including large-, medium- and small-volume builders. Find out from them what to expect. Ask if you can follow him or her around for a few days to see what their schedule is like and how they do business.

Ultimately, you want to choose a manufacturer you feel comfortable with. Personalities can play a large part in your success. Do you like the company’s representatives?

Read on to discover the advantages of log, modular and panel building systems and the role they can play in the success of your business. This directory also contains a listing of systems manufacturers that are looking for talented individuals to represent them in a variety of capacities, from sales to construction, in a variety of different markets throughout the country. Once you have discovered a system—or a combination of systems—that you believe will help you meet today’s strong demand for housing, contact the manufacturers directly to find out if a joint venture with them is right for you.

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