“As RB Builders did its planning and budgeting for the then-upcoming year, 2008 looked to have market and economic conditions very similar to those in 2007. In 2007, RB Builders produced Gross Margins of 22%, earning Gross Income of $11 million, down significantly from the 30%+ margins it enjoyed during the final, halcyon years of what had since become famously known as “The Age of Homebuilder Entitlement”.
“In many ways, RB Builders was a product of that age, just another homebuilding company, satisfied with occasionally adopting the “best practices” of other builders, content to be good, no-better-but-no-worse than the other builders with whom it competed. It was a homebuilding company with a middle-of-the-road approach to delivering the value homebuyers demanded. Although its owners knew what housing cycles were like, its management did not. Terms like TEFRA and RTC were faint acronyms from a different era. For the past 10 years, life had been good. But, it was becoming a dangerous approach, because – as the saying went – “the only thing in the middle of the road are yellow lines and dead armadillos”.
“It was becoming homebuilding no-mans land.
“Locked into an operating model – into organizational structures, management systems, processes, cultures, and employees – that could not deliver extraordinary levels of distinctive value, the company found itself dumped into a teeming mass of homebuilders that looked-alike and sounded-alike. Now, indistinguishable from other builders, and unable to create any type of competitive advantage, RB Builders was trapped and sinking – like a modern-day dinosaur – into the tar pits of average-ness.”
That was a short excerpt from the opening of “The Saga of RB Builders”. RB Builders is a mythical homebuilding company that we use from time-to-time to get our points across to clients. When I speak at IBS and other conferences, I sometimes ask my audience this question: “Does the world really need one more average homebuilding company?” For the longest time, I was convinced that their collective answer was simply, “Yes”.
I think 2008 changed a lot of that thinking. But I doubt that the changed thoughts really provided any clue about what they should do about it.