Archive for December, 2018

Final Vision

Posted December 27, 2018 By Fletcher Groves

In recent years, these words of Oswald Chambers have become the final post of the year on Escape from Averageness®, the encouragement and assurance we wish to share with clients, colleagues, and friends, for the year ahead.

 

December 31, 2018

The Final Vision of the Exalted Lord

Matthew 28: 16-20

By His Ascension, our Lord raises Himself to glory, He becomes omnipotent, omniscient, and omnipresent.

All the splendid power, so circumscribed in His earthly life, becomes omnipotence;  all the wisdom and insight, so precious but so limited during His life on earth, becomes omniscience;  all the unspeakable comfort of the presence of Jesus, so confined to a few in His earthly life, becomes omnipresence, He is with us all the days.

What kind of Lord Jesus have we?  Is He the all-powerful God in our present circumstances, in our present setting?  Is he the all-wise God of our thinking and our planning?  Is He the ever-present God, “closer than breathing, nearer than hands or feet”?

If He is, we know what it means to “abide under the shadow of the Almighty”.

Still Higher for His Highest, Oswald Chambers (compiled by D.W. Lambert, 1970)

 

Homebuilding is an industry that leverages equity with debt, therefore, some version of Return on Equity is the ultimate measure of a homebuilding enterprise’s economic return.  However, from an operational perspective, leverage doesn’t have to be considered, which makes Return on Assets the most useful measure of economic return.

One look at the DuPont identity tells you that non-leveraged economic return has two components:

Margin (Return on Sales) and Velocity (Asset Turn).

From an operational perspective, the vast majority of assets on a builder’s balance sheet ought to be houses in some stage of construction, particularly when raw land and developed lot inventory is held off-balance sheet;  which means, when we calculate Return on Invested Assets, we can reasonably associate Asset Turnover (financial) with Inventory Turn (operating).

The point is, you want to thrive in this business, not just survive in it.  To do that, a builder has to excel on both the margin side and the velocity side of ROA.  That understanding fundamentally proposes two questions:  (1) How much can my company make on every house?  (2) How many houses can my company build with a planned, finite, and controlled amount of inventory and production capacity?

As a builder, consider this scenario:  You have a competitor that has exactly the same work-in-process, overhead, working capital requirements, borrowing capacity, and risk profile.

If you generate a Gross Margin of 24% and turn your inventory twice a year, you will nevertheless be outperformed by your competitor that generates a Gross Margin of only 18%, but turns its inventory four times a year;  you will be outperformed in terms of Revenue, outperformed in terms of closings, out-performed – by a better than two-to-one margin – in terms of the Net Income you generate and the Return on Assets you earn.

You will struggle to compete;  in fact, you will struggle to survive.

It is the picture of a slow, marginally-productive homebuilding company versus a fast, highly-productive homebuilding company;  your competitor generates 85% higher Revenue and 40% more Gross Income than you do, and does it with the same amount of assets.

It is also a picture of the difference between a 180 day cycle time and a 90 day cycle time, and if that contrast is too stark, then consider this:  your competitor – the one with the 18% Gross Margin and a 4x turn – produces almost the same ROA as you do with a 24% Gross Margin and a 3x turn;  that’s the picture of your competitor’s 90 day cycle time versus your 120 day cycle time.

In the face of clear differences in economic outcomes, remember this:  in this scenario, your competitor is exactly the same size as you, when the real measure of size is the amount – the burden – of work-in-process you each have to carry.

It’s not a choice forced between either higher margin or higher velocity;  it’s the challenge – and the opportunity – of doing both, of maintaining higher margins at higher velocities.

Yet, despite the obvious advantages, the demands of achieving higher velocity – the demands of generating higher productivity – are so daunting, require so much rigor, so much discipline, so much resolve, that most builders won’t attempt it.

And, therein lies competitive separation.

Pipeline workshops™ are a two-day immersion into the production physics – into the principles and disciplines – that enable homebuilders to thrive on the velocity side of economic return, to thrive on the velocity side of Return on Assets.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 20-21, 2019.  The cost is $895.00 per person;  the cost during early registration, open through January 3, 2019, is $750.00;  for team pricing, ask: (flgroves@saiconsulting.com).

Sponsored by MiTek Industries and Specitup.

For more details:  www.buildervelocity.com

 

“God with us.”

Posted December 16, 2018 By Fletcher Groves

(an updated version of this post appears on Escape from Averageness® every year, at Christmas)

The intrepid, results-based consultant reclined in the desk chair, put her feet on the desk, and smiled, as she observed the shambles that her almost six-year old son, now almost four-year old daughter, along with their three-year old cousin had made of her consulting firm’s global headquarters.  Her eight-month old son and his three-month old cousin could have apparently cared less.

The older ones were now sprawled on the floor around their grandfather, as he demonstrated the difference between a Marlin Model 1895 .45-70 Government and a Ping Eye2 seven iron.

“Boomer, stop trying to turn your granddaughter into another grandson”, she said.  “And, why do you still wear those patched jeans you had sown in college?  Neil Young would be proud of you.”

She swirled her glass of a Russian River Valley pinot noir, acknowledging the hopelessness of maintaining proper corporate décor this time of the year.  Looking around her home office, she reflected on the year now almost past.  She had found herself on the road far more than she had anticipated.  Although she was still able to work most days in whatever she worked-out in, there was the ever-present, ever-increasing need for separation between her personal life and her work life, where earlier in her career it seemed to have occurred naturally.

Her reflections were interrupted by a call.  It was an old business friend.  “I’m in a meeting”, she said.  “Besides, what made you think I would still be at the office?”

“I know where your office is”, he said.  “So – are you . . . ?”

“Yes . . . I am home.”

Home.

There would be no more travel this year.  She would have preferred that it was the end of meaningful work for the year, as well, but it really wasn’t.  Still, she was looking forward to the break.

“How was 2018?”, he asked.  “And, how are you?”

“Well, we’re a family of five now;  and, they still put up with me”, she said.  “As for my day job, it was another good year;  2017, and now 2018, were the best back-to-back years I’ve had since before the end of the Age of Homebuilder Entitlement®.

“But – it’s different now, and not in a way that makes my personal life easier.

“In the past, the engagements were more extended, and they didn’t require me to be at the client’s site as much;  I could do most of the work from the office.  Now, I’m traveling a lot more;  Delta and Avis love me, but I can’t say it is easy.

“Five years ago. I would note, only half in jest, that the most recent yearly six-figure decline from personal peak consulting income was almost as much fun as the how-ever-many previous years, but that certainly isn’t true any longer.

“The book [The Pipeline: A Picture of Homebuilding Production, Second Edition©] continues to sell, and continues to drive the ever-growing series of successful Pipeline workshops™.  If you remember, the intention of doing production workshops dates back more than 12 years;  hard to believe, but the public, sponsored workshops are now in their sixth year;  and, we’re now conducting both the two-day Pipeline workshops™ and one-day Pipeline seminars™ in the other channels we had identified.”

“What about that infill residential piece you told me about, the one you were looking to develop and build-out as a mid-19th century Florida settlement?”, he asked.

“Still looking”, she answered.  “Trying to create elegance and allusion – being simple, refined, fit for purpose, and being true to the vernacular architecture of the period – requires thought and work.  On the first parcel, I had to deal with too many owners.  On the second parcel, we’ve done the wetlands delineation assessment, some of the due-diligence and proforma work,  But, the circumstances on this particular property means it’s not my call alone;  we’ll see.  I haven’t given up.”

The intrepid, results-based consultant thought for a moment.

“It’s still paying off, the decision I made early-on, to work where I live, instead of live where I work.  I get to host the workshops in an award-winning resort two miles from my house;  the conferences and consulting engagements increasingly require travel, but I still get to do a good portion of my work right here.

“And – I’ve got this awesome crew that needs me.”

“So much for your mental models on size and growth”, he said.  “Bigger is better, and you do want to grow, right?”

“Somehow, I knew you would say that”, she replied.  “And, the answer is still ‘no’.

“I had a client ask me earlier this year about my succession plan, about how I intended to preserve the legacy that he believed was valuable and important;  I told him I had absolutely no idea.  It’s premature now, but it’s something I eventually need to consider, need to address.  All I know is, right now, professionally, I am where I want to be.  But, I also know this:  I want to turn more of the road work over to partners and colleagues.

“I don’t have all the answers.  Finding joy in all of this can be a struggle.  But, in every way that really matters, I am – we are all – doing very well.”

“It sounds like that’s the case”, her business friend said.  “I hope you have a Merry Christmas.”

“Thanks, and the very same to you.”

The intrepid, results-based consultant ended her call, walked to the fireplace, and placed another log onto the fire.  As she did, the front door opened, and her husband and brother-in-law walked in, back from who knows where.

“Aww!  We’ve missed you guys!  For four and a half hours!”  Nodding towards the door, she asked her younger sister, “Care to join me?”

“Of course”, replied her sister, looking at their father.  “The ‘the other one’ would be happy to join you.”

They walked outside, joined by her sister’s golden retriever, and reclined into two of the chairs around the pool.  They talked, about things – about careers, about kids, about life – well-beyond the content of their wine glasses.  “I think I’ll go check on the prospects for dinner”, said her sister.  “Bring you another glass?”

“Thanks, but not right now.”

The intrepid, results-based consultant looked into the northeast Florida sky on a clear, moonless, star-filled night, and turned her mind completely away from work and toward family.  She thought about the birth of her three children, recalling the hope and apprehension, the joy and inevitable challenges, the huge and growing changes to their lives, the newness each birth had brought.

Her thoughts turned to Christmas, the one almost here and each one previous.

And, she thought about the first Christmas.

She wondered what the tiny town of Bethlehem must have been like that night, so long ago.  She thought about another young mother and father, who had made their trip with few resources, facing an uncertain future.  And, she thought about their soon-to-be-born son;  to everyone else, save a few curious shepherds and a cohort of stargazers from distant eastern places, he was just another child, born in an insignificant city, in a world ruled under the unflinching authority of the Roman Empire.

She considered the character and attributes of the Creator of the universe;  the Author of all that is good, and only that is good;  the true Lover of her soul, Who had pursued her relentlessly through all space and time.  She thought about grace and mercy.  She thought about the words of the apostle Paul, buried deep in his first letter to the small group of believers in Corinth, describing Faith, Hope, and Love, the principles of the grace she now pondered.

She leaned further back into her chair and closed her eyes.

“Father, thank you for giving me an enduring Faith, a Faith that looks back and always trusts that the claims this child – Your Son – would one day make about Himself are true, and that each and every moment of time and event of history either points towards, or proceeds from, that truth.

“Not just a Faith in evidence past, but one that also believes in Your triune willingness and ability to manage this world and my part in it.

“Thank you, also, for giving me Hope, an enduring Hope that understands eternity means never-ending, not just somewhere-down-the-road;  thank you for giving me a Hope that looks forward from the perspective of the eternal life I have right now, but also understands that, one day, our lives in this world – with its joy and pain, and partial fulfillment – will end, and that I will live in Your presence – constantly, eternally, restored, with all things made new.”

The intrepid, results-based consultant thought about a final point of gratitude, mindful of all the distractions to purposeful living that daily life presents.

“Finally, thank you for the Love you give me, a Love that that uses Faith and Hope to sustain me, to motivate me, to give me purpose, perspective and resolve – that I could never have on my own – until You return, or until You call me Home.

“Make my joy defiant.”

The intrepid, results-based consultant thought about the significance of the full-circle of events that began on that long-ago night.  There was a birth;  there would be a death, a resurrection, an ascension;  between birth and death, there would be an earthly life.

“We will begin, then, with the creation of the world and with God its Maker, for the first fact that you must grasp is this:  the renewal of creation has been wrought by the Self-Same Word Who made it in the beginning.”  (On the Incarnation, Athanasius, Bishop of Alexandria, 350 AD).

“In Him was life, and the life was the light of men.”  (John 1:4)

“And you shall call His name Immanuel.”  (Is. 7:14)

“God with us.”

 

Pipeline Workshops™: Finding TrueNorth

Posted December 9, 2018 By Fletcher Groves

Scott Sedam is President of TrueNorth Development, Inc., and is the industry’s foremost Lean Production practitioner.  A well-known, well-respected Lean Building purist, Scott is a Bill Pulte protégé, who’s roots go back to Edwards Deming and TQM.

He is a friend, and longtime fellow consultant.

In 2013, after the first edition of The Pipeline: A Picture of Homebuilding Production© was published, and as I was planning the first-ever Pipeline workshop™, I suggested that Scott attend as SAI’s guest, so that he could see pipeline-thinking for himself.

I wanted his opinion of the workshop, but I also wanted him to share with those first-time-ever attendees his thoughts on applying Lean Thinking beyond the margin side of economic return, towards what we were now terming the velocity side of Return on Assets.

Scott graciously came to that first workshop in March 2014, functioned just like any attending builder in the discussions and in the Pipeline games™, and was a panelist with me on blending improvement methodologies towards a solution that works best for homebuilding.

Afterwards, this is what Scott wrote in a discussion on the BUILDER group on LinkedIn:

“If you are ready to challenge your brain, get out of your well-sealed ‘Builder Box’ and make a huge leap forward in understanding schedule and its impact, come to this workshop and bring a few of your better thinkers.

“The roots of [this] workshop are in Goldratt’s Theory of Constraints, which is at first-blush exceedingly simple, but you can spend years studying the intricacies.  Fletcher puts it all in builder language and forces you to go deep into the impact of our most common builder practices.

“If all builders learned and followed the principles in [a Pipeline workshop™], our industry would take a huge leap forward.  The winners would not be the builders alone, but also homeowners and especially our suppliers and trade contractors.  Fletcher does not know I am writing this, but I strongly recommend his Pipeline Workshop™ to everyone who has the will to change for the better.”

Come. Participate.  Learn.

 

The next Pipeline workshop™ will be held March 20-21, 2019, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00;  the cost during early registration, open through January 3, 2019, is $750.00;  for team pricing, inquire here:  (flgroves@saiconsulting.com).

Sponsored by MiTek Industries and Specitup.

For more details:  www.buildervelocity.com

 

The Pipeline: A Picture of Homebuilding Production, Second Edition© is available on the publisher website (virtualbookworm.com), as well as through the major book sellers (amazon.com, barnesandnoble.com, and booksamillion.com).

 

Pipeline Workshops™: Come. Participate. Learn.

Posted December 2, 2018 By Fletcher Groves

In the weeks leading up to a Pipeline workshop™, we explain to attendees what they are about to encounter.  We describe the tools that they will have to learn to use, the facts of the business case they will confront, the knowledge they will take away from it, what they should expect to see.

We explain the challenging, disruptive, competitive nature of the learning – the degree of interaction, the level of intensity – they will experience.

At a Pipeline workshop™, it is learn-by-doing, applying production principles and disciplines to production simulation, and measuring the resulting operating performance and economic return.  We communicate our expectation that builders come prepared to learn that way, that there is no place to hide, so they need to check their sense of entitlement at the door.

Still, many attendees tell us afterward they should have studied more and prepared harder, in advance of the workshop.

Clark Ellis and I make no apologies for the extraordinarily demanding nature of a Pipeline workshop™.  It is intended to not just inform your thinking, but also to reform – and to re-form – that thinking.  It is designed to challenge your beliefs, to change the way you see production.

Pipeline workshops™ are intended to test your understanding of how production systems work and how daily operating decisions drive business outcomes.

We constantly remind builders: there is a big difference – a big difference – between being in the home building business, and being in the business of building homes.

You have to come to a Pipeline workshop™ prepared for what is going to be thrown at you.

Here is an example of what we are talking about:  the RB Builders: Lessons from the Pipeline© business case, which is revised for every Pipeline workshop™, requires the use of financial tools like Breakeven (using a variable costing approach, Cost-Volume-Profit Analysis), the DuPont identity (for determining ROA), and the Cost of Variation.  It requires an understanding of production physics, including Little’s Law* (duration, cycle time) and the Law of Variability Buffering.  It requires the application of multiple improvement methodologies (Theory of Constraints, Lean Production, Six Sigma).

You can read the book.  The Pipeline: A Picture of Homebuilding Production, Second Edition© is carried in stock on amazon.com;  it is also available on-demand directly from the publisher’s bookstore (virtualbookworm.com).

If you want it all handed to you, don’t bother to attend.  If all you care about is binder material you can underline and put on your bookshelf, don’t waste your time.  If you aren’t willing to own what you take away from it, a Pipeline workshop™ is not for you.  If you believe improving the margin side of Return on Assets is the only game in town, a Pipeline workshop™ is about a different game.

But, if you are determined to create sustainable competitive separation, by learning to thrive on the velocity side of Return on Assets®, by learning to excel at a discipline other builders find too difficult, too rigorous, too daunting, then a Pipeline workshop™ is precisely the right place for you to be.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held March 20-21, 2019, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00;  the cost during early registration, open through January 3, 2019, is $750.00;  for team pricing, ask (flgroves@saiconsulting.com).

Sponsored by MiTek Industries and Specitup.

For more details:  www.buildervelocity.com

*We will entice you a bit with Little’s Law.  Consider this scenario:  C/T=120 days;  WIP=80;  Closings=240.  Little’s Law says:  CT = (WIP ÷ C) x 360;  WIP = (CT x C) ÷ 360;  C = (WIP ÷ CT) x 360.  Therefore:  CT = (80 ÷ 240) x 360 = 120 days;  WIP = (120 x 240) ÷ 360 = 80 units;  C = (80 ÷ 120) x 360 = 240 closings.