Archive for January, 2021

Pipeline workshops™ are now beginning their eighth consecutive year as the most intense, demanding, and challenging interactive learning experience on the planet, about homebuilding production management.

Here, in their own words, just a few more comments from builders and industry experts who have attended one or more of them.

“The Pipeline Workshop™ is one of the best illustrators of combining the business operating performance measures with the reality of the construction world.”  (Dennis Shriver, President. Hearthside Homes, Kansas City, MO)

“I would recommend the Pipeline workshop™ to any production builder wanting to gain a better understanding about their company’s own “pipeline”.  It will help you understand the effects of how/how much/when/what rate you feed work to your construction people.  Understanding what our cycle time truly is helped us to focus on improvements needed to our starts system and removing constraints from our pipeline.  The learning tools used are practical, visual and effective in making the principals clear.”  (Bob Anderson, Vice President – Operations, Stylecraft Builders, College Station, TX)

“The Pipeline Workshop™ was an excellent way of teaching and illustrating the benefits of reducing cycle time and work in progress, so that we ultimately increase our Net Income and Return on Assets.  This process has us abandon our practice of trades multi-tasking our jobs, giving our trades maximum days to finish a job, and constantly [updating] our cycle time.  By managing to the completion date with a buffer, we have a greater chance of reducing cycle time.  With this new process, we will need to be prepared to have trades jump to our jobs when they are ready for the next resource.  Ultimately, the future of homebuilding will include focusing on controlling [inventory], lowering cycle time, and managing to the completion date.”  (Lise Anzelone, Regional Director of Sales, HHHunt Homes, Blacksburg, VA)

“Attending the Pipeline Workshop™ . . . thoroughly enhanced my perception of how [work-in-process and cycle time] can affect a production builder.  Using the Pipeline game™ to shift the mentality, [from] pushing homes into production to pulling them through the pipeline, was fun and eye-opening.”  (Josh Hoot, Director of Construction, Neal Communities, Sarasota, FL)

“While knowing the homebuilding industry is slower to adopt and grasp the usefulness of technology and integrated systems management, the Pipeline Workshop™ really helped me to understand on a deeper level HOW the right management applications and a truly collaborative system across the entire supply chain, along with internal departmental transparency, saves gross amounts of overhead and truly addresses [and] solves the gaps that manual ‘old school’ processes simply cannot.  As well, working through the Pipeline games™ gave me a real picture of how variability and constraints, when acknowledged, managed, and leveraged, while counterintuitive, actually gives homebuilders a means to optimize their organizations.”  (Crystal Wolverton, Development and Procurement Manager, Richmond Habitat for Humanity (formerly Business Development, Hyphen Solutions), Addison, TX)

“You think you have a good handle on the overall flow of your homebuilding operation, until you have your eyes opened by the instant result of changing workflow.  Realizing what happens to your cash flow and profit margin when optimizing productivity.  What a great tool!”  (Mark Johns, Vice President – Purchasing, CalAtlantic Homes, Jacksonville, FL)

“The Pipeline Game™ is a great tool requiring the players to put into practice the principles taught in the workshop.  It’s a hands-on exercise that requires you to think, consider, and review the results of Critical Path versus Critical Chain.”  (Lisa Ramsey, Independent Consultant, Mark Systems, Mt. Holly, NJ)

“I thoroughly enjoyed the workshop.  It awakened concepts that have been dormant in my brain since I left manufacturing 15 years ago.  I’m very excited that our team has embraced “Pipeline” with so much energy.  I truly believe it will separate us from our competition and provide a roadmap for sustainable success.”  (Rob Boyer, Division Manager, Logan Homes, Belville, NC)

“The Velocity Accelerators presented in the Pipeline workshop™ are something I can take back and implement immediately.  Digging deep into these strategies with a room full of peers from multiple builders and specialty areas helped me to see the parallels we all experience in our day-to-day, and to come up with some tangible focus points that we can use to improve current and future operations within our own teams and across our business to truly give us a competitive advantage.”  (Susan Williams, H1 Director of Sales, HHHunt Homes, Blacksburg, VA)

“[The Pipeline game™ was] fantastic.  A force multiplier to the seminar.”  (Todd Schunk, Construction Manager, CalAtlantic Homes, Jacksonville, FL)

“This workshop is a must for any construction business desiring to be more efficient and effective.  The practical applications are easily understood and implementable at any level of production.  Great tool for any team.”  (Jason Reynolds, Production Manager, Arbor Builders, Bend, OR)

“If you are a home builder looking to streamline……this seminar will give you all the tools to do so.  You will be challenged to think about how to overcome your production constraints and forced to think about what’s causing them.”  (PJ Kelly, Sales Manager, Logan Homes, Belville, NC)

“I found the Pipeline workshop™ eye-opening to concepts of homebuilding management that no one else is talking about.  Any homebuilding operation that is able to use these strategies will no doubt be more profitable and less chaotic.”  (Charlie Barber, Purchasing Manager, Essex Homes (now a part of Stanley Martin Communities), Lexington, SC)

“[the] Pipeline Game™ truly connected the dots.  A remarkably creative tool.”  (David Nielsen, Division President, Cole West Homes, Washington, UT)

“Great workshop!  It forces you to think about the business side of homebuilding.  Too often, we get stuck in the details of each home and miss opportunities to improve the overall bottom line.”  (Brett Smith, Vice President – Operations, Hearthside Homes, Kansas City, MO)

“This is my second attendance to the Pipeline Workshops™.  All I can simply say is WOW!  Fletcher and his team strive to improve the workshops and make [them] even more relevant.  I especially enjoyed playing the Pipeline Game™ again, and learning about [the] Velocity Accelerators®.  I look forward to attending in the future!”  (Carlos Alvarez, President, Alvarez Homes, Baton Rouge, LA)

“Very beneficial information to help us bring back concepts to our business that help spur maximum efficiency and profitability.  The beneficial concepts mixed with an interactive learning environment create a great experience that is well-worth the investment.”  (Patrick McNair, Senior Financial Analyst, Essex Homes (now a part of Stanley Martin Communities), Lexington, SC)

“This educational experience was extremely beneficial.  I feel that I have a much better understanding as to how WIP and cycle time can impact our company.  This knowledge and understanding will be extremely beneficial when explaining to our production crew and contractors the importance of reducing cycle time.  Thank you all again for everything!”  (Justin Cullivan, H1 Area Builder Manager, HHHunt Homes, Blacksburg, VA)

Come.  Participate.  Learn.

 

Pipeline workshop™ No. 15 will be held March 17-18, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The stated attendance fee remains $895.00.  However, due to COVID-19 restrictions, the first fifteen (15) attendees will be registered at no charge, and the next fifteen (15) attendees will be registered at a reduced $395.00 per person;  the only requirement is proof of room reservations (two nights, single occupancy) at the Ponte Vedra Inn and Club).

Attendance will be capped at only 30 attendees, so everyone attends at a significantly reduced cost;  there is no early registration;  there is no team pricing.

For more details:  www.buildervelocity.com

 

Pipeline workshops™ are now beginning their eighth consecutive year as the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet.

Here, in their own words, more insight from builders and industry experts who have attended one or more of them.

“The Pipeline Workshop™ and associated business case study was an excellent way to help me shift my production paradigms, from growing capacity to maximizing my current capacity.”  (Chris Harrison, Vice President, Field Operations and Land Development, Dorn Homes, Phoenix, AZ)

“The concept of production building being in a “Pipeline”, along with the simple and straight-forward concepts discussed in this seminar made this one of the most eye-opening experiences I have ever had when it comes to learning about production building.  I would definitely recommend this seminar to any building company looking to gain a competitive advantage and to learn ways to do more with less.  The hands-on learning approach and interaction with other builders from around the country was invaluable.”   (Patrick Bukszar, Division President, Essex Homes (now a part of Stanley Martin Communities), Lexington, SC)

“The exercises and processes opened my eyes to immediate steps I had to take to become a better builder.”  (Lusant Ordonez, CEO, Zenodro Homes, Altamonte Springs, FL)

“[In many] classes, you get a lot of great ideas, but never act on them.  The impact [of] this class resonated in many ways, and has spurred us to take two immediate actions:  (1) hiring the design center manager that we did not think we could afford;  and (2) beginning the implementation to Critical Chain Project Management.  It was very clear;  we have been penny-wise and pound-foolish in not hiring a strong manager for our design center, and the impact of Critical Chain will be huge on the way we conduct business.”  (Karl Haslinger, CEO, Essex Homes (now a part of Stanley Martin Communities), Lexington, SC)

“The Pipeline workshop™ was an eye-opening experience.  Not being an owner of the company, sometimes you don’t realize the impact day-to-day business decisions have on the true desired bottom line results of the company.  Playing the Pipeline game™ gave me that ‘ah-ha’ moment, seeing first-hand how those decisions can influence your bottom line.  I took away invaluable insight on what it takes to operate a profitable homebuilding company.”   (Daniel Hopkins, Director of Purchasing/Estimating, Jeff Benton Homes, Huntsville, AL)

“The workshop was really effective in showing how operational decisions affect business outcomes and how risky a ‘more for more’ approach to growing a home building company really is.  The Pipeline games™ were not only fun, but they were super-effective in showing how unbalancing the production system, managing the constraint resource, and managing the right amount of WIP creates predictable operational results and maximizes financial outcomes.

“At the end of the day, running a successful business is about how much money you make on the amount of money you invest.  The Pipeline workshop™ helped me understand this better than any workshop or seminar I’ve ever attended.  I highly recommend it.

“This workshop was really eye-opening!”  (Charles Roberts, Vice President – Operations, Providence Homes, Jacksonville, FL)

“I thoroughly enjoyed the [Pipeline workshop™] and all its learning components!  It does a great job of creating a visual image of homebuilding production, while connecting operating performance to business outcomes.  The workshop is a must for anyone at any level within a homebuilding organization, and goes well-beyond what you get out of [reading The Pipeline: A Picture of Homebuilding Production©].”  (Val Snider, Construction Manager, Lennar SE Florida, Miami, FL)

“If [teammates] can utilize this information correctly and make good business decisions, owners are free to consult and finance rather than hand-hold.  I also thought that the interactive games really showed how everyday decisions can make-or-break your production pipeline.  If a start or a closing is delayed, the whole rhythm of the pipeline is off;  you can’t correct that disruption, since it is a function of time.  A [lost] start can never be made up.”  (Sara Flint, CFO, Inland Homebuilding Group, Tampa, FL)

“I highly recommend the Pipeline Workshop™.  The concepts learned have directly affected my building process in a positive way.  Implementation [of these principles] will guarantee a ‘more-for-less’ mentality in any home building operation.”  (Sebastian Alvarez, Member, Alvarez Construction, Baton Rouge, LA)

“The Pipeline Workshop™ really opened my eyes to how a company’s operating performance truly impacts business outcome.  These are things that I already knew, but the workshop caused me to start thinking about it in a different way.  For example, some companies’ motto, including ours, is to put out as many starts as we can, then sort it out in the field. After attending the workshop, I realized how counterproductive this way of thinking is;  releasing more starts than our ‘pipeline’ can support is actually going to cause us to perform worse.”  (Darek Burns, Purchasing and Estimating Manager, Essex Homes (now a part of Stanley Martin Communities), Charlotte, NC)

“[Pipeline workshop™] is a concept that we, as a team, were aware of before coming to the seminar.  That said, being aware of it and being able to understand and implement are two very different things.  After going through the case study and the [simulations], our team went home better prepared to implement it in our company.  We feel that it will be a long-term building block for us going forward.”  (Justin Morrison, Vice President, Cimarron Homes, Durham, NC)

“The Pipeline workshop™ really took a different focus and approach than I was used to.  I enjoyed the group workshop forum that was very interactive.  It’s information that will – long-term and continually – be thought about and digested in my day-to-day work.  It presented an interesting balance concerning the importance of cycle time in regards to the financial and operation spectrum.  It was challenging and thought-provoking.  The group games really brought the concepts to life.  I appreciated the ‘Velocity Accelerators’ discussion that touched on some of the best practices and implementation.  The workshop challenged me to be a better leader in regards to velocity and its importance, as my team and I will be looking for the best ways to apply the concepts to our business model.”  (Jeremy Tesimale, Production/Construction Manager, Essex Homes (now a part of Stanley Martin Communities), Lexington, SC)

“This [Pipeline Workshop™] is one of the best I have ever attended in my 30 years in the homebuilding Industry.  The way [the Pipeline game™ is incorporated] into the learning is fantastic!  This course should be attended by all construction staff of any company.”  (Reed Williams, former President, Central Florida Region, Inland Homebuilding Group, Tampa, FL)

“The Pipeline workshop™ quickly and clearly helped me realize our company’s mismanagement of the amount of work-in-process and job starts.  I believe our new thinking on those principles, along with the techniques we learned, will reduce our cycle times substantially.”  (Bob Anderson, Vice President – Operations, Stylecraft Homes, College Station, TX)

“It is going to help our business refocus on what all of us already know, but lose focus of, in the haste to make money and sell as many homes as possible.  What we have learned will benefit [our] business and margins, if we become disciplined, [and] stick to the principles of the pipeline.”  (Sean Ward, Field Manager, Eagle Construction of Virginia, Richmond, VA)

“[The Pipeline Workshop™] allowed me to step outside of my department and see the industry on a wider scale.  The Pipeline Game™ was a great visual tool that emphasized the importance that velocity plays in home building.  It has allowed me to begin thinking creatively about the ways I can improve my department to ultimately improve our companies velocity overall.”  (Alexa Drees, Design Consultant, Drees Homes, Jacksonville, FL)

“The Pipeline workshop™ was a great chance for my team to learn some excellent fundamentals for a better business in a very straightforward manner.  The instructors were superb, and the overall atmosphere was one of education, fun, and comradery.”  (David Savicki, Purchasing Manager, Cimarron Homes, Durham, NC)

“If you are looking for a way to remove status quo from your operations, you need to attend the Pipeline Workshop™.”  (Marisa Clark, Software Specialist for Residential Builders, Hyphen Solutions (formerly Regional Sales Manager, Constellation HB Systems), Atlanta, GA)

“[the Pipeline workshop™ was] eye-opening and thought-provoking.  The topics outlined functional business tools and methods for the current business environment.”  (Ken Colen, President, ON TOP OF THE WORLD Communities, Orlando FL)

 

Come.  Participate.  Learn.

Pipeline workshop™ No. 15 will be held March 17-18, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The stated attendance fee remains $895.00.  However, due to COVID-19 restrictions, the first fifteen (15) attendees will be registered at no charge, and the next fifteen (15) attendees will be registered at a reduced $395.00 per person;  the only requirement is proof of room reservations (two nights, single occupancy) at the Ponte Vedra Inn and Club).

Attendance will be capped at only 30 attendees, so everyone attends at a significantly reduced cost;  there is no early registration;  there is no team pricing.

For more details:  www.buildervelocity.com

 

Pipeline workshops™ are now beginning their eighth consecutive year as the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet.

Here, in their own words, comments from builders and industry experts who have attended one or more of them.

“The Pipeline game™ production simulations were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.”  (Keith Porterfield, COO, Goodall Homes (now part of Clayton Homes), Gallatin, TN)

“Pipeline workshops™, through hands-on simulations and classroom instruction, provide excellent learning experiences to see WIP turns at different velocities, and the effects on Return on Assets.  The principles and disciplines, if applied in the field by you as a builder, will increase your ROA.”  (Scott Jagoe, President, Jagoe Homes, Owensboro, KY)

“I think the concept of ROA or inventory turn can be THE differentiator between success and failure in a production-type environment.  It requires thought one level past the “P&L”, but will allow the manager that can recognize [its] impact and implement it, a major competitive advantage.”  (Wade Jurney, President, Wade Jurney Homes (now part of Century Communities), Greensboro, NC)

“I participated in the first-ever Pipeline workshop™, spending two days exploring the ins-and-outs of production, inventory, and scheduling.  It was quite intense, challenging, and not for the intellectually lazy.  We played repeated rounds of the Pipeline game™, and saw clearly that scheduling requires careful thought and planning.”  (Scott Sedam, President, TrueNorth Development, South Lyon, MI, excerpted from the April, 2014 issue of Professional Builder, “Taming the Chaos”)

“[the] Pipeline workshop™ was by far the most engaging workshop I have attended.  The principles shared relate to homebuilding companies of all shapes and sizes.  The two day program kept me engaged the entire time with a mix of lecture, open discussions and simulations of practical application.  I have already applied some of what I learned to my business, and I am looking forward to fantastic results.”  (Mark Refosco, President, Marcus Allen Homes, Arthur Rutenberg Homes franchisee, Jacksonville, FL)

“I would recommend the Pipeline Workshop™ to anyone interested in improving their homebuilding knowledge.  It offered me a fresh perspective, and got me excited to go back to work to share what I had learned.”  (John Marcy, Purchasing Agent, CalAtlantic Homes, Jacksonville, FL)

“All of our construction guys came back from the conference with a lot of new info.”  (Doug French, CEO, Stylecraft Builders, Inc., College Station, TX)

“The Pipeline Workshop™ is an extremely effective insight to production, for homebuilders of all sizes.  Whether your company builds 5, 50, 500 or 5000 units annually, you will leave this event with a deeper understanding of your company’s production capacity, and where you need to focus your attention.”  (Adam Roller, Florida Division President, Burgess Construction Consultants, Inc., Tampa, FL)

“The simulations at [the] Pipeline workshop™ [were] a very innovative way to demonstrate the critical nature and relationship between cycle time, inventory turn, margin, and Return on assets.  Both days were filled with learning, engagement, and inquiry that proved to be invaluable.”  (Vishaal Gupta, President, Park Square Homes, Orlando, FL)

“Think the same way, and you stay in the same place as everyone else;  challenge yourself with the new theories and strategies, and [you] become more effective in your company[y’s] achievement with your team.  You get to take these theories and teachings and immediately apply them in a simulation of the real world to test your skills against others, and that’s what this business is all about:  finding the right mix of everything to be the best.”  (Justin Parry, President, Parry Custom Homes, Irwin, PA)

“ROA is not discussed much in the building industry;  the focus has always been on margin.  Through the Pipeline workshop™, you will learn that your company ROA is just as important to know as margins per house.”  (Mark Ivey, Owner, Ivey Residential, LLC, Evans, GA)

“The Pipeline workshop™ provides full insight into the application of universal principles of production.  It provides clear and convincing proof that improving velocity will yield not only faster profits but greater profits.  I look forward to attending it again with some of my key staff.”  (Carlos Alvarez, President, Alvarez Construction, Baton Rouge, LA)

“It proved to be a great opportunity to enlighten our entire management team with a ‘higher level understanding’ of how our business works.”  (Craig Morrison, CEO, Cimarron Homes, Durham, NC)

“As an owner of a home building company, intimately understanding the importance of home building production principles, as taught in the Pipeline workshop™ and book, and effectively implementing them in our building processes, will be critically important to becoming a best-of-breed builder in our competitive market.  Running our company using these home building production principles will not only allow us to weather the next downturn intact, but grow in a healthy way.”  (Josh Lysen, Principal, Merit Homes, Kirkland, WA)

“The Pipeline workshop™ . . . was a straight-forward introduction to what matters most in the homebuilding industry – velocity!  Although many of the concepts reviewed are not new to most managers, the manner in which they were highlighted was eye-opening.

“The case study, simulations, and discussion with the instructors made it crystal clear as to how to go back to my operation and implement immediate improvements.  The interaction amongst the diverse group of attendees was also invaluable.  How often do we get the opportunity to discuss best practices with others in our field?  The workshop was time and money well spent, and I’m already getting a return on my investment!”  (Mike Cancilla, General Manager, SE, Essex Homes (now a part of Stanley Martin Communities), SE, Lexington, SC)

“Great opportunity for any individual to uncover the potential of the pipeline and maximize their business returns.”  (Brian Small, Land Acquisition Manager, Toll Brothers, Jacksonville, FL)

“The Pipeline Workshop™ reminded me that there is no substitute for moving quickly and efficiently in every aspect of our business.  The workshop agenda and material was focused and challenging.”  (Greg Stallard, Division President, Essex Homes (now a part of Stanley Martin Communities), Charlotte, NC)

“I walked away with a new perspective on making returns in residential homebuilding that challenged the models and assumptions I have worked under.”  (Mark Carter, Operations Manager, Drees Homes, Jacksonville, FL)

Come.  Participate.  Learn.

 

Pipeline workshop™ No. 15 will be held March 17-18, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The stated attendance fee remains $895.00.  However, due to COVID-19 restrictions, the first fifteen (15) attendees will be registered at no charge, and the next fifteen (15) attendees will be registered at a reduced $395.00 per person;  the only requirement is proof of room reservations (two nights, single occupancy) at the Ponte Vedra Inn and Club).

Attendance will be capped at only 30 attendees, so everyone attends at a significantly reduced cost;  there is no early registration;  there is no team pricing.

For more details:  www.buildervelocity.com

 

“What’s your legacy going to be?”

Posted January 12, 2021 By Fletcher Groves

It was three years ago, almost.  April 2018.  I was leading an eight-hour class for the members of Builder 20 Club 29, based on the production principles we use in our Pipeline Workshops™ (SAI gives back to the industry, by doing work pro-bono for the B-20 program anytime NAHB asks).

McKinsey and Company

Afterwards, that evening at dinner, I sat next to Wade McGuinn of McGuinn Homes, who was the President of Club 29 at the time.  At some point, he turned and asked me a question.

“What’s your legacy going to be?”

He went on to clarify his question:  “What I mean is this:  SAI Consulting is basically you.  You can’t practice forever.  How do you plan for the principles and disciplines that you teach to continue beyond you?  How are you going to pass what you do on to someone else?”

I thought for a moment, and replied, “I don’t know.”

It was the best response I could give to a question I had not expected.  In truth, I had never considered how – or why – I should stop doing the work I loved to do.

This past summer, my thinking changed.  The impact of the coronavirus had nothing to do with it;  the fact that I had just had major back surgery within days of becoming a Septuagenarian no doubt induced some reality into the question of how long I wanted to continue to manage a consulting practice.  I have concluded, that after a business career spanning almost 50 years, 25+ years consulting in the homebuilding industry, I want someone else to assume SAI’s role in the industry.

I want to turn my attention to other interests.

If you are interested in acquiring SAI, its assets are available in their entirety, on an all or nothing basis:  the future consulting revenue;  the ownership rights to the Pipeline game™;  the revenue from future Pipeline workshops™;  the royalties from future sales of The Pipeline: A Picture of Homebuilding Production©;  all of the intellectual property;  the websites;  the client relationships;  the consulting deliverables;  the work product and insight from every previous consulting engagement;  all of the previously published work in Builder, Professional Builder, and other industry publications.

It also includes the completion and publication of a second business novel, with its intellectual property rights and future royalties.  The sequel to The Pipeline©, Horizontal© traces the progress of the same mythical homebuilding company, involving the same job positions, the same characters;  the story becomes a guide to Business Process Improvement/Reengineering, and the workflow perspective that underlies the business proposition of every homebuilding company.

My friend and colleague Pascal Dennis, the founder and president of Lean Pathways, tells me, from his personal experience, that the typical M&A arrangement for a consulting firm involves some multiple of annual revenue and a time period of continued involvement by the principals.

The beginning of the year is as good a time as any to announce this.  Yes, there is new and ongoing work to be performed for new and existing clients, and that is where my attention needs to be.  Still, while I am in no particular hurry, my goal is to transfer the ownership of SAI sometime in the next two to five years.

If you think you would be interested and you want to know more about SAI Consulting – its knowledge base, its consulting models;  what it does, how it operates, the focused, results-based solutions that it delivers;  the SAI Library;  the most intense, demanding, interactive, challenging production management learning experience on the planet (Pipeline Workshops™ and Seminars™);  the best production simulator/business game in the industry (Pipeline Game™);  the book that inspired it all (The Pipeline: A Picture of Homebuilding Production©) – go to the SAI website:  www.saiconsulting.com

And, go to the Escape from Averageness® weblog:  www.escape.saiconsulting.com

If you are interested, contact me:  flgroves@saiconsulting.com

 

Homebuilding is an industry that leverages equity with debt, therefore, some version of Return on Equity is the final 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.

All it takes is one glance at the essence of the DuPont identity to inform 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, as it should be.  This means, when we calculate Return on Invested Assets, we can equate Asset Turnover (a financial measure) with Inventory Turn (an operational measure).

What is the point, you ask?  The point is, you want to thrive in this business, not just survive in it.  In order to do that, you have to excel on both the margin side and the velocity side of ROA.  That understanding proposes two fundamental questions:  (1) How much money can my company make on every house it builds?  (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 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 earn and the Return on Assets you generate.

You will struggle to compete;  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 resources.

It is also the picture of your 180 day cycle time versus your competitor’s 90 day cycle time.  If that comparison seems too stark, then consider this one:  your competitor – the one with the 18% Gross Margin and a 4x turn – produces almost the same Return on Assets as you would with a 24% Gross Margin and a 3x turn, which is the picture against this same competitor, if your cycle time was 120 days instead of its actual 180 days.

And, at this point, you should now be asking yourself what happens when this competitor becomes your equal on the margin side of ROA.

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 not Revenue or closings, but, rather, the amount – the burden – of work-in-process you each have to carry.

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

Very few builders will meet that challenge or avail that opportunity.

Despite the obvious advantages, the demands of achieving higher velocity – the demands of generating higher productivity – are so hard, 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.

 

Pipeline workshop™ No. 15 will be held March 17-18, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The stated attendance fee is still $895.00.  However, the first fifteen (15) attendees will be registered at no charge, and the next fifteen (15) attendees will be registered at a reduced $395.00 per person;  all that is required is proof of room reservations (two nights, single occupancy) at the Ponte Vedra Inn and Club).

Attendance will be capped at only 30 attendees, so everyone attends at a significantly reduced cost;  there is no early registration;  there is no team pricing.

For more details:  www.buildervelocity.com