Archive for May, 2022

Apocalypse Now: Is a Shattered Industry What It Takes?

Posted May 21, 2022 By Fletcher Groves

(first published on Escape from Averageness® in June 2009, in the midst of the Great Housing Recession, what we term The End of the Age of Homebuilder Entitlement®;  updated and reposted here, at the start of what is certain to become another housing and economic recession)

Everyone likes to talk about the “green shoots” that appear and disappear in the housing market and in the homebuilding industry, as the hopeful evidence for a return to business-as-usual.  I think the worst Residential Fixed Investment disaster in three generations should count for more than a return to business-as-usual.

If we are going to pay this steep a price, why not just blow up the dysfunctional business model of production homebuilding?

It is a solution that has undoubtedly crossed the minds of every one of us who understand Lean Production and the Toyota Production System;  those of us who understand Theory of Constraints and Critical Chain Project Management;  those of us who understand Six Sigma and the effect of variation;  those of us who understand production physics;  those of us who stare across the chasm, and roll our eyes at everything we see.

Custom homebuilding is excluded.  The building of one-off or highly-individualized homes could benefit from the selective use of the tools in the toolbox, but custom homebuilding is a separate, specialized value stream.  It is a separate culture.

So, what is the vision of a post-apocalyptic homebuilding industry?  To cite a few:

— One in which the deal-driven mentality that pervades the industry is at least relegated to the land side of the business, and is replaced with a much more disciplined, process-centric approach to production homebuilding.

— One in which the constant question is:  Does this create value?  And, the decisions are based on the outcome.

— One in which builders achieve 6:1 Inventory Turns, and the debate about build-to-order (presale) versus build-to-forecast (inventory or spec) becomes a moot point (Note:  Toyota has not solved this one, either;  they still build-to-forecast and swamp dealer lots with inventory).

— One in which building companies need negligible working capital for production operations, and one in which cash on the Balance Sheet is not the defining competitive advantage of large, public homebuilding companies.

— One in which size is not defined by the number of closings, or the Revenue generated by those closings;  rather, size is defined by the amount of work-in-process and internal production capacity, where growth is not a strategy, and higher productivity is;  where strategy is not “more-for-more”, but rather “more without more”.

— One in which homebuilding companies do not strip-mine the value stream by outsourcing 90% of the work, with all of the attendant duplication in overhead and difficulty in coordinating schedules and resources, and, instead, actually built the houses.

— One which understands that a homebuilding company is first and foremost a project portfolio organization.

— One in which geographic expansion and increased market share are not the only models for growth.

— One on which the absurd cost approach used in the NAHB Chart of Accounts Income Statement is changed, so that builders could actually use the information that it provides to make decisions.  You know, small decisions, like determining breakeven and the cost of production capacity.

— One in which a preoccupation with “Industry Best Practices” is recognized as the self-limitation that it is.


If you want to know more, contact me:;  you can visit our website:;  you can cone to a Pipeline workshop™:


Be the first to comment

The Antidote to Size

Posted May 1, 2022 By Fletcher Groves

(first published on Escape from Averageness® in July 2013, published in BUILDER (builder-on-line) in June 2014, updated and republished here, with additional insights)

In 2013, I suggested that, before we concede the inevitable assertion of overwhelming power heralding a new age in homebuilding – with an inexorable and irresistible shift in favor of a relatively few Big (for the most, part publicly-held) Builders – we might want to ask whether such an era would likely occur, without the homebuilding industry – with its notoriously fragmented supply chain – finally acquiring the consolidated share-of-market profile of almost every other industry.

A year earlier (in 2012), the three largest homebuilding enterprises at the time (DR Horton, Pulte, and Lennar), had a 13.3% market share, measured by units sold, up from 9.0% in 2003.  And, according to the resources I referenced, the builders comprising the BUILDER 100 had a 44.2% market share in 2012, again, measured by units sold, compared with a market share of 34.4% in 2003.

John McManus, former Senior Editor at BUILDER, now the CEO and Editor in Chief at The Builder’s Daily, wrote in TBD last week that, in 2020, the builders listed in the BUILDER 100 had a market share of 49.3%, up only slightly from eight years before (47.5% in 2012) and up from 36.5% in 2003.  McManus also reported that, in 2021, the index of all publicly-held builders had a total market share of 42%, up (according to the graphic chart) from 31% in 2013 and 27% in 2003;  there are a few minor discrepancies related to sources, but nothing significant.

There are more publicly-held builders now (as of 2021) than there were in 2013 and 2003, so a higher market share would be expected.  The BUILDER 100 is comprised of both publicly-held and privately-held builders;  the unifying feature is that all of the BUILDER 100 builders are large builders.

However, even with the consolidation over the past two decades, the industry still has nowhere near the market share profile of most industry verticals, where the top three companies would have over a 50% market share, likely more.

We might also want to ask what type of business operating model would be required, in order for a homebuilding enterprise to permeate every SMSA, not just the 20 largest housing markets – or five of those markets, or 10 of those markets;  otherwise, industry consolidation is just circles on a map, with vast areas excluded.  Large “national” builders, regardless of how ownership is held, are basically collections of regional building operations, even if some of the components of those building operations have been standardized (and many have not).

The main factor that plays into this situation is that homebuilding, as it currently exists, is not manufacturing, either onsite or off-site;  the value stream, from a Lean perspective, is not unified, is not integrated;  it is almost completely outsourced, thus Big Builders have to compete for the required resources with every other building operation in every market.

Component manufacturing is a consideration, but it would a consideration best made answering the overall question of the feasibility of an integrated building model;  outsourcing tends to level the playing field, without producing sufficient competitive advantage.  We now take the time, at every Pipeline workshop™, to compare the operational considerations and business outcomes of both outsourced and integrated BOMs (building operating models), using versions of the Pipeline game™.

Consolidation of the magnitude and extent described at the beginning of this post has a long way to go.  If it ever occurs, we don’t know how many Big Builders that will represent;  we don’t know how many de minimis Niche Builders will remain.  What we know is this:  Given the current parameters – the current characteristics – of the homebuilding industry, consolidation of this magnitude and extent will occur only if it is allowed to happen, only if someone capitulates to the outcome.

More to the point:  Whether consolidation of this magnitude and extent occurs or does not occur, the dynamics and imperative of dealing with the core issue doesn’t change.

From more than twenty years ago (July 2000), in a Professional Builder feature article titled “The Road That Lies Ahead”, to as recently as twelve years ago (April 2010), on Escape from Averageness® in a post titled “Get Busy Living or Get Busy Dying”, I have analogized this question of expansion and consolidation through merger and acquisition as the prospect of Life on the Serengeti.

The analogy begs the question:  What happens to the lions when there are no more zebras, impalas, or wildebeest?

What happens when there are no more easy (and, in this case, willing) targets?

Would big still be good enough?  How big?  Would well-financed be sufficient?  How sufficient?  Cash-laden Balance Sheets?  How much?  Access to equity markets?  Adoption of so-called “industry best practices”?  The relatively easy existence found in a “more-for-more” proposition, in which an increase in the number of units built and sold simply requires commensurately more work-in-process and more production capacity?

Progress achieved only on the margin side of economic return?

Necessary, but not sufficient.

True, sustainable competitive separation is the result of doing what your competition will not do, what they cannot do.  Things that are too tough, that require too much rigor, too much discipline, too much resolve.  Margin is important, but it is not the difficult part;  it is the more natural part, where builders’ inclination lies.

True, sustainable competitive separation requires much more;  it requires the difficult part, the part to which builders are less-inclined.  It requires continually and relentlessly finding ways to become more productive, finding ways to do more without more.  It requires being as proficient on the velocity side of Return on Assets as the margin side of ROA.

In and of itself, size has not a single attribute that is to be coveted, or any advantage that cannot be overcome.  From a competitive assurance standpoint, size assures nothing.

Velocity is the antidote to size.