“More Cowbell”

(excerpted from an EFA post, of the same title, that appeared in February, 2013)

 

There is a perception about the advantage that rests with the size of balance sheets, particularly with cash and inventory, and with the capacity to borrow and the cost to borrow;  it is a perception that extends somewhat to overhead expense on income statements.  Size enables, but size also tends to foster a “more-with-more” mentality;  large homebuilding companies rarely exploit the advantages of becoming more productive, of embracing a “more-with-less” mental model.

The weapon of choice becomes more of what they have already:  more geography;  more communities, more inventory, more cash, more debt;  more resources, and more of the overhead that goes with them.

“More cowbell.”

The legendary Bruce Dickenson – yes, the Bruce Dickenson – would encourage us to “explore the space.”

The clearest image we have of homebuilding production – the best visual reference – is that of a pipeline, one in which size is defined by the amount of work-in-process the pipeline is designed to carry, in which cost is determined by what the production effort consumes, in which length is calculated as the pipeline’s cycle time, and in which capacity is defined as the rate of throughput a pipeline of that size can produce, with planned, finite, and controlled levels of overhead resources and work-in-process.

The amount of work-in-process a building company has to carry in order to generate its revenue is the more meaningful, more useful measure of its true size;  the relationship between revenue and operating expense is the classic measure of its productivity.  Using either work-in-process or operating expense as the truer indicator of size would discourage builders from aiming to be bigger companies.

It would convince them that they need to become faster, more productive, more profitable building companies;  it would enable them to better confront the current market and economic reality of having to “do marginally more with significantly less”.

 

The first Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 12-13, 2014.  Cost is $750.00.

Delivered by SAI Consulting.  Sponsored by BuilderMT and Big Builder (Hanley Wood).

Details:  www.buildervelocity.com