Part II: “Get Busy Living Or Get Busy Dying.”

(this post appeared on EFA® in April 2010;  reposted here, with the same title, as the second of a three-part series.  It is about creating competitive separation;  written well-before the book was published or the workshop was created, this is what The Pipeline: A Picture of Homebuilding Production© Second Edition is all about, what Pipeline workshops™ are all about)

“I guess it comes down to a simple choice.  Get busy living.  Or, get busy dying.”  (The Shawshank Redemption, Castle Rock Entertainment, 1994)

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If his only object was to exist or survive, I imagine that Andy Dufresne would have become like everyone else in Shawshank, and settled for whatever business-as-usual constitutes in that setting.  It took him twenty years to dig out of prison for a crime he did not commit, but Andy Dufresne did not choose to merely exist.

Get busy living, or get busy dying.

 

Fast-forward, from 2000 to 2010.  How will you choose to make your world?  How will you create a sustainable way forward in this industry?

Builders have choices about how they move forward from this debacle, but not all of the choices available to them meet the criteria of being sustainable.  From the standpoint of what constitutes sustainable competitiveness, I do not think business-as-usual is going to cut it any longer.  I do not think settling for being different-but-no-better-no-better-but-no-worse than the competition is going to cut it any longer.  I do not think that attempting to insulate yourself and achieve a competitive advantage within a secondary market, by settling for the adoption of “industry best practices”, is going to cut it any longer, either.

I do not think there is much comfort in not being among the slowest zebras on the Serengeti.

There is such a thing as the tyranny of averageness.  At the end of the day, average is still just that.  Average.  No matter how you cut it, even if it is occurring on a higher plain.  The question is this:  Does the world really need any more average homebuilding companies?

Get busy living, or get busy dying.

In good times, the mental model that has sustained the homebuilding industry has been what you would call “More-for-More”:  More revenue, more income, along with more of everything else – more capacity, more investment (land, models, work-in-process), more cash.

In challenging times, the mental model defaults to “Less-for-Less”:  Less revenue, less income, as a result of less overhead, less capacity, a slower burn rate, and (maybe) less investment.

A more-for-more proposition is always about size and growth;  a less-for-less proposition is always about cutting costs.

Those are the mental models of business-as-usual.

Neither of these approaches are sufficient to create the type of sustainable competitive separation that will be required going forward.  That is because, neither of these approaches has anything to do with the velocity side of economic return, or has anything to do with higher productivity.

The mental models of business-as-usual have everything to do with size, cost-cutting, and competing on the margin side of economic return.

The way to create true, sustainable competitive separation is by doing the difficult work on the velocity side of ROA.  This is a different mental model.  Call it “More-for-Less”, or “More-with-Less”:  More revenue, more income, more throughput, with less inventory, less overhead, a reduced level of working capital requirement.

“More-for-Less”.  The vast majority of homebuilding enterprises will not let their shadows darken that doorway.  It is too hard, it requires too much discipline.  Most builders would prefer to compete on the margin side of ROA, partly because it is easier, and partly because it just fits the deal-driven, product-at-the-cost-of-process mentality of the industry.

Some builders are better at the margin game than others, but almost any builder finds that it is easier to compete on the margin side of ROA.

Case in point.  Lean Homebuilding.  Scattered, visionary homebuilding companies, in search of the right improvement religion, attempt to adapt the principles of TPS and Lean Thinking to the specific requirements faced by the residential construction industry.  Fine, as far as it goes;  it needed to happen.  Unfortunately, they only use Lean to solve quality problems and eliminate the waste caused by defects.  It benefits margin, but it eschews productivity.

If a homebuilding enterprise will not go after higher productivity – if it will not tackle the velocity side of Return on Assets – it is left with only the margin side of ROA, left only with higher margins as a way to carve out sustainable competitive advantage.  Left with the same approach as virtually every other homebuilder.

Yes.  Margins are important.  Yes, value needs to be extracted from direct, variable costs wherever possible, with better houses (better designs, better quality, lower costs, fewer defects), more desirable and affordable communities, and – somewhere along the way – a better homebuyer experience.

But, margin is table stakes.  It is the easiest of the conditions that are necessary to generate the type of economic return that creates sustainable competitive separation.

Margins are necessary, but they are not sufficient.