What kind of builder do you want to be
Welcome to another episode of Builder Nuggets, the show where builders and remodelers discover how to build thriving businesses while working less. I'm Duane Johns and together with Dave Young, we share the elements of success that have helped hundreds of contractors like you build better lives.
(00:20): If you missed our last episode, you may want to go back and listen to perpetual training part one. But that being said, let's dive into part two of our conversation with consultant and industry expert, Joe Stoddard,
(00:31): The best management teams, the best smartest management teams out there. The teams that have gotten the best results are the ones that adopt these things. And aren't hindered by the bottom dollar DNA that commodity thinking and, and laws possible price. In fact, our best performing clients best performing across all categories, profitability, customer satisfaction on time delivery, you name it. They're the ones that are doing these things. They're training their people. They're setting up systems, they're spending more money across the board to get much better results. And I don't know. It seems like a lot of that though is also, it's the quality of the people on the management team. You know, that takes sometimes that it takes a big turnaround. We've had a couple of clients over the past few years where, you know, literally it's a completely different organization today than when we then when we stepped into it.
(01:33): And every hire that was made, brought another, another element into that company. So you've heard this time and time again, and three, it's having the right people on the bus being willing to pay for those people, right? Just like you, can't skimp on training. You can't underfund your management team or any of your management either. I mean, if you want good people, you gotta be willing to pay for them, get them in there and then let them prove themselves and then encourage them and empower them, give them everything they can to leverage that. The other thing that gets overlooked sometimes in these conversations, we talk about the growth and how the company is becoming more profitable. One of the things that we forget about is how the the businesses becoming more valuable. It runs better with less of the owners time. It creates total freedom for just about everybody on that team, because you've got committed people doing stuff that they love and it, and it drives the value of these businesses up to a level where you're almost at an investment grade opportunity.
(02:37): Somebody could come in and imagine that thought and being able to invest in it in a custom home building company as a passive investor, because it's a good one. And that's where we would like to take some of these businesses, but you're never going to get there if you don't have this stuff in place. Well, we look at it as create operating units. So I mean, you can only grow. You can only grow so much before you start to run into trouble. You look at a company like, you know, and any of your public builders take Horton as an example, or, or any of them, they're not a builder that they didn't create a system to build 50,000 houses. They, they created a system to build a hundred houses, 5,000 times. So operating units, 50 a hundred, you know, whatever, whether you're your costume production, there's going to be some sweet spot where 18, you know, maybe it's a salesperson, a superintendent and assistant and a warranty guy or whatever.
(03:36): There's going to be a sweet spot where you've got a team that can produce a certain volume of homes efficiently. And what you want to do is build processes into that team. So you can clone the team. That's how you grow successfully. And then you have something to train on. Right? Exactly. And don't try to get, you know, don't try to do it the other way. I mean, the builders that have had the best success I've got, I mean, I got a couple of examples that I can share with you, but, you know, that's exactly their approach. They built an operating unit that will, that will function in a variety of different situations. And then you clone that unit and maybe tweak it to a different market or something like that. But, but basically you're just replicating that same market over and over. If you've got systems that are working and you can demonstrate that this works, just do that, just keep doing that over and over and replicating that you don't have to reinvent the wheel, but growing organically and just trying to like increase your volume and hiring Willy nilly without any kind of a plan.
(04:38): That's a recipe for disaster. The fastest way to out of business is to sell more houses than you can efficiently and profitably for dues. That's exactly what happens like right now, we're in a period of high demand, unrelenting demand, and it's very seductive to say, okay, we're just going to keep in construction managers. And we're just going to keep, you know, we're going to keep buying lots or we're going to keep building. If none of this background work is in place, it's a recipe for disaster. And, and you know, the it's very predictable. What will happen to those companies? Our audience primarily is going to be the smaller custom home builder remodeler, give us an example of somebody. And then that custom home remodeler space that's maybe you've worked with through the years, came on, didn't have this stuff in place. What did the transformation look like for that team?
(05:30): Well, first, so if you're talking in the custom space, you know, the first thing we've got to do is kind of pan and go down the E-Myth road, Michael Gerber's, you know, the entrepreneurial myth, we've got to get the owner working on the business and not in the business, the technique to get rid of the technician mindset. And so we've got, we've got to define roles and responsibilities and then start to transfer those responsibilities to other people. And it's very difficult for a custom builder. And I mean, we teach this in superintendent training, same thing. It's like, look, you know what? Maybe we're used to working with tools and good at working with tools. Well, now your tools are the people and you'll be judged on how well you can lead and direct and manage those people. Not how well you can grab the broom or, or the saw or the chisel.
(06:23): So that's the first step. And, you know, some will make that transition successfully and some never, well, I mean, to be honest, there's a reason, you know, some people stay as a sort of a craftsman builder and they, they won't get any bigger because of that fact. I mean, they all want to keep hands-on in every aspect, which is satisfying. I mean, if you're, if you're a craftsperson, that's a great way to make a living, but it's not a great way to build something that's saleable or scalable or so forth. Right. The custom builders working with a couple of different ones right now. And I mean, we're starting down that road of, okay, here's what, what the management teams are gonna look like. Here's how we're going to build it out. Now it's going to be much smaller organization in that case. Right. And people are going to be wearing more hats for sure.
(07:08): But again, it depends on your volume and what your volume goals are. You know, there's not, there's no glory in just, you know, and just building a lot of houses and burning through a lot of land. I mean, it depends what kind of builder you want to be, what kind of projects you want to do. There, there's a market for all that, whether you're a, you know, a high volume, a starter home builder or a custom luxury builder, we really need to train a lot of these folks on how to get out of the weeds. Right? Well, you have to decide, I will say this, you have to decide what you want to be when you grow up, because it's not, it's not easy to mix those various aspects of know when we say the construction industry, right. We're talking about something very fragmented. Well, even if we say residential construction, you've got everything from the custom luxury one-off design builder to high volume, high production, home builders and everything in between.
(08:02): So you have to decide as a business person, what kind of business you want to pursue. And so some of that of course, would be your personal interests, but also what will your market there? You know, where are you and what can you sell into that market? You're only going to be able to produce what the market's going to be willing to, to buy from you. So that's going to depend where you are, where you're willing to go and so forth. But you got gotta, you know, Steve Mossville has life. Steve was the S the SM of SMS. SMA is Steve Mossman and associates, you know, and Steve alive, the first thing he would say upon meaning a client is what do you want to be when you grow up? You know? And, and when he, Matt was, you know, what kind of builder do you want to be?
(08:49): Because if you, you think you can answer acute equally well as the production builder and a custom builder and a remodeler all at the same time, you probably won't be able to, you know, three different businesses. And not that you can't run three different businesses, you can, but it is literally three different, almost three different industries. And in a sense, no doubt, different metrics, different bookkeeping. I mean, you know, all that different staff, well, you just touched on the dilemma of the, of the custom builder, all those things that you're mentioning when they start out, they're doing it all themselves. They need to have an accounting. So they need to know and understand an accounting system, or bring somebody in to do it. They need to have a sales and marketing person, or do it themselves. They need to have project management software. They need to have construction binders.
(09:40): They need to have a training program. They need to have a client relationship management tool. And then they need to find a way to keep it all current and connected. So this is why you get into, I don't have time to train because you're busy raising your frogs and a wheelbarrow. One is ready to jump out at any at any moment. And it just becomes this constant never-ending chase. So we, we totally believe in what you're what you're talking about here. You know, as a, as a, as a builder in Houston, I worked with him for many years and one of the best Golder's custom builders I've ever worked with, they do amazing, amazing work. And what Alan would tell you is the fur. And he came up through the trades, too, right? So he's, he's in the same, he's in the same boat.
(10:28): As, as a lot of us, he will tell you, the first thing you got to do is understand your numbers. If you're in that custom builder mindset yeah. You like to build, and you really don't want to be bothered with a bookkeeping. That's a big mistake. I mean, do you need to know where your dollars are going? You need to understand basic accounting, terminology, purchasing systems, all the stuff that the typical craft first and finds quite, quite boring and, and not very inspiring. And so what they do, they'll try to hire that done. So they don't have to gain that knowledge, same thing with computer systems, by the way, this is the same thing. You know, it's another language, another vernacular as another set of knowledge that people have to take on. So instead of learning it themselves, they, they try to hire it all out and just abdicate from that responsibility in any of these cases, if you're going to get involved in these things, you've got to understand the root of what you're doing.
(11:29): So the first and foremost is understand your numbers. What is gross profit? What's the difference between markup and margin? You know, there there's a classic when I was writing for JLC, I mean, almost every month, we would do a business column that has something to do with margin versus market, because it's something everybody got wrong. We could repeat that month after month and still not get everybody on board with it. And we still teach that to this day. And I've had builders that, you know, should know better. I mean, people with degrees in banking that should know better and still get it wrong. So you've got to understand where your dollars are going. First and foremost, after that, then we can talk about the automation and the computerization and all that, which are great tools to help with all that stuff. But you got to understand the basics first,
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(12:38): It sounds like the business owners need training first. I mean, they really need to get, make sure that a business owner is fully trained in the business aspects. As you said, who does he want to be? When he grows up? What does your business look like? All the different available systems and solutions. And they need to understand and be trained on that stuff first, before they could ever start implementing a training system. There's all kinds of resources out there. Whether you go to consultancies or your NHB programs, et cetera. I mean, these are common conference sessions. Anybody that wants to start to get a handle on this stuff can start attending any of the NHB stuff. The business management team, there puts together a good series on this stuff. JLC live. There's always a, you know, there's a business conference with that for custom builders.
(13:29): So the stuff's out there. I mean, you don't, you don't have to jump into an engagement with a consultant right off the bat, but you do have to, you do have to make the effort to do it. And the custom builders that I've worked with made that leap from craft builder into business person. I would say that that, that's the one, that's the one common thread. They understand their business, or they may have fight failed a couple of times to fallen down and had to get back up and say, okay, what did I do wrong? And what can I do to fix it? But, you know, the smart ones figure it out in a hurry and they have to become better business people, you know, learning to sell at a much higher margin than maybe they're comfortable with. Right. It's all those things. So that gets back to what we were talking about before they investing in your team and then making them worth it.
(14:19): If you're not generating adequate profitability, you're not going to have the money to invest in a good team. And that's, you know, that's, that's the first thing, right? So from a technology and training aspect, is there, what do you see coming up? What excites you on the horizon? Maybe opportunities to combine technology and training, whether it's virtual, whether it's group settings, I mean, w w what excites you going forward? You know, a couple of years ago we were doing, you know, in-person workshops for training and, you know, it was a mall, it was a mobile roadshow and so forth Colvin, I think really accelerated the whole idea of virtual training. And we've been moving more and more into that model, practically, any of the live workshops we used to do, we can do virtually some version of them. We've been able to create longer term training programs where we can, you know, we can divide instead of three days of an intensive workshop we can kind of build, or do you want to be several months?
(15:21): So there's smaller bites. We can, we can provide more reinforcement. That's another thing with training, you know, it's, it's as much relearning as it is learning. So you have to constantly reinforce what was trained and that stuff's got to show up on the practical side too, you know, in the company, but, you know, the virtual training, it doesn't solve all the problems, but, but it does solve quite a few. And the technology has gotten remarkably better. Right. So we can do it and you know, get some good results from it. So, so that's definitely one thing. I think, you know, the technology side, I don't know. I mean, as far as computer systems and that sort of thing, that took a real hit in the downturn, right. And there, there have been a few things that have come along that, that are interesting, but we're still talking primarily technology.
(16:11): That's, you know, 10, 15 plus years old for the most part. And if anything, I think there's, I think there's some opportunity for a developer or developers to, to step in and sort of up the game on the, on the technology side, there've been a few things that have been interesting, but honestly not an awful lot has changed on that front. Dave, anything else you wanted to touch on? Well, I, you know, I, I'm thinking back to, you know, a bunch of things that you've said here, one is, start with yourself, know yourself, know who you want to be. Cause it's pretty hard to attract the right people or to, to take anybody on a mission if you don't have that figured out here's the discipline and clarity, right? I mean, it's clarity of what you want to be, but also the discipline to not be distracted by every shiny object that comes along, you know, every, everything is not a good opportunity.
(17:11): You've got to determine that course and then stick with it. Yeah, yeah, no, your system like develop a system and then know it, know your numbers. I mean, that, that's an important piece as well. So if you know your mission, if you know your mission where you're going and who you want to take with you, if you know your system, if you know your numbers, then you're creating some predictability into your business and something that is repeatable. So when you do bring in whether it's a, a purple unicorn or a golden retriever puppy, they know exactly what to do. There's somebody who can show them what to do and set it set a proper, and that's how you can safely grow. And from what you're saying too, you know, it's the repetition, it's the culture of improvement and excellence and continuing to learn and continuing to grow surrounding yourself with other like-minded people are doing that and creating opportunity for your people.
(18:07): And that's where you see that craftsman breaking through being able to scale their craftsman mindset, maintain quality, maintain a client experience and effectively grow because they were able to transmit their passion, their vision, the way they've done it to a group of people who can do it with them instead of having to try and do it by yourself. Because where those fall apart is, you just don't have the confidence in your people that you're going to do it your way, because you were not a good leader at teaching them. And then I suspect we didn't get to go too much here, but some of the best companies we've seen those project managers turn around when given, given the autonomy, given the systems being empowered, they turn around and lead your company right back. So you get this self-fulfilling momentum that that comes from all this, but it all starts with sitting down and making that initial investment, stripping everything down to that, very simple bare bones and say, w where do we go from here?
(19:08): And a lot of these businesses need to just start from the beginning and put it all in place, which is really hard to do when it's raining deals right now, probably have touched on this earlier. But, you know, we, we teach a sort of a top down strategic planning course mission and core values is at the top, right? And then, you know, next is your objectives, like, what are we trying to accomplish? So it goes from why are we here? What are we trying to accomplish? And then how are we going to accomplish it? And that's the strategy, right? Managers, you need to work. You need to stay there in that water. What are the objectives? And you let your people determine the how, right. There's more than one way to skin a cat, good people need to be able to use their intelligence and formulate those solutions.
(20:00): And that's where that's where small companies get balled up the owner instead of staying in the plot area, the objectives, right. He wants to keep, or she wants to keep getting down here into the, how the micromanagement and that's, that's a mistake. You know, that that's a fundamental mistake. We did you know, and that's, that's the classic Simon Sinek, my, you know, golden circle model and a colleague of ours that are really interesting presentation on time on that. And, and describe it nearly the exact same way that you did. And he said the, the, the reason why they go down and go down to those things is because there's another circle in the middle of that line. And that's who they didn't have the right who. So if you put the who before the, before the Y, then you're able to execute that and we take it one step further, not who right in the middle of that is a, you, you, as the leader set the mindset, you're the one who's going to go out and attract those other, those other people.
(21:01): So set the tone with yourself, go out and learn it and be curious, seek out this stuff, find, you know, find people like you. And you know, the other trainers that we work with work on your own game first, and then you're able to attract that, that, that here. So this has been fun for us, man. And you're speaking our language here. People want to work for good companies, right? Everybody wants to be proud of where they work. And nobody wants to work for a bad company, a bad employer doing this stuff is what will attract the a team and keep them at your company. And really at the end of the day, it is the team with the best people is going to be the winner. I mean, it's, it's really, it's really that key. And it's, and it's the biggest magnet for more of the right people.
(21:48): It's like any professional sports team. You see it, where did the free agents want to go to the winning team, to the culture, to where it's, maybe we've talked about it on, on several episodes here. And with this in environment that we're in, you know, the market's hot and resources are stretched thin, whoever wins this talent and training game of the workforce is going to be way ahead of their competition. Oh, you know, I wanted to say one thing about that too. You know, I made a note earlier right now we're fighting to find people, right? And so we train the golden retriever puppy and, you know, so we might have, you know, six to eight trainees, right? In a, in a production shop, you got half a dozen superintendents you're training. Well, one or two of them are going to be outstanding compared to the others.
(22:42): Those are the ones that will still have a job and have advancement opportunity when things slow down, which they are going to do, they're going to do interest rates are going up. Inflation is going up. I mean, I've been around long. And if I look, I got in the business in the, in the Jimmy Carter years. All right. So I, one of my first home building clients, I think had an 18% and 18% mortgage. So, and I remember talking to an old, real, or just, you know, the guy's name was Louie farm alone. We used to eat lunch. You guys, Louie, do you think we'll ever see 10% money again? And he said, no way, Joe, not in your lifetime. And of course, you know, Lance been blown out of the water. Now it's like, you know, young people are scared of a 4% mortgage.
(23:25): The market is going to cool off. And the people who are better trained and better equipped are the ones that will, they're the ones that will still have a job and still have opportunity in the industry. And the ones that aren't will fall by the wayside. That's the other side of training and continuous improvement is, you know, you can hold your team together and you can have a better team and hold it together. So the whole that together is key there because that's the risk you're on is you don't train them and they leave. And those exceptional people find a spot that does appreciate them, does empower them, does train them and does provide them everything that they need to put their own stamp on the success of the company. This has been great. I think there's a ton of a ton of stuff in here.
(24:08): Some serious nuggets for the listeners. Thanks for taking the time and sharing this for folks out there that are listening, that would like to learn more about you or get in touch with you. How can they find you best way? I think just go to the SMA website, SMA consulting.net. We're filling in with SMA. And that's probably the best way to find me. You can find me on LinkedIn, J L you can send me an email or text or reach out to us on the show. And and we'll connect to you. Fun to watch you here and hang out with you, Joe. I appreciate that
(24:44): Joe keep doing what you're doing contributing. You've been a great contributor to this industry for many years. Thanks again for all you do, and we'll talk soon. All right. Thanks guys.
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