Thursday, May 7, 2020

The Case for Builder Consolidation

Andy Gianino, owner of The Home Store, one of the largest modular new home builders in New England and author of the best selling guide to modular home construction, wrote an article for this blog back in 2015 and what he expressed then is even more valid in today’s market.


With fewer new home builders entering the trade, his ideas of consolidation deserve to be reread today. Here is Andy Gianino’s remarkable blog post:

The Case for Builder Consolidation

Imagine that a new modular builder/dealer company called ABC, Inc. offers the services outlined below. If you’re a modular builder, ask yourself two questions. (1) How much would you benefit if your company were part of ABC? (2) How would your company fare if it had to compete against an ABC builder in your territory?

Here’s what ABC would provide your company:


Marketing
ABC has a national website that appears on the first page of the search engines in your area. ABC also has a social media presence that is updated several times a day with rich content. Since 85% of all people interested in building a new home begin their shopping on the internet, ABC provides you with a wealth of leads.


Lead Nurturing
All of your ABC’s internet and phone leads are screened, qualified, and nurtured by a group of experienced “greeters” at the main office. These specialists engage the leads with the help of an advanced Customer Relationship Management (CRM) system. Greeters stay in regular contact with your leads using a series of targeted email templates and calls that are prompted by automatic reminders and guided by phone scripts. The greeters pass leads to your salespeople only when the leads are ready, willing, and able to take the next step. This enables your salespeople to stay motivated and focused on selling homes.


Modular and Contracting Design and Plans
Hundreds of ABC’s standard plans are drawn in Chief Architect. Each plan is drawn with multiple interior and exterior options and easily modified by your trained salespeople. Custom plans can be generated from templates that take into account modular design constraints. Neither your salesperson nor customer must wait for the manufacturer to draw the plans.

The design program also creates site-built drawings, such as for garages, porches, decks, foundations, finished attics and basements, etc.


Modular Specifications and Pricing
All standard plans and thousands of options are priced in ABC’s custom CRM program. Because ABC’s modular pricing program is tied to its drawing program, it can automatically generate detailed modular specifications and itemized prices without your salesperson or customer waiting for the manufacturer.


Contractor Scope of Work
ABC’s contractor pricing program is integrated with its drawing and modular pricing programs so it can automatically create a detailed contracting scope of work with specifications. It also generates itemized prices for both labor and materials.


Sales and Contractor Administration
ABC’s CRM system tracks all the details and to-do tasks for each customer so no one in your company has to remember what needs to be done or when.


Turnkey Project Management
Planning and contractor shopping are faster and more accurate with ABC’s CRM system, since it generates plan-specific instructions and drawings for your set crew, as well as project scheduling for your button-up crew. These tools are given to homebuyers who want to complete their own turnkey, ensuring they know their responsibilities.


Sales and Turnkey Training
ABC provides on-site classes and on-line webinars for sales and construction. It also provides manuals, videos, and podcasts of best practices for sales and construction and for contractor troubleshooting best practices. ABC’s CRM system has a built-in training and supervisory function to help your staff become proficient with using it.


Benefits
Each one of these improvements will individually help ABC’s builders. Together they will elevate every ABC builder above their competitors – both other modular and stick builders.

I believe that such a package of services will allow ABC’s builders to lower their costs markedly, which will help them reliably beat stick builders’ prices. It will shorten the time from initial design to completion, increasing ABC’s builders’ advantage over stick builders. And it will provide ABC’s builders with better quality products as well as superior services, which will enhance their reputation. These improvements will enable ABC’s builders’ to grow their sales and profits considerably.

However, if we modular builders stand pat and try to remain independent, we will find our market share under attack from bigger, better capitalized, and more state-of-the-art modular competitors. If we continue to market, sell, and build the same way we do now, and with the same relationship to our manufacturers that we now (more or less) enjoy, I don’t believe we will reach our full potential.


How Do We Get There?
We could continue to wait for a manufacturer to provide these services. But as I said in my presentation to the Modular Home Builders Association last fall, most builders have such a weak commitment to their manufacturers that manufacturers have little incentive to invest in these services. They also don’t appear to have the financial resources at this time to make the necessary investments.

An alternative is for each builder to create some of these systems on their own. But as someone who has done this, I don’t recommend it because of cost and time.
On the other hand, if several of us join together, we can afford to implement these improvements. In fact, because the expenses will be shared, we can continually build on them over time.

Let me emphasize that these ideas don’t exclude a partnership with a manufacturer. In fact, our interests would be served best by a closer relationship with a manufacturer. This would enable us to integrate our builder systems with theirs, which would strengthen both of us. But unless this happens soon, I believe it is in our interest to move ahead on our own.



Finally, several of the modular builders I spoke with over the last few weeks asked how I saw the consolidation happening. It’s too early for any of us to say whether the consolidation should be secured by a merger and acquisition roll-up, a franchise system, or some other arrangement. It will depend on what those of you who are interested prefer and how the consolidation is financed.

8 comments:

  1. Gary, I don't personally think consolidation is necessary for the builders to be successful. When I read this, I think Wal Mart has a national website, presence, purchasing power, etc. But that does not keep me from wanting to shop at my locally-owned stores in my community. Often times they provide better, more personalized service, higher quality products, and it just feels good to shop at a store where you know the owner.

    Now, if the local guy is going to try to compete based on price alone, Wal Mart is going to clean his clock. My wife used to run a small book store in a small town. Can't tell you how many times someone would come in and say "Wal mart has this exact same book for 40% off, can you match it?" Obviously she couldn't match Wal Mart's price as they used books as a loss leader. But go to Wal Mart and ask them to order a new book for you and tell them to call you when it comes in. They will look at you as if you are crazy. The small local shop can do that but Wal mart won't.

    Don't try to beat the big guys on price alone. Quality, service, and community involvement still matter - maybe more so today that ever.

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  2. Tom, I'm surprised about your reaction to this article seeing that you back the Modular Mobilization Coalition and Express Modular's franchise efforts.

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  3. Tom I concur with your opinion. Too many local Modular Builders try to compete on price alone and consequently ultimately close their operation. Modular home building has inherent advantages and value that most builders do NOT attempt to market in a competitive way. Consolidation in home building has been on going for years with most middle market builders being absorbed by larger entities with deep balance sheets or market vision.

    I, also, see no conflict with it and the support of the Modular Mobilization Coalition which was formed to address a current need with the potential ability to convert for reuses later. I applaud their vision/concept and hope it leads to production standardization in several areas for attainable housing. To date I am not aware or any project sold and delivered by the MMC to test their repurpose concept after this event. Alas, this concept does not lend itself to the single family market where most modular builders operate.


    Likewise I applaud the Franchise effort by Impresa Modular to promote modular construction in the residential market but will it be as successful as franchise models for site builders that offer the same or similar concepts for their builder networks.

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  4. Builder Bob, I'm not "backing" the coalition or the franchise idea. Both are ideas/concepts put forth by industry participants some of which happen to be members of the two organizations I manage. I'm "backing" the entire modular construction industry and greatly appreciate all the companies that support these trade associations.

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  5. Tom, Tom, Tom...
    Both are more than concepts, they are reality. I looked into the Modular Mobilization Coalition and it seems like they want to establish fixed pricing across all factories so projects can priced to allow each factory to make a profit.

    And looking at the Coalition website, it says that a factory must be a member of MBI to join it. Sounds like you are supporting it if a factory has to be a member.

    As they say, if it walks like a duck and quakes like a duck, maybe it's a duck.

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  6. Bob, Bob, Bob, We want EVERYONE involved in the commercial modular industry to be a member of MBI. I've had numerous conversations w VBC about this. Ultimately it is the coalition's call as to what terms they set.

    And by the way there is a difference between consolidation and collaboration, a fact you have seemingly missed. As for the franchise model - also different than consolidation.

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  8. The modular industry has struggled for years with getting new builders to participate. While there are many reasons that we can debate and discuss, the bottom line is that new modular builders aren't being created to take advantage of the opportunities that are out there.

    Factories are factories, and while they did it in the "old days", they aren't the lead generators or trainers for their builders that they once were. Something fundamentally had to change in the way we delivered modular homes.

    That's where we saw franchising as being the right fit. Most new builders don't understand the capabilities of modular construction and the factories that they work with. I would actually venture to say that many current modular builders don't fully understand what some of their factories can really do. Builders needs marketing, sales support, office/management systems, and factory support. That's what Impresa Modular has and franchising allows us to share that with builders under a single, powerful nationwide brand!

    Franchising isn't a consolidation of builders, each is independently owned and operated. Franchising is the sharing of common, proven systems, and a marketing brand that no single builder could create on their own. Franchising also eliminates risk for the factories that support it by eliminating the risk of untrained, unstable builders costing them money and efforts.

    Franchising is the opposite of consolidation. It's what will finally provide every new builder that wants to participate with marketing, sales support, business systems, and factory support to succeed as a modular home builder and deliver consistent service and amazing homes to custom modular home buyers!

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