Monday, July 11, 2011

5 MISTAKES TO AVOID WHEN STARTING A NEW MODULAR HOME FACTORY

With the recent closings of BarVista in Colorado and Design Homes, LLC in Pennsylvania, I started to think about what it would take to reopen and successfully run one of these closed plants.  There are many reasons that either of these plants might have had in closing their doors, not the least is the slow modular housing business, but I really wanted to know if there might be a silver lining behind their clouds.

After working in the modular industry for quite a while and learning more about it while writing Modular Home Builder, I decided to list some of the mistakes that I whould avoid if I decided to buy either of these plants.

1.  Too Little Cash.
The biggest issue that would hamper either of these plants’ success is not having enough cash on hand.  No matter how much you think it will cost to restart a factory, it will actually take about three times that amount, largely to protect you from any new downturns in housing.

2.  Thinking Small.
You may be competing for customers against larger companies with more resources. But you don't have to show it.

If you were to buy a small factory such as the closed Design Homes plant with its limited production capacity, instead of thinking small, think Boutique.  Instead of thinking small, think Personal.I  If a factory could entice a few strong builders into its fold with high dedication and quality workmanship, the outcome would improve.

For small-business owners starting out, most of the attention should go to sales and revenues.  If sales grow, expenses will take care of themselves.

And no matter how small, every company needs a dedicated sales pro to make sure homes are constantly rolling in the door.


3.  Dedicated Owners.
When investment bankers buy a modular factory, they want all the management to be dedicated to one thing; the success of the company.  I've talked with enough management people that work for acquired companies to realize that they work hard at getting the bottom line to look good.  One of them compared working for an investment company to working for McDonald's.  Long hours, hard work and dedication.  If you don't like to work this way...leave!

If you were to buy one of the closed modular factories that have recently hit the market, jump in with both feet and actually work there with a hands on approach.  It's your money and giving it to someone else with little or no investment in the company will spell disaster.

4.  Skimping on Technology
You might ask just what technology can be found in modular housing that isn't already in place.  By starting fresh with a closed factory, all products and procedures are fair game for review and improvement.  Now is the time to learn about some of the newest and better and possibly less expensive building methods and products and put them in all the homes from day one.

Just jumping in and restarting the line because you picked up a couple of bottom feeder builders that will only buy from you if your homes are the cheapest is not going to make you successful.  Being at the front of innovation and proclaiming it to any builder that will listen will give you major advantages.

5.  Losing Focus.
This is the biggest reason a lot of factories go out of business.  Owners get frustrated with slow sales and start to try everything and anything to keep the lines running.  I recently talked with a major modular builder that had been very successful in commercial work for years.  But a funny thing happened.  When the industry slowed down, other factories jumped on the commercial bandwagon and started to sell modules at almost cost just to keep the doors open.

These factories put their new home builders in second place to the commercial work.  Guess what happened?  The first factory saw what was happening and refocused their efforts to building an even better residential home that any of the other factories and took their builders.  Now that the commercial work is slowing down, the builders are not returning to their old factories that abandoned them.  Hurray for the factory that refocused their efforts.

If your good at something, stay with it, especially in a down market.  But you need to have a plan in place, like our modular factory above did, when others think you pasture is greener than theirs.

4 comments:

Unemployed Salesman said...

What a bunch of bullsh*t. Both of those factories closed because they couldn't sell enough houses to keep them open. Reopening them would be a major mistake for anyone that thinks they could do a better job.

Heywood said...

Coach,
I think you made good points. I disagree with U-Salesman. I think that re-opening a plant and using the same management tools as before is doomed, but I beleive their is opportunities for folks willing to try something new.
Your point of technolgy really hit home. Production tools haven't changed in decades!

Modular Home Place said...

I believe the Deming approach to management would also be a major benefit to the modular home industry. Everyone is everyones customer. This management style created such brands as Honda, Yamaha and Toyota. As for building homes, the Deming management style is being used to build prefabricated homes: http://www.toyota-global.com/company/profile/non_automotive_business/housing.html

SPeterson said...

I think Unemployed Salesman needs a kitty.

Or a hug.