Tuesday, June 3, 2014

Forced to More Sales vs Forced Sales

Do you run your modular factory or home building business like the rabbit or the turtle? Your answer says a lot about your future in the modular housing industry.


“Grow or Die” might fit certain aspects of our lives but it can be devastating in modular housing business.

There are modular factory owners that model themselves after the rabbit. They push for more sales hoping to expand their territories. They use tactics like huge discounts, sometimes as high as 15%, to acquire new business while neglecting their regular builders. Some hire every sales person that is available with a pulse and flood the market, having them hop from one area to the next and never building a good relationship with any prospective home builder.

There are modular home builders that hop from one market scheme to another in relatively short time trying anything to get a sale. Some will undercut their competitors just to make a sale and find out later that they won’t be making money on a house, then only working on the house during the down times and using less than expected building practices.

The “rabbit” business model will soon grow tired and have to rest for a bit, probably because they have run short of cash to continue. Rest too long and the rabbit will never want to hop again.

In the modular home industry, think less like a rabbit and more like the turtle. If we were selling instant homes like McDonald’s sells burgers, the rabbit model just might work well but in our industry things tend to go in slow motion.

For the factory trying to bring in a new to modular builder, that first house could take a year to get ordered. How many factory sales managers have the patience to wait that long? Now add in the time needed to produce the home in the factory and the 3 months for the house to get finished and it could be up to 18 months before the builder turns over their first modular home to their customer.

For the modular home builder, unless you live in an area hit by a natural disaster or in a state that recently discovered huge natural gas deposits, attracting a home buyer, working with them to write a contract and then actually ordering the home from the factory and finishing it could take a year or more.

Neither of these scenarios lends itself to the “rabbit” model of doing business. Owners get frustrated, sales managers begin yelling and screaming, sales reps begin searching for a new factory to sell for and builders, tired of being asked when they are going to have an order ready begin looking at going back to site building.

For our industry, the “turtle” may be the best option. If that sounds passive and wimpy, consider the turtle’s approach to growth takes greater wisdom, humility, and restraint than the rabbit’s and that the rewards are more attractive and dependable.

Real growth is more builders and their customers wanting more of what your factory offers. Any other drivers like pricing, gimmicks, discounts, marketing gimmicks are ultimately destructive. 

Both the factory and the builder need to focus on their customer’s needs, working to create the healthiest company possible, one free of politics and confusion that choke off teamwork and innovation. Keep communications lines open. When you do these kinds of things, growth will occur naturally but only if it’s meant to be. You will be forced by your customers to grow your business.

However, some factories and builders simply aren’t meant to be bigger than they are. There is absolutely nothing wrong with that. These companies tend to be busy, happy and profitable without worrying about continued growth.

When you are forced to take the rabbit approach in the modular home industry by any means necessary, either because impatient owners are demanding immediate results or because of a changing market conditions, be careful you aren’t swallowed up by another company or worse, forced to close your doors. Be grateful you aren’t at one of those rabbit companies (and if you are, you deserve sympathy, not envy), because they are anything but role models.
I have been asked what I think of Excel Homes’ growth by acquiring All-American Homes, Mod-U-Kraf and most recently Keiser Homes in Maine. My answer is that because they have used the “turtle” approach to modular home manufacturing, they have been forced by their customers to continue to grow. Maybe the turtle should be Excel’s mascot?
I look around our industry and see a lot of turtles but there are some rabbits also. Only time will tell if any of those rabbits will ever win a race.



4 comments:

Anonymous said...

Coach,

Excel, All American and ModuKraf were "brought together" by the private equity investor HIG Capital. Your rabbit vs. turtle analogy is one reason that private equity should stay out of the modular business.

Coach said...

I am really at a loss as to why you think private equity firms should stay out of the modular housing industry. Without them, a lot of good factories would be gone forever.

H.I.G. is growing because of the growing number of homes being built by the companies you named forcing them to continue to grow. I don't see them doing "rabbit" marketing.

I see them adding capacity as their sales increase and that is what business is all about. Growth because of increased sales from loyal builders, not because they underprice their competitors.

Anonymous said...

Coach, I did not mean to imply that HIG is doing "rabbit marketing." Private equity firms generally do not have business model to patiently stay the course while housing recovers VERY slowly. And they tend to be averse to capital investments (IT systems, etc) that would improve efficiencies and benefit operations over the longer haul. Of course there are exceptions to any generalization.

As to whether the success of Excel/All American/ModuKraf is attributable to loyal builders or price cutting, you would have to ask those of us who compete with them. There clearly are manufacturers who haven't learned that buying business is destructive to the market as a whole.

Anonymous said...

Curious comment? If HIG as the group of families has increased efficiencies and which they past through to their builders and the end user is it price cutting or good business. HMMMM!!