Doing Business In The New Market

monticellohomes

I feel I am still new in business, only having built for about 4 years...but doing about a dozen homes in that time, and 10 of those in the last 2 years. But I am unsure how to continue. In my market you find a lot of builders, me included, that sub pretty much the entire job out. We more or less manage the job and the budget while making sure everything is designed well and runs well.

But with the "housing crunch" we are facing across the country I am becoming more uncertain if that model will work anymore. I am wondering if having more in house is going to have to be the way to make it. The big reason I question it is a friend who is a framer/builder who builds homes for far less than I could even think about...because he can bring most, if not all the home in house. Where I am dealing with every hand in the pot adding profit and then me adding on top of that. But at the moment without the time/money to invest in recreating the business 100%, by bringing much more in house how do I make it? If I am correct in my speculation. Any advice or enlightenment would be greatly appreciated.

Grumpyplumber

Heard a very interesting statistic for my state on the news a couple of weeks ago.
New construction in my state did not slow in the first quarter of '08.
It shifted, much fewer new homes, much more apt complexes and rental properties.
Without pointing out the obvious, thats alot of food for thought in regard to the biz model for any contractor.

Mike Finley

The business model I use and subscribe to is exactly what you are considering. I've swam against the current so to speak in my thinking in almost everything I do when it comes to how we run our company versus the competition.

Let's face the facts -- there is no doubt at all that the model of the GC who subs out as much as possible does this for a mixture of value, quality and profit motives, however as far as I'm concerned those reasons are also a blanket excuse used to cover the use of subs when in reality subs are not the best way to go.

Perfect example is -- you sub your high end tile work, because that work cannot be achieved as profitably, nor with the quality required if done in house with trained employees. With about 10 years being the sweet spot for tile experience to achieve the level of quality, training an employee to achieve that is virtually impossible. The quality can't be achieved and it can't be done as cheaply, because no matter what you can't achieve the quality. You can get the job done for 60% less in house, but you cannot achieve the quality, so there is no savings.

-- now look at demo, clean up, framing or anything else that has a simpler learning curve and that is where you can train inhouse. Yes a great leed framer will require a relatively high salary, but a couple of journeymen working under him will not, nor will a helper or two.

So the long and the short -- yes, I think you are on to something for certain. I don't really think you're onto anything ground breaking, what you are seeing is what most economic down turns create. They allow us not to see something new, but something that should have always been. When times are booming there is plenty of room to leave money on the table and even morons can make money. It's only when the times get tougher that those who were marginal get exposed. A well run company only runs better during harder times. A poor run company's weaknesses become it's death in harder times.

monticellohomes

Thanks Mike. I agree, I am just trying to figure out the best juggle of having laborers and not, and where to use them. I think also marketing is going to be critical, I need to focus on the homes I build as far as the quality. Sell it as if someone is buying a BMW over a Kia....you pay what you get for. While the cheaper one is good, it doesn't have all the bells and whistles of the BMW. I've just gotta figure how to convey that.

excellencee

Talk to your insurance agent and see what additional coverages will be needed to bring more operations in house. Because of my experience, electrical insurance is pretty reasonable. I toyed around with excavation because I sometimes have to put in underground services (why pay someone else to do what I enjoy doing). Because of my comparitive lack of experience in excavation, the rates were out of sight. Just a thought.

monticellohomes

Good thought. The parts I thought initially about bringing in house were some of the unskilled labor portions. Parts that don't require licenses thus keeping wages lower. Things like siding, soffits, trim, landscaping, etc. I've got skilled subs at each of those, but they are parts I could also do myself easily...so with help I could bring them in house. The problem is that they are not the huge cost saving areas like electrical, etc. Around here plumbing is so expensive, it is what drives my budgets/estimates so high.

mmike032

trim is considered unskilled. really

monticellohomes

I listed trim there because one of the guys I've considered bringing in house is one of my trim carpenters. I agree, trim is skilled labor.