Gone are the days when residential construction consisted of deep-seated relationships between local firms. The housing industry has changed dramatically as large home building companies have expanded in number, size and geography. This has led to bigger, more powerful companies dictating the terms of work, which requires today's poured wall foundation contractors to adapt to these changing market conditions. Understanding the changing dynamics of residential construction and being willing to alter your business to accommodate them will be essential for future success.
Our firm, MPW Construction Services of Wellington, Ohio (near Cleveland) first began to see the emergence of powerful home building companies, based outside of our area but building here, in the 1990s. While companies doing billions of dollars in residential construction had been in business for years before this, our market was not the prime target for these "mega-builders." This was primarily due to the fact that our region was not growing; housing starts were steady but below 10,000 units per year.
Large building companies are known for their aggressive growth plans. Any market above a certain threshold of permits — an amount that will justify the investment required to provide a return to the company — is a market of interest. By the 1990s, the Cleveland market was large enough to justify attention. During the past 12 years, the percentage of homes constructed by mega-builders in our market has increased from none to around 35 percent. Given these numbers, it is not surprising that we have had to adjust our business practices and build relationships with these companies.
Effects on contractors
While some may be quick to judge this change in the market as negative, we view it as an opportunity to develop solutions that benefit our business and industry. For example, this paradigm shift has forced "old school" companies like ours to focus relentlessly on costs, efficiency and customer satisfaction — or risk failure. As the result of this focus, we have improved our processes and developed more sophisticated systems for understanding our own business. While often painful, these changes should be characterized as positive.
Although the core of our business has remained the same — building poured wall foundations — virtually no facet of our business has remained unaffected. Everything from our culture to our collections process has been modified, largely in response to the relationships with these mega-builders. Large builders have high expectations and sophisticated systems that dictate the performance of the subcontractor. Therefore, we had to adapt our systems and attitudes to satisfy these expectations.
While this may sound easy, we discovered it meant significant changes that required adjustments not only in attitude but also in business practices. We have found that today's business more often involves detailed scopes of work, contracts and purchase orders as well as other detailed reports and tracking devices. Additionally, pricing negotiations are completely different. It is not uncommon to work on a small price issue for weeks or longer without satisfactory resolution. Further, the powerful processes and guidelines that companies bring to our relationship absolutely mandate that we focus on keeping our costs and prices low. We often find ourselves at a disadvantage dealing with the relentless corporate cost-cutting culture of the mega-builder; however, adapting to these realities is critical for the contractor's success.
Developing strong relationships with the large builder's local management is a critical factor for success. In the past, we may have nurtured relationships that lasted for decades with a local builder. The national builder representative must operate far less on personality and relationship in order to satisfy the corporate office and shareholders. In the end, you may be the company they want to work with, but if your price is not extremely competitive, you will probably not be the contractor chosen for the job. Understanding this and developing your own business strategy with this information in mind will minimize frustration and wasted energy. Working for mega-builders is truly all about business.