We all want to forget. But, ten years ago, we were in the worst economic contraction since the Depression. This week’s guests remember it well. Jim Chapman, now President of the Georgia Home Builder’s Association, told us that the organization went from 4500 members to 450. His company, Jim Chapman Communities, was in that last 10% that survived. As did Betsy Sheppard, CEO of Gilbert and Sheppard Group, a marketing agency that serves home builders, like Jim. How did they do it?
As business doors closed and employees transitioned into new jobs, the innovators invested and stayed at it, recognizing the value in their efforts.They knew that if they could simply find the right niche to serve and stick it out, they would make it, and get the benefits of being one of the last companies standing. We discuss finding a sustainable niche and getting through tough times. These perennial lessons are our focus this week.
Remember the Basics – and Be Prepared for Industry-Wide Shifts
In this business, they are known as the “Three L’s” – labor, land, and lending – and represent the foundation of a company like Jim Chapman Communities. It makes sense. You need land to build on. You need labor to build. And you need a financial source to pony up the cash to buy and maintain both.
The numbers don’t lie. “Why are we only delivering half of what might be normal in terms of new home deliveries?” Chapman asks. “We call them the limiting factors – which are the three L’s.” Labor is the first one. He points out that nearly 90% of the workforce are Latino, so immigration policy, which affects this demographic,also affects the building trade. With the current government policy on immigration very much a question mark, the future of the construction labor market is also left in uncertainty.
The second L – land – is also being undermined by need and the NIMBie (Not in My Backyard) homeowners who don’t want to see construction, rezoning, or gentrification in the areas they’ve made home for decades. “All of these people are like, I love it here. Isn’t it great? I’ve gotten in the door, now, you’re not,” Chapman points out. “There’s fear over density. Traffic. Neighborhoods fighting zoning.”This makes it hard to find an available parcel of land that is affordable and capable of meeting the needs of your consumer base.
And then there is the biggest obstacle of all – money. Lending. The final L. “I spent five years during the downturn cultivating a tremendous relationship with a 500 million dollar in assets community bank,” Chapman points out, “then, about a year ago, they were bought by a bigger bank and suddenly I don’t fit their underwriting standards anymore. Not because I did anything wrong. I just don’t fit in the bigger banks ‘philosophy.'”
Be Aware of Changes and Stay On Top of Trends
If you don’t want to get caught, stay on top of trends. Where will I be getting my subcontracting services from? Where is the best land for development? Who is willing to invest in my vision?As we’ve discussed in several installments of CEO Exclusive, technology is a major disruptor in all industries today. A.I. and automation are going to take over. But, a leader must know more than what technology will best serve his or her own corporate needs and when to rely more on the human touch.
It’s why CEOs must pay close attention not only to trends in their own industry and their customers, but also the greater ecosystem in which they sit—vendors, macroeconomy, capital markets, etc. They should know when the next recession is forecasted. They should instantly recognize where they are in the economic cycle and what innovations they will require to help them avoid the fate faced by many in 2008.
Housing units took an astonishing tumble. “Back in ’05, ’06,” Chapman points out, “We were closing between 50-60,000 homes over three, four years. The norm is probably more 40-45,000. Now? We’re down to 22-24,000, even with increased growth and interest in the area.” In order to protect his interests and those of his biggest stakeholders and vendors, he had to find a way to work within the changing face of his industry and its newest trends. The answer? Baby boomers.
Work Your Competitive Advantage
Jim Chapman Communities found its niche… and worked it hard. That’s a large part of their sustainability. “Boomers are really booming,” Chapman says. “That’s our largest market. There’s a tremendous amount of people who want to potentially downsize and retire. They’re seeking the golden ticket – time with the grandchildren. They are moving to where their families are.” Sure, we have more connectivity than ever thanks to iPhones and tablets, but those can’t replace being in the same area as your grandson as he lines up for his first Pee Wee soccer game.
As 2008 took its toll, Chapman switched his focus (and his business name) from “Fine Homes” to “Communities” and began catering to the over-55 demographic. Seeking advice, he went to longtime friend, colleague, and advisor Betsy Sheppard for her perspective. “The youngest baby boomer today was born in 1964,” she points out, “so that’s the end of that trend. But, the boomer is ready to buy. The Millennial is renting a lot; they will eventually become buyers also.”
“Boomers love socializing,” Sheppard points out, “they love lifestyle, they love the home.” With research, she discovered aspects of their new community that would attract the most buyers (one level living, safe neighborhoods, walking distance to nearby amenities and services), and in collaboration with Chapman, came up with the Communities brand.
It Takes Mental Fortitude
Okay, so you’ve figured out all the angles. You’ve got your niche; you’ve got partners on board with your new, overhauled business model. But, this doesn’t make failure any less painful. So how do you get through it? Not pragmatically. Mentally. This job is not for the faint of heart.
“I liken what I do to getting up every day and running as fast and hard as I can down a dark tunnel,” Chapman says. “Everyone goes, there’s a light at the end. But is that a train or not…I don’t see any lights. You just have to keep on running.”
“I also pray a lot,” he adds, “and hope, hope a lot.” Chapman considers himself as someone who sees the glass as 7/8ths full, not just half. “You’ve got to have a lot of hope,” he adds, “you’ve got to have a lot of encouragement and you’ve just got to get up and go. The easiest way not to worry about what’s going on around you is to stay in motion. So, you just keep doing.” The other important aspect of such drive and determination? “And the other thing is, you can’t do it alone,” Chapman admits.
Sheppard agrees. “I call it staying power,” she says, “you have to be surrounded by people who are like you and who are determined. As a CEO and leader, you have to keep showing up and you have to be that good example. You have to give back…and be flexible.” It’s just part of a complex road map back from the brink, a way to survive – and thrive – under the most adverse of conditions. When the Economic Downturn decimated the real estate business, Jim Chapman knew he had to adapt, or die. What he and his partners did proves that one can weather the storm and become the example of others to follow should it happen again…and it will.