Why the three most common growth tactics pursued by single-family modular plants no longer work.
In my last column, I noted that residential modular home factories have a looming sales problem. Those factories have long depended on single-family modular builders to make sales for them, but, over time, that approach has become much less effective and they are now experiencing a builder network sales channel that is in decline. The signs range from builders selling fewer homes every year to large builder/dealers who simply close their businesses.
This trend doesn’t end well for any of us in the industry. As a growing builder, I would like to pretend it’s somebody else’s problem, but I can’t — when a factory suffers, even healthy builders suffer because their key supplier is at risk. We are all in this together, whether we like it or not.
I am not a single-family modular doomsdayer. I am bullish on the industry, but I think the sales problem must be addressed. Before I get to what will work, I want to address what I believe won’t work: the common default approaches of recruiting new builders and/or adding commercial projects to the mix.
The following scenario has played out in modular factory conference rooms for the past 30 years. The General Manager, Sales Manager and the multiple Account Reps gather together. They discuss the plans for generating new business and generally consider three broad solutions:
- Recruit new-to-modular builders/developers
- Convince existing builders to switch to their factory
- Find a commercial project that will “fill holes” in their unused capacity
Let’s look at why none of these is very effective.
Recruiting new builders is the classic go-to solution that factories have employed over time. It has always worked. Except, it isn’t working now.
Historically, small company stick builders or subcontractors/tradesmen would become modular builders/dealers. Today, there aren’t many of them left in the rural areas where on-your-lot modular is being built. If you do manage to recruit one of these customers, the likelihood they will be buying from you long-term is extremely low. If you sign on ten new builders today, no more than one to two will still be buying from you in five years.
Converting existing modular builders/dealers to your factory is another time-honored practice that no longer works. This is a zero-sum game that brings no new business to the industry. It’s also challenging to get a typical builder to switch factories, because a new factory won’t bring enough new value to justify the operational pain the builder would have to endure to make the switch.
Adding commercial business (multifamily, hotels, etc.) is an in-vogue solution right now. It’s tempting for a factory to see a 40+ unit commercial project as a terrific way to supplement a declining backlog.
For a single-family factory, however, a commercial project is the equivalent of a fun night of excessive drinking with old friends past your 40th birthday. The gross revenue is great, but the hangover is a killer. The morning-after side effects include angry builders who must wait longer for their homes, constantly delayed down payments that wreak havoc on a factory’s production schedule, a net margin that isn’t what you expected and the realization that you have entered a very litigious field.
Given the drawbacks of the above approaches, a lot of factory owners and managers are looking for other ways to keep their operations running. Some interesting options are starting to show promise. I’ll explore their potential and risks in future columns.
Shawn Corkrean is the owner of Griffith Homebuilders of Iowa (http://www.griffithhomebuilders.com/). They sell and build modular homes in Iowa and Nebraska. Shawn has experience as a real estate agent, land developer, factory sales manager, and 20 years as a homebuilder, both stick and modular.
