(If you would like to read the discussion between Kimberly and Tug, the video transcription is at the bottom of the page.)
Attention Builders, if you are in firefighting mode far more often than you would like, this video is a MUST-SEE! Learn how Tug Huddleston, of Red Door Homes of North Central Florida, went from daily firefighting to getting ahead of his business and making it one of the most profitable building companies around for his size. He even offers his buyers a guarantee that will blow your mind! This month’s edition is more than simply a Head-to-Head; IT IS A MASTER CLASS. If you missed any editions of Head-to-Head, please visit our Head-to-Head Page for a complete rundown.
The next Head-to-Head is on December 6, 2022 at Noon, ET where we are excited to announce that our special guest will be best-selling author and international motivational speaker, Robert Stevenson. Robert Stevenson is an expert at building a high-performance culture, improving efficiency, and accelerating growth. He is one of the most widely sought-after speakers in the world today, as well as a best-selling author. Robert was recently ranked #4 in the world by “LinkedIn Thinkers 360” as a Change Management Thought Leader & Influencer. He has owned five companies, sold internationally in over 20 countries, along with holding positions from Salesman to Chief Executive Officer.
Robert has spoken to over 2,500 companies throughout the world and his research in the area of corporate and entrepreneurial success is extensive. Over 2 million people have benefitted from his powerful, practical, compelling and thought-provoking programs. His books include the best seller, How to Soar Like An Eagle in a World Full ofTurkeys, 52 Essential Habits for Success, Pocketful of Tweets on Success, and Raise Your Line. He has presented to audiences worldwide and boasts a client list that reads like a Fortune 500 list. REGISTER TODAY and block your calendar. You will want to join us LIVE for this one!
Kimberly: Alright, let’s kick this thing off. We are definitely talking about focus plus intensity equals results here, and I am so happy to have builder Tug Huddleston with me today. His name is Jason; nobody knows him as Jason, so he’s Tug so that’s what we’re going with today. Some intros here. Of course, most of you know me, I’m Kimberly Mackey. My company is New Homes Solutions Consulting, and what I do is help builders to make sure that their systems and processes, and sales are all working together so that sales is the engine really that drives the train rather than running it off the tracks. I help with operations. I’ve kind of been there, done that, and bought the t-shirt as far as my training. I was very fortunate to have the opportunity to not only build homes but work in operations and be an acting division president, work for the big nationals as well as local builders. I love that I have that broad background because it gives me a unique perspective to help my clients weather market conditions. If I can help you, please feel free to reach out to me. I know the phone’s been quite busy these days as people are concerned about the market. I am happy to help anybody as much as I can. and Tug, why don’t you tell us a little bit about you and your story so people get to know you a little better?
Tug: Sure, I’ll be happy to. I wasn’t going to talk about this but since you brought it up as Tug. Tug McGraw’s who I was named after. He was a baseball pitcher. Many of you may remember him, but he retired the year I was born. My father wanted to name me Tug. I don’t even think you know this, Kimberly.
Kimberly: I didn’t know that.
Tug: My father wanted to name me Tug before I was born, but my mother refused to put Tug on the birth certificate. I don’t even know where Jason came from, but I’ve never been called Jason in my entire life. If somebody calls the office looking for Jason, they know that they’re a solicitor or the IRS, and they just put them to voicemail. So that’s that’s where Tug came from. I started in the construction business way back in 1998 straight out of high school as an electrician. I went to a trade school for four years as an electrical apprentice. I got my electrical journeyman’s license, worked in that field for many years, and then kind of topped out. I then went on to work for a large builder in our area. I got my contractor’s license after the ’08 debacle when he went out of business. I got my contractor’s license and started remodeling custom homes which was fun, but it can be challenging, so I ended up landing on Red Door homes which is more of a portfolio-style building. It would have some customizations, but we kind of narrowed it down to a select few floor plans. It allows us to service the customer better and deliver a product in a timelier manner. My electrical background and coming up through the ditches certainly help me relate to the trades in the field when I’m doing the one-on-one dialogue with an issue in the field. I have that to fall back on so they can’t pull the wool over my eyes because I came through the ditches. Right now, I’m a proud owner of Red Door homes here in North Central Florida. I love what I do. I love our team, and I love our product. I’m happy to be here with you today, Kimberly.
Kimberly: Tug has a great group, and I love that you’re a success story as a business owner coming from the trades. Right now, such an important message in our industry is that we need more trades. We need more of our kids coming out of high school knowing that this is a huge opportunity to be a business owner and to go on a large growth path. Not everybody has to go to a four-year college or get a doctorate, or any of those things to be successful today. I’m glad to know the rest of that story soon. Thank you for sharing it. If you guys don’t know, this is how to get a hold of Tug. I did a couple of things that I don’t normally do so there’s Facebook (Red Door Homes of North Central Florida). Please follow them on Facebook. This man has no fear, but literally, he wore a toga in one of his videos. If you want to see marketing that will grab your attention, have no fear whatsoever. He was one of the few builders that I knew could pull it off and I suggested that he start doing Tik Toc. Terrifying, but it’s working. He’s pulling that off. If you want to search for him, look at this hashtag #RedDoorNation, and you’ll always hear him say that in his videos. Everything he does is Red Door Nation. He always tells me whenever I’m going to see him at a conference or somewhere, I’ll be the guy with the red shoes. I’m shocked
Tug: I’ve got them on right now.
Kimberly: Always gotta have on the red. Absolutely. A little bit of information about what I have coming up, I’m super excited that I have my first group already filled. We’re getting ready to start and have our informational meeting on the Lead From the Side Academy. If you have anybody interested in taking their sales management and leadership, it’s focused on that leadership and growing it to the next level. Even those people who are interested in getting into sales leadership, then this would be the group for you. It’s small groups of five or six. It’s a one-year commitment. This is not an easy thing. This is an academy. There’s going to be a lot of work, and it’s peer-led. I will of course be guiding the way. There is a curriculum that we will go through, and it is an online academy except that we will get together twice a year so that we can have more intense sessions and go see what everyone’s working on and share and learn from each other’s best practices, so I’m very, very excited about this. If you would like some information on that just email firstname.lastname@example.org, and Krista and I will get back to you as soon as possible and get you the information. Last but not least, we don’t have another Head-to-Head between now and December. You will remember we had one in August, and we’re doing this one in September. We got to skip a few months because of my crazy travel schedule, but in December I have Robert Stevenson who is the author of Soar Like an Eagle in a Whirlpool of Turkeys, and three other best-selling books. The man has spoken in front of literally millions of people and corporations around the world, so this is a big deal, and he’s going to talk to us. I felt like December, what a perfect time to learn from his expertise in leadership. I’m thrilled that he is going to be joining me in December. I am so thrilled that it worked out with his travel schedule too, so please mark your calendars for that. If you didn’t register for all the episodes, then you can go back into the same link you used and register for this one. Of course, I’ll be sending that out the in the show notes. So, with that all of that out of the way now Tug, it’s time to focus and get down to business.
Tug: Let’s do it
Kimberly: Let’s do it. Let’s talk about the market. So people understand, Tug builds in Gainesville, Florida which is north central Florida, and he is a purely scatter site builder. You don’t do any inventory, right Tug?
Tug: That’s correct.
Kimberly: So, college town, but you build in the surrounding areas as well.
Tug: We do a 60-mile radius.
Kimberly: That’s a smaller market. It’s not big. It’s not like Tampa. It’s not Orlando, it’s not Jacksonville. How is this market impacting you guys?
Tug: It’s a little odd because what basically what we’ve learned is you have to educate the consumer that does come. We’re in Gainesville, Florida which is a college town with a bunch of hospitals here, so typically our clients are either working in the school or the hospitals and then they live on the outskirts of town. The market has been a little trying as far as educating a consumer about how interest rates aren’t as bad as they think they are, or how the price of houses increasing isn’t as bad as they think they are. So outside of just educating the consumer, the market’s been pretty decent in our area. We’re kind of insulated because of where we are. I mean we’re in the tropics for heaven’s sake, but the most trying part would be educating the consumer that the sky is not falling.
Kimberly: A good sales professional’s job is to educate the buyer regardless of market conditions, and we do see buyers freaking out. We see them freaking out all over the country right now. So, your team’s able to get out there and get in front of the Realtors® and the buyers that are coming in and help them to understand and navigate the market?
Tug: They are. Ultimately if you have a full funnel – if you keep your sales funnel full – then the ones that want to be educated can. The other ones, you know they’re going to come back in a year or two and wish they had bought today.
Kimberly: Yes, we see that all the time. You can’t save your way out of this. We know that but getting the buyers to understand that now. I know you’re doing some things with a lot of builders trying to do some buy-downs and offer some incentives. There are frankly things that we haven’t done in a while.
Tug: It has been a while since we’ve done those. I will say this; regarding the buy downs, we’ve gotten pushback from the lenders now because they are reluctant to do a buy down if they sell the mortgage, but ironically the customers are leaning toward the incentives which, obviously as the builders know, that’s where your margins are. The margins are a little higher so you can do an incentive and you can still have a good margin when you finish with the home. But like I say, the buy down of the rates surprisingly we got pushback from lenders that are scared to death to let you do that, so the incentives for options and upgrades. I know you hate the word upgrades, so I’ll pretend like I didn’t say that.
Kimberly: Personal choices. You know I like personal choices.
Tug: Personal choices. Those have paid dividends for us to offer the incentives for those, and of course, your margins are a little higher on those so you can give up a little bit to get the sale.
Kimberly: People just want to feel like they’re getting a win today. They want to be able to walk away and feel good about it. For the past couple of years we’ve just been telling people to pound sand; take it or leave it, and though you know, I think it’s a fortunate thing that those days are gone, but you also don’t have to give away the farm. You know the big nationals can buy down those rates and do those gigantic buys because they own the mortgage company, number one, but they’re also limited in the amount of those that they can buy that aren’t tied to particular buyers, so it does make it tougher for somebody like you to compete.
Tug: It does, but I think value over the big boys or value over price is what we’re constantly trying to teach ourselves. You have to show the value that they get. I tell my customer if I get involved in the sale and they say, “Well this guy’s cheaper”, I tell them you can pay me twice as much and you still get a better deal with me because if you buy down there it doesn’t come with Tug. It doesn’t come with this team here at Red Door homes to service you. When you can get your sales team trained to say with confidence, that you can pay me more money and get a better deal, then it’s a no-brainer.
Kimberly: Yes, you’ve got to understand your value proposition. I’ve said for years price and value must equal. That is an equation you can take to the bank, and price fluctuates. As far as a bottle of water, I’m not going to pay six dollars for a bottle of water on any normal day, but I go to the airport, and I think. “Oh, wow six dollars for a bottle of water, I got a bargain because it’s eight dollars at Starbucks.” All of a sudden, it’s about that perspective, so we have to support that value side of the equation all the way through. Knowing who you are and what you provide as a value part of the equation. Just to throw this out there, we were going to talk about this a little later, so I’m going to throw you off guard here, but guys this is how much he believes this. Tug is now offering a guarantee to his buyers.
Tug: We are.
Kimberly: I thought he was nuts, so tell them about your guarantee. Tug you would
Tug: The guarantee that my staff has allowed me to do, or the guarantee I want to do.
Kimberly: Let’s start with the one your staff reigned you in on, and then we can go to the other one because you’re just going to blow people’s minds here.
Tug: So, the thing about a guarantee is you’ve got to set yourself apart, so if you’re competing with people left and right, builders are scared to do a guarantee, so our guarantee is we’ll build your house on time, on budget, or I will make the interest payment if we go beyond 12 months of construction. We guarantee the price at contract unless the scope of work changes, of course, which means that the homeowner changes something. But if all is the same, the price will not change, and the timeline will not change. If it does, I will pay your interest on your construction firm loan until we’re done.
Kimberly: There were a couple of things in there. He’s an on-your-site builder guaranteeing the price is not going to change and that he’s going to deliver it in this amount of time. That’s from contract not from start of construction, right? Or is it from start of construction?
Tug: Which part? The pricing or the timeline?
Kimberly: The timeline.
Tug: The built-in timeline is from permitting, so of course, there are some caveats in there and there are acts of God, of course.
Kimberly: We have those in Florida.
Tug: Indeed. As I look out the window and watch it pour right now. We tell a customer that from contract to signing, to move in is 12 months, and that’s just blowing everybody out of the water. We’re able to do that, indeed, but the guarantee is from permitting to move in which is eight months.
Kimberly: Talk about conversation points and giving your buyers help with some of their pain and some of their fear of pulling the trigger. Kudos to you. I’ve got to say you gave me a little angina there, and I know you gave you gave Cami, your CFO, some angina as well. Your team is all in, right? It’s go big or go home kind of thing.
Tug: Go big or go bigger, and they have bought in and that’s the thing that I would point out to the builders. If you’re trying to get your team behind your vision or behind what you’re trying to do, you have to put a guarantee out there that they need to understand that if you do not accomplish it, potentially you could go out of business, which means they don’t have a job. So, it’s like burn the ships. I mean you’ve got to be all in if you want to be there. Under-promise and over-deliver, that’s out the window. I’m about over-promising and over-delivering.
Kimberly: You heard it here, folks. I didn’t prompt him on this. This is all him, man.
Tug: Kimberly, how about the guarantee that my staff won’t let me employ?
Kimberly: Alight, hold on to your socks, people. Here we go.
Tug: This is where I want to be, team. It’s going to be on budget, on time, or the house is free. To say that, you have to burn the ships if you want to motivate your team to get them behind you for the same goal and the same mission, and to accomplish what you say you’re going to accomplish, it takes extreme measures. For an extreme guarantee like that, you’ve got to put your money where your mouth is.
Kimberly: We’re going to take some steps to get there because I like for my builders to stay in business. You couldn’t have done this two years ago. This is not where you were.
Tug: No, not at all.
Kimberly: Let’s talk about that journey that you’ve been on. You started before I met you, but really in the past two years, you’ve amped it up. You were like most builders fighting fires every day. I always say the best way to stop fighting fires is to stop starting them. We start so many of our fires, and then we throw bodies at it trying to put out the fires, and we end up not having the systems in place, and the builder ends up having to do everything which is a recipe for disaster because you can only keep so many balls in the air at any given time. Pardon my mixing of analogies. Let’s talk about from there. From that firefighting mode that you were in to where you are today, and how you’re growing that business.
Tug: There’s a lot in that statement and in that question. The firefighting – obviously we all went through Covid – I started the Red Door brand in March. Our grand opening was on March 14th of 2020. Everybody remembers what happened that weekend. That’s when they shut the country down, so Red Door Homes, I had half of a million dollars in our storefront, our sales center, on Saturday, March 14th. On Monday, they shut the country down. I had 19 contracts on the books, and nobody knew what was going on. Let’s not even talk about the fires that we were fighting because of just construction in general, we had to navigate through that. Meanwhile, we were going through that and fighting fires of construction. It dawned on me that there had to be a better way. The thing that I try to talk about when I talk to young contractors is that we go into business because we’re good craftsmen or we’re good at our trade. “I’m a great builder. We should go build some houses.” We start a company, and then we hire a superintendent, or we hire a bookkeeper. The next thing you know, four years later, you’ve got six or eight people, and you’re good at building, but you’re horrible at business. You’re constantly having to put out fires over here with your accounting department or with your sales team or with the Ops Department. The problem as builders, especially for me, anyway, is you constantly have your foot on the accelerator. You have to take your foot off the accelerator a little bit and coast and begin to put processes and procedures in place and then the right people so that you can stop fighting fires all the time. We’re flying an airplane right now that has a wing that’s on fire and you have to keep the airplane in the air, but you have to go address the fire. It’s a juggling act, and when I realized that if I would just tap the brakes and look at what was going on and build a process and procedure behind it, that fire wouldn’t reignite. You say if we stop lighting fires then you don’t have to fight them. The problem with builders is a lot of time we don’t know how to not like them because we like to beat our heads against the wall a bunch. If there are any builders out there, certainly hit me up in the chat box and state you’re a member of the Hard Knocks school. To stop starting the fires, you have to slow down which is hard for me to do because you can hear the coffee coming out of me. You have to slow down and begin to analyze what you’re doing and put process procedures in place. EOS is what we discovered that worked for us to do that.
Kimberly: EOS is of course traction. Gino Wickman wrote the book Traction, and now there have been several books that have come out of that, but it’s an entire system; it’s the entrepreneurial operating system. Tug is the builder who introduced me to EOS. I’ve since worked with several other builders who have it. I see Nathaniel, so, “Hey Nathaniel.” He’s another one who stopped his business and put these systems in place. I mean to the extreme. They went to an almost full stop – not just slow and go – and put this stuff in place, and then rebuilt from there. I’m sure most builders can’t do that. Circumstances with Covid and everything else that happened allowed some retooling, but you’ve got to be able to slow that down and understand that there is a better way. You can build these systems and still do your business, particularly if you utilize your team to do it. One person can’t do it all, and that’s I think where most of our builders think, “Hey, this was my brand. This is my company.” You must put a good team around you. You hired a Wonder Woman to help you first, but we should probably talk a little bit about your unicorn with your CFO who’s way more than a CFO.
Tug: Yes, Cami. We found her several years ago, but the key is the people around you, like you say. Traction talks about your vision. That’s the first thing you have to do is have your vision and. I’ll touch on this, again with builders, we start our business because we’re good at building houses. We build beautiful homes, and that’s what we want to do, but we never stop to ask, “Where am I going? What’s my vision? What’s my long-term goal? Where am I going to end that?” When you slow down and put together a vision that’s how you can recruit these unicorns as you say. When you bring people on, and you tell them where you’re going, where you want to go, and how they can be a part of the vision, and they see the vision with you; you want to talk about making guarantees as I do. They’ll go to battle with you. They will go to battle with you at the tip of the spear because they bought into your vision, but if you don’t have a vision or a plan, nobody’s going to follow you. You think you have people around; you have some employees, but if you don’t have a vision, and if they aren’t bought in, they’re just there collecting a paycheck.
Kimberly: We have to communicate that vision. As you start to grow, it becomes harder and harder because now you’re expanding beyond your core. You’re expanding beyond the people that you are touching daily. Now you’ve got supervisors and they’re supervising people and are adding layers, and as you add layers it becomes further and further away if you don’t have that core vision to hold everybody together and to give everybody a guidebook. This is how I want my customers to be treated. This is what I mean by right behavior. These are the things that we’re going to do that we stand for as a company.
Tug: That’s exactly right, and you touched on that. You nailed the head. If your core group of people is not bought in, then the people with these subordinates are not going to be bought in. It’s a process. You must make sure as you hire that they are bought into the vision. If they’re bought in and they’re going to go to battle with you, the people underneath them are going to be the same way, or else they’re not going to last long. Two things will happen. You’ll either ask them to leave, or they’ll leave on their own because they realize they don’t fit in. Everybody must be bought into the vision. Everybody has to follow the core values, or they won’t last long, especially at my company.
Kimberly: You don’t just communicate. So often I talk to builders, and they say, “I told them that. I told them that.” I say to them, “You can tell them until they’re blue in the face, it’s an ongoing conversation, and you’re constantly reinforcing those values. You’re constantly reinforcing that vision with every single person on your team and your buyers, your customers.” There’s such a thing as customers for life for this stuff even though we’re building homes. You think that people are only going to buy from me once. No, that’s not true.
Tug: It is tricky, but it can be done. It’s like you say, you’ve told them that. I’ve told them 12 times. I’ve told them 15 times. If you have to keep saying you’ve told them that, I would ask you if you showed it to them.
Kimberly: Oh, that’s good.
Tug: Have you shown them how you live your core values? Have you shown them how you live the vision? You can tell somebody anything, but your actions speak louder than your words, so if they don’t believe that you’re bought in, they will never buy in.
Kimberly: I talk about lead from the side which comes from horses, and you know I have a horse. Everybody that knows me knows I have a horse. I could pull this horse all day long, and he’s not going anywhere. He will just bow up, and I mean just stop. My kid at three years old could take the lead rope and walk beside this horse, and he would go anywhere with her. I attribute that to leadership. You learn to walk beside people. and instead of trying to force something to happen. It’s about that communication. It’s just about good communication. To get a horse to go where you want him to go, you just let him know, and you look in that direction, and he will go with you. He’s not going to go without you, and he’s certainly not going to go if you try to pull and force him into it. I think people are the same way. I think there are a lot of valuable lessons to be learned there. How did you put together your team, and have you had some setbacks along the way as you were putting together your team? I know you started with your accountability chart which we can’t overstate enough the importance of it. The accountability chart is like an org chart, but in Gino Wickman’s world, these are the things, this is what your defined role in this company is, and the buck stops with you on these things right here.
Tug: It does and then in the book, Traction, they talk about building the accountability chart for your company. As you said, it’s like an org chart but it’s not. You build the accountability chart with no names in it. You have your business. Here are your key functions. There’s you, you may have a CEO, and then you’ve got your Ops leader, and then you’ve got finance and HR, and then you’ve got your sales and marketing manager. They may have a couple of seats underneath them, so you build the accountability chart with no names. In a perfect world, here’s to all the functions that have to happen. Here’s a seat, here’s what they have to do. No name in it, again. You build this out as this is what it takes to run my company. Then if you already have a staff, now you can look at the people and see if they fit. Can they accomplish all these things? If not, that’s not the seat for them. Right people, right seat. Jim Collins, I think is the one who talks about that having the right person in the right seat. The accountability chart is blank. It’s nameless. It’s a chart that you build first so you know how to run the business and what has to happen, and then you begin to plug people in. When you first do the accountability chart, which we did in 2017 when I built my first one. There were three of us – me, Cami – you’ve talked about her – and then my brother. You have an accountability chart that has maybe 14 seats, and you have three people, so you’ve got your names all over the place. That’s when you realize, “As I continue to grow, what seat am I sitting in down here that has these tasks that I’m accountable for and that I could hire for? Then you begin to recruit people. Go through the interview process and show them exactly what you need them to do. “You to do these things right here. You’ll be successful.” That’s how you begin to expand your team. It’s not that you bring your people in, and then tell them what you want them to do. You tell a person that doesn’t exist what you need them to do, and then you recruit for that seat. That’s how we grew our company. It was because we already had the accountability chart built of everything that we needed, and all the components that must happen. Then you recruit to fill those seats. It’s been very successful.
Kimberly: I see that so often as builders usually bring me in when they reach that threshold where they have to grow, and they realize their current systems are just not going to support it, so that’s usually when I get brought in. A lot of times the reason those systems are broken is that we threw some bodies such as our cousin, we brought in Billy Bob down the street, we brought in people we knew or had a relationship with, and then we tried to build. We thought these people have these skills, let’s build a job around those skills. Then as you grow it, it just becomes a mess. Your org chart is crisscrossing, or you find yourself in too many seats, and as the leader of the company, you must figure out what seat you want to be in. You don’t have to be the head of your company. You know you started the company, you’re the founder of the company, but if you don’t like running the company, then as we were talking pre-show, hire somebody to run the company. Hire somebody to do that stuff you don’t like.
Tug: Don’t knock Billy Bob because he got employee of the year. He did a really good job last year. You’re right, though, and as far as you don’t want to run the company. Most of the time we as builders don’t want to run the company because we don’t know how, and that was a humbling time when I realized, “Holy cow, the company has outgrown me. I don’t have the capacity to run this company, so I have to bring somebody in.” We were able to do that because we had the accountabilities all laid out, so now I’m hiring somebody that can do these things that I couldn’t do because we got too big. The company outgrew me, so instead of hitting a ceiling and stopping, or getting too tall and tumbling over, you now know what position you need to recruit for. That would enable me to move up into the visionary seat. Right now, my main role, or just about the only role that I do at Red Door Homes is the visionary. I create the vision, and I point people where they want to go, and then I’m their cheerleader. I’m the guy with the pom-poms in the back cheering them on and motivating them, but it’s because of the accountability chart getting the right people in place to do that.
Kimberly: Now you didn’t just relegate through those responsibilities when you put the right people. You’re still holding them accountable. You’re checking in. You don’t just say, “This is your job. Go do it, and I’m never going to check on you again.”
Tug: Wouldn’t that be great?
Kimberly: That would be great. We have weekly meetings of course, and at the L10 meeting, as you know they’re called. L10 for level 10. We have our scorecard. We have all our numbers in our metrics. I’m in four L10 meetings a week, so I have my department levels, and then I have our leadership team, so I go to all these meetings, but basically, that’s what I’m doing. As you said, my main job now is to make sure that the trains are running on time, they’re on track, and the customers are happy.
Kimberly: By setting those metrics on the scorecard, numbers don’t lie, people. Sometimes they tell you things you don’t want to know, but those numbers don’t lie, and it’s important to understand and follow those numbers in your company so that you see it. You see it happening in real-time, and you can make those adjustments.
Tug: They say numbers don’t lie. People do. when you have a scorecard, and you have to put your numbers in weekly, and it’s either red or green, somebody knows that on Tuesday at 10 A.M, they’re going to be sitting in a meeting. I’m going to look at the scorecard, and if it’s red, I will look them in the eye and ask why it’s red. They have to give an explanation. Then we work together as a team to fix why it was red. What are we going to do to fix it? Acknowledge it, accept it, attack it.
Kimberly: When you’re the person who’s holding multiple seats, guess what? You’re accountable for those metrics. That’s you. When you have to look yourself in the eye, and your team in the eye, and say, “I let you down. I said I was going to do this. I said we were going to accomplish this. I said we were going to make this amount of money, and we didn’t do it.” It’s very transparent, and I mean it’ll hold you accountable as well.
Tug: It does, and that’s the daunting thing about it. When I have to go in there, and I miss my rocks – my numbers – like you said, but also at the same time it builds that rapport because like you said so you have to say, “I missed this, and this is what happened, and can we all fix it together?” You get that camaraderie, and you get people behind you thinking, “He’s not perfect. He also can make mistakes.” Then everybody just pushes toward the same goals, but if you don’t have targets, you don’t have numbers, you don’t have a scorecard, you don’t have a vision, everybody’s wandering around aimlessly.
Kimberly: They’re afraid to make a move. That’s what I see when I get into companies, and there’s a little bit of dysfunction. It’s that people are afraid. It’s not that they don’t want to do a good job. It may not even be that they don’t have the capacity to do more. It’s because they’re afraid because probably the owner, or their boss, or division leader, or whatever is holding on a little too tightly to stuff. This is freeing. It lets you let go of some of these things and know that you’re going to have the check-ins to be able to make sure that your people are doing what they’re supposed to do when they’re supposed to do it. Not everything is a priority. I think that the other advantage of these L10 meetings is we decide our top two priorities for the week, and everything else stays on there. It’s not like it goes away magically. There’s no magic fairy that makes the work go away. I wish. There are two top priorities. These are the top two things that I’m going to accomplish this week toward the goal, and that way we keep marching forward. I think in home building we think everything is urgent.
Tug: It is, and to your point whenever they have clear directions because they know they have a number. They’re responsible for these two numbers for the week. It empowers them because when they come in in the morning, they know, “These are the numbers I’m working on and have to get this week.” It encourages them and empowers them to know that this is what I’m working on. Nothing else matters. The horse analogy. They put the blinders on, and they’re focused on that, and by getting those two things done that week, it takes you that much closer to accomplishing the end goal one at a time.
Kimberly: If they get three things done, then hallelujah, but at least they knew what the top two priorities were. I think people get overwhelmed and stuck because there’s so much to do, “What do I do first?” Then they spend so much time and energy and anxiety worrying about what to do first because there’s a lack of direction on what the true priority is.
Tug: That’s true. Once you show them the priorities, they can focus on it, attack it and complete the mission.
Kimberly: I was working with the lady, “I want it all. I want everything done now”, which of course we all do, right? It could be any of us, but when we started breaking it down into those little bite-sized chunks and started to look at it like we can’t do it all right now. Let it go. First, that was a whole thing, but let it go, and we’re going to get this done, and we’re going to get this done. We can worry about that next week. It was amazing how much more we accomplished. We got so much more work done.
Tug: Less is more, and as humans, we see a to-do list it has all these things on there, and we try to do 10 things at one time. If you take those 10 things, and then prioritize them, and work them in order, you get so much more done.
Kimberly: It helps your team with their time blocking so that you know they can figure out what their focus should be. Focus blinders. To use your analogy, just give me my focus blinders on time, and then this is going to be my reaction time. If we’re going to stop fighting fires, we still have to have a little bit of reactive mode because our customers have needs, and those change, we all know. A lot.
Kimberly: For sure. Let’s talk about the scorecard we use to track the department’s health and overall company health. We then have other reports like our pipeline and our slot schedules that help us to focus on each one of the jobs and how we’re maintaining those. Everybody who knows me knows I’m a huge fan of pipelines. I use them. I like sales pipelines. After the sale from start to finish, I want a pipeline for everything. I want to see people move. I like that linear movement that goes through there. You went a little crazy with your pipeline and put it up on a wall. Can you tell us about that?
Tug: We did. We put the entire flow chart from a walk-in or a lead on the internet to when they move in. It’s about 66 feet long, and we broke it down into the sales phase, the pre-construction, and then on top of the entire construction process. To your point about earlier, you mentioned how you stop putting out fires or how you try to navigate that. You mentioned slot schedules. That is critical because your sales force could sell 10 houses a month, but if my Ops team can only build three a month, you’ve got to set expectations with those other seven people or you’re going to have a lot of upset people. I don’t know if everybody’s familiar with slot schedules or not, but right now for our location in Gainesville, we can only build three houses a month. We have to sell three houses. I have to pour three slabs which means I have to deliver three sets of keys, so on our wall, our sales team has a tool. It has our slot schedule for, it’s a 12-month rolling, and it has what’s available and what’s not available, and then we color the zones. We have red, yellow, and green like a traffic light. This is the one superintendent of two or three superintendents, so when the customer comes in, it’s a tool for urgency so they can show a customer, “Your house is here, and your next available slot is in February, so if you don’t sign a contract today, potentially you can move down the line.” It also shows the customer the detail about our process and procedures so that they realize that for a builder, or any industry for that matter, it says I can only do three. They realize that you recognize your capacity because some builders will say that they can start it right away. They’re fooling themselves because they can’t start it right away.
Kimberly: They might start it, and it’s going to fix itself somewhere because it’s going to stall.
Tug: It stalls out. It lingers, and now you have an upset customer but when a customer comes in and we tell them we can build three a month, that’s all we can do, but we can do it efficiently, on time, and on budget every time, but only three. So, you begin to set yourself apart from other builders because they’ll go into another builder and ask, “When can you start my house?” “We can start it next month.” “Oh, really? How many houses do you have going on?” “I don’t know. We have a bunch” When you have a slot schedule, post it on the wall and you live and die by that. It allows your sales team to sell to it, but again, I want to reiterate what it does for your customer because it builds confidence in you as a firm. It also builds exclusivity, because if you say, “I can only do 36 houses a year.” Now they think, “Oh my gosh. They’re only doing 36. I must hurry up and get in there. I may have to wait six months, but they’re only doing this many because they do them, efficiently, on time, and on budget. I need to be with those guys.” The confidence level of your buyer goes way up not only when you build your slot schedule, but when you advertise it, post it, show it, and then train your sales team how to use it and educate your buyer about the advantage of a slot schedule. I may delay your start by two months, but I can still guarantee your end date as opposed to other builders. They can start it next month. They can start it, but they can’t finish it for 14 months because they don’t have the capacity. Our capacity touching on the side you were talking about earlier about the industry stuff we’re dealing with now is our trade partner shortages. You’re fighting with trade partners. There are only so many electricians and only so many plumbers. One of the reasons why we have our three-slot schedules is that our concrete value can only pour three slabs a month. My framer can only build three houses, so if you set up a relationship with the trade partners, “I guarantee you three slabs a month, I guarantee you three houses you can frame, I guarantee you three houses you can roof”, now you begin to build the same confidence and rapport with your trade partners because they know you’re not going to overwhelm them and you’re not going to underwork them because it’s three.
Kimberly: They can plan, and they know it’s going to be good steady work. Chuck Shinn is the person who is a guru in our industry, and he coined the phrase, “even flow construction.” I was privileged to take his Managing For Profit course back years ago when I first got into this business. I said, “That’s not going to work with sales because you can’t even flow sell.” Well, I’ve since taken that back. I have walked it back big time because when you have a very strict even flow start schedule, you can sell to that start schedule, but you do have to train your sales team on the benefits of selling to that start schedule, so the buyer understands it. To me, just like a dirty job site is a builder that’s not paying attention, they’re getting sloppy. What details are they missing? The dirt will hide a lot of mistakes. The same thing goes for this. If you’ve got a builder that’s paying attention to this level of detail, the confidence that inspires your buyers to think, “Wait a minute, these people do know their stuff, and they know the why behind it, they’ve got their building down to a science.”
Tug: Ultimately you get to deliver the product that you promised, and that’s what we want to do. As builders, we genuinely care about the customer. we genuinely want to deliver the product that we sold, but we get too rambunctious, or we get too ahead of ourselves. Over your skis I think is what they say, because we want to promise all these things to make the sale or to get the next thing rolling, and then we just can’t do it, and it’s not fair to the homeowner, but it’s not fair to the builder either. It took me about 15 years to figure that out.
Kimberly: It also forces you to communicate. If your sales team can stop selling by process of elimination and they can start being an assumptive closer instead, which is a far more comfortable thing to be. The next step in being an assumptive closer is being able to tell the buyer, “The next step is we’re going to do this, and then after that, we’re going to need to do blah, blah, blah, and then you’ll go to the lender, and then we’ll have our design appointment.” The buyer knows every step of the way what is happening now and what’s happening next, and they just go right along with you because they’re not scared since we set those expectations. We keep that sales pace moving forward with that buyer by setting those expectations. Then the building process starts, and it starts all over again. We start talking about the next step and the next thing we’re going to do. “We’re going to do your pre-plumbing, and here’s what that means. We’re going to dig these trenches, and you’re going to start to see some pipes come in here, and it’s going to look like a mess, and then there’s going to be some rebar, and then we’re going to pour…” You can tell them every step of the way. We think they know, and they don’t know, and when you demystify the process, you create happy buyers.
Tug: That’s exactly right. That’s a good point. A lot of people make fun of the 66-foot chart that’s on the wall. We tell the customer there are six easy steps. Then we have them pick a plan, customize it, and finance it. There’s this little section that has six things that the homeowner has to do, so we show them those, and then we show them the others and tell them they only have to do these six; we’re going to do all of this. Then we walk them through that, so it allows them to see it’s not just these little simple six steps. We don’t ask them to understand the entire chart, but like you’re saying, we walk them through each step of the way. Ironically, it’s funny you say that it’s going to be a mess, so I always go through the emotional roller coaster with them. I always say. “All of a sudden you’re going have a slab, you’re going to get so excited, and then the house is going to pop up like a balloon, and you’re just going to be tickled to death and think you’re going to move in next month, and then nothing is going to look like it’s happening for two months, and you’re going to hate me.” So, we set the expectations with them about how fast things pop up and how long the mechanicals take, and so on, so then when the house pops up, and they feel like nothing’s happened, they say to us, “Oh my gosh. You told me I was going to feel like this.” They’re not upset. They’re not anxious because they know the process. As you said, you demystify it, and you tell them how they’re going to feel. We’ve been in this business a long time. Everybody who’s here watching this has built probably hundreds of homes, and you know how the customers’ emotions are. You need to tell them before you start because it may be their first house. They may not know these emotions that are going to come, and if you tell them now, you look like a rock star when they have that anxiety because you told them six months ago that this was going to happen. You’re a hero when they have that feeling.
Kimberly: I built during the pandemic, and I asked my salesperson to talk to and treat me just like any other customer. I can only imagine it’s intimidating to build a home for me, but I asked her to please tell me what you tell everyone because I don’t know your process the way you, do and I’d rather you tell me something I already know than not tell me something I need to know. I asked a lot of questions, and that’s someone who has built a lot of homes and gone through this process many, many times including my own homes, but some anxiety goes along with it. Alright, the chat has been a little quiet here. There’s a ton of laying down some knowledge here, so let’s get that chat going. Let’s talk about the pipeline and how we use that to make sure we’re staying on track and on time, but also how we’re remaining profitable. How does that work in your world?
Tug: With the pipeline, I lean on you because you work with our sales team to make sure the pipeline’s full. What do you mean as far as profitable on that side of that?
Kimberly: As the stages that I put on the pipeline once we’ve started construction, we run budgets, and I think you pull your budgets every week. For some of my builders that’s going to freak them out, so guys if you’re listening, calm down. I’m not asking you to do that, but if we pull it at pre-start and then we pull it at frame stage before pre-drywall when we get there, and then we pull it again before settlement or closing if we’re an in-loan builder, then we’re going to know where we are. And in between, we have all the stages of all the stuff that has to happen that should mirror the scope of work that you’re putting in your purchase orders. Am I missing something?
Tug: No, I think you misunderstood me when I say look at it weekly. We look at the company numbers weekly as a whole globally, and then we only monitor the project at certain milestones to make sure that they’re on budget. The key, though, and I want to touch on this, is protecting your margin. The thing for a lot of builders, at least for me at the beginning, was you wanted to trade your margin for the sale. I don’t know if you guys are familiar with inflation factor. You have your cost of the house and, once you do your estimate for a floor plan, it’s going to cost X. Then you have to put in your inflation factor which for us, up to two years ago, was three percent, so if the house is a hundred thousand dollars, now your sales price is 103. Then you put your margin on there. One of the things that I learned several years ago is that you have to protect the margin no matter what. What I learned from Bob Whitney years ago is you have to put the inflation factor in it. When 2020 hit and the inflation went through the roof, a lot of people got burned because either there was no inflation factor period in there, or obviously, it was way too low. The pipeline and monitoring of your budgets allow you to see those hiccups way before they happen. When 2020 it hit, and lumber went through the roof by some 60 percent. A lot of us got our shorts snatched off us, and either people canceled their contracts as you’ve talked about before, or we just had to fare through it. Well, we ended up bearing through ours and made good on all of them. Because of that, once we recognized what was happening with inflation, we put a 12 inflation factor on top of the cost, then we divided out our margins, and then we watched them like a hawk. No matter what you do in business, you need to make a profit. The only way you’re going to make a profit is to (A) protect your margins and (B) watch them regularly. You have to know what your numbers are. If you don’t know what your cost of goods sold is right now, if you can’t tell me what your cost of goods sold is, then I can tell you you’re not going to make a profit. Guaranteed. Period. End of discussion.
Kimberly: It’s not your cash flow. Don’t confuse it with your cash flow.
Tug: You cannot mix the two because cash flow can be easy when you’re in between bank draws, you’re in between huge payments, your bank account has five hundred thousand dollars, but you’re going to lose a hundred thousand dollars by the end of the year, and you don’t know it. If you don’t know it then you’re going to lose money.
Kimberly: Nathaniel just chimed in and says, “You need to account for your average variance.”
Tug: Good point, Nathaniel. That’s another thing that we do. Two percent is the number that we use as well. The plus or minus is what we use is two percent, so that’s a very good point. That plus your inflation factor and then your margin. A lot of people don’t understand what I’m saying. It’s the cost of the house to build, then your inflation percentage is put on top of that, then your margin goes on top of that. You’re protecting the inflation, and your margin is on top of the inflation and the variance. Nathaniel, do you put your variance before you put your factor in it, or do you do it after you put your margin in it? We put ours on top of the cost then we multiply the margin. I know I’m getting kind of into the weeds a little bit, but it’s very important to be successful and profitable in our business at this time.
Kimberly: The other thing that I would say in there is you also need to add in your sales and marketing cost as a hard cost in each house budget. Some people want to set that aside and have it in their overhead over here, and then they’ll run their numbers, and that’s where you end up getting all out of whack. For me, every house budget has a sales and marketing. There’s a percentage of every one of them that goes in there and that factors in you know a lot. That factors in your team, your internal, your external, your general Realtors®, your hard costs on marketing that you’re carrying throughout, as well as the co-broke percentage that you’re anticipating particularly if you’re in a community that’s a little easier to figure out than if you’re out scatter site. You know what your overall is, or you should know what those numbers are.
Tug: If you know how much it costs to get a customer, you just take that average and add it to the cost of the house, so that’s what you’re referring to. Then your co-broke fee. You know how many co-brokes you’re going to have. Ours is 50 percent, so we divide it in half across all of them, and it’s built into the price of the house, and that’s how you protect your margin. A lot of builders don’t understand that. They have the cost, they do their margin and then they start subtracting out of that margin. Then suddenly, they woke up one day and made zero dollars.
Kimberly: Or worse. I’ve had builders have to come to the table with a check, put a deck on a home, or do all these things at the end. If you don’t know what those things are, you can find yourself in a world of hurt. This is not a five-minute change in your company, this is a whole way of existing. It’s getting you in that proactive mode for your business, and you might have to slow down a little bit, and then get ahead of it. The builders that I know have been successful in doing that. I’m working with some builders right now who are trying to do it at the same time as they’re keeping their business going, and it reminds me very much of Tug’s analogy of while the airplane is in flight, you’re out on the wing trying to fix things. You can get it. You can get it done. It’s going to be a lot harder, a lot more dangerous, and it’s going to take you a lot more time to do it, but you can still get there particularly if you enlist the help of your team, and you get the right people involved. You’ve got to get some help for sure.
Tug: Nathaniel says, “That’s good that you started three years ago.” We started in 2017, and it’s taken me about this long to get to where I feel comfortable with it. “Congratulations on that. That is phenomenal, and as you said, the airplane is on fire.”
Kimberly: They’re doing a great job getting ahead of their business, I’m sure Nathaniel will agree. It’s not always straightforward. People are shooting at you, bears are chasing you, or in our case, alligators, so it’s very much like that, but it’s not straightforward. You make some progress, then give yourself some grace because you’re going to fall backward. The key is you’re working toward it, and you realize where your vision is going to take you so that you can get there. Just don’t give up. I think so often I’ve had people that they do great for a while, and then they backslide. Getting it started again becomes harder and harder and harder. If you just keep that object in motion. if you keep your business in motion, it’s going to be so much easier to keep it in motion.
Tug: It is. Grant Cardone famously says, “You can only fail if you quit.” So, keep moving forward, because if you don’t quit, you can’t fail.
Kimberly: Any other questions for Tug? Guys, this is so amazing. I know I’m a total geek on this stuff, but I could talk about this stuff all day long. Any other questions? I know we have some sales and marketing people on here. Any questions about how this applies to you? They’re getting quiet.
Tug: They are. Their lunch is over. Now they’re thinking about taking a nap.
Kimberly: I hope you guys didn’t have pasta. If you were trying to have pasta while all this was going on, that’s not good. I’m looking at some of our attendees. We’ve got some people who are normally quite chatty. “My company still has an escalation clause.” Oh, I’m not supposed to call you guys out. An escalation clause, that’s interesting, Connie, that you still are experiencing that. At this point, I think we should have a pretty good handle on our expenses. Oh, and she ate pasta. This is a double whammy for you, sister. Maybe go back with your builder. I don’t know if you’re working for a publicly traded builder or if you’re with a smaller regional, but go back and look at that and examine if you are not being proactive enough on your budgets that you’re having to do this. It could just be that there’s some fear there. She says a private builder. I saw private builders during the last two years who just decided to become a speculation builder and remove the customer from the equation so have a handle on my cost. Now that the market’s changed, that’s a lot riskier, and you could find yourself still holding on to some homes or having to reduce the price on those homes. Because when you started them 18 months ago, the market was here, and now we’re finding that even though we put all those bells and whistles in there, the market’s here, so we’re going to take some losses. That’s a little riskier if you’re not doing these things and being proactive about it. We are at the top of the hour. I will of course include Tug’s email. You’re okay if I give your email out? I just posted it for the world to see. Yes. I can’t guarantee I’ll answer you anytime soon, but give me a day or two.
Kimberly: It takes a while sometimes.
Tug: I love to talk to people, so if you shot me an email with a phone number you wanted to talk, I’ll talk with you for an hour.
Kimberly: Reach out. I’m super excited to talk about what you and your team have accomplished. They’re a lot of fun to work with. One thing about it is they have a good time doing this while they’re doing it, so I think that that speaks volumes to you and
the culture that you’ve created there. Putting those good team players around you that you have. Thanks, everybody, and I will see you again on Head-to-Head in December. Of course, I’ve got Power Hour coming up in October. I think it’s October, so I will see you guys then. I will certainly email this recording out to everybody. Have a great rest of your week. Bye, everybody. Thanks, Tug.
Tug: Thank you. You’re welcome.