Self-Taught MBA: Strategic Thinking - Fine Homebuilding

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Building Business

Building Business


Self-Taught MBA: Strategic Thinking

comments (4) March 5th, 2014 in Blogs
FPR Fernando Pages Ruiz, contributor

Click To Enlarge Photo: denisp12 on Flickr.com

I often receive emails from aspiring builders looking for guidance. Brett wrote a few weeks ago asking, "What are the various factors to get me from a hands-on residential builder to progress slowly into a more white-collar-businessman builder?"

This is a broad question that would require a book or more to answer, so I referred Brett to David Gerstel's excellent, Running a Successful Construction Company. The book was published by The Taunton Press in 2002, but it's still a classic with valuable, nuts-and-bolts business advice. Brett thanked me for the book recommendation, but insisted on knowing more, and we began an email exchange that I soon realized held important clues as to why it's so difficult to move from tradesman to entrepreneur. To start, the tradesman focuses almost entirely on tactics--the means and methods of good craft and honest work--while the entrepreneur focuses on a strategy, an ambitious vision to fulfill in the future. One is looking down, carefully sawing across the line scribed on a board; the other is looking off into the horizon. One is self-sufficient and a DIYer, the other a leader and organizer. Which one are you?

Nearsighted and farsighted

I confess that although I have spent a lifetime in entrepreneurship, I actually prefer the tradesman's mindset. I enjoy working alone, concentrating on the task under my nose. Whether it's peeling off a sliver with a block plane for the perfect fit, or searching for a 3¢ error in my bank balance, I am happiest when tightly focused.  But this dig in and DIY disposition has always been my Achilles heel as a businessman. I take on too many tasks I should delegate to others. From my exchange with Brett, I suspect he will not have the same problem. He seems naturally drawn to the horizon and actually repelled by the details--he'd like to skip the whole learning process if possible. And you know, the most successful businessmen share this impatient, farsighted trait, sometimes to an exasperating degree.

Nonetheless, Brett was still asking an unanswerable question, and ultimately the wrong one. He wanted to know, "Exactly how you did it." In other words, he wanted me to tell him the step-by-step, DIY path to entrepreneurial success. I told him I could not help him. Not because I didn't know how to do it, but because the only path I know is my path, and this would not apply to his place, time, and temperament. The sharpest instrument in the entrepreneurial belt is strategic thinking: the intuitive ability, honed by experience, to make the right call at the right time. It's not a choreographed plan to follow, but a way of thinking.

I advised Brett to obtain basic business skills by reading and taking classes, and then to survey the market landscape in his hometown until he knew it by heart. And then I gave him some parting advice, "Don't confuse your business tactics with a strategy."

From tradesman to businessman

The most common pitfall for the DIY tradesmen is the focus on tactics rather than strategy. Tactics represent the execution of a strategy, but they never replace it. Your strategy may be to build the highest-quality house in the market so you can command a respectable profit margin. Your tactics to achieve this are the materials and methods you use to build to that level of quality. But the moment you forget your goal (a respectable profit margin) and focus too much on your tactics (using the best materials and labor) is also the very moment you confuse the means with the ends, and you're liable to get blindsided by a savvy competitor or a change in the economy. 

It's tough for a tradesman to stay focused on the big picture because our innate pride in good workmanship, and the intense focus on details required to achieve it leaves little time for strategic thinking. We think about the work and how to do it better; we read stories on framing, siding, and cabinetry; and we take pride in our skills and tools of the trade. We believe our work speaks for itself and will guarantee financial success. And then we see the builder around the corner--who never swung a hammer--and he's the one doing much better, at least economically.

Sometimes it's better not to know the details of a business. When you don't, you're forced to build a team that knows the work well and can get it done while you survey the opportunities ahead and develop strategies to exploit them.   

So where does all this leave Brett? His goal is to become a businessman builder. His strategy, which is what he was trying to get from me, will depend on the opportunities present in his local marketplace. I could not provide him a strategy, but I did suggest some tactics to help him develop as a strategic thinker, and eventually answer his own question based on the opportunities life will present. I recommended a course of study.

But most of all, Brett's success will come from his innate ability to develop relationships and think creatively. This is why business plans alone do not guarantee success. Strategic thinking encompasses long-range planning, but it's mostly the skill to spot an opportunity and react quickly in a novel way. Strategic thinking represents the brilliant last-minute maneuver. It embodies the quarterback at the moment before the snap.

Strategy versus tactics

When I left Los Angeles in the midst of the terrible recession of 1989, I moved to the Midwest to start over again. The only business I knew was home building, so naturally my business plan was to establish myself as a home builder. In order to achieve this goal in a new environment, I relied on the most basic strategy used by almost any industry to enter almost any market, which is to offer the lowest price. I would become the most price-competitive home builder in Lincoln, Nebr.

Here my goal--or business plan--was to establish a home-building business. My strategy was to achieve this goal through price competition. My tactics would include research, observation, and prediction. I had to research the market to determine the best price-point for the most salable floor plan, and I had to learn the relative strengths and weaknesses of my potential competition. I spent about two years building very standard houses at the going rate while I observed the market, developing my sensitivity to local preferences, and what appealed to Midwesterners--it's very different than what appeals to people in Southern California. My Los Angelino strategies would not work in Lincoln, Nebr. Over time I developed my tactics, I had to do a lot of technical research to find the best local methods to build inexpensively. I studied and practiced my tactics until I become an expert in low-cost Midwestern construction.

In about two years I achieved my goal and began to build and sell the least expensive, four-bedroom, 1600-sq.-ft. home in the state. I rose in both economic and social profile quickly. Builders stole my plans and tried to reproduce the process, but failed because the tactics I used--the building and purchasing methods I developed--were not just the result of a floor plan, they were the product of a carefully designed process. I felt very smug. But suddenly my competitors began to disparage my homes as substandard, "He frames with 24-in. centers; he digs shallow foundations that don't go below the frost line; he installs a 1-ton heat pump instead of a huge furnace and a 5-ton air-conditioning unit." They knocked my product. I needed a defensive strategy to counter this attack.

I didn't know it at the time, but I was actually pioneering many of today's established green-building methods. An energy rater that had been trying to get me to work with him pointed this out, and I saw my new defensive strategy immediately. I became the local green-building expert and defended my position in the market on the grounds of efficiency and resource conservation, which was a much better branding strategy than "cheapest homebuilder in town."

But others were soon building green, and better than me--my strategy had to evolve again. So I did more research, found an underserved niche, and became a "culturally sensitive" builder with a loyal immigrant community. Strategic thinking does not end with a business plan, it begins with a business plan.

Strategic thinking vs. the business plan

The difference between a business plan and a business strategy can be difficult to understand at first, but it's important to know how these two fundamental aspects of business development complement each other. And which one--planning or strategizing--is more important. The answer is, of course, strategic thinking.

Since we have discussed business planning in earlier installments, I will recap the definition very briefly. The business plan is a presentation document that outlines your service (such as remodeling), a description of the market (your town and its real-estate dynamics), and how you plan to raise the money needed to launch and run your business until it turns a profit. In a sense, the business plan represents the opening moves in a chess game. But soon after you move your first piece on the board, your opponent moves theirs, and suddenly the playing field shifts--new dynamics develop, and your careful projections may prove totally wrong.

Strategic thinking remains ambitious, farsighted, and goal-oriented, just like your business plan, but also focused on emerging trends and uncertainty so that you can make the dynamic adjustments needed to adapt in a changing environment. The intellectual tools of strategic thinking, which include research, observation, and prediction, represent a resource every bit as tangible as money, time, and labor. Strategic thinking does not end with crafting a business plan. Strategy begins after you make your best plan, and then entails a constant interaction with the business environment to execute swift decisions and decisive tactics.

In short, strategic-thinking skills are the ability to respond to changes in circumstance. Another way to describe strategic thinking is the ability to think on your feet. Strategic thinking is something you do all the time, just as a quarterback calls a play, but remains entirely flexible to respond to changes in field position and the counterstrategy of the opposing team. 

 

In the next few posts, we will explore strategic thinking. I would love to hear your experience as a brilliant strategist in your market. 


posted in: Blogs, business

Comments (4)

cabsbydesign cabsbydesign writes: Thanks Fernando, interesting reminder but a little obvious, this is what business is all about..? In answer to AndyEngel...NO ! a craft-orientated tradesman can't make a reasonable living working reasonable hours. You'll get by and even feel proud and flattered but not wealthy..!! A friend once told me..."you'll never make money whilst you're doing the work yourself.." Get a good job, earn the salary, then craft in your shed during the off time...!!
Posted: 6:18 am on May 20th

FPR FPR writes: Yes, Andy, it is possible to work reasonable hours as a tradesman and make a good living if you work for someone else, and they put in the 40 hours on the business end of the operation. Of course, some people are in constant demand in a market that lacks skilled labor and they can be pretty sloppy with business and customers still put up with it. You see this most often with good, honest plumbers and auto mechanics. They put you off, never finish on time, but if the price is right and they always tell you the truth, you keep taking your business to them. Some people have an artistic bent and they can get work at high prices for their special craft. I know a very artistic brick layer like that. So while there exist many exceptions, most of us prove the rule that you cannot run a business effectively unless actually you run the business.
Posted: 8:08 pm on March 12th

AndyEngel AndyEngel writes: Great topic, Fernando. The need to be an entrepreneur before being a craftsman is largely why I'm an editor. I would focus my first 40 hours per week on building things, and the second 40 hours per week on estimates, billing, and so forth. 80 hours a week simply wasn't sustainable, and I resented every hour I spent on the business end.

So, here's my question. Is it possible for a hands-on, craft-oriented tradesman to make a reasonable living working a reasonable number of hours?
Posted: 7:34 am on March 11th

DancingDan DancingDan writes: Great post, Fernando - something we all need to spend more time thinking about.

Posted: 10:06 pm on March 7th

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