DavidGerstel


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DavidGerstel



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Re: Self-Taught MBA: Investments, Costs, and Expenses: What's the difference?

BINGO!!!!

I think this post is so right on. Over and over I have seen builders pour money down a drain of their own making. Perhaps without quite realizing what they are doing, they choose what is really personal consumption, calling it business investment, over the kind of real investment that brings financial independence and makes a financially secure retirement possible.
Your example of the pick-up truck says it all.
I have seen too many of my peers head into their later years quite strapped financially because they did not grasp, or at least did not act on, the cost/expense/investment distinction you so clearly lay out.
I hope some younger people will read your post, take it to heart, and head on their way toward a better future.
In my opinion, for whatever it is worth, financial independence beats the heck out of having a lot of stuff -- even fancy stuff, even a fancy office, yard, and truck.
-- David Gerstel --

Re: Self-Taught MBA: Builder Uses His Business Expertise to Help Others

Fernando,

Thanks for this terrific post. I love Bill's motto: Make Money and Keep It.
There may be other ways to prosper as a builder. But I am pretty sure that Bill Asdal's approach -- reduce overhead (or what I call out-of-pocket overhead, since your largest overhead cost is your use of your own time)to as close to zero as you can get it, make money, keep it, invest it in cash flow producing vehicles and not in your own company -- is the surest way.
My own strategy is similar, though I never thought of such a great five word mission statement as Bill's, and it worked really well. Yes, make money, invest it in good investments. Not in construction companies, yours or anybody else's, because the construction business is the worst business investment on the planet except maybe for airlines.
One thing I like about Bill's approach is that it suggests you must build with integrity -- because if you don't practice integrity, nail-by-nail in the work of building and in your relationships with your clients -- you may make the money but keeping it will be a lot harder. It will get sucked right back out of your accounts by callbacks, litigious customers, hits to your reputation, etc.
I was not surprised to see that Bill's student Steve praised him for integrity.
Fernando, I think you mentioned Bill to me once before. But now I really understand why the guy is worth paying attention to. I think you have probably done a lot of your readers a favor by letting them know about Bill's program and books. I am looking forward to reading them.
best, David Gerstel

Re: Self-Taught MBA: Accounting for Callbacks

I read this blog post twice and made a note in my working copy of Running a Successful Construction Company to request
that you allow me to include it as a "guest column" in the next edition. What a terrific idea!

I wish your decision to "inculcate a culture of window excellence"in your company was emulated by every builder in the country. Installing exterior doors and windows properly, and with properly integrated water management systems, seems to be a challenge that many builders either ignore -- judging from the quantity of building failures we see -- or struggle to meet.

It is a tough challenge, actually much tougher than the glamor work of interior finish, or so it seems to me.
A few years ago when I was building a house, I noticed that the beautiful clear pine interior window trim actually involved only the pretty straightforward installation of seven sticks of wood. The water management system required weaving together a veritable origami of floppy, sticky, difficult to handle materials).
Maybe you can give us a whole blog post on the
program you put in place for your company. We need it!





Re: Self-Taught MBA: 'The Elements of Building,' a new book by Mark Q. Kerson

Fernando, thanks for your review of Elements of Building book. Hopefully a good many of your readers will pick it up. It could return their investment a hundred or a thousand fold. It contains the kind of invaluable lore that can guide you to emotional satisfaction and financial success in our rough, rough enterprise of general contracting.

The other day I was talking to a transactional attorney. He says he could give his clients a 100 reasons for not signing the contract for every job they take. He could give them 1000 reasons for getting out of construction altogether. He knows they are not going to get out. They love building. So he does the best he can to help them along their perilous path. Kerson does the same.

I would just add one thought to your review. I think the book may be at least as valuable to experienced builders as to start up guys. It is more than an excellent refresher course. It is a source of new thoughts. I picked the book up expecting to scan it. Hours later, when I was finally able to put it down, it was full of underlinings meant to alert me to stuff I did not know or did not know as well as I should and understood better now.

David Gerstel





that few of your readers will pick it up. Elements of Building is one of only half a dozen genuinely valuable books that have been written about construction company management in the last half century. I have read them all.

Re: Self-Taught MBA: The Builder's Briefcase

It was fun to see the old "Portable Office" idea (the subject of my first Fine Homebuilding article about 30 years ago) brought forward into our digital age. What struck me as especially good about your piece, Fernando, is that it focuses on essentials; you don't stuff every electronic possibility into your portable office -- and I have noticed that 21st century builders fall prey to excess accumulation of digital possibilities just as us veterans fell prey to piling up too many hand and power tools in the 20th century. (In fact, some of us have to fight off both inclinations today. Is there a twelve step group . . .?)
Of course, each of us would probably add one or two favorite items to your well-outfitted bag. For me it would be a headlamp, dust mask, and paper note pad with pen for use in the crawl space. I would not want to take electronics down there.
Dan's pocketknife seems indispensable, too, though I will opt for a meatloaf sandwich with swiss cheese and red onions -- or at least some high quality dark chocolate -- over his breath mints.

Re: Self Taught MBA: Going to Where the Going is Good, Part 2

Fernando,

Right before New Years 2013 you asked me to contribute to your blog on builders' New Year's resolutions. I wrote you that I had tried. But I could not come up with a resolution. Resolutions, I told you, seemed to me perilously close to the writing of business plans. And that is a practice which I (along with Warren Buffett, as it happens) don't think is of much real world value . . . And especially not for builders.
Instead of planning we need to be always looking for opportunity, capturing it when it comes, sidestepping disaster, pivoting, turning, wheeling, dealing, going forward, backing off, adjusting, tacking, trimming, then going pedal to the metal. Something like that. Not planning. But instead playing it as it lays.
Well, I have to tell you, reading your great story about Michael Blend playing it as it lays up in Montana, I rest my damn case.

Re: Self Taught MBA: From Single to Multifamily Builder

Once again, Fernando, real good information, especially for young builders. Like yourself, I was fortunate to get into multi-family units early. I built my first new small multi-family about 36 years ago. I built it in stages and entirely from savings, without a loan, paying as I went in sweat equity and spare cash.
Just the other day I figured out that over the years it has earned me, in rents and appreciation over two million dollars (inflation adjusted to 2012 dollars). It has paid every nickel of my family's basic living expenses. Thereby, it has, in effect, rendered the net operating income from my construction operations and writing into "free cash flow," available for other investment or to support non-profit ventures and fun. And, by the way, I have rented (very carefully) to a lot of great people. To this day I enjoy being a landlord who provides a good home at a fair price. Hopefully, this little tale helps inspire some young builder to create similar good luck for himself.
Please keep your wonderful blogs flowing.
-- David Gerstel --

Re: Self Taught MBA: Going to Where the Going is Good, Part 1

I'm going to stay put, but even so that story about Jim was just plain good reading. -- David Gerstel --

Re: The Self Taught MBA: A Conversation with Mike Benshoof, MD for the Ailing Builder

“The opening line -- you don't have a business if you can't leave for a month and I (Benshoof) can fix your problems -- put me off. My instant gut reaction was: oh geez, is this guy another one of those self-styled construction industry experts who could not and/or has not run a construction company and is now going to feed us a bunch of glib clichés while glorifying himself. Those folks are as thick as fleas on a hound dog in our industry. Turned out he is not one of those guys, and my reaction is another lesson in the danger of confirmation bias: you get a story line embedded in your head and you tend to quickly read info in accordance with it. In contrast to the impression I got from his opening line, Benshoof comes across as very well informed, thoughtful, and low key, not arrogant. His core point -- "you've got to know your numbers," to quote a friend who like Benshoof is an entrepreneur with an MBA and with big time corporate experience -- is so important. They are dead right. Way too many of us, including myself when I started out as a builder, have gone into business without committing to the core work of running a business, namely the management accounting that Benshoof insists on. We go into not-working-for-a-boss and call that owning our own business. That said, with respect to another fundamental issue that Benshoof focuses on, I do prefer a somewhat different approach. The kind of business planning he suggests seems to me a bit too tidy for the turbulent realities of the construction world.”