Jeff Prager, Cash Flow Engineer

Strategic Thinking for Homebuilders

Strategic Thinking.  It hurts my head even to contemplate.  Yet, like physical exercise, learning to get over the discomfort and discipline yourself to do what you know you should be doing pays big dividends.

“Strategic” – With a purpose or objective in mind.  “Thinking” – engaging your brain to consider what you might not otherwise contemplate.

Really, few of us like thinking about the “what ifs” in life – What if disaster strikes? What if I can no longer work to support my family?  What if the market of the economy tanks?  These thoughts make us uncomfortable, particularly as we enter another boom time for housing.  But smart builders get over their discomfort to think and plan strategically so that they won’t have to experience the discomfort that can come from failing to plan.

Jeff Prager’s homebuilding business survived 9-11 because he had a strategy – a plan – in place to deal with that event.  An economist by trade, Jeff has grown numerous companies, some into the $100M+ range.  He shares with BuilderRadio the points he uses to help builders and businesses think and plan strategically.  They are all summed up in what he calls the “8 P’s”. 

8PsThe 8 P’s or Pillars help determine what needs to change in your business to get us where we want to go. Together they provide a framework that allows us to make better, faster management decisions. They provide the foundation for you to drive your business rather than just create a job for yourself.

For a business to grow stably and profitably it has to be well defined and well positioned. We use the 8 P’s or pillars to describe your business, both externally and internally. These 8 Pillars for Success are critical for any business:

#1: Purpose

  • Why are you in business?
  • What do you want to achieve? What do you want your business to become?
  • Who do you serve and what benefits do you bring them?
  • Are you running the company with a clear vision and sharp focus?

Too many business owners loose sight of why they began their business in the first place. Lose sight of that purpose and you run the risk of becoming confused and getting off track. Answering these questions helps you maintain a growth–and-purpose-oriented focus.

#2: Product

  • What are you selling?
  • Is what you’re offering in line with what people are buying?
  • Have you done your market research? Have you identified current and coming trends?
  • Have you developed the right mix of products for your target market?

Making sure your products meet the needs and demands of the market – consistently and over time – is critical to your stability and profits. Keeping in tune with your buyers will ensure your longevity and growth.

#3: Place

  • Where are you conducting business?
  • How do your customers interact with you?
  • Do you need to open a new office? Sell online? Rent a stall at the flea market?

The old adage: ‘Location, location, location’ still holds true. Today, though, location can mean online – or even a website optimized for mobile consumption. The easier you make it for your customers to do business with you, the more sales you’ll make.

#4: Price

  • How are you pricing your product?
  • Are your products priced correctly for the value you offer?
  • What would happen if you were to raise the price?
  • What would happen if you lowered it?

All products and markets are price-sensitive, but price is rarely the determining factor in a purchase. And the lowest-priced product is usually the first one out of business! Do you think Starbucks is trying to compete with McDonalds in the way they price a cup of coffee? Of course not! Instead, their price is determined by the value of the experience they offer their customers.

Studies show that most companies with viable products could raise their prices by as much as 30% and still retain 95% of their customers!

#5: Promotion

  • How are you telling people about what you sell?
  • Do you have a strategic marketing plan AND a sales plan?
  • Have you defined your target audience?
  • How are you communicating your competitive advantage?

How you promote your products and services has to align with what your buyers are looking for and how they shop. And it’s usually not just a product that they’re shopping for – it’s a solution. It’s been said that nobody needs a drill; what they need is a hole. Identify and promote your solutions and benefits in the right way and you’ll never lack for customers.

 #6: Production

  • How are you producing your product?
  • Is your production process both efficient and effective?

Your market won’t tolerate inefficiency. While buyers will consistently choose value over price, they won’t overpay for your inefficiencies, either. If you’re a builder that might mean exploring materials and methods that deliver high value and efficiency. If you provide a service, are you delivering meaningful solutions on time and within budget? Constantly look for ways to make your production processes lean and competitive.

 #7: People

  • Who is involved with your company?
  • Do you have the right people?
  • Are they in the right places?
  • Are all your employees and vendors your advocates as well as assets?
  • Could your business survive losing you?

Your company is the people that compose it. Most entrepreneurs have a real problem hiring people that can grow the business – and delegating to them. They assume the ‘If I want it done right I need to do it myself’ attitude. If you want the real freedom that your business can offer you, then hire the right people – and get out of their way!

#8: Profit

Are you generating cash flow and profit?

How are your revenues, costs, and balances stacking up against your benchmarks?

Here’s something that might surprise you: You can stay in business for years without making a profit. But, you will not be able to last one day without cash. Cash flow is the lifeblood of your company. Take a look at some of the biggest companies – LevelOne, Amazon, Apple. Initially, none of them made a profit. However, they generated cash from investors and debt. But, over the long term, your business has to be profitable to survive. Positive cash flow is your overriding objective, but long term profit is a close second.

Watching the 7 Key Numbers will allow you to stay both competitive and profitable, and will ensure consistent and predictable cash flow. And of the 8 Pillars, the first 7 Pillars will provide the framework that will make the 8th Pillar, Profit, a natural result. In fact, using these two management and planning tools – the 7 Key Numbers and the 8 Pillars – will make it almost impossible to fail, no matter the economy or market.

Learn more about Jeff Prager’s 8 Pillars and 7 Numbers at CashFlowEngineering.com or BackroomManagement.com.

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