By Bruce D. Snider
Different business climates support different business models. The custom home market in Santa Barbara, Calif., long favored the kind of operation Doug Ford runs: technically capable, tightly organized, and as sophisticated as the architects, designers, and clients with which it works. Until the late 2000s, other exclusive enclaves around the country constituted similar, nearly recession-proof microclimates for high-end builders. Not only was work plentiful, but clients were willing to pay a premium for a first-class ride. That all changed with the Great Recession, which confronted Ford and builders like him with a stifled flow of available work, aggressive competition, and shrinking profit margins. Santa Barbara’s real estate market began to improve in early 2012, and construction is slowly picking up, too, Ford says, “but it’s still harder than it used to be.” Do custom builders face merely the lingering effects of an especially rough business cycle or, rather, a fundamental shift in the business climate? And how should they respond? If you’re Doug Ford, you don’t sit and wait for the good old days to return, but neither do you panic and abandon principles that have been the basis of your success. You adjust course, trim your sails, and carry on.
“Our market is typically a lot of high-net-worth people and a lot of second homes,” says Ford, who started out as an independent cabinetmaker in the late 1970s. He became a general contractor soon after, believing that people of means would pay for top quality work and attentive service. Over time he built a business that reflects that philosophy, investing in the staff, infrastructure, and systems required to handle the most elaborate residential projects—and their relationship-conscious owners—as a matter of routine.
Over the years, Ford’s project mix evolved into a balance of custom new construction, large-scale remodeling, finish carpentry, and home maintenance work. Since the downturn, however, the blend of fuel that powers Ford’s machine includes a higher proportion of smaller jobs. “The larger projects that are out there are very competitive. It’s been tough to secure any of that work,” he says. Not only are local custom builders chasing a smaller pool of jobs, “we’ve also seen a lot of builders coming in from the L.A. area, and some [bidding] at very low margins. I don’t think there’s a lot of relationship-building going on there.” Ford has adjusted his pricing yet still finds himself being undercut with bids that make his head spin.
But while Ford has trimmed his margins, he steadfastly refuses to join a race to the bottom. “We’ve been very aggressive with our trade partners, and we’ve been as competitive as possible,” he says, “but when it comes to [construction] quality and quality of service, we won’t give that up. We let people know that we can’t compete with the guy in the truck with the dog in the back who’s running between three jobs. It doesn’t fit our company or our culture.” When cost becomes the overriding consideration in a project as large, complex, and personal as a custom home, Ford believes, problems are bound to follow. “Some of these [clients] are going through experiences out there that aren’t so great. The bottom line is, we don’t believe you can get a quality product and a great experience without full-time supervision on the job.”
Passing up low- or no-margin work has cost Ford volume, but heads-up management has kept his company profitable. “We’ve cut 40 percent off our overhead,” he says. “We streamlined our project management systems and our billing process, and we reduced costs on things like phones; we just negotiated better deals on things.” Ford also shifted the company’s mix of projects to favor remodeling and home maintenance, where profit margins have remained strong. “Overall, our revenues have dropped by about 35 percent,” he says. “But our margins on the smaller jobs are higher, so we’re running something like 5 to 7 points higher in margins than we were. The blend is at about 25 percent. Our margins have gone up every year over the last three years.”
Refusing to chase work that undermines his business model has allowed Ford to concentrate on the clientele that appreciates what his company offers. “We’re working for the same type of client [as before the recession],” he says. “In fact, some of them are our past clients.” As always, Ford offers them a choice of pricing structures. Fixed-cost contracts carry slightly higher margins for the company, he says, “but if our client really feels more comfortable with cost-plus—and that’s complete open-book project management and costing—we’ll do it.” With both methods, the company applies the same rigorous estimating and cost-reporting regime. “The client always knows where the project is going,” Ford says. “Just sending bills is not the way we work.”
After years of a punishing downturn, even with some light finally showing on the horizon, a businessman might well question his own long-held principles. Ford counsels colleagues to change their practices as conditions dictate, but never to abandon their core values. “Everybody in your company would be lost,” he says. “You’d be rudderless.” For his part, Ford seems never to have wavered in his commitment to what might be called the custom builder’s gold standard: an approach that brooks no compromise in performance or respect for both the craftsperson and the customer. “I’ve been in business in Santa Barbara for 34 years,” Ford says, “and I’ve always said the same thing: Do the right thing. Even if it costs us here or there, if we do the right thing for our clients, it always pays off in spades.”