BUILDER OF THE MONTH – APRIL 2011

Douglas DeHaan
DeHaan Homes

Steve Vander Weide
Rivershores Building Products and Hardwood Flooring

The following is a dialogue between two local men, both of whom have owned their West Michigan businesses for at least 25 years, Douglas as a design/build construction company, and Steve as a building product supplier. It’s a discussion about the builder/supplier relationship and their opinions on the industry as a whole…it’s past and it’s future. From their perspective…for what it’s worth.

Steve: The first time I ever met you, Douglas, it was 25 years ago; you were in business with your dad. I stopped by a job site and the two of you were installing siding on a house, in East Grand Rapids. I remember at that time, your father was pretty much focused on the surrounding Grand Rapids area only.

Douglas: Yes, at that time we were building in basically the metro Grand Rapids area. Within 10 years, we expanded into Byron Center, the Railside communities, in Kentwood around Crystal Springs, and continued in East Grand Rapids for renovations. My father’s philosophy was to build in our own “back yard”. In the Reagan years, the ‘80’s, we would build 6-7 homes close to home…you didn’t have to travel that far. Now we’re all over the state; from as far south as St. Joe and South Haven, north to Glen Harbor and Northport, then traveling east to Ann Arbor. In this economy, you go where your clients are, wherever that takes you.

Steve: I’d agree…we had the same situation from the supply side. Back in the ‘80’s, Rivershores concentrated on Grand Rapids, Caledonia, Ada and Cascade, with some deliveries to Holland and Grand Haven. Now we go north to Harbor Springs, south to New Buffalo and Lansing to the lakeshore.

Douglas: This marketplace has made us and, we believe, others that have survived this recent downturn, to focus on their core business. We have removed marginal areas that we all dreamed might have been additional profit centers. Our focus has narrowed to succeed; we have needed to be a better student of our industry. We were very fortunate to have started downsizing prior to the market shift for a variety of reasons, but that effort in scaling back allowed us to succeed as a business today. Sales, currently, are about as much inventing as creating opportunity for your company. If you simply wait for the phone to ring, you may stare at it and think it’s broken. The formulas that work to create business today are substantially different than they were even 5 years ago, let alone during the construction frenzy we all experienced 10 years ago. It has made us much more mindful of what jobs we take and, truthfully, it has made us a much better company. We choose our clients as much as they choose us it has to be the right fit. Our trade partners know that we respect them and they are eager and ready to work with us. We have significantly reduced our overhead, reducing our overall cost to a project, making us more competitive. We have also changed our labor program, partnering with strategic teams of tradespersons and moving away from the staffing model. This also has been an asset in this market place.

Steve: Touching on that subject of sub-contractors, how do you keep the same quality if your trades are not all in house? Or, in this present economy is it actually easier because of supply and demand…not as much demand, so your sub-contractors are more eager to work under your qualifications? Also, if there’s an up tick, will you go back to your early business model of having more employees in house?

Douglas: That’s an interesting question. The short answer is most likely not. We have a strong supervision group and when your key personnel are working with the trades using a “tool belt and cell phone”, we get phenomenal results. We are able to:

• Manage the quality; we are consistently on site, we don’t “visit” the job, we inspect what we expect. We are there working with the trades.
• We are able to make the determinations on each job, which group is the right fit. Then we are able to evaluate the quality and efficiency of a specific team within a project.
• We quickly make a determination of who wants to ‘ride in the wagon, and who wants to push and pull it for us’. We have only the most industrious team working on each job. The entitlement mentality has essentially disappeared.

Looking back, I’m thinking I should have always been this lean. A mentor once shared with me “you should always run your company like you are going broke” - study costs and fine-tune production. I should have listened closer in the rocket ship days. Our company today is much sharper, much more efficient, easier to manage, and, quite frankly, much more fun! The economy has forced us to take out the layers of staff but it’s made us a better company; we are excited. Years ago, we were a multilevel company that grew very quickly and, for each home we sold, we had 23 points of sale within the companies we owned; we had a “spice cabinet of companies, a variety of choices.” Today we are more narrowly focused and we run the kitchen as though we are trying to ‘find the fly poop in the pepper’.

Steve: Fly poop? Interesting…back to your sub-contractors…what’s to stop your competition from coming in and hiring your core group? Also, has this downturn in the economy helped in any way??

Douglas: To answer your first question, it is about relationships. One thing I’ve found that’s key here is when you get smaller you get much closer to your business. When you’re closer to your business, you build better relationships and expect better results. Right now, I am where I was in the late ‘90’s…on the job almost every day. Is that good? Yes, it’s terrific.

This also answers your second question: We have better communication, less field errors, no assumptions, clear direction, accurate scheduling, higher spirits, virtually zero call backs and happier clients. Tradespersons react differently to the owner than even your most respected supervision. It’s hard to explain, but ownership allows greater respect in this industry. Ironically, today I’m running my business the way my dad and uncles did in many ways… right back to basics. The systems required to build are more complex now, but our core business model is back to basics. Our model today is that we “manage results not activity.” We are task driven.

Steve: At Rivershores, too, we have definitely been more focused on better business tactics, such as:

• Leaner operations
• Cutting overhead
• All the while, zeroing in on improving our quality

New technology, also, has forced us to release some old practices that are, sometimes, very hard to let go! In this age of high tech systems, if you don’t keep up, you will definitely be left behind.

Steve: How do you maintain the quality since, in this economy, the client will often get 3 or 4 bids for products and suppliers that you’ve never even heard of? For us on the supply side, knowledge and teaching is key because often we find that our customers are trying to compare apples and oranges. They need to understand that, in order to judge fairly, they need to have correct information.

Douglas: This one is more difficult…at times, in the past, a client may have asked us to outsource outside of our comfort zone, looking for multiple quotes or consider a trade or vendor we had never met or heard of. It meant we really had to do our homework and research the product or the company we were asked to use. We’ve been introduced to plumbers, electricians, etc., that we haven’t previously dealt with. It’s made us reevaluate who and what we work with in order to get the best pricing for our clients. Was it comfortable? Not always. The best part is that we have met and formed new relationships with trades, vendors and suppliers we would not have 10 years ago. We have found awesome quality for less, and, along with our client, have benefited from this effort. We have changed our core group across the board, about 60% over the past 4 years and are building a better house today. The market has forced us out of our prior “comfort zone”, and we have a benefit we would not have sought ourselves.

Steve: In my business, many people come in and feel they have learned from the Internet everything there is to know about certain species or products. Some are “dangerously knowledgeable”. How does the Internet affect your business?

Douglas: I believe this is true…some believe that the Internet is “gospel”. The Internet is different for each company. You are selling a product; we are selling a service and a relationship with our product. I agree that many clients today have information they never would have had years ago; this can be an asset. Many times today, clients have researched products themselves and are educated on some decisions that require less time and effort for us. It becomes difficult when the information they have is false or only partially true. We find that you need to build a level of trust during your first few meetings when building a home. It is then you can overcome some of these obstacles. Now, I’m sure it’s much harder when someone is coming in to buy some flooring…it’s more of a short-term relationship based on an individual product that will be installed in a short period of time. Great question though!

Steve: We try to influence their mindset; they may have read about a specie, but they haven’t had the benefit of working with it and knowing how it behaves in different climates, with different sub-floors, different moisture levels and under different living conditions, such as, with children and pets. They don’t understand that a hardwood in a Florida home will react differently than in a Michigan home. Usually the Internet doesn’t go into that kind of detail.

Douglas: The Internet has made everyone an “expert” without any practical experience. Sure, it’s good to be informed, but we keep the mind open to those who work with these products day in and day out. The professional experience in our industry is priceless.

We’ve also found that some potential clients desire to ‘purchase a Lexus at Sam’s Club.’ They believe that, because of the nature of this economy, everything should be less expensive and offered at foreclosed pricing. This may be true of commodity products or overruns sitting in some warehouse or on a rack that haven’t sold for an extended period of time. We remind them that many products for their dream home are made exclusively for them, custom built and are one of a kind. Their home will never be built again with the same specifications, on their property, with their selections or amenities…not ever again. It is still an educational process.

Steve: From the supply side, we’re seeing the beginnings of a system where the mills and the wholesalers are starting to carry inventory, such as cedar and fiber cement siding and are bypassing distribution. Builders are starting to go straight to the wholesalers to get their products direct.

Douglas: I have been approached and am aware of this purchasing shift where builders are attempting to bypass the conventional supply trail. I think there are some things, small manageable things, you can safely buy online direct, like maybe a cupola or accessories that compliment the home…these are easy. We believe we need to be very careful…attempting this in the past has burned us. We bought hardwood direct once and hired a tradesperson to install the floor, (this is a difficult example talking with the owner of Rivershores Flooring!) We purchased the product; the installer purchased the adhesive for the floor he had “always used”. About a year later, the adhesive failed; it started to delaminate. The distributor and the flooring representative, upon a site visit, shared that the installation was perfect but the flooring companies proprietary glue wasn’t used so there would be no warranty. We tried to save the client $500 and be a hero and $4500 later, we removed the floor and reinstalled it.

I learned my lesson. An old mentor once shared ‘when the tide goes out, you can always find who’s been skinny-dipping’. I guess I was out too far swimming on that day! You can buy direct but you’re definitely taking a risk.

Steve: With the backlog of foreclosures on the market today or those that the bank and HUD are holding…probably hitting the market over the next 18 months, how does this affect your company and how long do you think it will be before we start seeing an improvement?

Douglas: If I could answer that question, I would be having lunch with Warren Buffet and sailing with Bill Gates but, with that said, we believe there’s been a slight improvement in the last year; we have felt it. But this housing crisis isn’t over yet…we have a long recovery in Michigan; we are re-inventing ourselves as a state. Our manufacturing sector is slim, and we were so dependant on that sector, state wide. The rest of the U.S. may take 3-4 years but it will be another 4-5 years before Michigan is back to a mid 2000 level.

For us at DeHaan homes, we feel fortunate and blessed. What has been frightening to see is that, 5 years ago, there were 2200 builders in HBAGGR, and now there are less than 400.

Steve: I’m surprised that the commercial wave of closings hasn’t been more dramatic.

Douglas: Well, there have been a few, but a larger wave is still on the horizon. There are some well-known businesses still on the verge of closing in West Michigan. Every couple of weeks, we are told of another supplier that is not available as a resource.

On a brighter note, in a recent study from Grand Valley State’s Business Department, they reported that the top 25 West Michigan corporations’ stock dropped below the national average when the market fell, but have recovered quicker and higher than the average today. That is very positive news and a testament to the major employers in this area.

Rick Snyder is making some great moves, unpopular for sure, but he’s making the tough decisions and I think the other states around us will follow suit.

With these corporations on the rise, a strong medical investment and presence, and our best natural resource, Lake Michigan, a stone’s throw away, we are remaining positive about our future here in West Michigan.