Current Opportunities in the Home Building Industry: Barriers to Entry and Expansion in a Changing Landscape
Barriers to Entry and Expansion
There are a few barriers to entry into the construction industry. These include:
- Licence and qualification to trade
- Economies of scale
- Supply chain experience
- Cost advantages of incumbent operators
- Client relationships
- Client-imposed barriers
- Intense competition
- State of the market
- Access to capital
- Market power of incumbents
- Cost of investment to enter the industry
Expansion is a critical issue for the home builder.
Growth, growth and more growth are considered fundamental to the notion that bigger is better. What we have seen with the collapses is that bigger is not better particularly if you have been gaining market share by competing on price and sharp margins alone as a point of differentiation. As I have shown, a slight increase in costs when margins are tight means a loss. A loss means cash will dry up. No cash, no business.
Opportunities for New Home Builders
In my previous blog I provided a breakdown of the construction industry market. It’s large, with small scale players being a big chunk of this. For such a large market there are many opportunities. I have talked about the winners and losers in the current climate and not doubt there will be those who will pick up the slack left by those who have failed. There are other opportunities besides this. You will be able to create opportunities by focusing on some differentiators.
Providing a good product but as a cost leader, is one of these opportunities. This means focusing on operational excellence. Streamlining and creating efficiencies will get you there. Systems and processes will set you free. Adopting this strategy should yield better margins. This could mean implementing relationship management systems to better leverage supplier relationships or building project management systems to effectively implement projects.
Differentiation is another opportunity. I spoke with a client who talked about a quote they received from Second Storey Builders. I wonder what they do! Couple this with cost and you have a winner.
Adapting to Change
There are many changes happening in the marketplace presently.
Embracing Innovation and New Technologies
Innovation and new technologies are often confused. Innovation is a term which conjures images of start-ups like AirBnB or Uber. This is not the case.
Innovation is simply the ability to conceive, develop, deliver either new processes, services or products and business models. For example, you know, based on your projected workflow when specific materials and trades are required. Let’s say you develop a process such that your suppliers know in advance when to deliver materials or get to site and get to work. You may have also developed a process for engaging with your customers. It could simply mean doing some activities within your business better. You might have developed skills and systems which give you an edge such that no one can build a second level on an existing house better than Second Storey Builders.
What’s important with innovation is the development of an idea, a systems or process which gives you a competitive advantage over your competitors.
New technologies on the other hand require some level of investment to develop and onboard. At the time of writing this blog post there are any number of emerging new technologies. Some examples include:
- 3D Printing - currently being used to create buildings. However, on a smaller scale 3D printing can be used to create a mini version of the house to be constructed, enabling a new feel for customers. Edits and changing designs would be easier at this stage.
- 3D measuring - augmented reality - this involves enhancing the real-world experience with computer generated information. For example, after the slab pour has cured, augmented reality would enable customers to visualise how the house might start to look.
- Virtual Reality - this is different again, where experiences are simulated providing an immersive feel or real world. We see Facebook investing millions into this.
- Both AR and VR can be used to enhance building renders. It is now being used by some builders who can lay out the floor plans and provide clients with virtual walk throughs of their new home.
- Drones - can be used to take aerial shots on buildings coming out of the ground, from plan layout, to site cuts, concrete pours etc. The wonder of drones is the time saving from travel site to site. It is also possible to share experiences with clients. For example, you may be building a double or triple storey townhouse for a client. A drone could be used to show a client what they can expect as views for the various levels as the build comes out of the ground.
There are also a great many new sustainable and energy efficient technologies impacting on houses. Image positioning yourself as the expert green or smart home builder.
You can stay ahead of the game here by being connected to industry bodies.
One word of warning about investing in new technology and facilities. You often hear businesses who are early adopters or first to market and the advantage this yields. New technologies take time to develop and become efficient. Getting your timing right here is critical. You don’t want to be the one who fleshes out all the problems for the next user. At the same time, you don’t want to be chasing the crowd.
Adopting Sustainable and Green Building Practices
It is clear that the world is becoming more conscious about the impact of climate change, so too are building practices are becoming more focused on sustainable and green building in the construction industry. Sustainable building practices attempt to reduce the negative impact of buildings on the environment, while green building practices focus on using environmentally friendly materials and resources. Examples of sustainable building practices:
- Use of Renewable Energy Sources:
these sources of energy, buildings can reduce their carbon footprint and become more energy efficient.
- Water Conservation:
- Sustainable Materials:
Other examples of green building practices could include energy-efficient lighting, recyclable materials such as recycled steel, concrete, and glass. This helps reduce waste and conserve resources while minimising the impact on the environment. Green roofing could include roofs covered in vegetation, such as grass or plants. They help to reduce the heat island effect, lower energy consumption, and absorb rainwater, reducing the load on drainage systems.
Again, you can stay ahead of the game here by being connected to industry bodies.
Navigating Regulatory and Compliance Challenges
The Australian building industry is a highly regulated one. It is only going to get harder. Regulators are on the hunt given the recent many collapses of high-profile builders, not too much the smaller builders. Regulators will be ensuring insurers involved with homeowners’ warranty are conducting appropriate due diligence for those they insure.
Home builders must navigate the complex regulatory and compliance challenges to ensure projects meet the required standards. Builders must therefore ensure their balance sheets are strong and record profitability whilst maintaining the appropriate level of homes under construction. This means operational efficiency is the key.
With these main aspects covered here are another six ways you can navigate these challenges:
1 - Stay up-to-date with regulations:
Builders need to stay up-to-date with the latest regulations, building codes, and standards to ensure they are compliant with the law. This can involve attending industry events, subscribing to relevant newsletters, and following industry updates.
2 - Employ qualified staff:
Builders need to employ qualified staff who understand the regulations and standards that govern their work. This can include architects, engineers, and project managers with the necessary qualifications and experience.
3 - Use reputable suppliers:
Builders should use reputable suppliers who provide materials that meet the required standards and regulations. This can include conducting background checks on suppliers and using trusted brands.
4 - Engage with regulators:
Builders should engage with regulators to understand their expectations and requirements. This can involve attending meetings, responding to consultation papers, and participating in industry working groups.
5 - Maintain accurate records:
Builders should maintain accurate records of their projects, including documentation of inspections, approvals, and certificates. Checklists and detail files will help. This will demonstrate compliance with regulations and
6 - Adopt quality management systems:
Builders should adopt quality management systems to ensure that their projects meet the required standards and regulations. This doesn’t mean you need tone perfect overnight, but rather start to implement a quality process.
Checklists help with this as can implementing a project management system, conducting regular site inspections, and implementing quality control procedures.
By adopting these strategies, home builders can navigate regulatory and compliance challenges and ensure projects meet the required standards and regulations. This helps to build trust with clients, regulators, and industry stakeholders, and ensures the long-term business sustainability.
Staying Ahead of Market Trends and Consumer Preferences
If you want to become and remain successful as a business owner, it is imperative you understand market trends and consumer preferences. By keeping up to date with the latest trends and preferences, you can stay ahead of the competition and provide your customers with the products and services they want. In this blog I have already discussed innovation, new technologies, sustainable and green building practices.
Examples of Market Trends:
- Ageing in place
As the population ages, there is an increasing demand for houses that are designed to accommodate ageing residents. Builders who design homes with features like step free entrances, wider doorways, accessible bathrooms or accommodate for granny flats or units attached to a home are likely to appeal to this market segment.
Consumers are increasingly aware of the impact of their purchasing decisions on the environment, and businesses that prioritise sustainability are likely to appeal to environmentally conscious consumers. This can involve using eco-friendly packaging, reducing waste, and sourcing materials from sustainable suppliers.
Personalisation is becoming increasingly important in the business world, with consumers expecting tailored products and services that meet their individual needs. Businesses that use customer data to personalise their offerings are likely to see increased customer loyalty and satisfaction.
- Smart Homes:
Smart homes are becoming increasingly popular in Australia, with homeowners looking for integrated systems that control lighting, heating, and other features remotely. Builders who incorporate smart home technology into their design are likely to appeal to savvy tech aware consumers.
Examples of Consumer Preferences include:
Consumers want products and services that are of high quality and provide value for money. They are willing to pay more for products and services that meet their expectations and offer superior quality and durability.
Consumers are increasingly busy and time-poor, and they value convenience when it comes to their purchases. Businesses that offer efficiencies, options, and flexible arrangements are likely to appeal to consumers who prioritise convenience.
Given the recent high-profile builders which have collapsed leaving many homeowners with half built houses and lost cash, consumers are becoming more and more alert to these risks. Builders who can manage this risk and provide customers with certainty will have a better chance of securing additional clients.
- Open Floor Plans:
Many homeowners in Australia prefer open floor plans that create a sense of space and flow in the home. This would include open floor plans, incorporate natural light and outdoor living spaces.
- Energy Efficiency:
Energy-efficient homes are becoming increasingly popular in Australia, with homeowners looking for homes that can reduce their energy costs and minimise their carbon footprint. Incorporating energy-efficient features like solar panels, double-glazed windows, and insulation.
Homeowners are also looking for tailored or designs specific needs and preferences. Builders who can offer customisation options, like flexible floor plans, a choice of finishes and fixtures, and other personalised features are likely to appeal to these consumers.
Understanding market trends and consumer preferences is crucial for the success of any business.
The Path to Success in Home Building
Key Success Factors for Home Builders
The key success factors boil down to two factors. Builders must take care of sales and operations. That sounds easy enough. It’s not. When I say take care of two factors, I mean excel at these two factors. Operational excellence, total hygiene around matters of finance and processes.
Everything you do must support these two key functions.
Customers/clients are key. How do you win more work? Apart from the usual marketing efforts (discussed in more detail below) your support systems must underpin client engagement. From the first time you connect to the last interaction must be focused on client engagement and satisfaction.
For example, clients contact you, from time to time, no doubt to demand a site inspection. Usually this is met with some frustration, ‘I just want to get on with the build’ is the normal response. It’s annoying. It’s wasting time. You don’t know what might result from the inspection. You anticipate that clients will want to see the work, after all it is the single biggest expense, they will incur in their lives. What if instead you plan site inspections? You plan and time the nature and extent of the inspection with progress claims.
Importance of Planning and Strategic Management
Strategic management is fundamental. Positioning in the marketplace cannot be underestimated. You take a position of bringing a great product to the market and behind this sits a machine highly geared to efficiency and being a cost leader or you bring a unique product to market, differentiating this from the rest of the providers. Again, the product you bring will also come with efficiency of operations.
Strategy is not difficult. Strategy is about choice. Where will you play and how will you win? Once you have made these choices, you can start to measure if you are winning or not.
Planning is critical to all this. It means you are turning your mind to being methodical and covering off on all the important issues.
Building a Strong Team and Company Culture
People and culture are also important. Culture is the matrix of what you want the business to look and feel like, mitigated by what you are prepared to tolerate, reducing this last element to the lowest factor acceptable.
Leveraging Marketing and Client Relations for Growth
Your biggest competitor is not the next builder, your biggest competitor is you!
There are some basic, fundamental marketing plays you can engage in. A website is a must. So too is social media. Then again everyone else is playing in this space. This is why making a choice is important, so too is saying no.
Remember the fundamental question to answer is this –
Why would someone buy from me?
Then let your competitive advantage take over. Of course, you need to understand your competitive advantage and exploit it to its fullest potential.
Client relations are a key driver in market leverage. Word of mouth will be your biggest advocate here. Therefore, everything you do in your business must be geared towards client relations. Every point at which you engage with your client you must turn into a marketing endeavour.
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