The winners of the fourth annual Builder's Spotlight Business Excellence Awards range in sales from $5 million to $193 million, but they share one trait: they are "America's Best Builders." Here are their stories.
by Gerry Donohue

CUSTOMER AS KING

Don't let Steve Klein's slow Texas drawl fool you. First of all, he's from Iowa. And second, nothing about this guy is slow. After only five years in business, Klein has become the undisputed leader in the luxury housing market in his adopted hometown of Victoria, Tex. He is also the second largest builder in the city. He has started a commercial construction company and a development firm. And, he is the only two-time winner of the BUILDER'S Spotlight Business Excellence Award.

"Most people, once they win an award like that, they sort of back down," says Neil Whitley, who came out of retirement to run the production end of Klein's business five years ago. He retired again a year ago, with 50 years of home building behind him. "They figure they got it made, that they're as good as they can be. Steve hasn't done that. He's still striving to do better. As long as that continues he's going to be up there with the best of them."

Klein has achieved his success without a lot of flash. Instead, he's stuck to the basics - appealing design, strong marketing, tight financial control, and a good team - and made the most of them.

"You've got to have good people," says Klein. "You can be the greatest guy in the world and plan to reach the highest goals, but unless you have the people working with you who can produce the product, you don't have a thing."

GROWTH

Before Klein entered the market, Victoria was a two-tiered housing market. On the low end, Al Hogan Builders dominated the market, accounting for about 50 percent of all starts. At the other end were a handful of small custom firms selling larger ranchers. Everyone sold on price.

Klein, who sold houses for Hogan, thought he saw an opening. "We felt like there were people in the market who wanted quality and were willing to pay more for it," says Klein, who opened his doors in 1990. "We never thought we would get as big a reception as we got."

Klein closed three houses in 1990, at an average price of $128,000. His selling point was that for a few dollars more, buyers could get a dramatically better house. "Everyone was focused on price per square foot," he says. "We wanted to get them off of that. We wanted them to look at the value of good design and quality construction. We sold them on screws in the sheetrock and on solid oak cabinetry."

It worked. In 1991, Klein closed 12 houses at an average price of $163,103. "Suddenly, we were the preferred choice for everyone who wanted to build a big house in Victoria," he says. In 1994, Klein closed 22 houses at an average price of $221,224.

Klein's general manager Allan Crouch says the key to the company's success has been its customer focus. "It starts with Steve," says Crouch, who joined the company in 1993 after managing a commercial construction company. "His drive, energy level, and dedication more than anything else, is to be customer oriented. We will bend over backwards. That's what separates us from the competition. By educating customers on what to expect and then following through, we make it fun to buy a house."

Most builders try to lower buyers' expectations; Klein tries to raise them. "I try to set expectations so I'm the only one they can consider," he says. "I sell hard against the competition, but I never mention them. I educate prospects about what they should expect from their builder and in their home, and then let my competitors do the rest."

In the packet he gives to all prospects are the "Custom Residential Information Outline," which is an eight-page booklet for buyers to write out their budget, schedule, and features they want in every room in the house; a guide to selecting a builder; the "Customer Bill of Rights"; the company's mission statement and customer satisfaction philosophy; and a list of professional references. "If they read any of it," says Klein, "they'll understand we're professionals."

The education doesn't stop there. "A big part of our marketing is our estimating," says Klein. In working with prospects, Klein prepares a full detailed takeoff. "We show them everything. How many labor hours for each trade, supervision, all insurance costs. We list all the lumber by species, dimension, and length. We even get down to quantities of sandpaper, glue, specific mouldings, and hardware. People are pleased with our detail and accuracy. "At the end, I say, 'Here is my final cost for building your house, including overhead and profit I don't mind sharing it with you. Didn't the other builder share his detailed costs?'"

While producing a 15-page estimate for a prospect may seem excessive and time consuming, Klein says it's neither. It's not excessive, because it is his marketing edge; and it's not time consuming, because he has designed his systems to produce estimates quickly and painlessly. He has a fulltime estimator who works with a digitizer and the custom-designed program to provide quick and accurate takeoffs. "We literally build the entire house the first time on computer," says Dennis Whitley, Klein's estimator and Neil Whitley's son.

"Upfront, we can give prospects a preliminary budget based on historical dam that is typically within $4,000. Our final estimates are accurate within 1.459 percent."

Klein's superior financial controls further separate his company from the competition. "We're probably top of the line in financial reporting," says Sallie Ruppert, a CPA who is Klein's controller. "We always know where we are on every house."

Every month, Klein tracks 10 key numbers that tell him how his business is doing: current ratio, cost-of-sales, gross profit, net profit, inventory turnover, debt-to-equity, assets-to-equity, owner's equity-to-assets, pretax income-to-owner's equity, and sales-to-equity. Any irritations facing his business will show up in these numbers a long time before they blossom into full-blown problems.

FUTURE GROWTH

Now that he dominates the high end of the market, Klein is looking down a notch, at $120,000 to $150,000. "We1l offer them the same style, pizzazz, and quality in a smaller package," says Klein. "They just won't get as many bells and whistles. We'll have to be smarter with the design and the livability, watching the spans and the roof pitches, limiting the number of doors and linear feet of cabinets."

While the product will change, the approach to the buyer won't, and Klein says that will make the difference. "Our team believes in fundamental basics and a higher degree of execution," he says. "Focus, focus, focus on the customer. Do that, and you will prosper."

Builder, January 1995