For the first 20 years of Stephen Brooks’ tenure, Grand Homes was continually growing to the point of building 1,000 homes in 2003. Five years later the home building business in Dallas hit bottom. Along with the obvious economic pain, Grand Homes found itself in a place many businesses never recover from – low customer satisfaction ratings, dated products and an organization that saw no reason to change.
For an industry whose average cost-of-doing business is 104 percent and has a 97 percent annual failure rate, Grand Homes has beaten the odds for over 23 years with 94 consecutive quarters of profit and was recognized as “America’s Best Builder” for 2011 by Builder magazine. For CEO Stephen Brooks the journey has been both full of pain and full of joy.
The Pain, The Teachings of Gary Kelly, And More Pain
A survey of customer satisfaction ratings by J.D. Power and Associates showed Brooks his company, which had won over 100 awards for houses and design, was comparing unfavorably to other local home builders. “It was painful. We were struggling with our customer satisfaction ratings to the degree that our advertising agency had a crisis management session with us and told us to change our name,” he said.
With five generations of family members with sawdust in their veins, Brooks reflected, “I took it very personal. That was a huge catalyst for change.” The Grand Homes customer satisfaction scores were running near 75 percent.
About the time the survey numbers arrived, Brooks found himself listening to a presentation by Southwest Airlines CEO Gary Kelly. “He talked about financial performance and measurement and then started on a more spiritual message: ‘If you care about people, you’ll get a lot more out of them than if you don’t care. You just can’t fake it.’” Brooks felt he had a lot of fakers. He also listened intently as Kelly spoke about how high-performance people produce high-performance results.
As the number of homes Brooks was building dropped, there were cutbacks in staff, contributions to 401K accounts stopped, there was no profit-sharing and Brooks quit drawing a paycheck for 18 months. “My son, Beau, joined the business about that time and said, ‘If we don’t give customers satisfaction, then we don’t deserve to earn a profit,’” said Brooks.
As a private entrepreneur, Brooks knew he had a lot of leverage. But with managers who were all making their bonuses and profit-sharing, there was no incentive for change. “When you’re making money and getting your big checks,” he said, “profit sharing, and the 401K is growing and the stock market is going up, it’s almost impossible to suddenly be frugal, save money, be disciplined, show up on time and do your job better. We all get soft and lazy, and we were just taking orders. Frankly, behavior is modified by leverage.” Brooks, with an undergraduate degree from the University of Texas and an MBA from the University of Miami, knew when there’s a financial crisis there is leverage.
Once he made the decision to change to a culture of customer satisfaction, Brooks brought in consultants to help focus the organization because change would not come without more pain. Industry consultant Bob Mirman told him, “You’ve got individuals who have to go.”
For Brooks it was both bad and ugly, “I had to cut loose someone I loved who was the biggest contrarian. The day he left I had a meeting and asked the rest of the management team if they were with me or not? I kept asking, ‘Why didn’t everyone get it? We’ve been working on things for five years and why doesn’t anybody get it?’ They told me they didn’t believe it was important.” The turnaround began when the one remaining senior manager got the message and started working with Brooks.
The Culture Committee Where People Matter
Unlike Southwest Airlines, Grand Homes sells the highest cost retail product – a home is the largest investment a consumer will make and Brooks knows a home comes with an emotional attachment. “It’s a retail business in selling the house, it’s an investment business in the land, and it is a manufacturing business, as well as a service business,” said Brooks. “We redefined our business through our service performance.”
That service performance came from creating a culture committee. The idea came from Brooks’ one surviving senior manager, Mike Mints, who came up with the concept of “People Matters.” Brooks said, “With Mike, I got through all the layers in the organization to get to the people who are meeting and greeting and taking care of the customers.” Brooks calls them “the survivors” or the “100 percenters.”
Brooks believes 70 percent of people are doing just enough to get by on their jobs. When an employee is working at a 100 percent level, that 30 percent difference in someone who is committed, loyal and dedicated is who he wants to hire and keep. “When you think about that in terms of the business, the only survivors today are the 100 percenters. When we went from 1000 units to 300 units we kept all the 100 percenters.” To Brooks, the survivors were the people who were willing to go above and beyond and know it’s not eight hours a day – they are willing to do whatever it takes to take care of other team members and customers along with thinking positively and being motivated. “That’s the message I got from down the street and thank goodness I didn’t have to go to Milwaukee to see motivated employees that can make a difference. They were right down the street at Southwest,” he said.
To keep close tabs on performance and to reward the highest performers, everyone at Grand Homes now goes through an annual 360-degree evaluation – peers and managers – and the scores had just been calculated for 2011. “Once you make people accountable, everybody helps everybody, beamed Brooks. “That’s all part of our ‘People Matters.’”
Adopting A “Lean Building” Philosophy
“Here’s what people don’t get about this business,” declared Brooks. “If you’re average in this business at buying your land, you’re average at buying labor and materials, and average at running your overhead, marketing and finance, then your costs exceed your income. You have to be better than average in every one of the disciplines. The typical homebuilder profit runs about four percent.”
Brooks set out to be far above average by right-sizing with the highest performing individuals, going from a staff of 300 employees in 2008, to 214 in 2010, and 129 full-time employees today. “If you’re average, you’re going to lose money and if you’re above average you’re going to make four percent and most of that is made on the appreciation of land. In the downturn, obviously you have to cut all the waste in every area and go lean and leaner.”
Brooks’ trade partners became the backbone of Grand Homes’ “lean building” philosophy. “Over the course of a week, every trade came in to share cost-cutting ideas,” he said. “The plumbers would come up with 30 to 40 ideas, then the electricians, and then the framers would come up with ways to save money. They were teaching us.” By the end of the week, the trade partners came up with 864 ideas on ways to save money.
Another area for getting leaner was in renegotiating land and lot contracts. Much of the work on real estate transactions has now fallen to Brooks’ son, Beau. “He has done 25 real estate transactions in the last 18 months in this market. He is respected and admired, has worked hard, listened to me and he has made us so much money,” said Brooks with great pride.
Brooks recently heard Jack Welch, former Chairman and CEO of General Electric, talking about the economy and why American businesses are slow to hire. “Welch believes American industry is not going to hire anybody else until we have more customers.”
Brooks’ thoughts on getting more customers? “I’m in Dallas, Texas, where we have job growth. We’re now operating very efficiently and I’m growing because my market share is growing; I’m offering a better product at lower price with better service than my competitors.” And for the employees of Grand Homes? “My employees are not worried about their jobs, they’re worried about where they are going on vacation.”
Brooks knows he’s changed a lot as a CEO and believes his inspiration for change has come from the company’s culture committee. Brooks wrote a blog for the Harvard Business Review earlier this year where he wrapped up the piece by stating, “I see clearly now people matter the most.” When asked where he goes from here, he said, “Perfect people need not apply here. Helping people is what makes me important and I’m lucky to work with people every day who share my beliefs.”
Sep 19, 2015 Comments Off on Three Things Millennial Business Owners Can Teach Baby Boomer CEOs