Keynote Tim Costello Shares 22 Ideas Builders Can Use to Supercharge Their Businesses Right Now

Founder and Principal of BUilt4F and homebuilding industry visionary Tim Costello soared at the TecHome Builder/Housing Transformation Summit Fall 2023 keynote address. He lays out a vision for 1) the full embrace of technology and other innovations in new homes, 2) the digital transformation of homebuilding companies, and 3) the positioning and promotion of those changes that will drive customer acquisition, revenue, and profit growth. Costello outlines the importance of achieving a “Blue Ocean Strategy” and lays out 22 actionable ideas that you can put to work right away to improve your business and your sales results.

To begin, I’d like to go over the Blue Ocean Strategy. Blue Ocean Strategy is used to help businesses find, claim and hold open space in a market. It’s contrasted with Red Ocean Strategy where businesses select well-worn market spaces and compete on price, quality and service to win a share of market. Homebuilding, apartment building, apartment rental all tend to deploy Red Ocean strategies. The ocean is red because it’s bloody and that’s a terrible place to be. So what I want to talk about is how we migrate our thinking and move our businesses toward Blue Ocean strategies.

Housing is one of the craziest industries there is. Historically, we’ve been whipsawed back and forth constantly, so how do we figure out a Blue Ocean strategy in a market that keeps changing? When times are changing, you must continuously adapt and be able to do that fast, so you’ve got to reinvent your market as you go. We’ve got to figure out how to continuously adapt and change.

In a Blue Ocean strategy, you create uncontested market space, which means you’re going to offer a product that doesn’t already exist in the marketplace. Once you’ve defined that new product, then all the used products and all the other developers become completely irrelevant. Consumers will come to you and seek you out. That’s the most important part of the strategy.

We’re going to show you exactly how to do this. There are four basic control factors within a Blue Ocean strategy.

  1. Raise industry standards and raise your standards far above industry standards. For example, industry standards of a one-year warranty on a home. What if you offer a five-year warranty? It makes everybody else completely irrelevant.
  2. Reduce elements of the industry standard. Let’s talk about cycle time, how long it takes you to build homes. If you could build a home way quicker, you could attract a whole bunch of people into the marketplace that need to move quickly.
  3. Create factors which have never existed in the industry. Build 400 or 600 square foot homes. I’m going to show you that those are real markets that are wide open right now.
  4. Go out there and figure out factors which we’ve long competed on that we should just completely get rid of and no longer compete on.

When you’ve got that nailed, you’re going to have higher margins, you’re going to have people seeking you out, you’re not going to care what the rest of the market is doing, and you’re going to find yourself continually growing in the market space.

I’ve created 22 individual initiatives and strategies that you can go out and execute in your business to create a Blue Ocean environment.

 

1

The very first concept is embracing the rate locked market.

  • 25% of all homeowners today have mortgages below 3%.
  • 60% of all homeowners have mortgages under 4%
  • 90% of homeowners have mortgages under 6%

60% of all people that own homes today are locked in their homes for a very long time. This means less homes for sale.

Used home inventory is down 50% from before the pandemic. This is a profound change in the marketplace, one that builders should be adapting for. 50% less homes on the market is the perfect opportunity to pivot and create a Blue Ocean environment. Right now, 31% of all home sales are new home sales. We are now twice the industry average and there is nothing on the horizon that says this is going to change or that this new housing boom will disappear.

Why do people buy a new home? Life events. 80% of people in the last year who bought a new home account for these major life events. People don’t stop getting divorced, getting married, having kids, or getting new jobs. In the last year, 54% of households had a change in family size and 41% moved because of a remote job. We’re all worried about the marketplace, but these things aren’t stopping. We need to look at today’s market as an incredible opportunity. When you have 4 million people that are buying homes and there are no used homes to buy, they don’t care about the interest rate, they just want a home.

 

2

Strategy number two, you’ve got to up your spec home game. There are no used homes on the market and some of the people looking for a home need to buy quickly. 20% of the housing market is an urgency market. They don’t have 9 months to wait for a house, they need a home in 30 days. 20% is 800,000 buyers next year. We’re not going to build 800,000 homes. Know your market, understand where you can build spec homes so that buyers can buy and move in quickly.

Keep in mind that 71% of new home buyers didn’t start their search thinking they were going to buy a new home. They had no idea that new homes were available. A spec home solves this issue because a spec home ends up in the MLS, which ends up on every single realtor’s website, which ends up on Realtor.com, which ends up on Zillow. Which means if I search online, your spec home will show up. We’ve got to get our act together with respect to making sure that our solutions are visible to consumers.

 

3

Going on to strategy 3, we’ve got to eliminate the objections of new homes. The number one objection to new homes is the design and selections process. However, 35% of all consumers who bought a home in the last year wanted to design their home from scratch. So, we’ve got two things going on, some customers hate the design process, some customers love it. There’s a pinch point coming here, and if we can solve that we can create a Blue Ocean strategy.

We know that 56% of consumers expect some customization in the process, why don’t we offer them a virtual design center? Virtual design centers have been around for more than a decade. 85% of consumers who use them prefer it over the physical design center. We know they spend time on it, and we know they spend 30% more money on options using a virtual design center versus a physical design center.

 

4

Number four, monitor and manage your reputation. There’s a ton of information out there, and if you don’t know what it is then you need to do something simple. Grab your phone and Google your company’s name and reviews.

92% of customers trust this stuff, 34% of people won’t even look at a product if they don’t see any reviews. Gen Z and Millennials trust third party reviews more than they trust the opinions of their family and friends.

This stuff lasts forever, you go out there today and look at builder reviews and you see stuff from way back in 2008, or stuff from Covid when we were canceling contracts on people. That stuff never goes away. The problem is, you may have 99% customers that are happy, but happy people don’t leave reviews. The upset customers do. You need to manage your Google reviews. Ask for Google reviews. Encourage the happy customers to say all those nice things. That will start to give people a much more balanced online perspective.

 

5

Strategy 5, eliminate the friction within the customer journey.

  • 43% of customers say they would prefer to have a 3D tour than go on a tour in person.
  • 68% said a virtual tour gives them a better feel of a home’s interior than static photos.
  • 67% say that they want more 3D tours and interactive tours.
  • 3D tours get 50% more saves on online websites, and they sell 10% faster.
  • 73% said that a dynamic floor plan would help them to determine whether a home was a good fit for them.

We’ve got to give the consumer what they’re looking for. We’ve got all this incredible technology. The consumer can fall in love with the homes all on their own.

Especially with the labor shortage that we are going to be facing in the next decade, you’re not going to hire enough of any of the staff that you need, you’re going to have to figure out how to change your business to compete in this marketplace using this technology.

 

6

Number six, let them do it on their own. 68% of shoppers say that they want to be able to schedule their tours online. 70% of consumers say they would rather be able to unlock the home on their own and tour by themselves. Adding these things is not an expensive proposition. Think of all the time that it gives to your staff and all the data and information that you’re going to be able to collect on this.

 

7

Strategy number seven, take this technology further and allow homes to be bought online. Leverage the technology so homes can be fully purchased online, or so you can put a deposit down on a lot. When a customer puts down a deposit on a lot, they have completely shifted their mindset. They’re now starting to imagine a life in one of your homes. That psychological shift is probably the most valuable shift you can make with a consumer in the sales process.

 

8

Number eight. Make sure we differentiate between new and used. Abolish the word resale in your company. We deal with new products. New products that work for a new lifestyle, are more energy efficient, have better technology, are healthy for you, and have way better social amenities and recreational amenities. So, talk about new, and then provide consumers with a clear view why are you are better, why is new better. We have to educate our buyers.

 

9

Number nine, we’ve got to get serious about leveraging technology. I’m not talking about putting a video doorbell on your house and a programable lock on your front door. I’m talking about doing something extraordinary to your home, using technology to create a home that’s completely different to live in, automatic blinds with circadian rhythm lighting, indoor health and air quality monitoring, a house that they can’t find anywhere in the marketplace. This year, 61% of new home buyers felt that smart home capabilities in the home was important. For used home buyers it was 29%. Consumers want this technology, so they’re gravitating to the new home market.

 

10

Number 10, leverage the sharing economy.

  • 44% of buyers this year say they want to rent out their entire home
  • 41% say they want to rent out a portion of their home to generate income

This fundamentally solves the whole economic problem. If I can rent out a portion of my home, then 8% mortgage rates are less impactful. We need to build rent-ready homes. Rent-ready homes have a lock off section that can be used as an Air BnB or a separate space. The homeowner can also use these spaces as a health retreat, a home school, or a home office. This is the next generation of living, where a home becomes a very flexible unique thing that can serve multiple purposes.

 

11

Number 11, demographics drives everything. We have a record low number of nuclear families. Nuclear families are now the fourth largest segment of households, accounting for only 17%. 30% of all households today are single occupant. 53% of all households use only one bedroom. We need to build smaller homes that appeal to someone living alone. You might also look at multigenerational design. 20% of all households live in multigenerational situations.

Two important statistics: 53% of all households use one bedroom and 20% of all households are living multi-generationally. You’re now up to 73% of the entire market. If you aren’t thinking about building small or if you aren’t thinking about building multigenerational, you’re only dealing with 24% of the market. That’s not a good strategy.

 

12

Strategy 12, look inside the home. We need to be looking at what people will be doing inside the home, and we need to design homes that fit that lifestyle. Most of the world no longer needs to go to the office five days a week, it’s either hybrid or fully remote. We need to take the home office into consideration. We also want to include the great outdoors in the home. This is another way we can win, by building something different that doesn’t exist. We know that people want to grow their own food, and they care about health in our home, so we should be adding those kinds of features into our new homes because they don’t exist in the existing housing stock.

 

13

Number 13, the home is the office. When I’m talking about a home office I’m not talking about a little nook at the top of the stairway. I’m talking about an office. I’m talking about engineering a room that has soundproofing in the walls so it’s truly private. An office where you have remote control ability to control the lighting in the room. You have automatic blinds; you have a built-in green screen for video backgrounds. You have Wi-Fi penetration throughout the home and even outdoors. We need to be offering a true home office solution.

 

14

Number 14, kitchens that work. We need to create functional pantry spaces. We need to build small appliance storage for things like air fryers. There are tons of cool products out there to grow produce and grow food inside your home. As designers, we need to take these things in and start to incorporate them into our homes.

 

15

 Number 15, the home’s all about people and pets. 33% of all Millennials started their entire home buying journey because they wanted a new home for their dog. How do we build houses for dogs? Builders need to start including things like dog showers. Like a pull-out dog feeding tray underneath the sink. There are $110 billion dollars spent on pets in the United States each year. 72% of households have one. Over 60% want a built-in pet space in their home. 50% will pay extra for an outside pet washing station. But builders don’t offer those options, it’s a Blue Ocean that’s just sitting there.

 

16

Number 16, we’ve got to open some new channels for customers. Especially foreign buyers. To give one example, in the last year the Mexican peso has appreciated 20% against an US dollar. Every Mexican looks at US property now and thinks it’s on sale. 80% of Mexican buyers are cash buyers. We need to create strategies to attract and sell to these foreign buyers.

 

17

Number 17, open up new markets for yourself. If you aren’t offering the single occupant one-bedroom homes, aging in place jewelbox homes, multi-gen homes, etc., reevaluate. If you offer those things tomorrow, those are whole new markets for you. You’ve suddenly opened yourself up to a completely new group of people.

 

18

Number 18, move to where the demand is. 26% of all movers now are moving to completely different parts of the country. The average distance moves have gone from 15 to 50 miles. Rural shoppers are up 19%, and small-town shoppers are up 29%. This is because of work from home, people don’t need to live next to their office anymore. As builders, you need to consider moving farther away from city centers. Think about what areas you could start to build in and still manage. Those markets are grossly underserved.

 

19-22

I’ve combined numbers 19 20 21 and 22. “Build better” is really important. We got into some really bad habits during covid. We got sloppy as an industry, and at 8% prime rate, it’s not time to be sloppy. The supply chain issues are fixed, we’ve all got to start looking now, are you on a 60-day build schedule? And if you’re not on a 60-day build schedule, then why not? This is back again to this Blue Ocean strategy. What industry standards should you lower?

We’ve got to figure out how to be capital light, to be human resource light, to reduce our cycle times, have fewer labor hours, and maximize material efficiency. We should be asking every trade partner we have in our business how they can help with these goals, because all of those will determine whether we will survive and thrive in this new market.

 

 

Builder Innovator

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