Tough Call - Tracking the Production Builder

It’s the spring of 2013, and you’re seeing something you wondered if you’d ever see again: a healthy market for your products and services.  While it’s far short of the building explosion that ended the last housing boom, there are also fewer competitors
in your market with whom you have to battle for business. And that fact has created several fresh opportunities for you and your company. 

 

Located in a market with just over 100,000 residents, your company has built its foundation on custom builders,
remodelers and serious do-it-yourselfers.  You focus on serving these customers for a number of reasons—most notably, you’re able to earn reasonable margins on the products you sell them, and they tend to pay promptly. While bad debts are a part of any business, you’ve been fortunate to have had very few write-offs during your 20-plus years in business.

 

At the other end of the spectrum, a formerly solid competitor of yours—that had chosen to focus on serving a high-volume,

tight-margin production builder that went belly up in 2008—is no longer in business. When that happened, you were thankful that you didn’t work harder to earn that business, and you swore that you’d never pursue business from a production builder.

 

That was then. This is now. And things have changed a little in the past six years, which has prompted you to reconsider your stance on selling to production builders. Here’s the situation:

Jim, one of your longtime custom builder customers has decided to help meet strong demand in your market for starter homes with a 32-house development.  In the 11 years since launching his company, Jim has impressed you with his business acumen and the quality of his work. Aside from a few late payments during the downturn, he’s been a solid, reliable customer.   And as he shared in a meeting with you today, he’s ready to take his business to the next level. “There’s so much pent-up demand in our market for inexpensive homes,” he explained, “I’d be foolish if I didn’t service that niche. Since I’ll be buying much more material, I’ll need to
buy my material from the lowest-cost provider. We’ve done a lot of business together, and I’d prefer to stick with you, but the numbers have to be right.  Naturally, since this is a new venture for me, I’ll be getting bids from your competitors as well.”

 

While you value the relationship with Jim and would like to keep him as a customer, there’s a reason why you swore you’d never work with a production builder—which is what Jim is angling to become. He’s a solid builder and a good businessman, but that was as a custom builder. If he’s going to compete effectively with the established production builders, you believe that will require big changes to the way that he works.  He’s come right out and told you that he expects better pricing, and seems willing to buy from your competition. Considering that, plus the additional risk you’ll take by selling vast quantities of material to one customer, this has you wondering how badly you want to keep his business. 

What would you do?