A Tale of Two Businesses

When I was very young many, many years ago there was a cartoon called the Rocky and Bullwinkle Show about a flying squirrel and a moose. There was a segment on the show called Aesop & Son patterned after Aesop’s Fables, which were fictional stories that had a truth built into them and ended with the moral of the story. Let me tell you the story about two homebuilders.

Sam is a master craftsman with many years of experience building quality homes. He takes pride in his work and stands behind every home he builds. His employees are all extremely adept and professional in handling the work they do in the completion of the home. They are master plumbers, electricians, craftsmen and painters. They’re supported by a crew of conscientious workers who all take their job seriously and are committed to Sam’s focus on quality construction.

Sam doesn’t build several different models of home with the intention of selling one of the pre-designed models to his clients. No, Sam sits with every client finding out their personal tastes, their likes and dislikes and designs a home that is specifically for them. His price may be a little higher than other home builders but the price reflects the personalized design and the quality of the product. Sam can also design and build a home with quality that fits a more modest budget but still meets the needs of the particular family.

Sam is able to do this because he deals with a number of different building material suppliers and he selects them based on the design and budget of the house he is building. The one drawback to having so many suppliers is that each supplier wants the opportunity to offer a price on all the materials and that takes time and money, slowing down the sales process and sometimes driving buyers to John who can give them a firm price right away.

John is a home builder who likes to build four or five basic models of home using average materials, some of which are at the low end of the quality spectrum. He offers several different upgrade packages and likes to advertise that his clients buy from him because they can choose the materials and price they want from the packages he offers. He doesn’t spend his money on quality workers; instead, he has a team of aggressive salespeople who get paid on the volume of homes they sell. The turnover of his salespeople is significant and because of this his salespeople are mainly concerned with closing the sale and not the protection and satisfaction of the customer.

He buys his supplies in bulk from one supplier who gives him a very competitive price. His supplier can do this because he buys average quality materials that are at best made to look expensive. Sometimes he buys materials from outside the US that are highly questionable and in some cases unsafe (i.e., Chinese drywall). John’s supplier makes it very easy to order and receive the supplies he needs rapidly and as needed. That allows John’s salespeople to sell homes quickly knowing the exact cost of the supplies that will be needed and that they will be delivered immediately and the house can be started.

John bids out all his work, selecting the lowest bidder for each job function without regard to their experience or commitment to quality. Some of the low bidders realize after they have secured the job that they can’t make any money so they rush to complete the job, cutting corners wherever they can.

What his potential clients don’t understand is the poor quality of the materials he uses, the design flaws that exist in many of his homes and the shoddy labor all lead to an unhappy homeowner and poor resale value. Unfortunately, they are attracted by the idea of getting their first home or a larger home at a really attractive price.

Sam has found competing with John getting increasingly harder. More and more clients are being lured away by John’s heavy advertising focused on price and the ease of doing business. Sam is still able to find buyers who want personalized design and a quality product but their numbers are dwindling. The younger buyers just coming into the market, as well as young families buying up are attracted to the low price and the speed John offers. They don’t realize the error in their decision sometimes until it’s too late.

To further add insult to injury, Sam’s suppliers see how much product John is buying from his supplier. They feel their current relationship with Sam is limiting their growth and they believe John’s supplier is gaining market share that would be coming to them if it weren’t for their having to share Sam’s business with other suppliers.

Several of them have toyed with the idea of cutting Sam out and going direct to consumers by creating their own home building division that uses their materials and deals directly with the home buyer. The fallacy in that is that the suppliers don’t really understand how Sam provides the quality of home he does on the slim margins he has to work with. Those that have tried have been unsuccessful and ultimately realize their value is in providing the building materials but not in designing and building the customized house.

The reason John and his supplier are successful is they work as one unit, they are committed to selling price over value and they will risk their customer’s security by offering a poorly built product disguised as quality.

The truth of the matter is that if Sam’s suppliers would quit creating roadblocks to Sam’s easy and immediate access to pricing and delivery he could cut costs, close more deals and increase sales for all the suppliers offering a competitively priced quality product.

With that cooperation from his suppliers, Sam would invest more in advertising and education directed at exposing the hidden problems consumers will experience by being fooled into choosing price over quality and value. His employees are all very skilled at highlighting the long term value and security their product offers. With the support of their suppliers to offer immediate pricing and instant product delivery, Sam and his staff can increase their market penetration which will result in increased growth and profit for their suppliers.

The moral of the story is that being committed to providing quality and value in the product you offer is most important. When business partners work together to help each other, they both grow and profit. Greed coupled with bad advice and sales tactics put many people at risk. Consumers will always choose quality and value provided by a business that cares when they are aware of all the facts.