197. Creating Urgency With Andy Skarda

Welcome to another episode of Professional Builder Secrets. We recorded this episode live at the International Builders show in Las Vegas, but the content is still highly relevant for builders around the world. I talked to the head coach of apb, Andy Scarter, and we discussed how to use supply and demand to improve profitability and cash flow in a building company. We dive into the concept of construction slots and how they an absolute game changer for builders in the sales process. I highly recommend having a listen. This episode of Professional Builder Secrets is brought to you by Apparatus Contractor Services. Apparatus provides full scope end to end QuickBooks, Precision Construction accounting and CFO services for residential builders. If you feel like you can't completely trust your weekly and monthly financial reports or you feel like you're flying blind, Apparatus will rebuild and operate your QuickBooks accounting system and give you precision construction accounting capability you can trust. Learn more@apparatusteam.com or on the APB Rewards Partner Directory.

Defining how many slots you've got and making that a limited number immediately creates scarcity. When we allocate a particular start date to somebody, it puts some pressure on them to get stuff done. We've now just combined scarcity and earning urgency into that one process that keeps people moving through that sales process smoothly through to the final conclusion. So if you can see in your cash flow plan that you've got lean months, you can literally work backwards from those months to say, if I want to get paid there, I've got to start a job there. Find the thing. You know me, I always start with, if we could fix one thing in your business, what would it be? Start with that thing.

Professional Builder Secrets live from ibs. Andy Scarter, welcome to the show.

Thank you very much. Very nice to get an invitation.

Andy, Construction slots.

Yes sir.

What are they?

They are dedicated start dates that initiate a construction project of, to be honest, any length. What we're really trying to do with them is to understand that we do have limited ability to start a job during a year. We want to acknowledge that up front, work out what our capacity is and then make sure that we're not taking on more work than we can handle. So it gives us a way of setting a, if you like, a maximum number of starts that we would run in any year.

So what problem does it solve for builders?

A couple of things. One, taking on more work than they can handle. That's one of the major things. If we talk about how it'll help them in the construction side of things, all of a sudden now they have a very orderly process of how their work rolls out over the year. To be totally honest, the biggest impact of construction slots is probably more in the sales process than it is in the construction process. But before we go there, the ideal situation for any builder would be to be starting jobs on a cadence that makes it simple for them as the builder to manage and also makes it simple for their subcontractors, their trades, to basically go from one job to the next job to the next job to the next job. Because what that starts to build is when those sub trades understand that they effectively don't have to do any selling because the builder is selling out their next 18 months, that builds an incredible amount of loyalty in that trade base because they want to work with somebody that has consistent work for them on into the future. So in the construction space, that's probably where it is. Knowing what you're going to start and when you're going to start it, you know there's a price increase coming on timber, you know that you are four slots in for the year, you know you've got eight coming. You can go and pre buy timber at the lower price, store it in your warehouse, but you've got the confidence of knowing you've got those jobs coming.

Makes sense. So before we, we go to the sales side of things, what are some of those implications of builders not using slots effectively from a construction point of view?

Well, you end up with delays and pressure on all of the jobs because we can't get slabs down if we're doing a slab foundation. Plumber is on one job and there's three jobs standing still because he can't move to the next job until he finishes the first one. A general lack of control over what's happening in the business that tends to bring kind of that feast and famine scenario into play where at some points in the year you've got more work than you know what to do with, and other points in the year, it's absolutely dead. There's nothing happening. And of course that repercusses into cash flow and you know, handling all of that side of the business as well. We're talking about construction slots, which are very much focused on the start date of every job. But as you know, at the apb, we believe that the handover to the client at the end of the job is a very important part of the process. If you don't have those jobs properly laid out, what's even worse than having three that start in the same week is when you have three that finish in the same week and you're trying to do all of those final punch lists and setting up the actual handover and all the rest of it. If you don't have those slots worked out so that you can actually plan that, that can become a real headache.

So the slots, the start date though, is there any risk of the jobs finishing at the same time anyway if there's like overflow and things like that?

What we teach our clients to do is at the time that they lock in the start date, when they allocate that to a job, is to also calculate the finish date with some buffer. Well, that's the point. And depending on who they are and what they trying to do, they will know what the buffer is that they need between jobs. And they can then adjust their jobs across the year to make sure they don't run into that problem.

I guess as well. Like the one thing you didn't touch on is the client's experience. If all your jobs are ending in the one week, or you're starting all the jobs at the same time, etc. Or the plumber's not available or like, you go, horrible.

I mean, what they're going to see is activity. No activity. Lots of activity, no activity. Very difficult for a builder to explain his process if he doesn't have one. The problem we've got to accept in this industry because of some of the horror stories that people go through, people are very sensitive about how organized, how trustworthy, how systemized their builder is. They spending a lot of money, usually the biggest amount of money they've ever spent on a single thing in their lives. And a builder that can show them he's got the organization in place, he's got the planning in place, they're going to be much more comfortable in that environment than in one that's seat of the pants.

So now you're leaning into the sales process confidence. How else does construction slots help with the sales process?

There are two primary words that always come up when we talk about the sales process. Builders will tell you that one of the most difficult things they have is, is to get a client to make their selections for their build in time or at all. Because as much as we love the Internet and as much as we love what that gives us in a building context, it also gives every single client almost unlimited choice. What that brings in is, particularly in that selection space, people freeze and do nothing because there's too many options. If you don't have a date that you're aiming for for the client to be having their job start there's no rush, is there, because it'll start when it starts. So they can take as long as they like in that pre construction phase, which really damages the builder in terms of everything that goes along with that. Cash flow, revenue, you know, all of those things. So what we find is one, having the start date and having the process in place puts a line in the sand. For the client to actually know by that date, I've got to have everything done, otherwise I don't start. Sometimes clients will bring us that on a plate in that they'll arrive and say, we want to build our new house and we want to have a house that we can move into. We can decorate the nursery at our leisure and then the baby will arrive, et cetera, et cetera, where they're almost pegging the end date for you. Then obviously you're going to reverse the process and find the start date that that works best. But what happens when you start to do this process is that you are forced to acknowledge you don't have unlimited capacity. So what it does first of all is you've got to sit down and say, realistically, how many houses can I start maximum in a year? Now, as soon as you do that, what you're actually doing by saying I don't have unlimited capacity, you are creating scarcity. Because now you're saying I can only start 10 houses in this next year, only 10. Now, most people will understand when we talk about if you end up in a strange city for the first time, check into your hotel, decide you want to have some dinner somewhere, and you walk out the front of the hotel, you look to your right, there's a restaurant that's full with a line outside around the corner, and you look to your left and there's a restaurant that's vacant. There isn't a single person in there practically. You would think most people would go to where there is nobody, but that's not the way human beings work. They look at the fact that it's full, they look at the fact that there's a line around the block and their brains say, oh, that's gotta be good. And the reason why these guys are wide open is they gotta be bad. Which may be completely wrong, but that is the perception. And what most people will do is they'll go and stand in the line and wait the half an hour till they can get a table. Defining how many slots you've got and making that a limited number immediately creates scarcity. So if we bring those two things together and we say we do not have an unlimited number of starts we can do in the year. Plus, when we allocate a particular start date to somebody, it puts some pressure on them to get stuff done. We've now just combined scarcity and urgency into that one process. And what that does is it keeps people moving through that sales process smoothly through to the final conclusion and then obviously to sign a contract.

In the example you gave around having a hard start date for the client and then putting the pressure back on them to have all their material, selections, et cetera, done, what happens if they don't like, at what point do you say we've lost your slot?

When they don't hit that date. So literally what would happen in that sales conversation would be for us to start your home on the 15th of April. We need your selections complete by the 10th of March. Get to the 10th of March. It's not done. Very sorry. I've had to give away your start date to 15 April. Your new start date is 10 June. What tends to happen is, are we very sorry, we'll get it done in the next 24 hours. That's probably what you wanted anyway, so there's no downside. I've never heard of a client who was starting on the 10th of June that when you phone them and say, hey, good news, I've had a slot open up on the 15th of April, we starting six weeks early. I've never heard of a client that said, oh no, please don't, please can you delay our start? So again, I know we're assuming that the builder has a pipeline of work, but assuming that that is the case, if somebody can't, I mean, there may be a legitimate reason, people get sick, sadly, people get divorced. There could be a legitimate reason, they've done everything possible, but that data is no longer suitable. The beauty is if you've got them laid out in a structured way, it's a lot easier to then make a plan to accommodate whatever their situation is or someone's back. Correct.

Yeah. Trying to always push them forward, I guess. If you don't have those ones backed up though, then it creates an issue.

Well, then you're going to want to start this one as early as possible. And all you've done really is you've moved this line in the sand to the next line. I mean, the beauty is if you, if this happens to be the first one you're starting this year, the sooner you start it, the better. It almost doesn't matter when that is.

So in that example, if the slot was originally March. You don't have another slot lined up and your next slot is normally June. Don't you lose your authenticity, I guess, or the ability for them to understand, like believe in your process. If you, if you move them, if you don't move them to June with.

Somebody that has been tardy on getting their things done, it might be the best thing possible to give yourself an extra six weeks if there's another reason for it, or if you don't have somebody next in line agreeing to move the data out by two weeks but no further kind of deal. You've always got that option if you need to exercise it.

So can we get more into the detail of how slots work? How many do you have? How do you know when you can increase that? What does it look like? Are you putting that in a spreadsheet? Where are you, where are you putting it in? Can you talk a bit more about that?

Sure. It starts with the capacity discussion. How big is my team? Based on how big my team is, knowing my team's involvement, because very few builders run the entire job, they're all going to have a percentage that will vary from zero to probably 80%. That is done by subcontractors. So really what they're looking at is what is my team capacity relative to their involvement in each build and then maybe more importantly, what is my project management capacity? How many project managers do I have, realistically, how many jobs can they handle at an acceptable quality level before the wheels come off? You've got to work through that first to arrive at the number. And let's just go for an argument, it's 10. You're now going to know, working on an average contract value, it takes you a year to build a million dollar home. Well, that kind of sets it up really nicely because you're going to start on the 15th of April this year and you're going to finish on the 15th of April next year. The next piece in the puzzle is going to be how much time do I want to leave between starts? Okay. And that's going to be tied to how regularly do I finish on schedule? Do my jobs tend to run over because of weather or supply chain delays or whatever? Working that into the equation and then working out in terms of everything that's got to go into building that house. Is it four weeks? Is it six weeks? Is it eight weeks? Whatever it is for you individually, and then really it's a question of sitting down with a calendar and going over 12 months in the year. Traditionally, the industry shuts down over Christmas or it doesn't. Traditionally, people shut down over the summer holidays. Taking that out of the picture and then with what you left with, basically looking at, if I were to start my first job on the 1st of February, you want a six week cadence, 15th of March, 1st of May, and then literally just laying them out on that basis and making sure that when you look at that listing, it's going to accommodate all of those elements that you brought into making that decision.

Is there any science to the cadence of, like how much you have between the slots?

The science there is going to be personal. It's going to be based on how efficient your systems are in terms of ending one, starting the next one. And when I say your system, you are subject, unfortunately, to things like weather, seasonal situations, and not only what your team can handle, but what your subcontractors can handle in terms of a turnaround. So you'd have to bring the science is in understanding each of those levers and then being able to pull each of them to the level that allows you to make a firm commitment to. These are the dates and I'm saying firm. This is not meant to be a noose around your neck. The beauty is if you made the plan, you can change it, but you want to have something that you start with that lines up with what you know. And you're going to keep working to that until circumstances show you I didn't know about or I forgot about X, and then you're going to adjust it from there.

Okay, so you've got your slots, you've figured out your resources, and you've planned it out for the next 12 to 18 months. How does that tie into your sales process? How do you weave it into everything else you're doing in that process?

Well, most clients are going to be very happy that you limit the number of jobs you take on in a year. Because I know you and I have had this discussion on a number of podcasts. We are all. And clients in particular are selfish. They're not really concerned about you and the pressure you're under, but they are concerned about getting their job done properly, on budget, on time, all of those kind of things. So starting that sales or that process conversation or failure from the perspective of we only start 10 jobs in a year, maximum, builds confidence straight away. The fact that you know it's only 10 is intrinsically saying without saying, we are systemized, we are organized. The scarcity and urgency piece comes in from the perspective of based on their life circumstances, they're Going to have ideal. And as you work through the discovery process and the concept process, that you're starting to get a feel for how big the house is, how complex the design is, how long it's going to take, you're able to educate them on the implication of each of those decisions that they're making. And then as those decisions come into place, them understanding that you can overlay that over your production matrix and literally tell them, we will start building on this date. Your slab will be finished on that date, your framing will be finished there, your roof will be on there. We'll be at lockup by that date, and you can lay that process out for them. That gives them an immense amount of confidence. And if they need to, allows them to do any financial planning that they need to do in terms of making sure that progress, payments are ready, et.

Cetera, et cetera, knowing when they need to pay their invoices.

There you go.

There you go.

Yeah.

All right. What have we missed? Anything we've missed? When it comes to construction slots and the benefits for builders only, I think.

There'S a lot of emphasis on the builder. This is getting repetitive. But knowing his capacity, knowing his numbers and. And being able to put a plan together that's going to set him up to succeed, he's got to do that groundwork up front. There's no magic elf that's going to come along and lay it out, you know, for him. Obviously, for the members of the apb, we have an entire action plan where we train people in how to do this. We don't expect them to guess. We give them the spreadsheets that are already set up with all the calculations for them, and that makes it significantly easier when that work is already done for you. And, I mean, the one thing we haven't spoken about is on the builder's side, the clarity that it gives him on his financial projections.

Yeah, that's true.

Because in the same way that we're talking about, the client will know when the slab is finished, when the framing is finished. The builder also knows that's when I get paid for the slab, that's when I get paid for the framing, et cetera, et cetera. Which, linking back to another podcast we did, that makes his cash flow planning significantly easier because he can see where the money's coming in. Lucky you asked. What did we forget about? Because there's a whole lot coming now. Yeah. What does that do? Well, now what you start to be able to do is to overlay your construction slots with your cash Flow plan. So if you can see in your cash flow plan that you've got lean months, you can literally work backwards from those months to say, if I want to get paid there, I've got to start a job there. Is it possible for me to do that? Yes, it is. That slot date might need to move by a week or two. But all of a sudden you've now adjusted the slots by your cash flow indications and that means you've got a really nice year in terms of the money coming every two weeks or whatever it happens to be to run the business.

I feel like all these conversations we're having across these couple of days, it's like a chicken or egg stuff situation. It's like you need the construction slots, but then you also need the cash flow, but then they're kind of working together. Pricing for profit fits in the, in the mix there as well somewhere. Yeah, Whippers there. You can't really just have one, you need to have it all for it to work together properly.

Well, yeah, but, but where I would maybe disagree with that is if you can only have one, it's better to have one of them than none of them. So, you know, if you're going to now put me on the spot and say which one?

That's my next question.

I mean, again, that would depend on their circumstances. But the point is, any part of the business that can be better planned, better organized is going to be more efficient. Because it's more efficient, it's going to drive more margin. Because it drives more margin, you've got more disposable income. The whole place just gets easier. So, yes, if you can have all six steps or all six systems in place, you're going to get the benefit of all of them. But you, what you don't want to do is to get deer in the headlights and go, oh, it's too much. I'm not going to do any of this. Yeah, find the thing. You know me, I always start with, if we could fix one thing in your business, what would it be? Start with that thing. And if that thing happens to be, you know, my build schedules are all over the place. You might not even connect the fact that your revenue is all over the place because your build schedules are all over the place. You don't have to do that. If you were to get your construction slots properly worked out, your revenue will take care of itself. That's the nice part. In terms of that, you might not have planned it that way, but it'll be a whole lot easier because you put the system in, in one area, it's going to make all of those other things simpler.

Just makes so much sense because it, you get more confidence in forecasting cash, you have more cash in the business, you got more confidence to invest in the business and get more quality leads in. Then you get more confidence in your sales process and the sales conversations.

Amen, brother. And I mean I know I'm the one that always gets into trouble because I'm the one always that says join the apb. Why do I say that? I say that because if I sit and think about how many hours of work, how many people put into developing our construction slot planner and revenue forecaster, any builder would have given up one tenth through that process. But essentially what we're saying is we've got the kind of people that won't give up in the process. They'll go until they get that right. And the beauty of being an APB member is you don't need to reinvent any of those wheels. We've built them already. They're ready to go. Literally the day you become a member, all of those things are available to you instantaneously know. So of course I've got a vested interest in people becoming members. But as a human being, you know, we don't get into the tear jerk stories of people that we get to talk to that it's too late. We can't stop them going bankrupt because they didn't have these systems in place and they, they took too long to reach out to us for us to be able to help them. I mean forget anything on the business side or the monetary side, the human side of having to say to somebody this was avoidable. You did not have to go through this. And the solution was pretty much all you had to do was reach out to us and we would have given it to you on a plate.

I told you so might not be.

Helpful in that situation, in that discussion. Probably not. No, they don't, they don't need to hear that at that point. Yeah.

Any final advice for builders on construction slots?

Well, it's going to be the same advice on everything we talk about. Do it. Yeah. You know, the knowledge is one thing, but if you don't implement it, it's not going to make any difference. You're not going to get any of the benefits out of it. It's basically a waste of time. Go and watch an episode of Tiger Kings rather than learning about construction slots if you're not going to do it.

Tiger King segue.

Well, in my opinion that television show is the most scientific method of wasting time I've ever seen.

You've obviously watched it though.

I've watched about three episodes in the hope that it's going to get better and it never did. So I bailed after three. But I mean, I say this to my clients. If your option is waste your time doing X, don't rather go and watch an episode of Tiger Kings. You'll get more out of it. At least you'll be semi entertained.

So implement construction slots or watch Tiger Kings.

There you go. There you go. And anybody that's watched Tiger Kings will rather implement construction slots.

Well, Andy, thanks so much for coming.

Very welcome.

Professional builder secrets today.

Thank you for having me.

Pulled up tomorrow's agenda so we can do a quick overview. I got you first up talking about working progress, accounting adjustment, which is going to be a big, big one.

Yeah.

Very big one. So looking forward to that. Thanks for coming on.

No problem. Thank you for having.