Aggie100 Winners

This is the Press Release that was sent out last weekend:

Luxury home builder, Jenkins Custom Homes, was honored today as the 6th fastest-growing Aggie-owned business in the world, with an average compound growth rate of 94.13%!  The luxury home builder was recognized at the seventh annual Aggie 100 program, sponsored by Mays Business School’s Center for New Ventures and Entrepreneurship at Texas A&M University. The Aggie 100 focuses on growth as an indicator of job creation, product acceptance and entrepreneurial vision. Recipients of the award were selected based on verified compound annual revenue growth for the 2008 to 2010 period. In addition to this honor, Jenkins was also recognized as one of only three companies which have been named in the Aggie 100 for five out of the last seven years since the program has been in existence.  This is the longest sustained growth of any Aggie100 recipient.

Nearly seven hundred people attended the awards luncheon in The Zone Club at Texas A&M’s Kyle Field. Texas A&M University Women’s Basketball Coach, Gary Blair, presented the keynote address at the luncheon. After leading the Aggie Women to a 2010 NCAA National Championship, it was only fitting that he inspire the group of entrepreneurs by sharing his thoughts on true leadership. Kelsey Assarian, a member of the winning basketball team, sat at the table with Shan & Bethany Jenkins, along with Porter Garner, CEO of the Association of Former Students, and other distinguished faculty.

Earlier that morning, Jenkins had breakfast with the Dean of the College of Architecture, along with the Department Heads, which include the Department of Construction Science, Architecture, Landscape Architecture and Urban

Planning, and the Department of Visualization. After breakfast, Jenkins was given a personal tour of some of the technology being used to design homes and commercial buildings in the Department of Architecture.  One such technology, called the “BIM Cave” (Building Information Modeling Cave), surrounds students with display screens which allow them to be immersed in the design from multiple sides.  Such technology allows aspiring architects to envision spaces within the home or commercial structure during the design process, a very useful technology which could be used to assist the luxury home builder’s clients as well.

This year’s Aggie 100 companies posted an average compound growth rate of 41 percent. The complete list can be found at aggie100.com. The Top 10 Aggie 100 companies include:

“Since the founding of Texas A&M University, Aggies have been leaving a legacy across all businesses and industries,” said Dr. Richard H. Lester, Executive Director of Mays Business School’s Center for New Ventures and Entrepreneurship. “Over the last seven years, the Aggie 100 companies have continuously proven that even in tough economic times, solid business ideas and hard work pay off.”

To be considered, companies (corporations, partnerships, sole proprietorships) must operate in a manner consistent with the Aggie Code of Honor and in keeping with the values and image of Texas A&M.  After receiving the award five out of the last seven years, Jenkins Custom Homes is a shining example of the legacy of leadership.

Thermador Adventures in Scottsdale

Our latest Builder20 meeting was held in Scottsdale, AZ (thus, my previous post about visiting the Frank Lloyd Wright Center).  We have been meeting with our Builder20 group twice a year for over 5 years, and it is always a great time where we work strategically “on” the business instead of just “in” the business.  This time, we held the meetings in the award-winning Thermador training center and showroom.  I must say, this place was awesome and put every meeting room we have ever used in the past to shame!

One of the nights, we had an interactive dinner, where we all cooked various dishes in the showroom on Thermador appliances.  This was really fun and allowed us to learn first-hand about the appliances.  The most amazing feature we saw, in my opinion, was the infrared sensor on the cooktops.  This bad boy senses the temperature inside the dish and KEEPS IT FROM BURNING!  Ah, hello, why haven’t we always had this awesome feature?!!!  As newlyweds, that could have saved us LOTS of money in ruined dinners.  There were many other great features, and we were duly impressed.  Here is what Thermador says about their “Sensor Dome” technology and how it is used in conjunction with their induction cooktop (also available in the electric cooktop):

“Thermador Induction can fry with the industry’s most powerful heating element, or simmer precisely for long periods of time. Thermador’s patented Sensor Dome technology brings the pan to the perfect temperature and utilizes infrared sensor technology to monitor the temperature inside the pan, cycling on and off to maintain the precise temperature. Sensor Dome allows Thermador Induction to simmer without scorching, boil without boiling over, and deep fry without burning.”  (Read more)

Incidentally, Thermador recently announced that they are closing this facility, and that is unfortunate.  We wish everyone could see it!

The Importance of Using Tested Materials

Recently, Fox News reported on a study conducted by the Institute of Medicine that points to the importance of using tested materials in residential construction.  In fact, it really could be extrapolated to an underlying problem, the lack of residential building licensing (at least in Texas), but that’s an article for another day.

In the document recently released by the Institute of Medicine, studies showed that in an attempt to “weatherize” a building, other problems – such as dampness which allows mold to grow, or infectious agents and pests to thrive – can occur. In other words, the indoor environment can be affected in a harmful way. According to the report, “Even with the best intentions, indoor environmental quality issues may emerge with interventions that have not been sufficiently well screened for their effects on occupant safety and health.” However, many residential products don’t get tested thoroughly until they have been on the market for a while.  Even if it has been tested in a lab, there is no substitute for testing in the field.  There are several reasons for this:

• The home is a system, made up of many products that work together to create a liveable environment.  There are a number of different approaches to providing the best indoor air quality, for instance.  The traditional method was to create positive air pressure and “push” air out through the relatively porous walls, allowing plenty of fresh air to come in through those same walls.  With less porous materials being used inside the exterior wall cavities, now fresh air must sometimes be introduced artificially through the HVAC system.  The question arises here, have all the potential options for materials been tested together to ensure that humidity is not somehow trapped inside the home?  That is an important question.

• Time-tested materials have been thoroughly field tested.  For example:  While watching “This Old House” several years ago, we noticed that when they peel back the Fiber board and reveal 100-year-old framing material, it looks practically brand new.  That is a fairly convincing testament to this material.  To change to a newer material, one would need fairly convincing data that the new material will hold up as well as this one.

Although there is no cause for alarm, this article does point out an important consideration in how residential builders must approach the abundant choices we make each and every day.  Each product must be thoroughly reviewed to ensure all the proper testing has been done, as well as how it tested in relation to the other products going into the home.  This is a good reminder that we in this industry must always remember that we serve families first.  Let’s face it, there will be children living in most of our homes.  There is, in my opinion, no more important job on the planet than doing our absolute best to ensure those families breath clean, fresh air.

Cost Plus vs Fixed Price Contracts, Part Two

(In the last post, we discussed the differences in Cost Plus and Fixed Price Contracts, including three things to consider when choosing between the two.  Now we will look at the last four points.)

Things To Consider:

1. It is obvious to see that the lump sum contract, if calculated properly, should contain contingencies for overages.  This would imply that a cost plus contract would save the client money.  Well, maybe… in the case of a very good, savvy builder who is also a good business manager.  To be accurate, the builder almost has to be able to predict the future.  Are material costs and labor costs going up within the next 8-10 months?  Then, those costs have to be adjusted for inflation.  What if the project stalls and ends up taking longer (for whatever reason)?  The longer the project is prolonged, the more it costs due to rising costs of materials and certain fixed monthly costs such as cleanup, infrastructure, etc.  So, if the project is fixed cost, the builder must pay these overages.  If it is cost plus, then the client pays the overages.  Why would a project stall, anyway, though?  Lots of things: really, really bad weather, the client’s daughter is getting married leaving little time to make selections, the clients are traveling in Europe, etc.  All of these have happened. Hey, wait!  You just said that the cost-plus contract situation isn’t compelled to finish quickly because the cost overruns become the client’s costs rather than the builder’s.  Hmmm….guess I did say that.
2. There is an obvious incentive in a fixed price situation for the builder to not only make his estimates for each line item but to beat them.  Is that a good thing?  Absolutely!  A more efficient job is better for the environment, better for morale, and better for the client.
3. Having said that, then there is a not-so-obvious incentive in the cost plus situation for the builder not to focus as much on controlling costs.  I hate to say it, but haven’t we just given the builder an incentive to let costs rise, since we are paying him a % of the costs?  Even without that, the most conscientious builder in the world will not be as focused on cost control and schedule because there are just a million little details to manage, and it is really hard to do this well.
4. Which of these two contract methods results in happier clients?  We think it’s the fixed price (lump sum) contract.  Trust is fostered in a fixed price situation because no one is worried about cost overruns (except the builder, but that’s his problem).  Our clients tend to enjoy the building process much more in this situation.   In addition, we enjoy it more.  The challenge of beating our own numbers and being able to delight our customers with an on-time, on-budget process is what gets us all up and out of bed every morning!  So many times, a client pursuing the cost plus situation is disappointed, even if they did save a little, with the feeling that they had to “constantly look over the contractor’s shoulder” to stay on budget.  Well, that’s understandable since the client was carrying the risk of cost overruns during the entire project.

So, all this being said, which one do we prefer?  Well, if you were to ask us what’s best for us, it’s cost-plus, especially during a period of price escalation, like we are seeing with rising gas prices now.  There have been many times that we fell WAY short of what we hoped to profit on a project because this caught us unaware. However, we prefer fixed price, primarily because it makes for a happier client in the end.  We don’t want to ask our clients to carry that burden of risk because it is our absolute GOAL for them to enjoy every day out there on the jobsite watching their home being built.  We want it to be care-free and fun!  We still do cost-plus, though, when asked.  Ultimately, the client is always right!

In the end, find a contractor you really, really trust…but “TRUST with VERIFICATION” (see my article on important research you should do on any builder you are considering in “How to Choose a Custom Builder“).  If you decide that cost plus is for you, then just understand that you are ultimately responsible for all cost overruns and make sure you have plenty of extra money to cover it.  There are all too many stories in the marketplace about cost plus jobs that never finished because they ran out of money….  Really, though, the trust issue is far more important than which style of contract you select.  A good, honest contractor will do a great job for you, and you will get much more value and benefit out of working alongside him or her than if you don’t trust them.

And this concludes my assessment and book (sorry about that) regarding the subject of Cost Plus contracts versus Fixed Price contracts.

Cost Plus vs Fixed Price Contracts: Points To Ponder

So, you have a little slice of your own piece of land in “Somewhere, USA”, on which you plan to build your dream home. You interview a couple of Builders only to leave confused about this subject: What type of contract do I want to use? Do I want to use a cost plus contract or a fixed price (aka, lump sum contract)?

5 Reasons To Consider – or Reconsider – Building

Right now is perhaps the closest thing to the perfect time to build a new home we will ever see. If you have been holding off breaking ground on your new home, it may be time to reconsider your position. Here are the top 5 reasons why we think now is the time to build:

1. Mortgage rates dropped to a near record low, even as recently as this week, but are expected to start moving up again soon. “Experts say it’s time to get a loan now, or end up with a higher rate later…Mortgage professionals believe rates are poised to jump sharply within a few weeks.” (source: http://www.bankrate.com/finance/mortgages/mortgage-rates-drop-to-2010-low.aspx).

2. Home prices continue to fall, but not as drastically. According to CNNMoney.com, while home prices have fallen another 2.5% during the last 3 months of 2009, that was a “big improvement over the past three years.” This means that the trend down may be about to change, and housing prices may be about to start trending up instead of down. (source: http://money.cnn.com/2010/02/23/real_estate/2009_Case-Shiller_report/index.htm)

3. The price of materials will inevitably start to go up as building resumes. CNNMoney.com reports that “Home Depot said it returned to a profit in its fiscal fourth quarter after posting a loss a year earlier, with earnings of 18 cents per share, two cents better than expected.” (source: http://money.cnn.com/2010/02/23/markets/markets_newyork/index.htm)

4. Land prices are at an all-time low.  While this is, of course, specific to your region of the country, in Austin, TX, the general belief is that these prices are only going up from here. “January 2009 was the low point of this cycle…with steady improvement throughout 2009 that continued in January 2010, we can see that we’re one year into the recovery in Austin.” (source: http://www.bizjournals.com/austin/stories/2010/02/15/daily52.html?ana=from_rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+bizj_austin+%28Austin+Business+Journal%29)

5. Tax credits have been extended. “The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. It also authorized a tax credit of up to $6,500 for qualified repeat home buyers.” (source:http://www.federalhousingtaxcredit.com/)