Lee Evans’ 10 Timeless Lessons for Home Builders

Lee Evans.

“I called a lot of builders I knew and told them to just stop going crazy,” says Evans in the straightforward manner that has startled and then captivated home builders around the country since the 1950s, when he gave his first management seminar for home builders while working at the University of Denver.

“He was pretty tough,” acknowledges David Weekley, who began meeting with Evans years ago, when David Weekley Homes was closing just 200 homes annually. “He wasn’t the usual consultant who fed back what you wanted to hear.”

But what Evans had to say often was what builders needed to hear. “In the 1950s, builders were wild men. They were gamblers,” says Chuck Shinn of Shinn Consulting, who has worked with Evans for years. "They made a lot of money, but they also lost a lot of money.”

The reason was their inexperience. "In the early 1950s, these guys had just come back from World War II. They began to build homes for the returning vets as they married and started families, satisfying two decades of pent-up housing demand caused by the Great Depression and the War. They were true entrepreneurs, who did not have management training or training in systems or procedures," Shinn explains.

Roger Ladd, whose father fell into exactly that category, agrees. "In my father's case, he was a World War II veteran without a lot of formal education, so he did it through Lee," says Ladd, who owns Brittany Builders in Evergreen, Colo. "If you think of that World War II contingent, they needed some education--they were essentially creating a whole new industry" of production home building, assisted by the G.I. Bill and other government home financing programs.

Evans helped them do that. "When Lee started offering his management training at the University of Denver, he gave the builders the management training and processes that allowed them to price their homes correctly, understand and control their costs, and make and sustain profitability," Shinn says. "He allowed the builders to grow and be successful in a high-risk industry."

It started with business planning, both for the short- and long-term. “Compel events to conform to plan,” Evans says in a phone conversation, reciting a phrase known by heart to his followers. “To do that, you’ve got to plan where you’re going and make it happen.”

He stressed profitability, establishing financial benchmarks for builders that seemed impossibly high at the time. “Back in those days, if you did $2.5 million in sales and if you could take home 5% or 6%, we thought that was just wonderful. That was a nice amount of money for the risk and exposure,” remembers Robert L. “Bob” Smith of Universal Properties in Duluth, Ga. “If you did $10 million to $15 million and you brought home 3%, we thought, ‘Hey, that’s a pretty good living.’”

Then Smith heard Evans speak. “Here’s this man telling me that’s puny!” Smith recalls, his voice still astonished at the memory.

“It wasn’t just about making money,” Evans explains now. “It was about operating a job without waste as efficiently as you could. I’d walk jobs with builders and say, ‘Why are you doing this? Why is all that mess out there?’”

Evans urged profitability and financial discipline for another reason: the boom-and-bust nature of the home building business, where a builder can go from a millionaire to bankrupt in a matter of years if he doesn’t manage his business—and his money—carefully for the long term.

“We’re a high-risk industry,” Shinn says. “We’re highly leveraged and dependent on banks, and it takes us a long time to build a widget”—particularly if that widget production process starts with raw land.

What Evans, now retired in the Rocky Mountains outside of Boulder, Colo., offered was a way for builders to manage those risks responsibly and profitably, and builders who worked with him and his wife Virginia remain deeply grateful today. “We consider it a privilege to have sat at their feet when they were operating,” Smith says.

When Bob Kennedy and his brother and father first began working with Evans in the 1960s, they were completely overwhelmed by the demands of their growing business. “We were all doing whatever needed to be done when it needed to be done. We didn’t know what we were doing or where we were going, but we were working like heck,” Kennedy recalls. “We were on a path to destruction.” Their meeting with Evans, who spent more than a week auditing their company, was a turning point. “He literally changed the whole direction of what we were doing,” says Kennedy, who now operates Homes by Kennedy in Florida.

“There’s not a day that goes by that I don’t think of him and what he would say,” says Bill Jagoe, who was a teenager when he met Evans, then consulting with Bill Jagoe Sr. “He’s a teacher and a storyteller … I think what he’s done is to set a framework [for builders] to sustain profits and run a successful business.” Jagoe now runs Jagoe Homes in Owensboro, Ky.

Lee and Virginia Evans

1. Plan your work, and work your plan. From financial management to business objectives, Evans expected his builders to establish goals and make decisions accordingly. “If I don’t have a plan, I don’t know where I am going to be. I don’t know whether I am buying land that is out of the sweet spot for my product or whether I should jump from city to city. If I don’t have a plan, I don’t know what I am doing,” explains Shinn, who says such guidance remains just as relevant today. “Yes, things move really fast in today’s world, so maybe a builder’s plan needs to change here and there, but you still need a plan. … That’s what Lee did—he gave them discipline and structure” to run their businesses effectively.

2. Benchmark your performance against others in the industry. Evans, who established many of the builder financial guidelines still in use today, introduced builders to benchmarking, allowing them to see how their companies compared to their colleagues and competitors. It inspired in many a desire to improve their firm’s performance. “Every time I felt I was getting close to his standards, I would drive up to his cabin in Nederland (Colo.) and put my [results] in front of him,” says Ladd, who founded his home building company in the 1980s. “Finally, after eight years, he said, ‘OK, you’ve done it. You’ve finally realized the standard I set for you.’”

3. Regularly raise your expectations. Meeting benchmarks wasn’t enough for Evans, who pushed his builders to continually improve their performance. Smith remembers when, after several years of effort, he finally achieved a gross margin of 20%. “Mr. Lee, I hit it!” he exclaimed to the consultant. Evans replied, “Bob, I hate to tell you this, but the room has done the same thing, so we’ll have to raise the bar.”

4. Manage the exceptions. Evans wanted his builders to know their financial and operating data, but he didn’t want them to get lost in it. The solution: managing the exceptions, which means looking at the variances—a floor plan with highly superior or seriously inferior profit margins, the superintendent whose cycle time is always significantly higher than his counterparts, the subcontractor whose homes always have more callbacks than any others—and then taking action to fix the problem or take advantage of that previously hidden opportunity. 

5. Stay close to home. This represents perhaps the one principle that requires some updating, given today’s technology. Evans didn’t like the idea of builders expanding beyond two hours or 90 miles of their home base, because he believed that was simply too far away for effective management and control. But even builders who disregarded this piece of advice knew there was some truth to it. “At one point, when I was flying around between five cities and I didn’t have the infrastructure in place, I thought he was right,” admits Weekley, whose company is now one of the biggest private builders in the country.

The advent of email, smartphones, and the Internet has changed this, of course, as technology connects people in real-time across miles, allowing builders to expand far beyond a two-hour drive of their home office. But such growth is not for the disorganized. “The biggest limitation [to expansion] is human,” says Shinn. “What if I cannot get someone in a remote location and run the business the way I want it to be run? Remote operations can take a left-hand turn that will take millions of dollars to unravel …. When I go remote, every weakness in my system will become huge.”

6. Never forget that home building is cyclical. Prior to the downturn, it had become fashionable for people to argue that housing was no longer a cyclical industry, with its performance subject to extreme ups and downs. But Lee Evans was not one of those people. “If you stay in this business long enough, you’ll go broke,” he told his builders, both in conversation and in a notable public presentation at the 1990 International Builders Show in Atlanta.

“Everyone remembers that speech,” says Shinn. "At the end of the presentation, Lee stated that if these 14 ways [of going bankrupt] aren't enough, then builders, who are very creative, will come up with new ways to go broke. I think it reflects the little voice in every private builder’s ear that says, 'Watch out: you could lose everything with one bad deal or mistake.'"

The answer, of course, is either taking a break from building or walking away while one’s wealth is still intact. But that’s easier to discuss than it is to do, according to Ladd. “By nature, we’re home builders, and while Lee would say that sometimes the best thing to do is not be in the business and step away, that’s difficult, because we define ourselves as home builders.”

7. Know your costs, large and small. “So many builders don’t know their own costs,” Ladd says. “Even in good times, they aren’t making any money.” That wouldn’t have been tolerated by Evans. Even before computers, the Colorado-based consultant urged builders to “absolutely measure everything,” Smith recalls. “He wanted to know the cost of the original land purchase down to the mailbox so you could pull the profitability of each house and pull out the ones with bad profit margins.”

8. Charge a fair price for your homes. Once a builder knows his costs, he can price his homes appropriately to account for profit and demand, which builders often either overlook or underestimate. "Raise your prices--you're giving your homes away!" Evans once told Kennedy, who recounts the story to a reporter and adds: "Which we were."

9. Strive for strong profits. Recent Wall Street happenings have nearly turned profit into a dirty word, but Evans realized that strong, sustainable profitability represented a builder’s best protection against the cyclical nature of home building. “You need to make a fair and reasonable profit because of the downturns,” says Kennedy. “Without reward—just continual loss—you cannot say in business.” Ladd, who like Jagoe met Evans as a youth and followed his father into the home building business, agrees. “Downturns are so dangerous that in the good times, you have to make money,” says Ladd, who has scaled his business back considerably in recent years. 

10. Maintain a rainy day fund. The past 12 months, during which new-home sales and starts fell to record lows, have demonstrated the importance of this Evans principle. “You need to keep a rainy day fund with enough money to run the business for six months and pay your employees and keep going, even without new closings,” says Evans, who also recommends builders take this money out of the business to keep it safe for just such a situation.

“In recent years, we have certainly seen the need for this,” says Jagoe, who has relied on his fund to maintain his workforce during the downturn, unlike many builders operating with skeleton staffs. “Absolutely being able to operate gives you a great advantage, because people are still buying houses. Ten percent unemployment means that 90% of people are still employed.”

Alison Rice is senior editor, online at BUILDER magazine.