Builder - September 2008 - (Page 67) UPDATE F IN A NCI A L M A N AGEMEN T & OPER AT ION A L S T R AT EGIE S ■ BUSINESS 68 Inside: This Just In Modular construction may just be home building’s future. EDITED BY ETHAN BUTTERFIELD Cocoon Theory DOWNTURN SURVIVAL Game plan for failing builders: Shut down operations to wait for a better future. E david clark nnis Homes was on course to flourish in 2005. Riding the crest of the housing boom, Brian Ennis’ Porterville, Calif.–based company had built new division offices in Fresno and Bakersfield, Calif., and bought enough land to grow from doing 300 to 500 homes a year into a 1,000-unit-a-year juggernaut. But before Ennis opened in Fresno, the market went south and the company had to shutter it and the Bakersfield division and retreat back to its headquarters office. “We had all the office furniture, computers, we had a phone system, we were wired in so we could do video conferencing—we were ready to rock and roll,” Ennis, the company’s president and CEO, says in a monotone. “We had to shut it down and never even moved in.” In two years, Ennis Homes shrank from a company of 130 employees and $140 million in revenue to a staff of 50 with revenue of maybe $50 million—as bare bones as he could make it, Ennis says. But as he watched the market nosedive in 2006, Ennis would have made an even more drastic move if possible. “If we could have just pressed the pause button and stopped, we definitely would’ve done that and then come back when things improved,” Ennis says. He thinks cocooning would have been an option but for all the land the company bought in preparation for its growth plans, and the bank loans it took on to make the purchases. Cocooning, an idea pitched by numerous industry consultants over the last 12 months, would have a builder fire almost all its staff, sell off all or almost all assets, and suspend operations until market activity improves. The builder, who might spend the downtime shopping for land deals using money gained by selling off assets, could then rehire staff or hire new staff, buy distressed assets, and resume operations when the market started to improve. Such a move is not for everyone. Ennis, (see page 68) in order to keep up with W W W.BUILDERONLINE.COM sep t e m ber 2 0 08 B U I LD E R ■ 67 http://WWW.BUILDERONLINE.COM
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