Be it good times and bad in residential real estate and construction, there’s no getting around how capital-intensive a business it is. But this time is different.

Through the decades and right up to midway through 2023, there’s also been no underestimating the importance of grasping how many different forms and functions capital can take. Having lots of cold hard cash goes far when land, development, permitting, carrying costs, and project financing figure into homebuilding’s lopsided upfront investments followed by long, slow tails of returns.

Still, cash isn’t the only determinant of success and longevity, and private homebuilders have proved out that reality across the cycles. Reputation, trust, local knowledge and relationships, and a mere personal extended presence in a market can and do work wonders as capital offsets to troves of “dry powder.” This goes for both mitigating the cost side of an operator’s balance sheet and generating handsome premiums on the revenue and profit margin side.

Customers, team-member talent, vendors, and trade partners alike tend to gravitate to “little guys.” That’s because typically they do what they say they’re going to do, and they serve as “shock absorbers” when the big publics resort to using the clout they feel they’ve earned by amassing local scale and market share enough to rewrite all the rules of engagement and squeeze their partners to concede or else.

This is what big publics’ shareholders expect of their management teams now. And that essentially means doing whatever they can to grab more market share however they can, an earnings “arms race” for market dominance supported by ongoing demographic fundamentals and an ongoing scarcity of available single-family inventory.

As we reported after D.R. Horton’s Q3 earnings call last week:

The take-away here for builders who are not so endowed with capital right now is this. Quarter by quarter by quarter, as David Auld says, D.R. Horton is bound and determined to hit or eclipse its growth targets, and right now that means they're "coming for you," if you happen to compete in any one of [their] geographical areas.”  – The Builder's Daily

We quoted D.R. Horton CEO David Auld, saying:

It is really hard to put a lot on the ground. It is really hard to build houses. And these private guys, now, they've got to struggle with capital from either private [investors] or banks increasing in cost.”

Net net, they’re taking dead aim at the market share of local and regional private builders operating within their newly expansionist footprints.

And this factor, along with local bank lending disruptions, higher-for-longer borrowing rates, and near-peak land costs, longer local regulatory lot permitting cycles, and asking-price pressure on new orders, make the life and times of a private entrepreneurial homebuilding operator a whole new game when it comes to liquid capital resources it takes to operate and continue to be nimble.

Still, the character and winning track records of America’s entrepreneurial, privately-held homebuilders have forged themselves across a common-ground matrix.

• Know-how
• No quit
• No limits on care for customers, team members, and business partners
• No money that comes in or goes out without a hard impact on the bottom line

Now there’s a new capital equalizer privately-held, entrepreneurial homebuilding operators that can help them compete and even gain advantages by continue to draw and and feed into non-cash capital’s importance in their business models: Technology.

With new integrated data and multi-project management technologies, operators on shoe-string IT and tech budgets can deploy a holistic array of solutions that help them “smooth” their operations with cash flow and expenses in more sophisticated ways. As a consequence, a small builder can operate like a much larger builder in important strategic ways.

This describes our business to a T,” says Brad David, executive VP of development and construction at Snap.Build, a partner of The Builder's Daily. “Even in my background as a small builder, I consistently sought out technology solutions as way to compete with larger and better capitalized builders. When a builder partners with Snap.Build they are gaining the expertise and continued investment in our technology."

An example of this “equalized” competitive tool zeroes in directly with the relationships, reliability, and support smaller private operators can continue to leverage among their trade partners. With technology solutions from a player like Snap.Build, subcontractors get more  visibility for ongoing volume across a near-future time horizon. This effectively means that small builders can secure “builder of preference” status by showing forward visibility.

Through Snap.Build’s proprietary platform we are able to pay subcontractors, vendors, and suppliers faster and more efficiently than they have been paid in the past,” David says. “By default, that will get Snap builders that coveted ‘builder of preference’ status every competitor in a local market strives for.”

Further, as homebuilders large, medium, and small continue to work to lop off extra days from the start-to-completion build cycle, materials and product purchasing platforms now allow smaller builders to time and scale their purchasing so that their cycle time gains can shave off days and drop them back into margins that can impact the business.

Here’s a couple of other ways that technology and data feedback loops play an ever more important role in helping private operators smooth out capital rough-spots and gaps, to keep feeding their own machines. This allows them more bandwidth on doing the hard stuff: putting down the lots, and matching the homes they build to happy customers.

• Financing visibility gives resolution to operating cost management, debt servicing, and cash flow from settlements to ensure smooth access to capital resources on an evenflow basis.
• Velocity management, greater tech oversight and unified data provide all operational stakeholders to work off the same playbook to ensure start-to-completion velocity and construction quality to avoid call-back/warranty issues.

These are core competencies of our business,” says Snap.Build’s Brad David. “Our goal is for our private entrepreneurial operators to be able to compete to win.”