Even As Costs Bear Down On Buyers, Builders Can Spur Demand

The path from simple to complex is mystifying in its predictability. Eat, sleep, play, work, relax, enjoy, raise families, flourish, age – simple to get our brains around – instantly become complicated in the sum package called life.

A place with bedrooms, bathrooms, kitchen, living area, connections to livelihood and community starts out simple, almost infinitely repeatable. Add this little four-letter word home, and that rudimentary array of rooms assembled in some geometric combination under a roof becomes one of commerce and culture’s defiantly unsolvable, nuanced forms of value.

Unpacking that a bit further, to the design and construction of those sheltered rooms that make up our

Flitman commented with further detail on the Hayden Homes venture in response to an analyst’s question of how Builders FirstSource will ladder up to that $1 billion in growth against these new construction technologies by 2026.

We’re excited about Hayden, and we’re certainly excited about the work that we’ve got going on with our digital platform, and this is just great recognition of the work and the traction that we’re getting in the market. Hayden is the largest customer so far that we’ve worked with on digital. They are the sixth customer that we have for Omni for homebuilders, but by far the largest at this point.

And it’s a really cool story actually. Legacy Paradigm had been working with them a year to 18 months ago, and they kind of lost a little bit of traction until our acquisition of Paradigm last summer. And Hayden really realized that the ability to build out this platform and — with the financial wherewithal that we have and the investment we were committed to making in advancing digital is really what brought them back to the table and allowed us to sign this agreement with them. They also were a legacy BFS customer already in Idaho. So we’ve got a longstanding relationship with them. And so it was good to see that materialize into the signing of that agreement for Omni. So we’re excited about it.

To your second part of your question, we do expect things to ramp up. But as you recall, and we’ve said this the last couple of quarters and certainly in our Investor Day, this is a year where we’re investing heavily in that platform to build out our capabilities for digital, in Omni and all the other pieces of the digital platform. And so as we would expect, we will see continued customer adoption of this through the course of this year and into next year. But that $1 billion of revenue is really back-end loaded, in the back half of that period of time and we said that from the beginning, only because of the digital ramp-up that we see coming over the next 3 or 4 years. So a lot of heavy lifting going on by the team.

Flitman drilled even deeper into the Hayden Homes deal in a conversation with Seeking Alpha capital markets analyst Josh Kincaid, not only peeling back the mechanics and use-case of Builders FirstSource relationship with Hayden and high-volume builders, but scoping back on the business sector opportunity construction has to get its digital technology house in order.

So they can take a two-dimensional design, and make it configurable to be able to visualize that and then estimate and price those products. Now what Paradigm did was very focused on millwork. So think about doors and windows. And what we’ve done is we saw a fantastic platform from which to build, to take that to the whole house design, right? They have to have a platform.

So right now we’re putting a bunch of effort, headcount money into developing that platform. So I already spoke about our component manufacturing, and what we do around windows, millwork and doors. So if you think about what we do, we have 700 designers in our company that do the structural design of these homes that are being built all over the country.

So think about our ability to digitize that and just get more efficient in doing that design, getting those designs to our customers and ultimately estimating it. And then in the future, think about taking that same capability from just the structural design of the home to the entire design and visualization of the home. So then our customers can sit in front of their customer, the home buyer, and make design changes real time, have it reconfigure what that looks like, but importantly, also re-estimate what that cost is going to mean to the consumer going forward.

So we think there’s a large platform for growth here. In the future we think we’re on the leading edge of that for our industry. We looked at some data before we made that Paradigm acquisition, and there aren’t many industries that are currently less digitized than homebuilding. In fact, the one I can point to that’s less digitized is agriculture and farming. So we’re pretty low on the totem pole in terms of digitization. And given our strength and platform, we thought becoming the industry leader around digital was something that that could be important for our customers going forward.

Given Builders FirstSource’s enormous operating footprint and book of relationships business in the materials and building technology capability channel, it may be fair to look at both the investment commitment and approach as a proxy for the window of expectations for homebuilding’s long-delayed pivot to digital, industrial, and modern manufacturing capability.

That is, stage one fully in process within four years.

But that won’t come without first enduring mid-2022 turbulence for 12 to 36 months, nor without taking one more good relook at those five recipe ingredients and zeroing in on the one that can exert resource-optimization across all of the other four: Time.

As a parting notion, a reminder. Innovation is as often about removal, subtraction, getting rid of, as it is about adding bells, whistles, and value-add capabilities. Time is one of construction technology’s most fertile opportunity areas. It’s frictions drag value, and inflate costs. Building tech progress, then, is about removing time from the equation which can positively impact other resource sucks.

Think about this:

There is nothing inherently wrong with adding. But if it becomes a business’s default path to improvement, that business may be failing to consider a whole class of other opportunities. In one study of organizational change, for example, we found that when stakeholders suggested hundreds of ways to improve an organization, fewer than 10% of those improvements involved taking something away. Across a series of follow-up experiments, we demonstrated that people systematically overlook subtractive changes.

But subtraction has untapped potential. With subtraction in mind, the designer might rid the app of unnecessary features, the manager might remove barriers.

Although the path from the simple to the insanely complex may have been inevitable, the route back from overly complicated to more simple is a challenge we sense homebuilders and their partners are well suited to overcome.

Four more years, for starters.

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