Fast Track 2006

HALF OF THE COMPANIES ON THIS year's Fast Track opened shop after 1993. More than one-fifth have started since 2000. That means many of the fastest-growing home building companies have known only good—or great—times.

That's changing. In many parts of the country, traffic and sales are slowing. Both public and private companies are revising their projections for 2006 and 2007 downward, and some already are selling land and laying off employees to curtail costs.

It's times like these when experience counts. Even among recent startups, many executives of the companies on this year's list can boast of decades in the industry, often spent in the offices of the largest national builders. Few were CEOs during the bust of the late 1980s and early 1990s, but they learned important lessons about what to do—and what to avoid—while heading construction, sales, and land operations. They paid their dues, climbed the corporate ladder, and sometimes even tripped on their way to becoming their own boss.

These entrepreneurs know 2004 and 2005 might have been aberrations, and many seem prepared for a downturn. Their plans for surviving, and even thriving, through a rough patch resemble what they did to leap on to the Fast Track in the first place, minus buyer frenzy and outrageous price appreciation. They say they're exercising caution on land deals, reining in overhead, and adjusting pricing and product to appeal to a wider cross section of buyers. If the industry instinct that's served them well for so many years holds true, next year's Fast Track may be slightly less speedy, but just as solid.

Owner and Senior Partner Richardson Homes

YEARS AS A VICE PRESIDENT OF sales and marketing for candy companies soured Ken Richardson on the corporate rat race. So, in 1983, he turned down his employer's request that he relocate from his home in Oklahoma City to the corporate headquarters in Chicago, and with no prior home building experience, he decided to become a custom home builder. He spent four months driving his pickup truck through new-home communities, stopping to ask contractors about the building process.

He ventured into home building debt free, which made trading his $80,000 salary for $9,400 his first year in business easier. His business plan—which included building at least 20 homes a year from the outset—hinged on providing higher quality at lower prices than his competitors. (To this day, his homes are as much as $30 per square foot cheaper than those of nearby custom builders.)

Despite his building-free background, Richardson was optimistic he'd succeed. “I'm a professional when it comes to sales and marketing,” he says. “If you can sell the homes at a profitable price, you can grow.” With the aid of strong employees and subcontractors, Richardson hit his goal by his fifth year in business, when he closed 25 homes. In 2005, his company built 63 custom homes, half of which Richardson categorizes as “executive homes,” with more than 3,500 square feet.

Richardson credits much of the company's recent growth on a new sales and marketing strategy: television advertising. In 2004, he began pouring $300,000 annually into the ads, which reach the entire Oklahoma City metro area during the morning newscast. Though Richardson expects to close roughly the same number of homes this year as last, the geographic reach he's gained through the ads has helped him build a safety net if a slowdown appears. “If building drops in half, I'm getting my share out of the whole Oklahoma City area,” he asserts. “If you build in two developments and they're dead, you're out of business. I may need to cut back, but I'll survive.”

President Gaffney Homes

THE NUMBERS ARE WORKING IN favor of Mike Gaffney, a former college math major with a concentration in actuarial science. The president of Charlottesville, Va.–based Gaffney Homes left school and an intended career in insurance behind for a job with Barnes and Noble; then he moved to Virginia in 1981 to start his own wholesale textbook business. He needed a place to live, but with “essentially no money, nothing to put down, and no income,” he settled for a shell of a house—despite knowing nothing about how to reconstruct the house.

He found a friend to lead the construction; Gaffney acted as the assistant on the job. In the three years it took to finish the job, the building bug bit Gaffney. He began working on other projects with his friend, and in 1987, he sold his first house, moved into a rental, and built a spec house. “If it sold, I was a builder,” he says. “If not, I had a great house to move into.” The house sold, earning Gaffney just enough to pay for his carpentry work.

His new career in home building stuck, even when the Charlottesville market faltered because of hiring freezes at the University of Virginia, one of the area's top employers. Gaffney switched gears, adding townhome products to his line of semicustom homes and planning for higher unit volume to generate adequate revenue.

Mission accomplished. The company's revenue grew from $8 million in 2003 to $20 million in 2005, and Gaffney estimates he'll bring in $30 million this year. He's pleased with the growth, but he's adding a new title to his résumé to buffer against future challenges: student. He entered an executive MBA program in June and plans to graduate in May 2008, while continuing to work full time. “Planning the future growth of my company tells me I need the education and the connections. The financial challenges as we grow are going to be tremendous,” he says.

President Capitol Homes

DAVID LUECKE THANKS HIS PAST EMPLOYERS—namely, large regional and national builders including The Ryland Group, Crossmann Communities (now owned by Beazer Homes USA), and The Drees Co.—for teaching him important lessons on his way to owning his own business. “They paid for an education every time I made a mistake,” he says.

He joined Ryland in the Washington area after graduating from the University of Maryland. He landed in the sales department, where he sold homes and brokered land deals for several years before moving to Drees. Later, he joined Westminster Homes, which moved him to Nashville, Tenn. He climbed the ladder to operations manager at Crossmann before the company folded the Nashville division, leaving him unemployed but hungry to start his own company.

Luecke built Nashville-based Capitol Homes with his previous employers' models in mind and hired Jim Carden, his No. 2 at Crossmann, as his operations manager. Those pieces, combined with the strong—but not overheated—Nashville market and a relatively simple entitlement process, helped Luecke exceed his business plan goals. “It feels like fantasy,” he says of closing 200 homes in 2005, just four years after opening shop.

A witness to the early and mid-1990s real estate bust in the nation's capital, Luecke says he's proceeding cautiously in case Nashville's fortunes falter, a trend some of his peers have already begun to see. He's keeping fixed costs low, partially by renting the cheapest office space he can find, and he's choosing land deals carefully.

“I remember in D.C. in 1993 and 1994—we were writing incredible deals to buy lots because sellers were desperate,” he says. “We're trying to build our cash position so if things do slow down, we'll be in the position [to buy].”

Chairman David Weekley Homes

DAVID WEEKLEY HOMES WILL CELEBRATE its 30th anniversary Dec. 1. During each decade, the company has found ways to differentiate itself, first through design, then through quality and customer focus. For the last 10 years, though, the company has singled itself out with its attention to its own employees (called “team members” within the organization). Its programs, including a lucrative bonus structure, have earned the company a spot on Fortune's “100 Best Companies to Work For” list five years running.

David Weekley, the company's founder and chairman, describes its team-driven approach as “an upward spiral” that has helped meet growth, profitability, and customer service goals. “Having a great team creates longevity and success in a company, and that's really proven to be the case,” he says.

Weekley has fostered longevity by selling stakes in the company to 13 senior managers, which he also sees as a strategy to keep the company from going public. “It can continue well beyond when I'm here,” he says. “Having a great bunch of people pulling on the oars rather than just one is a really positive thing.”

He's happily redirected some of the energy required to run such a large company, now with operations in 16 markets. Last year, he stepped aside as CEO, turning over the day-to-day management to president John Johnson. These days, Weekley spends at least half his time using his entrepreneurial skills to help charities grow in the same way his home building operation did so many years ago. “The abilities to see opportunities and develop strategic plans are transferable,” he says, adding that he's still able to direct the company's culture, communications, and vision. “It's a nice mix.”

President and CEO Townsend Construction

THE FIRST OF THREE DAUGHTERS OF AN electrical contractor, Elise Townsend grew up on jobsites. In 1993, she took a position as a superintendent with another builder in northern Arizona, always intending to break out on her own once she'd built a strong reputation within the community and relationships with subcontractors.

In 1997, she started Prescott, Ariz.–based Townsend Construction with one house—financed by private investors when banks declined to finance her projects. (She's since raised nearly $40 million in private equity.) She thought big from the outset, immediately putting together a strong management team to implement her vision. She created an in-house design department before she needed it and started excavating, drywall, and landscaping subcontracting businesses to facilitate growth. Those pieces help fill Townsend's new-buyer pipeline, too: Customer referrals generate 90 percent of her sales, so it's crucial to avoid common callback problems, such as incorrectly poured foundations and water damage.

Townsend prides her company on its customer-centric focus. Every design can be altered—exterior walls bear the load, so interior walls can be moved easily—and the company pays special attention to women's design preferences. “Eighty-five percent of house buying decisions are made by the wife,” Townsend says. To that end, her homes put a priority on features that make a house function better, such as closets and kitchens. “Between 75 percent and 80 percent of people who walk into our homes say a woman had something to do with this,” Townsend says.

With the success she realized in Prescott, Townsend headed south, to a new division in Tucson. Her formula is paying off: That division, which builds higher-end homes in master planned communities, will outpace the original operation in Prescott this year.

President and CEO Presidio Homes

JEREMY YORK ROCKETED HIS COMPANY, Loganville, Ga.–based Presidio Homes, to the top of the Fast Track, closing 95 homes for $19 million in revenue after just three years in business. What's more impressive: He did it with more than a dozen employees who had no home building experience before he hired them.

With his own years as an interior trim subcontractor, York felt he knew the processes that would make the company a success—he just needed the right people to implement them. “I teach them to make the right decision based on the customer, not on the bottom line,” York says. “I give them the opportunity to make good decisions. They can make a mistake. We'll talk about it, and the next time, they won't make it again.”

York realizes, though, that a strong business doesn't run on instinct alone. He spends $450,000 a year on leadership training, with all employees receiving at least 40 hours of training annually; managers participate in training each week. “I want the people in our organization to feel empowered. That helps them make better decisions.” Presidio complements the leadership training with an additional $100,000 in communication training, designed to help build better relationships with subcontractors and vendors.

Right now, a big part of that message is “Get ready for more.” York has set a goal of closing 200 homes this year and 400 in 2007. Though some of his competitors are reporting a slowing Atlanta market, York says his business continues to be strong. “We look at it as a need to be more disciplined, but we really haven't missed a beat,” he says.