Many of the custom builders in Builder 20 clubs I have visited recently are faced with a puzzling situation: They've grown their top lines, yet their bottom lines have stagnated and in several cases have actually shrunk. What is going on? In my opinion, these companies were not ready for growth. If you want to grow your company, it is not enough to simply grow volume. Companies that are ready to successfully take the next step up have distinct characteristics. They are:

If a company is not profitable today, growth in sales will not improve its situation. If you can't be profitable building four homes a year, why take on the risk of building additional homes to get more volume? There's a lot of truth to the adage, volume kills and profit thrills.

It is tough to grow without consistency. If you have high employee and trade contractor turnover, it will be difficult to achieve profitable growth because you won't have people you can rely on to maintain quality standards. In order to grow you need to have the right people on your team playing the right positions so that you can focus on the overall strategy.

I have found that blind loyalty prevents many custom builders from being able to scale their company up. They have long-term employees and trade contractors who don't have the capability to grow with the company. A commitment to growth sometimes makes it necessary to move people off the team and replace them with stronger personnel. Assembling a strong team requires strong recruiting, training, and performance monitoring systems. To keep good management talent, a company needs a strong incentive and compensation program and opportunities that continually challenge the team members.

Growth can bring chaos to an unprepared building company. The only way to ready a company for higher volume is to have systems and documentation procedures in place. Most custom builders, I've noticed, fall into one of three types of management styles. Many run their companies in crisis-management mode, putting out one fire after another. More organized custom builders operate in the problem-solving mode—when a problem arises, they analyze the problem and take corrective action instead of simply damping the fire. But the custom builders best situated to grow run in problem-prevention mode. Problem preventers put strong systems and documentation procedures in place.

When it comes to production, companies preparing to grow should develop and implement production management standards that include documented systems and procedures for controlling the flow of paperwork between sales, design, estimating, selections, and the field. They will also need systems to monitor quality trade contract documentation and customer communication and feedback. Reporting systems should provide timely feedback so problems are quickly identified and the management team can not merely solve the problem, but also implement new systems and procedures that prevent the problem from occurring again.