As the U.S. housing bubble started to burst in late 2006, Bill Darling monitored the situation from his home base in Dallas with deep concern. Homebuilding markets were collapsing around the country — first in California, then in the Southwest, then in several other economically vulnerable pockets around the United States.
“We first heard about it happening out on the West Coast in 2006,” says Darling, chairman and CEO of Darling Homes, which today employs 190 and generates $176 million in annual revenue. “Then we heard about it in other markets. Our own sales didn’t really start to slow until six to nine months after we’d first started hearing about it around the rest of the country.”
In fact, says Darling as he recounts those dark days, the “slowing” of sales that Darling Homes experienced was actually more like a dead stop for his company, which builds homes in the Dallas-Fort Worth and Houston areas.
“It was like the faucet shut off in our sales offices,” Darling says. “Sales stopped in Dallas first, and then about 90 days later in Houston. Obviously, we weren’t totally shocked by these developments because we’d been seeing this happening elsewhere in the country. But we didn’t have any idea how severe it would be until ’08, when the larger financial crisis started impacting the whole economy. That’s when we started to realize we were in for something maybe a lot deeper than a typical housing downturn.”
There were no maybes about it; it would go a lot deeper indeed.
“Our main metric that we use is housing starts,” says Darling, who co-founded the company with his brothers Bob and Steve in 1987. “In our markets, we determined that by 2008 both of them were off 75 percent. Obviously, we had a huge challenge on our hands. We had to figure out how to guide a 21-year-old company with responsibilities for our 250 associates’ families through the most difficult housing market in more than 60 years. From the CEO’s standpoint, I had to figure out, first, how do we survive this? And then, eventually, as we began to see that we actually were going to survive, how do we start thriving again?”
As Darling Homes’ sales started plummeting in 2007, the company’s leadership team pulled itself together to decide how to address the unfolding crisis. They quickly determined that it would be critical for them to be realistic in their assessment of the situation and forthright and transparent in communicating with their staff about the gravity of the problem — and how they planned to get the company through it.
“One of the most important things was that, as a CEO, I knew this was significant, and it was going to be deeper than other downturns in the past,” Darling says. “So it was going to be very important for me and the rest of our management team to be realistic, not just your typical optimistic executive management team.”
Darling and his team put together a multipart plan based on a series of benchmarks, with actions to take depending on how deep the company’s sales plunged.
“We had action plans outlined to execute if we saw our results tick to certain levels,” he says. “The way it worked was if we saw sales fall off and margins start to get eroded, and we found ourselves missing budget by a certain percentage, then we would implement the first part of the plan, which would consist of various cost-cutting measures. We didn’t go super-deep with these benchmarks at first because we didn’t know how deep the downturn was going to get.”
Ultimately, Darling Homes’ leaders found it necessary to create a series of action plans for four declining benchmark levels — four levels of “Defcon,” as the company referred to them internally.
“As the market took us to each of these levels, we executed some operational types of restraints to measure up with those kinds of results,” Darling says. “Those restraints would be, first of all, cost-cutting measures internally — operational costs, belt tightening. Then, after that, as it got deeper, it went to cutting benefits, unfortunately. As it got even deeper, we had to get into some personnel issues.
“And it even went as far as the remaining employees having to take a cut in salary for a period of time.
“Here we were, from one end of this downturn to the other. We started with 240 employees, and we eventually went down to 140. And those that were left were making less money with fewer benefits.”
Retain key people
Two other crucial elements of Darling Homes’ survival-and-turnaround plan were clear communication, both internal and external, and keeping the company’s management team intact.
“A real key in the whole downsizing plan was communication,” Darling says. “Communication internally, communication with our vendors, communication with our developer friends and partners. There was no way we could communicate too often about what was going on.
“Our executive management team and leadership team needed to do the same with the rest of the Darling Homes team. We did some all-hands-on-deck conference calls for the bigger issues and written communication for some of the updates in between those bigger calls. On a regular basis, we kept the executive management and the leadership teams on their toes to offer guidance to any of their associates who wanted to know what was going on.”
Retaining key management personnel was important because Darling Homes’ executives felt it would make it easier for the company to spring back quickly once its markets began to recover.
“We wanted to make sure to keep our management team in place because we knew at some point in time the markets would turn around for us,” Darling says. “Going into this, we knew there were going to be some companies that weren’t going to survive this downturn, but we felt that we could, and if we did, we wanted to be able take advantage of our two platforms in Dallas and Houston.”
The management team’s clear, forthright communication with staff benefited Darling Homes in several ways.
“As some people left that had been with the company for a long time, as difficult as that was, we got responses from them saying that they appreciated the openness and the caring attitude and that we kept them as informed as possible,” Darling says. “And they said they’d be ready to come back when things turned around. And it was certainly appreciated by the rest of the management team, because they were well-prepared and knew how to address their associates’ questions.”
As a result, some employees indeed have returned as Darling Homes’ fortunes have begun to turn back around.
“We’ve started hiring again this last 12 months, and a good percentage of people have come back,” Darling says. “We have a special culture at Darling Homes. It was special going into the downturn, and it’s only been strengthened during the downturn because of the way we handled it, particularly being upfront with our communication. So not only have we attracted past employees back, we’ve also maintained our subcontractor base, and we’ve maintained our developer relationships and taken those to another level.”
Keep it real
Darling says if he were to offer a few key pieces of advice to CEOs facing a similar challenge, they would be to avoid excessive optimism, to see and call things exactly as they are, to create a solid, well-thought-out plan, to follow through with the plan, and to communicate the plan clearly and openly to everyone involved.
“Most of us CEOs are very optimistic people,” Darling says. “We always think that things are going to get better. But you’ve got to be realistic first and optimistic second. Also, it would be a mistake to just take the problem into the boardroom and work it from there. If you do that, no matter what type of plan you come up with, you run the risk of coming across as secretive. You can scare people and lose their confidence by not being upfront and communicative with your operating team. There’s a real danger there.”
But the plan itself is the most important element, according to Darling.
“The benchmark plan we came up with was invaluable to us,” he says. “It’s a document that we put together as an executive team. And we executed it step by step as we hit each benchmark. If the results were there, we implemented the part of the plan related to it. You’ve got to stay true to your plan and make the difficult decisions as they become necessary. Be realistic, put a plan in place, stay true to the plan and communicate it clearly.”
Darling Homes’ executives knew they had turned the corner about a year ago when credit facilities came back into play and banks started lending them money again, enabling them to start building and hiring again.
“At that point, we knew the worst was over for us and we could start planning our growth and take advantage of the platforms that we’d been able to enhance during the downturn,” Darling says. “We knew then that it was time to move from our heels back to our toes. We have a surplus of credit lines available to us now. They wouldn’t be here if we weren’t doing things right.” ?
How to reach: Darling Homes, (469) 252-2200 or www.darlinghomes.com
THE DARLING FILE
Chairman and CEO
Born: Tucson, Ariz.
Education: Bachelor’s degree in marketing, University of Arizona
Looking back over your years in school, what business leadership lessons did you learn while you were there?
I played baseball in college, and football, basketball and baseball in high school. I think I learned a lot about my leadership abilities through sports. I’ve always seen myself as a quarterback.
What was your first job, and what important business lessons did you learn from it?
My first job was as marketing director and promotion director of the Dallas Tornado soccer team in 1975. My first two bosses — in the Dallas Tornado job and in the real estate business right after that — were two of the best marketing people I’ve ever been around. I learned from them how important marketing and promoting your service is.
Do you have a business philosophy that you use to guide you?
Surround yourself with people smarter than yourself, and treat people the way you want to be treated. Those philosophies have built one of the finest cultures a company could have at Darling Homes today.
What trait do you think is most important for an executive to have in order to be a successful leader?
Optimism, because you go through goods times a lot more often than you go through downturns. Of course, if you just keep doing things the same way during downturns, you’re going to struggle. There has to be a balance on that optimism during difficult times.
How do you define success in business?
When a team comes together and executes a plan and grows as a team while the members grow as individuals at the same time.
What’s the best advice anyone ever gave you?
Keep your nose clean. You’ve got to be able to wake up every day and look at yourself in the mirror and feel good about yourself. That was from my dad.