Built to last Featured

8:00pm EDT June 25, 2007
Interest rates were tantalizingly low, and homeowners were seizing the day, building starter homes left and right in a hot market. Sounds like a field day for homebuilders.

But for Bill Darling, president of Frisco-based Darling Homes, his company was not positioned for that market. It was focused on more seasoned homebuyers, particularly those looking for a custom-built home with high-end options and lots of details.

As it turns out, those customers were mostly employed in the technology industry in Dallas, and many were unemployed as the tech sector went bust around 2001.

“As the industry was flourishing and all over the headlines, Darling Homes was struggling in the marketplace, because our buyers were without jobs,” says Darling. “Four-and-a-half percent interest rates don’t mean anything if you don’t have a job. ... Our big decision was, should we chase that market like everybody else was doing? That’s easier said than done, especially with a business model like ours that calls for paying more for a customized home and a little higher-quality product.

“That’s a whole different mindset and a whole different set of people within our company. We would have had to start a whole other company to satisfy that customer.”

Founded in 1987 by Bill Darling and his brothers, Bob and Steve, Darling Homes started out building patio homes but now builds custom homes and employs 220 people. In 2006, the company had $264 million in revenue, selling 709 houses.

As tempting as it was to go after that red-hot first-time buyer market five years ago, Darling Homes decided not to chase the money but instead continue to do what it had always done well: build custom homes for the middle- to upper-class market. The company kept its team together rather than scaling back and decided to get better at what it was doing. Bill Darling believed the market would turn. And it did.

“That’s one of the reasons we just had our best year ever in 2006,” Darling says. “We were prepared for the turn, and other companies were readjusting from having to go after that market.”

Keeping the faith

Instead of going after an entirely different market and changing the face of the company, Darling Homes seized an opportunity to move into the Houston market in 2001. A developer working on an upscale, master-planned community just north of Houston approached Darling and wanted the company to build in the developer’s community.

Darling didn’t leap, though, without examining the opportunity closely, and he spent nine months researching the Houston market before committing. The key to analyzing the market was looking at the city’s economic base.

“I spent a lot of time down there myself, as well as my brothers,” Darling says. “Some of the same research companies who are here were there, and we had a relationship with them, and we sat down and analyzed it. We looked at future job growth in that marketplace.”

One of the attractions was Houston’s reliance on the energy market. While Dallas leaned heavily toward technology, Houston was focused on the gas and oil business, and the two markets could balance each other.

Darling also looked at the competition and didn’t think anyone was offering what his company could offer. He didn’t see as many companies concentrating their efforts on offering homes with custom options, allowing customers to make changes to the types of finishes and interior styles to a home and upgrade to higher-end materials. Darling Homes’ business model emphasizes allowing customers to make changes.

“We felt like there was an opening in those communities for our product,” Darling says.

Once the company made its move, it was all in. It opened an office in Houston and began working in four developments at the same time. As Darling sees it, the best use of the company’s money was in economy of scale.

Creating the Houston operation and managing that market taught Darling a lesson. When opening a remote office, Darling recommends appointing someone who’s already on staff at headquarters to manage the new office, which keeps its vision and operating processes consistent with the home office.

In the case of Houston, Darling hired from the outside, and it didn’t work. The person he hired didn’t understand how Darling Homes wanted to operate. Two-and-a-half-years after opening the office, Darling had to send in an executive from the home office to run the Houston office, and that person is still there.

“I would do it differently,” Darling says. “We would be much more prepared today to take something like that on because of our management team, the common vision and the common message we all have. We weren’t as mature as a management team back then. If we were going to do another marketplace today, we would send someone from our corporate office to open up that office.”

Today, Houston generates 40 percent of Darling Homes’ revenue, proving it was a wise investment. The only danger is making sure the Houston operations stay fully integrated within the company. The management changes helped, but so does the annual meeting Darling Homes holds for all employees to help the offices’ employees get to know each other.

Quarterly, Houston’s and Dallas’ leadership councils meet for two days to share ideas. It’s tough to get busy managers to take that much time away from their offices for the meetings, but Darling says it’s vital to the success of the company.

“We’re so committed to the growth of our people and everybody being on the same page that we wouldn’t think of investing our time elsewhere,” Darling says. “It’s a great use of our time and resources. ... We all have the feeling of being on the same team.”

Controlling your own destiny

Darling Homes’ management team examined the market and found that developers were satiating the need for inexpensive homes geared toward first-time homebuyers, not building the kind of developments that Darling Homes’ buyers want to live in. Its buyers want open space and larger lots, and sometimes, gated communities, which were not plentiful and were not in the works, either.

It became apparent that within a few short years, it would run out of places to build, so the answer became to get into the development business.

“We like to have product lined up a good three years in advance,” Darling says. “We didn’t see we’d be able to satisfy the portion of our product mix that was higher up with what was coming. We felt like we would either partner with a developer or develop ourselves, if need be, to satisfy that requirement.”

The Darlings were presented with an opportunity to partner with a local family, the Newmans, to develop its land. Newman Village, the master-planned community in Frisco, will break ground this year.

Darling says most of the decision was simply financial. Partnering was a good solution for the company and has kept its debt lower than it otherwise might be. He says he and other key executives within the company are cautious about buying too much land because they don’t want to mire the company in debt. The home-building business is already capital-intensive, and Darling says it’s important to know your limits.

“We didn’t want to warehouse a lot of land,” Darling says. “There wasn’t the same kind of risk as purchasing 260 acres of land. This was the right deal and the right location.”

Keeping the team together

Retaining executives and other employees has been key to continuing the company’s mission to build quality custom homes. Darling says that people stay because of the company’s culture, where innovation is encouraged and employees are respected for the gifts they bring to their jobs.

“Culture is about treating people the way you want to be treated and letting them spread their wings some,” Darling says. “It’s about everybody having the same values and having the right work and personal life balance. That’s something that Bob, Steve and I were interested in developing for ourselves from Day One, and it’s been attractive to people over the years.”

One way the company cultivates its employees is by offering a variety of training opportunities. Within the past few years, it has consolidated all of its training programs under one umbrella, called Darling University. Employees who are interested in training can go through a catalog of classes and request to take various courses. Some 125 classes are listed in the guide, which is divided into departments such as sales and construction.

When enough people indicate interest in a particular class, the company sets it up.

“It’s not a question of whether you graduate from the university,” Bill Darling says. “It’s more knowing what programs are available to you, and your manager knowing what programs are available.”

About 75 percent of the courses are taught by Darling Homes’ own staff; the other 25 percent are led by consultants. Darling says the University’s first full year was 2006.

“It’s shown a commitment to our people and their development,” Darling says. “It’s excited people that they won’t be stagnant in their position. People are excited to learn something new. We’ve been able to attract some new leadership because we’ve shown our commitment to developing people and their career paths.”

With a good team in place and the company firmly established in two growth markets, Darling is nothing but positive about the direction of his company. Referring to Jim Collins’ words in the landmark business book “Good to Great,” he says the company has the right people on the right seats on the bus.

“I love the fact that we have a mature management team,” Darling says. “We are positioned to not stand still. ... We are open to innovation, which our industry needs greatly. With that said, I think we are positioned to doubling our size within the next five years.”

HOW TO REACH: Darling Homes, www.darlinghomes.com or (469) 252-2200