14. Building the New Standard with Andrew Patterson

Andrew Patterson, President and Founder of Patterson Custom Homes, is setting the new standard in custom homebuilding. Hear how Andrew uses data to make faster decisions and gain translatable strategies to align your business, clients, contractors, and key stakeholders.

Transcript

Copy Transcript Copied

David Morris  00:09

Welcome to season two of the HiPER Leadership Podcast. I am your host, David Morris, CEO and founder of HiPER Solutions. At HiPER Solutions, our mission is to bring positive change to the world. Leaders today are faced with unprecedented change, and yet, even the best leaders have had to toss out their standard playbook and think outside the box. Our intent with the HiPER Leadership Podcast is to share best practices so that you, our listeners, can gain some actionable and practical approaches to your next big-bet project. If you've had any exposure to the housing market in Orange County, California, then you've likely heard of our guest today, Andrew Patterson, founder and CEO of Patterson custom homes. Over the last 18 years, Patterson Custom Homes has grown to become the largest independent builder of custom homes in Newport Beach. Hi, Andrew.

Andrew Patterson  01:08

Hey, David, thanks for having me.

David Morris  01:10

Absolutely. Well, I gotta say, I really didn't know much about house building a year ago. And I started walking the neighborhoods and learning a little bit about what was going on. And I just simply couldn't believe the analogies between building a house and any large project.

Andrew Patterson  01:29

That's definitely true.

David Morris  01:31

You know, whether it's an IT project, or whether it's a construction of a train, whether it's any of these big infrastructure initiatives going on around the world, it's all the same. What I was intrigued by was, frankly, before I met you, because your name kept coming up in so many conversations as one person that seemed to deliver these houses on time, on budget. So, I was just so curious to understand some of the principles that you have developed over the years to be able to do this. Maybe Andrew, you could tell us a little bit about when you learned about the whole homebuilding business. What was it? What were the issues going on that you observed? And what was your intent as you began your journey in it?

Andrew Patterson  02:17

Well, I sort of fell into it. I was actually living in San Francisco,  working by One Embarcadero Center and had a great time living down there. But then when the .com blew up, I found myself down in Orange County just wanted to sort of surf and then just get out for a while. I was doing commercial construction up there. So, I kind of had the background of, you know, how the whole process work. But then I sort of fell into it, remodeled a house, built a house, then I did a better job than someone else, I guess. And then so, his friend asked me to build another house, and then that became four. And then, I had to get a superintendent and so down the process. But going through it all, I really didn't want to be a general contractor, and I still don't really consider myself one. I have the license, the building business, building a house, is pretty much it's like Groundhog Day, it's the exact same thing every single day over and over again. But you do have these pitfalls you run into that were driving me nuts, and kept happening over and over again. You know, I am a general contractor, that's my profession. But I really take the philosophy as, I am an entrepreneur who owns and operates a custom home building company in Newport Beach, California. So that right there in itself is sort of my stance, how I look at my life, where I have to live here, I have to live in this town [that] I build houses, which is going back, you know, 20 years in time, when I started doing this, it probably wasn't the smartest decision, you know, I probably should have, you know, sold coffee machines or done something like that. Because when you live in the town you build houses, it is the ultimate service business. I mean, you are building these homes that, once you build them, they're there for, if you build them right, for multi generations to transfer this house and live in. On the positive note, you get to drive around with all my kids and see all the houses I've built. But, on the on the on the flip side of the negative note, you have all these houses that you've built over your career, you've sort of made this long tail of homes that is following you, that you have to be able to, you know, go to Gelson’s with my kids, you know, to get some Rice-a-Roni, you know, on aisle three, and I see someone I know like, “Oh my gosh, don't go here kids, you know he's coming down the down the aisle, we got to go” and then the kids like, “No mom wants to Rice-a-Roni, you gotta go like no, no, this guy's roofs leaking. We can't see him. We got to go”. So, I can never have that happen. I then have to basically create my business model to live here, which is basically how I started my business and my philosophy of my process, so I can go anywhere in town. Gelson’s, get the Rice-a-Roni with my kids and not have to hide and run from someone whose house I built, you know, 20 years ago.

David Morris  05:04 

It seems like that's a core part of this. Because, you know, my understanding with a lot of homeowners as builders is they do something, it goes over budget, it takes forever. And the customer is kind of dissatisfied in the end. I think one principle you're just pointing out now is, you put yourself in a place where you couldn't really screw it up. My question is on this alignment piece, after you built the first few homes, and you started to see kind of what the competition did, and you began to see what was going on in the industry. Tell me a little bit about the problem of misalignment. Why was it all misaligned between sub-contractors, customers, what was going on in this misalignment issue?

Andrew Patterson  05:45

I like to look at it this way. There's sort of the old way of doing things and, I call it, the new way of doing things and that's why our hashtag, we call it the #newstandard. It's why we say ‘Patterson Custom Homes, the new standard,’ that's what we coined five or six years ago, and why we call it the new standard is, and why there's so many terrible situations that occur in the old way of doing things is, the client wants a house. They go and they buy the land, don't know anything about it, they just buy it, “Oh, this is a great view” they don’t know about the, you know, the easements going through it, they don’t know if there's a sewer line going down the middle, they don't know if there's an HOA restriction. They don't know what's going on. And they say, “I bought this land,” okay, well, hopefully they make it through with no problems, and then they get the architect signed up: architect draws this house, they meet the architect and guy is drawing away, oh, “I want this big window, I want to see this”. No idea on costs or implications of anything. And then they go and they say, “Okay, well, let me get three bids now, on these plans.” Okay. Well, as you saw from some of our initial briefings, of our process, you know, there's 1,000 decisions that have to be made on an even, you know, 3,000 square foot house of so many different decisions. So how could you ever give a bid to someone to build their house with all these questions unanswered? It makes no sense. How can you tell someone how long it's going to take, when you don't even know what they're even picking? Right? So, number one is, you have no idea what's going to cost before you start, you got three bids, but they're so ambiguous, you have no idea what's in them. You've got no idea on the time, right? And you really have no idea on the scope, like what are you getting? Those three things, that's it. How do I manage and make my system the new standard based on common sense? The common sense is that, as the client says, “Hey, Patterson, I want to build a house. Okay, and I want to build on this lot”. So, I drive out there and look at it and say, “Okay, this is a great lot. I've been building houses in town for 20 years, this HOA has these restrictions, can only build this high, go to the city, they say, “So just so you know, there's a drainage easement going in the middle, so you can't put a basement in. So just so you know, Edison has a vault, but it's maxed out down the street. So, you can only get 400 amps, so your house size will be limited; you can't go to 600”. Those are things right off the bat, just buying a lot. We've gone and helped them understand what the parameters are, if it's a good fit for them. Second, “What do you want to build?” “I want to build a contemporary house,” “I want to build an eastern seaboard house,” “I want to build a modern farmhouse,” “I want to build a contemporary chic beach house”, whatever you want to say. And we kind of put them in direction with the architects that would that would fit them the best. Architect one, two, and three, interview them all. And we're walking the process with them. Now the architect is selected, and he’s ready to go. And then they say, “Now I want this designer,” we interview four or five designers with them. So, the client understands what the price matrixes [sic] are, how they're getting paid, or are they making commission. And then, now we've got the team, we've got the builder, the architect, and the designer. Okay, then the architect draws the first-floor plan. And it's great, because now we look at the floor plan. Well, guess what? We have an operations officer that's tracking every single cost of what everything is for each project. So, we can then just go through and tell you, “Your framing is going to be $44.62 per square foot. That’s just what it's gonna cost”. “Well, how do you know?” “Because I know the last four houses we're currently doing. That's what it costs.” So, we'd apply that to the budget, and then lineal feet of cabinets, so forth. So, say “Your house with all these line items is what's going to base the cost”. They say, “I agree, that's great. Let's get going on this” before they even really even engage us, they have a really good understanding of, based on other current projects we're currently doing, the sampling of data we have in this local market, this Newport Beach custom home market, where we are, your house is going to roughly cost $756 a square foot”. “Okay.” And they say, “I like it”.

David Morris  09:37 

Andrew? I guess my question is, when you showed up to this area, and after doing this first few houses, what was the alignment crisis that you effectively saw with all this other construction of homes? Okay, what were they doing different that was leading to this problem that everyone was upset in the end?

Andrew Patterson  09:57

Looking at each one of those of those core problems: “What's it going to cost?” “What am I getting?” and “How long is it going to take?” And that's what it is, taking each one of those three things, and just firing at it. “How do I fix this first thing?” “What's it going to cost?” “What am I getting?” “How do I fix that?” “How long is it going to take?” “How do I fix that?” So, by starting on the front end, by not even engaging a client, and this is why I feel it transcends to other industries, whether you're building a high-speed rail system, or coffee machine, assembly plant, it's all the same. Don't go into it until you know, basically, what's it going to cost based on historical data from past things that have currently been done? Then right off the bat, everyone's kind of in the same deal. What I like to say is “The pro of working with this new standard, the pro of it, is you know what you're going to get, and you know what it's going to cost before you start. The con is, of this working with this situation is, you know what you're going to get, and you know what it's going to cost before you start”. That's shocking to some people, when I say that, but it's true, because it doesn't do me any good or the client any good to start a project that costs more, it will take longer than they're willing to wait for or pay for. I don't want that in my life. But you have to have the infrastructure in place in the front end, to take that six months to really go through every single item of the house. And understand what is the hardware, the doorknob, cost on the cabinet in bathroom two, it's $56. Okay, what does the cabinet cost? It is $600. Is it rift oak or is it paint grade? You really need to know all these decisions and create this template to make this budget, so, you really are not starting the project until you have the entire project bid out with multiple bids for multiple subcontractors, with the entire scope defined by the client, the architect, and the interior designer. So, everyone is aligned on the same page. They all know what they're getting. And they all know what the market says of these four bids that they're seeing of what it's going to cost. Before you put a shovel in the ground, and you start. So, you really are making the best situation for the client.

David Morris  12:20

Keeping with this theme of alignment, and you walked me through a lot of those details on how you ultimately go from an estimate to an actual budget. In terms of that budget. Talk to me about, you know, one of the things I see with law firms and large technology implementation companies, they all kind of charge time and materials and then these retainers and they go over budget and there's change orders. And there's all this stuff that frustrate the customer. What did you have to institute as the general contractor that would effectively guarantee the cost; that no matter how long it goes, the customer pays us the same amount? And then number two, what did you have to do with these subcontractors to avoid them from surprise costs along the way that you deal with them directly to the end customer doesn't have to deal with that.

Andrew Patterson  13:08

So, I think that's the biggest fault [of what] I call the old way and that the clients don't understand is, the old way is a general contractor will charge a percentage, “Oh, I've charged 8% of the cost of whatever the cost: 8%”. Well, what the client doesn’t understand is, above the line item of the total cost is included this sort of supervisor fee or a manager fee. And that's like, you know, $15,000 a month or whatever it is to pay for this guy. What the client doesn't really understand [is] that that guy is on three other jobs, okay, and that guy is probably getting, you know, getting paid, you know, 12 grand a month, or whatever it is. But the general contractor is making more money on the $45,000 a month he's collecting on that $12,000 month guy than he is on this 8% of the cost. So, the general contractor isn't incentivized in any way, shape, or form to finish, his incentive is to charge more, to basically find more items, to make more cost to get his 8% up and extend the time of the project because he's making so much money on the three times earnings he's collecting on this supervisor. So, when I look at that and say, “Okay, this is how it's done”. So, what I say is “My total percentage, you know, 17% of whatever the total cost is, there's no other fees, there's no other manager, there's no monthly fee, there's nothing so I'm incentivized that the faster I get it done, the more revenue it will bring for the business. Okay. And out of that 17%, we then we don't pay all the overhead the you know, operation people, the project coordinators, supervisors”, my doing this philosophy is, the client will say to me, “You're going to try to make the project cost more,” it’s like “are you kidding me? I'm more incentivized to put you into a countertop that cost $900 that I can get, you know, that's a synthetic I can get right down the street and I can get the same model number every year from now and so on for $900 opposed to a $10,000 onyx countertop, that's going to take me a month to get, and if you look at it funny, it stains and you know, it will probably get thrashed or broken during construction, I'll probably have to pay for it. I want to make more money on being done faster, then $100,000 in extra costs that extend the project by two months, the 17 grand, we’ll burn that in a week.” I don't care about that.

David Morris  15:25

That takes care of alignment between you and the buyer. Now, if you look at all these subcontractors, the next piece of alignment, how do you ensure alignment with them, so they deliver what they say and again, they don't do any surprise costs along the way.

Andrew Patterson  15:39

The problem with the subcontractor world is it's a very positive, but also problematic place to sort of work in and understand. So, when you're doing the amount of volume of projects that we're doing, we have, you know, market share on subcontractors. So, I can ensure that, if I'm behind in a project or something is delayed, or the windows and doors are delayed, making the whole project go backwards, I can call upon my concrete contractor or my finished carpenter or my plumber, and I can say, “Hey, I know you're working with other builders in town, I get that. It's healthy to have multiple people, you know, businesses working with you. However, I need you all to come here tomorrow to get me ahead.” And they now know that I am paying them 4x what they're making from other people, because I'm doing so much work with them, they'll just pick up their stuff and come to my place and help me get caught up. So, the problem is, though, kind of, you know, give you a sort of a snapshot of my life is I was raised only child single mom. So, I was basically a latchkey kid and I grew up watching TV all the time. My whole life’s an analogy comes from these old TV shows and movies. So, I always like to ask people, it's like, “Who ran Bartertown, right?” Tina Turner was in charge of Bartertown, you know, in Mad Max: Beyond Thunderdome, or was Master Blaster in charge, little guy that was down in the pit making the city run. And what happened was when Tina Turner was mad at the Master Blaster guy, he basically just said, “You know what,” he turned off the power. And now the Bartertown went to chaos, because he actually controlled it. So, the guy that worked for her, turned her whole world upside down, because he now had the control. So that's the problem you have on the, kind of, flipside is that if you have too much work with a subcontractor base, they really will control you. Because you can, say, have a dispute “Well, I'm gonna shut down all of your projects, everywhere you go, you're pretty much done” What we try to do is to be super healthy, is give everyone equal opportunity to bid on the jobs. And we have three to four trades for every single subcontract. Like we have four framers, you know, six tile guys, the guys are the best of the best. And we're constantly trying to make sure that they're not taking all the jobs like Hungry Hippo just taking taking taking, because we know how big their crews are, we know when their staffs, how much they need to staff the project keeps us on schedule. But we also don't want them to get so full and so much and staffed up that they will end also be controlling us, the clients see all the bids, the clients will see all these bids. So, this guy is continually lower, so he's getting the work, but that's not healthy either. We want to make sure that everyone's equally spread out. So, everyone is making an honest wage and doing well. And the clients are getting a good value. But no one subcontractor is becoming unhealthy by getting too much work, which ultimately would make us unhealthy by them controlling us in the end.

David Morris  18:34

Great. Now, next piece of alignment I want to talk about is with your own team. One of the things that I've come to learn about you is this is very tricky to do. You know, a contractor who has three or four people on staff, very tricky. Okay, having 28 people seems to be the magic number, help me understand a little bit about that.

Andrew Patterson  18:56

To live here, and be a part of this community, as we've kind of started off with, is I have to ensure that Andrew Patterson is building your house. Okay. That has to really be the main understanding that people you know, know when they when they hire me, Andrew Patterson is building your house. The old way contractors, it's like McDonald's, this contractor I've hired. But next thing I know, I'm just handed the superintendent guy, who's a manager guy who's now doing the bidding, collecting insurance certifications, all these different things while he's building the house. And I never saw the general contractor, I maybe showed up like, you know, once every three months or so for a site meeting. So, what I have to do is have to be present, I have to be able to answer the phone and know what's going on all the time, right? But there's too much information, you just there's no way there's no way to do it. So, I have someone full time; all they do is collect and track lien releases. Okay, in California, the subcontractor’s contractor’s contractor’s contractors six levels down, has lien rights to your house. So, how do I ensure that the gravel guy got paid when the concrete mixing plant, you know, picked up the gravel from him to mix the backs that my concrete guy bought the concrete from that single, that day? Who knows? It's maybe like $900 bucks, but it still has to have a canceled check that goes down. That's so deep right down the rabbit on one thing. And imagine that times, you know, 40 subcontractors times, you know, 20 projects, 30 projects. It's just mind-numbing, however, you have someone full time, that's their whole job is to ensure that there's no liens in the house. All the subcontractors get paid-done. How do you ensure that the clients are protected? Well, all the subcontractors additionally insure clients and the project on this with a subcontractors. So, we have someone full time all they do is collect and track insurance certifications. How do I ensure that the valve in your in your bathroom that was backorder gets delivered on time? Well, you have a coordinator, that’s all they're doing is ensuring that all these parts and pieces of your house that you're deciding, that the clients are deciding, changing that one change, no one ever changed their mind, but everyone does. Is this thing they bought; they don't like it anymore. Now it's got to return, is it in the warehouse? So, all these things? Is the flashing properly done on the third story on the roof deck? I don't know. I hope it's done. But I have to physically know and see myself it's done at a certain point. So, what's happening is the project manager, the project coordinators, the controllers, we all, this big massive group doing every little part and piece that everyone knows that their spot is that that's what they do, they do this one part of it, okay? What happens is I'm able to basically just see the super super high-level stuff, like it went through this person, it couldn't be figured out, then it went one level higher, it couldn't be figured out. Now it hits me. And now it's like, “Okay, well it’s like Groundhog's Day, right?” I've seen this exact same thing for last 20 years. So, I can solve it, I can fix it and fix, figure out and solve it, I have to be able to ensure that my brand of how the houses look is in line with how I want them to look to resonate my brand. So, people always say “I can tell you built the house” That's the best compliment I've ever received in my life. And that's...I know what's working. “I can drive on my Duffy on the bay, and I can tell every house that you built.” “Why?” “I don't know, why is it?” “Well, here's why: you see this piece of...little piece of copper going across the top, that's a signature that we do above and beyond the building code is required, we do it because if you don't do that, and 15 years from now, that piece of wood above the crown above the window will be rotten, it will be all dust, right? So, I put that on there, so all these little things happen to make it a brand of mine, but I have to be able to see it all. So, my team, what they do is they tee everything up, it's ready to walk the outside of the house. The project managers walked it, the manager of the managers has walked it, the coordinators have all walked it. And they say we have all seen this house. And we all certify that it's ready to wrap the outside and cover this house. When it's on my schedule, my operations person puts on a schedule, go walk the scaffold in the outside of Lafayette on Tuesday at five o'clock. So, I just show up, walk the entire house, all three levels and the scaffolding, ensure that every single thing is right. And if it's not, I take a picture. And I send it off to the managers and it gets done. So, I know that at three o'clock in the morning, a year and a half from now in a huge rainstorm. I'm not getting a phone call because I physically myself saw and certified that it was done.

David Morris  23:29

Andrew, how do you hire? And how do you make sure that your internal team is aligned with one another? Because it is your brand, you own the company. But how do you hire people that are as mission-driven as you and who work together as a team? What's sort of the key to that alignment?

Andrew Patterson  23:47

I think what it boils down to is this, is that I'm, and the sounds very strange, but I have never really been in a bad mood. I never get mad. I don't have a temper, like hate conflict, I like everyone to have this great synergy and have a really, you know, I want everyone to be positive. My positivity of life. I'm just so blessed to be alive. I'm so blessed to have three, you know, healthy children, an awesome wife, have a great marriage. But the best part of all of this is like I get to create these wonderful relationships with my clients, who are all coming from different walks of life, and they're all really good people. And they know what it is, going into it; it's a positive experience because they all get it, right? And it just kind of going down the path and they become part of this family. So, this Patterson family of homeowners is just it's just incredible. And Stephanie, who's my does my marketing, she does these blog posts and everyone's part of it and everyone's kind of cohesively together and everyone's connected. So, you really create sort of this like family nest, sort of hive-like loving environment place where you come in and it is positive. So how do we get people and retain good people? Well, you. It starts at the top, it starts with me. We got to always look at the lighter side of things, cause you know, every single day, something's going to go wrong. And you got to just laugh about it and say, “Oh, that sucks. But hey, you know, it was only like this bad, it could have been a lot worse.” And you really start bringing people in who are attracted to that environment. Because what people don't really understand, if you if you don't love what you do, your life's gonna suck. Because all the people that my life that I'm around in my office every day, I'm around the more than their own family, I'm around them from six in the morning, till six o'clock at night, every single day. And if you don't love the people that you're with, you don't want to be with them, your life's gonna get really bad really fast. So, when people walk in the door for new hires, you don't really understand like, what someone's personality is; they walk in the interview, and you know, everyone's resume is saying, like, “Oh, you know, I built this bridge, and it was like, it was the biggest bridge ever. And everyone's slap me five, I'm the greatest guy ever walked the face of the earth. And I built the house in six months and allows me...” that's all a bunch of BS, you never know. Can you build a house? Hopefully, you can. But, I care more like how do you fit in with the, with the group, because one bad person can upset the whole entire environment, make it toxic, because one person gets upset, and that other person is gonna back that person up, then it's all half your day is spent, like, talking about this person. So, to get good quality people, my own philosophy is you have to make a place where you want to go. And if you want to go there, you're gonna surround yourself by good people, and that's gonna attract more good people. Can they do the job? You'll know in six months, either you can do it, or you can't. It doesn't work in six months? “Hey, no hard feelings. It's just not a good fit. Here's the door.” Simple as that.

David Morris  26:40

It's so broadly applicable, I'm just thinking about Washington, DC, there are all these new-in-seat leaders, you got so much change going around in the country, so much opportunity for positive change, that any leader tasked with making something happen, whether it's a digitization of the business, whether it's a merger of two organizations, whether it's a launch of a new product, whether it's figuring out how to get the vaccine out, it seems to be the same thing. It's having that goal up front. It's having a leader that can get everyone aligned. And I think what's really key is on the pricing model that you mentioned, that's huge, because literally speaking, I've just never heard a contractor cap the rate, it always continues to go with retainer. So, the capping the rate was key, I think there's one more piece of alignment that we've talked about, and that's after the house is complete. So, somebody buys the warranty, they're committed to the support long-term. Tell me a little bit about why you created that. And how that ensures that again, a year later, when there's an issue, the customer doesn't actually have to be concerned.

Andrew Patterson  27:50

So going back to the original part about be able to go anywhere with my family in town is right now actively, I think we have 350 houses on the ground in Newport Beach over the last 20 years we've built. So not only are those houses that I've built for those clients, well those homes have traded hands multiple times have multiple people who bought that house or sold the house, they’ve moved on. And I'm dealing with people who own a Patterson-built house that I've never met before, have no relationship with. However, that house still has to look good. Right? So going back to how blessed I am to live in this community is Newport Beach is a very affluent, positive place to live. And you're dealing with people who've done really good things in their life, and they're able to afford, you know, $20 million Bayfront houses. Well, they've done really good things in life, but they also want to do things for others, and they want to help and just people who have created success in their life, they typically want to help other people as well, who are likeminded, who also, you know, they look at your sort of business differently. And I had the opportunity of building a house for a prominent software developer and I told them my problems, “Hey, every house I build is every six months, it needs to be power washed, and every, you know, year the water heater needs to be cleaned out. And every five years, the decks need to be resurfaced”. And he sat down and told me said “Well, I can make a computer program for that, it’s like an algorithm where it's basically the dates of the services you need to get done, track them all”. And so that kind of...my mind started spinning; this about five years, six years ago. And so, all of a sudden, oh my gosh, the greatest thing, I'm going to be able to autonomously maintain every house I ever built, this the greatest thing on earth, I can go anywhere in town now because I don’t have to get hit up and spend 20 minutes talking about a referral to get this done, this done, this done, which is all maintenance items. It's all maintenance, right? And what the funniest thing about this is, is a lot of these homes I built, the guys will have a Ferrari and a Lamborghini in his garage. And every Friday or Saturday, the guy the carwash guy shows up, takes the car to the garage washes it details it and puts it back in the garage. It's totally clean from last week, but you look at the guy's house, and it's like dirt all over it and it's nasty and the paint’s bubbling. And the guys never washed his house in 11 years. It's like why would you take a, you know, $10 or $15 million asset, not maintain it, not wash it, not do the paint touch up, not do all these different things, not clean the hair out of the P-traps, not take the scuffs out of the wall, not reseal the countertops every year. But you know, take these two cars that are like, you know, 150 grand each, whatever, and spend 180 bucks a week, just washing two cars that don’t even go outside, that doesn't make any sense. So, it kind of stuck to me like, well, they probably don't have the resources to call a plumber for 50 bucks to clean the P-traps, they probably don't have a contact to power wash the house for 150 bucks. And, it's a pain in the ass. By doing all these things and creating this program. It's been the greatest thing on earth, right? So, we created this, this platform is called Custom Care, right? It's basically a software platform that allows builders to turn their warranty and maintenance issues going from like, reputation damage, like oh, this house is falling apart, it's damaged. He's terrible. But really, the guy didn't wash his deck for 10 years and it leaked, right? to basic building of a service where you're basically protecting myself from defect claims in the future, because a lot of defect claims are deferred maintenance, right? And nobody wants to, like, have a maintenance issue or sue anybody or have any problems. But if you give the clients the resources to do all these things, and you do it for them, it's the greatest thing on earth. You got to kind of look at it sort of like a thing like this, right? You buy a Range Rover right? And you drive it down the street and you're driving forever for 4 years whatever all of a sudden that one day is, “Oh my god the thing’s stopped on the on the road.” Bring the keys back to the dealership, “This cars just terrible. Just stopped when I was driving.” The guy looks at it and goes, “You didn't change the oil for like, all these years.” The guy goes, “Oil, what do you mean, change the oil? I gave you the $150,000 for the car. It's the best car you can buy.” He goes “Yeah, but I gave you the manual, you gotta change the oil!” “Well, I don't know anything about that. I don't read manuals, I run this fortune 500 company I don't have time to read a manual.” “Well, sir, we sent you all these emails, like reminding you like, hey, service requests, you gotta change the oil.” “I get 1000 emails a day. I don't, I don't read my emails,” right? That's basically the guy didn't change oil, the car failed. You kinda gotta think of it like this is, you know, back in business school, there's like the negligence, right? where basically the banana fell on the floor by mistake. And the lady fell on it and tripped and you know, fell and got hurt. That's negligence. You know, the banana was there. Well, the difference being is that where a guy could actually take gross negligence with a banana goes on the ground, the guy slips on it. He puts it there to make a joke, right and he falls. That's gross negligence. My philosophy in this is, I'm not only giving you the manual when you move in your house, I'm also giving you email reminders. But I'm also giving you an autonomous service that's going to come and maintain your deck. So, I'm flipping it now. Right? So, the guy calls me in 10 years, “Oh, my deck leaked Patterson, you're terrible.” I don't just show up and say to him, “Hey, here's the manual, she should have washed your deck and should have surfaced that, here's the emails, you should have resurfaced your deck.” Here's the killer, “Here is all of the requests we gave you to gain access to your house, to service your deck, to re-maintain the warranty and you declined us entry and declined to service. So now you're really going to come after me and say that I've done something wrong to you, you gross-negligently affected my brand by not maintaining your house.”

David Morris  33:14

And how often does that actually happen? So, you know, once they buy into these accountabilities.

Andrew Patterson  33:17

All the time, and this was this is why this is such a great carryover, because people have to understand whether it's my business, I'm just making something, I'm building something and the consumer is using it. Okay? Just like if I built a coffee machine, just like I built a blender, or you know, just as if a built a car. I'm building something. That's someone that I have a direct relationship with. I've got a history with that person. I built the house, we had coffee together, we picked the tile, we went to the slab yard, we had a great time together, they moved in. But guess what? They sold that house, they got a job transfer, they moved away, someone else bought the house, I have no idea who that person is. And that person is a construction defect attorney. And all they want to do is find fault in this house so they can make money and get the house paid for free. “This is defective. That's an issue.” “Well, really, you're not maintaining, you're not abiding by the warranty, and the manual we gave you to maintain the house.” So, it happens all the time, because I don't have a relationship with these people who are buying the houses on resale.

David Morris  34:22

Got it, so the issue is not the first buyer. It's that next one.

Andrew Patterson  34:26

In my business or any other business, it's not protecting my relationship with my client that I built the house for, because it's going to be positive. Look at the reviews: we've talked about this before. How positive is it? Everyone loves it, “Oh, it's been fantastic.” It's someone buying the house I have no relationship with whatsoever. I can't screen the person. I've no idea who they are. And they're buying a house that they that I now have to warrant for the rest of their life because I built it to...it's a Patterson house and my kid might be on their kid’s soccer team. And I might see this person. I don't want any problems with this person, I don't know who they are. But they live in a house I built. When you build a house of someone, people have to understand this and this is the most important part of this business that people have to understand: we're not dating, building a house together. We're not getting married, building a house together. Okay? We're having a kid together, whether you like me or not, we are joined by this structure that has to be maintained and taken care of, for all these years to come. For as it passes through generations. We are bound by this, whether you like me or not, you're gonna see me because I have to come and make sure that your asset that I built that has my name on it, to make my brand in town, so I can go to Gelson’s, so I can go play soccer with my kids, has to be able to be maintained, not with the resources that I'm providing for you to like to go do; that, I am pushing on top of you to do for you. So, you can't have any reason to come to me later and say, “Patterson, you're terrible. My roof leaked.” I say to them, “Hey” at soccer, “Mister so and so how dare you not let me maintain your house and your roof leaked and now, your neighbors who's going to hire me to build their house doesn't want me to build their house because you have a leaky roof, because of you.” 

David Morris  36:14

No, it's a great accountability system. So, again, what we have covered is everything from the alignment with the buyer upfront to the alignment with the subcontractors. We talked about with the city and the permits, we talked about aftercare. I want to spend the last couple minutes of the podcast, Andrew, in a slightly different topic, if you had to replace yourself tomorrow, okay, and that new person was to take the company even to another level, any traits you would sort of keep in mind?

Andrew Patterson  36:43

Unfortunately, the business lives and dies by me, by my name, because when you start a custom homebuilding company in Newport Beach, that's what I am. I'm Andrew Patterson builds Custom Homes in Newport Beach. So, it's not really a transferable thing. A lot of my clients are production homebuilders, they're some of the biggest ones in the industry. And they, you know, they have homes in the Bayfront I built for them, and their companies are all able to be traded, to be sold, to be acquired. And the reason being is because in Ohio, I'm building a tract of 100 homes. In you know, Oregon I'm building a tract of 100 homes, they’re really aren't talking to Andrew Patterson on Sunday at nine o'clock because they're upset that their tile is the wrong color, and they want my input on it. I don't think it's transferable. And I don't want to be transferable. I plan to have a great career, and I've got another, you know, 20 years left to go. But if you are a company looking to transfer to someone else, and you do have a sellable business, a sellable brand, that you could sell, you really need to find someone that you know, not only is smarter than you, but also has a better understanding of even of your own self of how the dynamic of the people work, because the people are the business. And if there's one bad seed or one bad person, and that cohesiveness of that group, where everyone isn't really winning, like worrying too much about like what this guy said, or this guy's bad attitude, and there's not an environment where everyone wins every day. “Here's the parameters, do these 10 things and you win,” and everyone's like “I did step one, step two, step three, step nine, step 10, I won!” And same thing, “I got the sign off from the client, I got the sign off from the architect, they got the purchase order done. It's in storage, I won.” That's the philosophy that someone has to bring in. It’s, create an environment, if you want your brand to go on when you're gone, is to create an environment where everyone is winning. Everyone has a set task that they're all assigned to do. And it's a winnable task, but you can't win it by yourself. You can only win it with the help of your team. And having a strong team with no bad seeds or bad apples. That is who you look forward to transfer your business to, who can bring that synergy to your organization.

David Morris  38:57

Incredible, incredible and those winning tasks and interdependence to achieve that is a great way to sum it up. Thank you, Andrew.

Andrew Patterson  39:05

Thanks for having me.

David Morris  39:08

To our HiPER Leadership listeners, thank you for your continued support and feedback. Stay tuned this season for many more HiPER Leadership achievements. If you haven't done so already, please subscribe to the HiPER Leadership Podcast on Apple podcasts. And, if you have a big program you're leading, visit our website to learn more about how we help align teams and stakeholders for excellence at www.hipersolutions.com.