Homebuilder: ‘You learn very little during the up times’

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Success is overrated. Failure, by far, is the much better teacher.

That's what Richard Dugas says of his experiences leading PulteGroup, one of the nation's largest homebuilders, through good times and bad over the past 11 years.

Dugas, 49, is CEO of an Atlanta-based firm with about $6 billion in revenue and 4,000 employees. He discusses how the overheated housing market blinded him to the company’s vulnerabilities before the Great Recession hit. He also talks about what he did to turn things around and how his career has evolved since he sold sporting goods as a teenager.

Q: Who influenced you early in your life?

A: I grew up in Louisiana, where my father and his first cousin took their very meager life savings and put it into their own business — a hunting and fishing sporting goods store just outside Baton Rouge.

It was incredibly formative for me. I literally started working there when I was 13, and worked all through high school and college. During the summers while I was at LSU, I was working there at least 60 or 70 hours a week.

A big thing I learned was a work ethic and being dependable.

Q: Learn anything else?

A: I learned that every business is a people business.

My specialty was demonstrating and selling equipment like archery bows and fishing rods because I went hunting and fishing all the time. I was credible to the customers.

I also learned about the division of labor. My father and his partner separated duties. His partner managed merchandise and ordered the products. My father did all the managing of the employees. That was a good distribution of duties for them.

Q: Your father helped instill self-confidence in you. How?

A: One of the things my father taught me was to take as much public speaking as you can get. It will help make you confident, it will help make you a leader and it will help you in life.

So I did. I was a lector in church every chance I got. I took as many speech classes in college as I could.

Q: What did you do after getting a business degree from LSU?

A: I decided to follow my outside dreams instead of going back to work for my father.

I got a job in marketing with Exxon and was trained for several months in Memphis. Then, I got my first real assignment in Roanoke, Virginia.

I was thrown into a sink-or-swim environment where I was managing about six to 10 company-owned gas stations/convenience stores. The job entailed hiring and firing the managers of each store and pricing the fuel and other goods.

It taught me a lot about managing people and supply-and-demand pricing.

Q: You got some key advice from a mentor at Exxon. What was it?

A: Don't try to figure out your life and career until you're close to 30.

He told me that it’s really hard to know exactly where you want to take things until you’ve had a certain number of experiences.

That advice really paid off. After five years working at Exxon, I realized it was an engineering-dominated company. You had to know a lot about refining and exploration, and I didn’t care about that.

Bonus questions

Q: What did you do?

A: I got a job with Pepsi Bottling in Westchester County in New York. I was a process improvement manager, looking at things like route truck efficiency or vendor repair efficiency.

My goal was to take that job and to parlay it into running a field operation anywhere. I was at headquarters, but I wanted to run a business.

But after 11 months, I got promoted to a process improvement job in Toronto. Then, after two years, they asked me to come back to corporate.

I said, “Don’t you people understand. I’m begging you to put me in North Dakota. I don’t care where. I just want to run a business.”

But they needed me to troubleshoot so I went back. But I started looking for another job.

Q: You had another reason for leaving Pepsi Bottling. What was it?

A: From the very beginning at Pepsi, I felt that it was not right for me.

I could tell it was a high-performing company with lots of smart people. But the dynamic wasn’t right.

I always wanted to work for a company where three things could happen:

— A company with growth potential because it would be good for the people, including me.

— A company where your performance could influence your compensation.

— And a company where no one cared where you went to college or what you looked like. Where it was all about your performance.

What I realized at Pepsi was the third one was a problem. There, someone who went to a better college or had the right connection within the company would get promoted. That felt too political for me.

Q: So in 1994 you got a job at Pulte, a homebuilder based in suburban Detroit that moved to Atlanta a year ago to be closer to its large southeastern markets. How did you get the chance to run a business back then?

A: They promised me that would happen when I took the job. After working in process improvement at Pulte for 18 months, I got three offers to run part of the business.

I took the one in Atlanta right around the time of the Olympics. My job was to start an entry-level business for the Georgia division, which was primarily building move-up homes.

Q: What did you do?

A: I learned as much as about the entry-level buyer in Atlanta as I could. I rode in every competitive community in every county. We did lots of focus groups of apartment dwellers.

What I realized was that there were two different entry-level opportunities. One was for suburban, detached housing in counties like Cherokee, Paulding, Douglas, outside the Perimeter where land was inexpensive.

There also was an opportunity for urban buyers who were being forced into apartments because they had little option at that time.

We took a chance. We built 90 townhomes in 1996 on Peachtree Industrial in Duluth. The starting price was $86,900. We smoked it. The people in the apartment complexes surrounding us flocked in.

Then we bought about 15 properties all around north Atlanta and the business became bigger than the move-up business we had within two years.

That helped put me on the map. A couple of years later, I got promoted to run the whole city and then the southeast region. In 2001, I got promoted to chief operating officer of the entire company.

Q: Eighteen months later you were named CEO. What did you learn during your first few years?

A: During the first few years, I was unprepared for the role and didn't do a very good job. The housing market was on fire. Every day, I'm whistling a tune going home from work.

We thought we were bulletproof. We didn’t understand why we were making all the money we were making. That’s a real problem when the CEO and the executive team don’t understand what’s really driving the business.

You learn very little during the up times. But we learned a lot during the down times.

Q: What?

A: We thought the downturn would blow over in a year or two. We didn't think it would last several more years. Part of the lesson is that you recognize reality way too late.

I couldn’t tell you how painful it was to lay off 80 percent of this company’s workforce. Our revenue went from $15 billion to $4 billion during the recession.

We dealt with it honestly with people. We are losing money by the truckload. We could go out of business. We apologize but we have to let you go.

The worst mistake is to tell them what you think they want to hear, that things are going to get better in a few months. We couldn’t say that. We were in a free fall.

Q: Then what happened?

A: In 2010, the board told me the company needed to do better and that I've got about a year to turn things around.

I asked one of our best and brightest division presidents to help me. He then recommended an outside consulting firm to help us. We needed brutal honesty from the outside.

Four months later, we got the facts. We were making most of our money on land appreciation and very little on homebuilding. We didn’t know that. All the good times masked what was driving our profitability.

We have completed reoriented our company to focus on being a really good homebuilder first and to take less land risk. Land values can be quite volatile and can really hurt you when they cycle down.

Q: What else helped you turn the corner?

A: After we had those facts, we started becoming a more efficient homebuilder — partly by reusing floor plans and partly by pricing our product to what the customer was willing to pay, instead of pricing based on cost.

We were able to swell the profitability and not take much land risk.

The message here for your readers is that understanding what truly drives value in your business is critically important.

Having an outside perspective and someone who is willing to tell you that your baby might be ugly is also very important. Frankly, no matter how humble you think you are as a leader, the CEO gets the most filtered information.

Also, if the CEO asks the hard questions, he has to be receptive to the answers, no matter who they’re coming from. If not, don’t bother to ask.