Jeffrey Roloff makes some of the parts that get glued. A hobbyist who began manufacturing microcomputer boards while attending community college in Champaign, Roloff started Central Data in 1977. Three rounds of venture financing later, he has a company that supplies hardware makers with boards for such functions as memory, terminal linkup, and disk control. Central Data's sales of $4.7 million last year gave it only a 3% market share -- but it was nonetheless the third largest U.S. supplier of Multibus board products, behind Intel Corp. and National Semiconductor Corp.
Market share, in any event, is not what Roloff sees as his prime objective at the moment. "As far as I'm concerned," he says, "our mission now is profitability growth." That may be because of Roloff's intention to take the company public "when the market looks right for it." Although he thinks Central Data can continue to increase sales in the 50% to 100% range in the future, he believes profitability -- now running from 8% to 10% -- can grow faster. "Maybe," he says optimistically, "we can earn as much as some of the companies doing $100 million in sales."
Roloff reasons that the fast-moving nature of the computer business -- which threatens many smaller players -- works to his advantage. Manufacturers faced with a rapidly changing market cannot develop everything themselves, he points out. That creates a never-ending need for OEM suppliers.
"As long as the market grows," maintains Roloff, "we'll grow with it."
HOMEBUILDING The five-year slump
No industry gets its comeuppance as routinely as homebuilding. The hot and cold cycles of the real estate business -- determined mainly by the cost of money, both to builders and to buyers -- are awesome in their extremes.
Homebuilders that made this year's INC. 500 did so during one of the leanest periods the housing industry has ever seen. The "boom" of 1983, although much ballyhooed, followed a four-year decline that made 1982 the worst year for housing since 1946. The total value of new home construction in 1983, adjusted for inflation, was actually lower than in 6 of 10 years during the 1970s. And the upturn appears to be petering out almost as quickly as it began. Houston's U.S. Home Corp., which netted $27.6 million on sales of nearly $1.2 billion last year, managed to lose more than $8.7 million in just the first six months of 1984. U.S. Home is the nation's largest homebuilder, with operations in 15 states.
Despite such trends, a handful of smaller builders have managed to beat the odds consistently during the past five years.One is D. O. Thompson Jr., founder of The Thompson Co. (#139), in Hendersonville, N.C. Started at seemingly the worst possible time -- 1979 -- Thompson's homebuilding company grew from a three-man operation in its first year to 56 employees by 1984. Even in the industry's dog years of 1981 and '82, Thompson's sales climbed at around 300% annually, hitting over $5.8 million last year. This year, Thompson says, the growth rate will slacken -- to around 120%.
Thompson owes some of its success to its location: The Hendersonville region has a reputation as a prime retirement area. The company specializes in planned unit developments (PUDs) for retirees, and has also entered the burgeoning life-care community business. Thompson finances such ambitious projects through joint ventures, both with savings and loan institutions and with nursing homes; it has already finished one PUD and has five more on the way, with an average of 90 units apiece.
Thompson, 26, learned the business from his father, for whom he first worked at age 9. By the time he was 16, he had his own subcontracting company, which did cleaning and various odd jobs in construction. But the real key to his success, he says, is not just experience but also knowing whom to sell to. "We just target the market better," he observes, pointing out that almost 95% of his customers pay cash. "Interest rates," he adds carefully, "haven't had much impact on our sales."
In Houston, David Weekley also has been able to dodge the interest-rate bullet, at least until this year. Eight years old, Weekley Homes Inc. (#308) grossed $53.7 million in 1983, selling more than 600 houses. Some of Weekley's fast growth in the past five years, of course, was due to Houston's oil-boom economy, which protected the city's single-family home market from the downturns that plagued the rest of the country. Oil's current doldrums -- and the overbuilding that is finally affecting homes and offices in Houston -- will, says Weekley, depress his sales to between $35 million and $40 million this year.
Nevertheless, Weekley promises to stick by the game plan that worked so well in the past. "Our main strategy is to not give houses away," he says. "We're very conservative that way." At $90,000-plus, Weekley's homes are among the pricier entries in Houston's tract-home market, intended for what the builder calls "the BMW" crowd. He maintains that his was the first company in Houston to apply sophisticated design to standard houses."Houston was still building homes that looked like they came out of the 1950s when we started," he says.
Like Thompson, who says inventory is a builder's biggest nightmare, Weekley sells from models, building only what he is reasonably sure he can move. His current inventory amounts to a scant 30 units. He also enhances his houses' appeal through an innovative financing mechanism called "builder bonds," in which buyers' mortgages are packaged for sale as securities on Wall Street in much the same way savings and loans sell mortgage portfolios on the secondary market. The secondary packaging mechanism allows buyers to get mortgages through Weekley cheaper than they could get them elsewhere.
By trimming his operation now -- he has already cut back from 92 employees to 65 -- Weekley hopes to increase profitability in Houston while venturing cautiously into new markets.
"A lot of builders are cutting margins drastically to maintain market share," Weekley says. "We'd prefer to remain in the black."
