GuildQuality

There is great support from within the remodeling, home building, and real estate industries for greater regulation — particularly as it relates to licensing, permitting, and inspections. Many true professionals are justifiably irate about the typical level of quality within the profession, and, as aggrieved people have done since the dawn of government, they are appealing to the state to make things better. More regulation, they argue, will ensure that inexperienced or unprincipled businesspeople will have greater difficulty entering the profession, and customers will therefore be more likely to have a great experience.

I share these people’s concern about the disease (poor quality), but I believe their proposed strategy for health (regulation) will do more harm than good. I have a different solution, and what follows is my attempt to refute the doctrine of regulation, and introduce an alternative strategy that creates more choice for consumers, expands an ecosystem of healthy competition, and creates an environment where poor performers will fail at greater rates while superior companies will find it easier to thrive.

The very real and serious problem

Unqualified remodelers, home builders, and real estate developers are able to make a living in the building profession. And when the market is hot, some of the most incompetent are even able to thrive, thereby leaving behind them a wake of angry customers and shoddy work.

This is especially painful nowadays. When a market turns south, mediocre businesses die very quickly, and even some of the very best have trouble holding on. The unfortunate entrepreneurs whose companies go under leave behind a wreckage of pain for everyone around them: homes are unfinished, trades are unpaid, development loans are unsatisfied, etc.

The work of our industry — good or bad, expensive or affordable, finished or abandoned, recession or boom — significantly impacts the lives of our customers on a daily basis. People invest life savings in our service, and they live inside our product. Our profession shoulders an important responsibility, and if one can’t carry his or her share of the load, one ought pursue another line of business.

This is an issue that accomplished professionals need to be concerned about. There is so much failure in our profession that the reputations of great and enduring companies are hurt by those who are unable to deliver. Great businesses can’t realize their full potential in earnings because customers hear about far more bad experiences than they hear about good ones. That negativity engenders skepticism, and that skepticism translates to lower prices for everyone — well-run businesses and hacks alike.

So the problem, in a nut shell, is three-fold:

1) It is not all that hard for a mediocre remodeling or home building company to find customers, 2) many of those customers inevitably get hurt, and 3) those horrible experiences affect the reputation of the entire industry.

Regulation has not and will not solve this problem.

SmartMoney recently published a list of “10 Things Home Builders Won’t Tell You.” According to the magazine, nine of the ten dangers that customers face are a product of lack of professionalism — not lack of regulation. The only “problem” listed that would be solved by more regulation is the article’s assertion that too few contractors are required to be licensed. Some of the legitimate dangers that customers face: “There’s no budget left for good light fixtures.” “Contract terms favor the contractor in dispute resolutions.” “There’s no follow up after the sale.” “Surprise! Your house looks just like the one around the corner.”

As the bullets in the article suggest, our industry’s problem is mostly one of service quality and acumen — not of too few rules and not enough restrictions. By its very nature, professionalism can’t be licensed into existence or prescribed through regulation. On the contrary, hyper regulation dilutes the customer’s appreciation for professionalism, and misleads them into thinking that a licensed contractor is a qualified contractor. Worse, it abdicates to the state what should be the industry’s responsibility to promote professionalism within its ranks.

Whether via zoning, building codes, or licensing requirements, our profession faces more and more regulations every year in every state. Until relatively recently, this noose tightening has coincided with a general decline in the quality of construction and of the built environment. T0 propose that regulation has brought or will bring improvements is to put ideology ahead of rationality.

A real solution: Embrace rather than hide from the Reputation Economy

J.D. Power has, of late, been reporting that customer satisfaction among new home buyers is on the rise. I submit that these gains are not the product of greater regulation, but are instead a product of the emergence of and appreciation for the Reputation Economy.

I first experienced the Reputation Economy as a consumer about ten years ago, when I bought a Palm handheld via eBay. I had never made a technology purchase online. I had never bought pre-owned technology before. I didn’t know the seller, much less live anywhere near him. But I could see that hundreds of people recommended this guy, and that less than a handful reported a negative experience. And as the odds suggested, I had a great experience.

I experienced it a few years later as a seller on eBay, trying to unload some old DVDs. At the time, the average sales price of The Fifth Element was something like $7.50. My copy ended up selling for $5. Why? Because I had no history on eBay, and far fewer people were willing to take a chance on me. As a result, I couldn’t demand the same price that an experienced (and trusted) seller could demand, so I had to sell my wares for less.

Whether with auctioned DVDs, remodeling work, or new homes, the same concept applies: The more you can demonstrate that you have a track record of delivering superior quality, the higher a premium you can (and should!) charge for your products or services. If you have a sketchy history, or no history at all, you must discount your services accordingly, and the only people that will buy from you are those who knowingly and willingly take the risk.

This access to information — whether through eBay, Kudzu, Yelp, Facebook, Twitter, or whatever — has liberated consumers. Now, before making an investment in anything — from a meal at a restaurant to a brand of toothpaste — consumers see what other people have to say about a product. Increasingly they don’t care what the state licensing board reports, but instead are turning their attention to quality. If enough past customers experience problems, then some of those negative reports will find their way to the web. When that happens, people stop buying your stuff. And if you are a new business, and consumers can’t find anything about you online, they recognize that they’re taking a chance on you, and you’ll have to discount your price.

This is horrible news for mediocre service providers, painful news for aspiring business owners, and tremendous news for exceptional companies. Study after study supports the notion that the best recipe for business success is a demonstrated history of successfully serving the customer. With the rise of the Reputation Economy, the unregulated and uninhibited voice of the consumer is accelerating that success and failure. The consumer’s voice is lifting up the great service providers, challenging the newbies to pay their dues before they can earn the big bucks, and extracting from the profession those that aren’t fit to continue building.

And meanwhile, the state continues to qualify and promote contractors that can pass a test, qualify for insurance, and secure a construction loan — as if the company’s ability to serve the customer was of no importance at all. In reality, the company’s ability to deliver exceptional service and construction quality is far and away the most important thing.

My proposal: We need to take all of the effort we are collectively spending on discussing, debating, and promoting greater regulations, protectionism, and restrictions within the building, remodeling, and real estate industry, and direct that energy toward accelerating our profession’s embrace of the reputation economy. I would like to see every great remodeler or home builder link to their GuildQuality customer report from their website. I’d like to see every company claim their Google local page and create a Kudzu listing. I’d like to see every company encouraging their customers to talk about them on Twitter or Facebook.

At present, consumers have taken the ball and are running with it, while most of the profession sits on the sidelines. I say let’s help them out. The more we engage in the dialog, the more information they’ll have, and the more informed their decisions will be. And more importantly, when WE are the ones constantly talking about the importance of quality, we will up our game. Our employees will up their games. Our vendors and trades will up their games. And our customers will come to expect it from us.

And if all that sounds too daunting, just remind your customers to complete their GuildQuality survey, so that at the very least, you’ll learn exactly what kind of experience they had, and you and your team can use that information to improve the caliber of your work.