Peter Wolf Construction

Feasibility Plan
Parts I and II
Prepared by:
Kevin Mayer,
Chris Walter,
Tyler Wolf
Introduction – Peter Wolf Construction

The purpose of this feasibility plan is to assess the opportunity

for a new “green” residential construction company located in
Pueblo, Colorado.

Peter Wolf Construction is dedicated to building homes that

minimize the environmental impact of both the construction
process and subsequent resident usage
Market Analysis
 Market Size and Growth
Single Family Building Permits National
Pueblo National  In 2006, an estimated 1.4 million homes were built with a
11000 1,800,000
total value over $500 billion.
1,700,000
 For 2007, it is expected that total construction will decline
10000
by about 15% but should return to steady growth
1,600,000 thereafter.

National Permits
9000
Pueblo Perm its

8000
1,500,000  Green home building market size is now valued at $7
1,400,000 billion dollars.
7000
1,300,000
 Green home construction is expected to grow to between
6000
5% and 10% of U.S. housing starts by 2010 – up from
1,200,000
2% in 2005.
5000
1,100,000  This would equate to a market value between $19
4000 1,000,000 billion and $38 billion.
1998 1999 2000 2001 2002 2003 2004 2005 2006

Year
Pueblo
 In 2006, 7,169 New homes were constructed, down from
10,555 in 2005.
Green Building Market Acceptance Projection  2007 sales are expected to be about 85% of 2006 figures
Traditional Green as excess supply continues to dry up.
11000 600
 Job growth rate tends to be the best indicator of future
home sales.
10000 500  Several sources indicate Pueblo is a top 5 metro area for
9000 anticipated job growth.
Traditional Starts

400
 Green built home sales are expected to grow by over
Green Starts

8000
300 30% per year through 2010.
7000  Less than $10M in 2005.
6000
200  Approximately $160M in 2010.
5000 100

4000 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
 Market Trends
Green Building
 Environmental concerns such as global warming and reduced availability of natural resources have caused society to
re-evaluate the way it lives. People have begun to realize that home construction and home usage results in a
tremendous impact on the environment, accounting for approximately 40% of yearly carbon emissions. As a result,
environmentally conscious consumers are demanding homes that minimize their impact on the environment.
 About 2% of homes built in 2005 were constructed using green techniques.
 This figure is projected to grow to between 5% and 10% by 2010.
 Industry experts familiar with the Pueblo market have estimated that less than 50 homes were built green in 2005
indicating that Pueblo is lagging the national trend.

Other Housing Trends

 New Urbanism and Smart Growth – A flexible approach to growth development shifting away from urban sprawl and
towards high density, transit oriented development
 Appreciation of Home Prices – A significant appreciation of home prices occurred between 2004 and 2006. Since then,
prices have depreciated in many parts of the country but now seem to be stabilizing. We seem to be at the end of this
short-term trend. Experts are predicting the pattern will revert to a more gradual increase in home prices, consistent
with historical trends.
 Sub-Prime Lending – Over the past few years, the level of sub-prime lending had skyrocketed from 5% to 20% of home
mortgages. This seems to be another short-term trend, related to the appreciation in housing prices, making a
correction back to more traditional levels. During this correction, the housing market has seen high levels of inventory
combined with a reduction in buyers. Effects production homebuilders the most.
 Baby Boomer Trend – The Baby Boomers are beginning to retire and are looking for ways to spend their disposable
income. This has been beneficial to custom home builders as people have more money to spend on quality and
customization.

Pueblo Market Trends

 Pueblo job growth is expected to be twice the national average over the next few years.
 The Pueblo area has received praise from publications such as Forbes, Money Magazine, and US News indicating it is
one of the top metro areas in the nation in terms of income growth, educational attainment, crime rate, net migration,
cost of doing business, and overall quality of life.
Market Segmentation

Custom Versus Production Home Building

Home buyers differ in the level of customization they require. Custom home builders satisfy
customers with higher disposable incomes that are more likely to want housing features that meet
their individual needs. Production home builders are good at providing cheaper homes for
customers without the same levels of disposable income. Approximately 25% of home starts are
by custom builders.

Green Versus Traditional Construction

To meet the growing trend of environmental consciousness, construction companies are providing
homes that minimize consumption of non-renewable resources and fossil fuels. This segment is
considered new and still emerging, constituting only about 2% of all housing starts.

National Market Pueblo Market

2% 1%

Green Building

Traditional
Building

98% 99%
Market Threats
Short Term
 Mortgage Market – A collapsing sub-prime mortgage market may negatively effect the number of homebuyers in
the future. Our assumption is that sub-prime lending problems will correct themselves over the long run.
 Slowing amount of housing starts – 2007 is expected to be the second consecutive year of declining housing starts
as excess inventory continues to dry up. In 2008 and beyond, housing starts are expected to grow at a more
historical rate.
 2006 Single-family home starts slid 18%
 2006 Building permits declined 2.8%

Long Term
 Codes, Regulations & Standards – The environmental enlightenment trend is already starting to manifest in new
codes and regulations. This is a threat that all construction companies will have to face in the upcoming years.
Keeping ahead of these regulations could translate into a competitive advantage. Relaxation of environmental
regulations would be a disadvantage since our focus is on green building, however, such a scenario is unlikely.
 Drop in the oil prices – One reason that consumers are attracted to green construction is that it results in lower
utility costs. Should oil prices drop, the benefit disappears, slowing product adoption. Oil price projections are all
over the board and it is hard to predict future prices. This same threat holds for other fossil fuels such as coal and
natural gas.
 Consumer Apathy – The green market has only recently emerged so consumer acceptance is still low. Our
assumption is that green home construction will follow the standard Bass model for product acceptance. However,
determining when the early majority will begin accepting our product is unclear. If it takes a long time, strong
growth will prohibited.
 Minimal Barriers to Entry – It is not overly difficult for existing companies to make the switch to green construction.
There will be some change issues to overcome from an operational point of view but the financial and knowledge
barriers are minimal. As the green construction market grows and becomes more profitable, we expect the level of
competition to increase proportionately.
Market Opportunities and Niches

Opportunities
 Green building is a new area of home construction that has caused significant disruption to the
traditional home construction market
 Green legislation is gaining momentum. More friendly regulations and incentives will create
additional market opportunities.

Niches
 Green Building – Construction of environmentally friendly homes. This product typically costs
anywhere from 3% to 5% more to build than a traditional home but the homeowner usually can
recoup the costs through cheaper utility bills. This method of construction tries to reduce the
environmental impact of both home construction and home use.
 Zero Energy Homes – Extreme end of green building where homes produce all of the energy that
they consume. Most environmentally conscious method of construction but comes at a higher
cost. Attractive only to the most environmentally conscious customers.
 Off Grid Living – Addresses the needs of consumers who want to build in an area where public
utilities are unavailable and the connection to public utilities is cost prohibitive.
 Renewable energies – Provide renewable energy solutions such as solar, hydroelectric and wind
power (small turbine).
 Multi-Family Green Homes – Green building but for multi-family structures such as duplexes and
apartment buildings.
 Smart Homes – Integration of technology that monitors and controls various housing functions
such as lighting, security and access, home theater / entertainment, communication, heating and
cooling, and irrigation.
Distribution Channels

Product Distribution Channels

On-site Construction – All of the construction is performed on-site. This is the
most common form of home construction.

Prefab Construction – Various parts of the home are made at an offsite location,
shipped to the construction site and assembled into a final product. This
dramatically reduces on-site efforts and reduces defect rates. The
disadvantages are that it costs more in design costs and builders are limited
in the types of designs and features they can offer.

New Distribution Channels

None
Market Analysis - Conclusion

Positives
 We feel that long-term home construction prospects are very attractive for the Pueblo metro area.
The city boasts some of the most attractive economic statistics in the nation: job growth, income
growth, net migration, etc. Additionally, the people moving to Pueblo tend to have a higher
education and higher disposable income. These demographics traditionally point to a higher
consumer acceptance of green home features.
 Pueblo’s green home construction segment should experience significant growth from less than
$10M in 2005 to approximately $160M by 2010.
 Green building is a national trend that has gained significant momentum in the past few years.
Industry experts across the board are stating that the switch is for real and is not a fad. It is
shaping up to be the future of the industry yet it is only just entering its growth phase.

Negatives
 In the short term, this market is unattractive because home sales are predicted to decline
substantially over the next year or two. Even when the market picks up, there will be a period
where the market remains unfriendly to new companies as existing companies get back to the
sales levels they have grown accustomed to. We expect things to look better around the 2008-
2009 timeframe.
Competitive Analysis
Competitor Description
Production Home Builders – Large construction companies that compete primarily on cost, offering a small number of
home designs, building the same house over and over. Profitability comes from established economies of scale.
This industry is dominated by a few large companies that are hard to compete with without a lean and established
operation. During down times in the business cycle, these companies are willing to sell homes at a loss as a method
of inventory control making it difficult for smaller companies to compete.

Industry Leaders in Pueblo: Oakwood Homes, Clayton Homes, New Wave Homebuilders

Custom Home Builders – Service customers who desire a home that is customized to their needs. Additional design
efforts make these homes more expensive and more difficult to build. Cost is less important in this segment and
instead companies compete on the basis of quality and home features. Companies vary in the level of customization
they provide, ranging from slightly more customizable than a production home to a start-from-scratch home concept.
The additional cost over a production home is proportional to the additional design efforts.

Industry Leaders in Pueblo: Patagonia – Colorado Homes, French Custom Homes, Nancy L. Custom Homes

Green Home Builders – Green homes minimize the environmental impact of both construction and customer usage. They
tend to be more comfortable and healthier than their traditional counterparts. Typically, these homes cost 3-5% more
than a traditional home, making it attractive only to environmentally conscious consumers. Green construction
companies are showing up more frequently as custom homebuilders although production homebuilders are
beginning to make the switch in other parts of the country.

Industry Leaders in Pueblo: Competition in this segment is weak with only three companies offering any type of green
product. This area is far from saturated, primarily because everyone is still trying to figure out how to promote and
sell their product.
 On-Point –- Green Home Construction Consultants. Don’t actually build homes.
 Green Rem –– Small company that focuses on green remodels and not on ground-up construction
 Energy Built Homes –- They claim they are a green builder but all they are doing is making their homes energy
efficient. This company doesn’t focus on any of the other aspects of green construction such as preservation
of natural resources or using renewable energies.
Competitor Matrix
On-Point Green Rem Energy-Built PeterWolf

Product Narrow – consulting Narrow – only do Moderate – Energy Diverse – Provide a

Breadth only remodels efficient homes variety of green
solutions
Product Consulting only Green / Energy Energy Efficiency Green / Energy
Features Efficiency (remodel Efficiency / Renewable
only) Energy / Smart Homes
Need they Green consulting Green remodeling Ground Up Construction Ground Up – Green
Satisfy services solutions – Energy Efficiency only Solutions

Expertise Good expertise in Good expertise in Good expertise in Moderate expertise in

green solutions green solutions construction. Low green solutions and
expertise in green construction.
solutions
Price N/A – don’t build N/A – don’t build Average – vary the level Slightly more than
homes homes of green to meet the average – green
customer’s budget features will come
standard
Size Very small – just Very small – two man Small – Build less than Conceptual only – goal
getting started show that is just 10 homes per year in is to be building 25
getting started the Pueblo area. homes per year by fifth
Father and son year of operation.
operation
Strategic With Green Rem With On-Point None None…yet.
Alliances
Basis of Green
Home Building
Competition
Features
Environmental Impact
Energy Savings

Customer Satisfaction
Reputation

Quality
Price Design
Value Architecture
Customizability

Production Custom
Home Building Home Building
Barriers to entry
Home Construction – These barriers are general to the home construction industry
 Financing – Money is needed to make initial land purchases which are likely cost hundreds of
thousands of dollars. Also, because of the market’s cyclical nature, inventory can be hard to sell
at times, requiring a company to maintain a higher operating cash budget.
 Reputation – In the home construction industry, reputation is everything. It can be difficult for
new companies to prove their product. Getting customers can be difficult without a portfolio of
completed homes to show customers.
 Economies of Scale – A large, efficient operation is needed to compete with production
homebuilders. A company must be able to build many homes at competitive prices.

Green Home Construction – These are additional barriers to entry for companies
competing in the green home construction segment
 Finding Customers – This barrier includes educating customers and generating product
awareness. Only a small portion of customers actively seek a green home. Most don’t
understand the benefits and are not willing to pay a 3-5% upfront cost increase even if it means a
reduced monthly expense.
 Expertise – Green construction requires a specific knowledge base that can be difficult to come
by. A company used to traditional methods of construction will go through growing pains when
converting to green building.
Control over Prices, Costs and Channels

Low Medium High

4 1 2 3

1. Material Cost – Dependent on type of construction: Green construction typically incurs 3-

5% higher material costs than traditional construction. Builders can decrease costs, but
quality of production suffers.
2. Home Prices – Dependent on quality of construction. Local markets dictate the selling
price in any segment. Green homes have not been proven to yield a higher sale price than
comparably-equipped, traditionally-built homes.
3. Subcontractor Costs – In Pueblo, subcontractors are plentiful. This high level of
competition allows for shopping around but decreased expense in this category usually
relates directly to quality of workmanship. Costs in Pueblo are comparable to those in the
national markets.
4. Distribution Channels – On-site & prefabricated models are typical methods to extend
product to customer. Custom homes are designed with the buyer and the architect
collaborating.
Market Domination and Rivalry
Production home builders
 This industry segment is dominated by a small number of larger companies that control a
significant share of the market. Rivalry is fierce, especially in times of economic hardship. Some
smaller companies compete but do not have any sustainable advantages.

Custom Home Builders

 Made up mostly of medium and small companies. The degree of rivalry is significant due to the
sheer number of competitors. No single company or group of companies has established market
domination.

Green Builders
 Few companies are competing in this segment so rivalry between green builders is low. In fact,
many of these companies tend to work together to help promote segment growth. However,
there will be times when the customer is impartial to having a green home. In these cases, the
green builder will have to compete with other custom builders, which increases the level of
competition substantially. Currently, the primary focus is on determining which product features
to offer and how to generate sales.
Competitive Analysis – Conclusion
Positives
 No companies in Pueblo are building fully green homes. Given that Pueblo demographics
suggest this type of product would be accepted, we feel this is an underserved segment of the
market.

Negatives
 There are few barriers to prohibit existing companies from making the switch to green
construction. As the market gets bigger, we expect more and more companies to enter this
segment of construction. More than likely, there are several companies currently trying to make
the switch. We expect a dramatically different competitive landscape two years from now.

Factors for Success

 Having a strong network is key to competing effectively. This includes subcontractors, financiers,
and suppliers alike.
 Success is directly proportional to company reputation
 Growing a residential construction business means having enough financial capital to buy the
best locations and being able to ride out inventory surpluses.
References
•Anatomy of a Housing Recovery, by Frank Nothaft, Amy Crews Cutts, Calvin Schnure,
Nela Richardson- December 8, 2006;
http://www.freddiemac.com/news/finance/outlooks/Dec_06_frecom_outlook.html
•Construction Industry Intelligence Report - 2006, McGraw Hill Construction;
http://www.construction.com/Analytics/CIIR_G/2006/Fall_FullArticles.asp
•Florida has 5 of the 10 Best Job Markets, Vegas and Phoenix runners-up, by G. Scott
Thomas.
http://www.preconstructionprograms.com/real_estate/florida/florida_job_growth.php
•Going your Own Way, by Megan Barnett, US News;
http://www.usnews.com/usnews/biztech/articles/050321/21Colorado.htm
•Green Building Guidelines to Become a Standard, by Calli Schmidt, Nation’s Building
News; http://www.nbnnews.com/NBN/issues/2006-05-29/Codes+and+Standards/index.html
•It’s All Linked: Mortgage Troubles can Roil Economy, by Steve Jordon, Builder Online,
http://www.builderonline.com/industry-news.asp?sectionID=30&articleID=451037
•While Housing Withers, ‘Green’ Materials Bloom, by Jim Carlton, The Wall Street
Journal Online, http://www.realestatejournal.com/buildimprove/20070222-carlton.html?
refresh=on
•Colorado Outlook: News of Colorado’s Economy and Budget, State of Colorado – Division of Financial
Management; March 2006 XXVIII No.9
http://dfm.Colorado.gov/Publications/EAB/Outlook/IO2006/outlookmarch2006.pdf
References – continued
 BUILDER Online: Home Building News, Home Plans, Home Design Ideas and Building
Products for Home Builders. http://www.builderonline.com/content/resources/business-
market-data-research-stats.asp?channelID=74&sectionID=124 (accessed March 14, 2007).
 Comfort Zone: Creating a Middle Ground for Green Building and Great Profits.
http://www.builderonline.com/industry-news.asp?sectionID=718&articleID=2868 (accessed
March 14, 2007).
 Market structure - Wikipedia, the free encyclopedia.
http://en.wikipedia.org/wiki/Market_form (accessed March 14, 2007).
 Population Projections.
http://www.valleycountyeconomicdevelopment.com/pages/PopulationProjections.htm
(accessed March 14, 2007).
 ReferenceUSA. http://reference.infousa.com/bd/matrix_list.asp (accessed March 14, 2007).
 Seeing Green. http://www.builderonline.com/industry-news.asp?
sectionID=13&articleID=322693 (accessed March 14, 2007).
 USATODAY.com - Building 'green' reaches a new level.
http://www.usatoday.com/news/nation/2006-07-26-green-construction_x.htm (accessed
March 14, 2007).
 Peter Wolf Construction

Feasibility Plan
Part III
Prepared by:
Kevin Mayer,
Chris Walter,
Tyler Wolf
Venture Description

Shelter is one of the most influential aspects of a person’s life, making the purchase of
a new home an important and impacting decision. At the same time, a home requires
significant amounts of natural resources to carry out its function of providing comfort
and safety. Global environmental issues, such as climate change, have awoken society
to the fact that we must start looking towards a sustainable future. Consumers have
begun looking for ways to live their lives that are less harmful to the environment.

Peter Wolf Construction is a custom home builder located in Pueblo, Colorado. Our
concept is to provide custom homes that not only are beautiful and comfortable but also
good for the environment. We will incorporate the principles of sustainability into each
home, striving to maximize resource efficiency, minimize carbon dioxide emissions,
reduce construction waste, utilize recycled materials, provide healthy living
environments, and promote other sustainable business practices. Our customers will
be doubly satisfied knowing that not only do they own an attractive home designed to
keep them safe and comfortable but that they have also made a purchase that benefits
the rest of society as well.
Market Analysis
Market Size and Growth
National Market
Green Penetration into Pueblo Market
 In 2006, an estimated 1.4 million homes were built with a total
value over $500 billion. 11000 600
 For 2007, it is expected that total construction will decline by
about 15% but should return to steady growth thereafter. 10000 500
 Green home building market size is now valued at $7 billion
dollars. 9000

Traditional Starts
400
Green home construction is expected to grow to between 5%

Green Starts

8000
and 10% of U.S. housing starts by 2010 – up from 2% in 2005. 300
 This would equate to a market value between $19 billion 7000
and $38 billion. 200
6000

5000 100

Pueblo Market 4000 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
 In 2006, 7,169 New homes were constructed, down from
10,555 in 2005. Year

 2007 sales are expected to be about 85% of 2006 figures as

excess supply continues to dry up.
 Job growth rate tends to be the best indicator of future home Pueblo Market Statistics
sales.
 Several sources indicate Pueblo is a top 5 metro area for
anticipated job growth. Volume Unit Volume
 Green built home sales are expected to grow by approximately
30% per year through 2010.
 Less than $10M in 2005. Total Homes Built $1,696
7,169
 Approximately $108M in 2010. in 2006 million

Green Homes Built $17,745 < 75

in 2006 million (1% of market)

Green Home $107,846 375

Projection For 2010 million (5.7% of market)
 Market Trends
Green Building
 Environmental concerns such as global warming and reduced availability of natural resources have caused society to
re-evaluate the way it lives. People have begun to realize that home construction and home usage results in a
tremendous impact on the environment, accounting for approximately 40% of yearly carbon emissions. As a result,
environmentally conscious consumers are demanding homes that minimize their impact on the environment.
 About 2% of homes built in 2005 were constructed using green techniques.
 This figure is projected to grow to between 5% and 10% by 2010.
 Industry experts familiar with the Pueblo market have estimated that less than 50 homes were built green in 2005
indicating that Pueblo is lagging the national trend.

Other Housing Trends

 New Urbanism and Smart Growth – A flexible approach to growth development shifting away from urban sprawl and
towards high density, transit oriented development, and green building design.
 Appreciation of Home Prices – A significant appreciation of home prices occurred between 2004 and 2006. Since then,
prices have depreciated in many parts of the country but now seem to be stabilizing. We seem to be at the end of this
short-term trend. Experts are predicting the pattern will revert to a more gradual increase in home prices, consistent
with historical trends.
 Sub-Prime Lending – Over the past few years, the level of sub-prime lending had skyrocketed from 5% to 20% of home
mortgages. This seems to be another short-term trend, related to the appreciation in housing prices, making a
correction back to more traditional levels. During this correction, the housing market has seen high levels of inventory
combined with a reduction in buyers. Effects production homebuilders the most.
 Baby Boomer Trend – The Baby Boomers are beginning to retire and are looking for ways to spend their disposable
income. This has been beneficial to custom home builders as people have more money to spend on quality and
customization.

Pueblo Market Trends

 Pueblo job growth is expected to be twice the national average over the next few years.
 The Pueblo area has received praise from publications such as Forbes, Money Magazine, and US News indicating it is
one of the top metro areas in the nation in terms of income growth, educational attainment, crime rate, net migration,
cost of doing business, and overall quality of life.
Market Analysis - Conclusion

Positives
 We feel that long-term home construction prospects are very attractive for the Pueblo metro area.
The city boasts some of the most attractive economic statistics in the nation: job growth, income
growth, net migration, etc. Additionally, the people moving to Pueblo tend to have a higher
education and higher disposable income. These demographics traditionally point to a higher
consumer acceptance of green home features.
 Pueblo’s green home construction segment should experience significant growth from less than
$10M in 2005 to approximately $160M by 2010.
 Green building is a national trend that has gained significant momentum in the past few years.
Industry experts across the board are stating that the switch is for real and is not a fad. It is
shaping up to be the future of the industry yet it is only just entering its growth phase.

Negatives
 In the short term, this market is unattractive because home sales are predicted to decline
substantially over the next year or two. Even when the market picks up, there will be a period
where the market remains unfriendly to new companies as existing companies get back to the
sales levels they have grown accustomed to. We expect things to look better around the 2008-
2009 timeframe.
Competitive Analysis
Market Domination and Rivalry
Production home builders
 This industry segment is dominated by a small number of larger companies that control a
significant share of the market. Rivalry is fierce, especially in times of economic hardship. Some
smaller companies compete but do not have any sustainable advantages.

Custom Home Builders

 Made up mostly of medium and small companies. The degree of rivalry is significant due to the
sheer number of competitors. No single company or group of companies has established market
domination.

Green Builders
 Few companies are competing in this segment so rivalry between green builders is low. In fact,
many of these companies tend to work together to help promote segment growth. However,
there will be times when the customer is impartial to having a green home. In these cases, the
green builder will have to compete with other custom builders, which increases the level of
competition substantially. Currently, the primary focus is on determining which product features
to offer and how to generate sales.
Competitor Matrix
On-Point Green Rem Energy-Built PeterWolf

Product Narrow – consulting Narrow – only do Moderate – Energy Diverse – Provide a

Breadth only remodels efficient homes variety of green
solutions
Product Consulting only Green / Energy Energy Efficiency Green / Energy
Features Efficiency (remodel Efficiency / Renewable
only) Energy / Smart Homes
Need they Green consulting Green remodeling Ground Up Construction Ground Up – Green
Satisfy services solutions – Energy Efficiency only Solutions

Expertise Good expertise in Good expertise in Good expertise in Moderate expertise in

green solutions green solutions construction. Low green solutions and
expertise in green construction.
solutions
Price N/A – don’t build N/A – don’t build Average – vary the level Slightly more than
homes homes of green to meet the average – green
customer’s budget features will come
standard
Size Very small – just Very small – two man Small – Build less than Conceptual only – goal
getting started show that is just 10 homes per year in is to be building 25
getting started the Pueblo area. homes per year by fifth
Father and son year of operation.
operation
Strategic With Green Rem With On-Point None None…yet.
Alliances
Competitive Analysis – Conclusion
Positives
 No companies in Pueblo are building fully green homes. Given that Pueblo demographics
suggest this type of product would be accepted, we feel this is an underserved segment of the
market.

Negatives
 There are few barriers to prohibit existing companies from making the switch to green
construction. As the market gets bigger, we expect more and more companies to enter this
segment of construction. More than likely, there are several companies currently trying to make
the switch. We expect a dramatically different competitive landscape two years from now.

Factors for Success

 Having a strong network is key to competing effectively. This includes subcontractors, financiers,
and suppliers alike.
 Success is directly proportional to company reputation
 Growing a residential construction business means having enough financial capital to buy the
best locations and being able to ride out inventory surpluses.
Venture Analysis
 Needs of the Home Buyer
Purchasing a home is one of the most important decisions a person will make in their lifetime.  Because of
the size of the transaction and the role their home plays in their daily lives, home buyers tend to choose
carefully and expect their home to satisfy a variety of needs.

Needs that all homes fulfill:

Shelter – The basic function of a home is to keep its residents sheltered from the outside environment; it is
the place where they sleep at night.
Comfort – Home owners expect their home to maintain a comfortable living space. The lay out should make
daily routines easy and convenient.
Prestige – In American culture, a person’s home is one of the best indicators of his or her social status.
People often use their home to advertise their success.
Financial – Often, a home is purchased as an investment strategy. The expectation is that housing prices
will appreciate in the future, providing the buyer with an adequate return on his or her money.

Unique benefits that a green home will provide:

Health – Green homes typically make better use of natural lighting than conventional homes which leads to
improved health and comfort. Their indoor air quality is usually better too since they don’t use toxic paints or
resins.
Prestige – Green homes offer consumers an alternate way of differentiating themselves from their peers.
Being the first on the block to own a green home is one of the biggest consumer draws (as per Tom Hoyt,
co-founder of McStain Neighborhoods)
Social – Green homes are the best consumer option available for those who want to actively participate in
bringing about a sustainable future. It is a way for them to set a positive example for the rest of society.
Economic – Energy efficiency can result in a reduced monthly housing expense (mortgage and utilities).
Tax incentives are available in Pueblo for certain home features (Photovoltaics, Geo-thermal heat pumps)
Moral – From an ethical perspective, owning a green home is better than owning a conventional home.
 Product Description
Physical
• Quality and appearance are essential to compete in the industry. Architectural features will be applied to
all sides of the home and will be selected to complement the home’s natural surroundings.
• Energy efficient features, such as radiant barriers and double glazed windows will minimize the home’s
electrical loading. Water conservation features, such as low flow devices and native plant landscaping,
will reduce the home’s water demand. Both groups of features will be included in every home.
• More expensive features that further reduce the home’s environmental impact will be available as green
options for customers willing to spend the extra money on a more environmentally friendly home.
Examples include straw bale exteriors, photovoltaic power generation, and geothermal heat pumps.
Cost
• Prices are dependent on the size and location of the home but a standard green package will cost
approximately 5% more than a conventional home. An average size home will save approximately $700
dollars per year compared to an equivalent non-green home.
• Homes with additional green options will have a larger cost premium but it would rarely exceed 15%.
Energy savings for these homes will vary depending on options but will likely be over $1,000 per year.
Service
• All homes will come with a one-year construction warranty which will be serviced by certified technicians.
This is the industry standard. Extending the warranty may be a future source of competitive advantage
once the company is established enough to handle the extra liability.
 Target Market
Demographics Psychographics
• 30-50 years old • Strong environmental consciousness
• Combined household income > $100k • Enjoy all types of outdoor activities, particularly
• Educated – BS or higher hiking, backpacking, and fly fishing
• Differences in gender, race, or occupation do • Donate time and/or money to organizations
not vary significantly dedicated to protecting the environment

Product Acceptance and the Purchasing Decision

• Consumers fall within a wide spectrum in relation to how much they are willing to pay for a green home
but can be segmented into three general categories (according to our survey results – sample size of 17).
1) Not willing to pay extra for a green home. Accounts for approximately 5.9% of home buyers.
2) Willing to pay up to 5% more for a green home. Approximately 58.8% of home buyers.
3) Willing to pay up to 10% or more for a green home. Approximately 35.3% of home buyers.

• A consumer’s willingness to pay extra for a green home is positively correlated to their awareness of the
benefits of green building, their income level, and their propensity to purchase other green products.
• No matter how aware consumers are of green building, the majority are unsure as to which features
should be included in a green home. They are reliant on the builder’s professional knowledge.
• Purchasing decisions are made as a family but the male typically negotiates the terms of the purchase.
Their first point of contact when searching for a home to buy is usually either a banker or a realtor. It is
imperative that a builder develop a positive relationship in these professions.
Competitive Advantage
Knowledge Base
 Wolf (co-founder) – MBA with an emphasis in Entrepreneurship and Real Estate Development; BS in Civil
Engineering; licensed professional engineer (PE) who can perform many of the engineering responsibilities,
saving on consulting expenses. It is uncommon and usually too expensive for smaller custom builders
(majority of the Pueblo industry) to have a PE on staff. Special knowledge of green building technologies.
 Pearson (co-founder) – BS in Business Management with an emphasis in Information Technologies. Specialty
in website development, an area our competitors are deficient and an effective way to differentiate our product.
 Jones (future partner) – 20+ years experience with residential construction development. Highly qualified to
run the company’s construction operations. Will come into the business around year 3 and work at reduced
salary in return for equity.
Ties to Industry
 Strong family ties to Pueblo’s premier construction/real estate law firm
 Strong family ties to a local bank that specializes in agriculture and home mortgages
 Strong family ties to a wood supplier, concrete supplier/subcontractor, and excavation subcontractor
Values
 Vision of both co-founders is to establish a company dedicated to the principles of sustainability, an approach
to homebuilding that is unique to the Pueblo market. Our target market will better relate with our mission and
values than those of our competitors giving us an advantage in establishing brand recognition and customer
loyalty.

Making our Advantage Sustainable – There is not much proprietary information in the home building industry so
any advantage gained through product design, techniques, and processes is theoretically unsustainable.
Instead, our sustainable advantage will come from our company values: a dedication to sustainability,
operational excellence, and community involvement. Both co-founders plan to actively insert themselves into
the Pueblo community as experts on the subject of sustainability. In addition, part of our strategic plan is to
establish community programs that will allow Pueblo residents to actively participate in a sustainable future. All
of these factors will play into our brand image, making Peter Wolf Construction the best and most recognizable
green construction company in southern Colorado.
 Risks
Target Market – Our research indicates that the green building trend is gaining momentum and will
continue to grow as a segment of the home building market but this is not guaranteed. Furthermore,
there is evidence that the Pueblo green home building market is lagging the national trend. From
talking with Pueblo home builders it appears this is an industry problem rather than a market problem
but a more comprehensive customer analysis is needed to validate.

Technology – Green building technologies have been fairly well developed but it will be difficult to find
subcontractors that are familiar with them. Additional refinement of some technologies will be needed
to make them more convenient for home owners.

Financial – The home building market in general is cyclical and goes through extended downturns. The
market is very interest rate sensitive and becomes more competitive as interest rates increase.

Insurance – Denver has recently undergone a phenomenon where law firms actively seek out legal suits
for homes that have minor defects making it difficult and expensive for builders to obtain insurance on
their work. These law firms can be described as the “ambulance chasers” of the home building
industry. While this phenomenon has not reached Pueblo, the possibility exists that the trend will
catch on there in the future.

Competitive – Switching from traditional homebuilding to green home building is relatively easy for
established builders. As the green market grows, competition will increase.

Strategic Relationships – The most important factors for success is a builder’s reputation and ability to
form relationships with subcontractors, lawyers, bankers, and realtors. An inability to meet and grow
with the right group of stakeholders will make it difficult to establish credibility.
 Financial Analysis – Pro forma
Market penetration 1st Year (2008) 2nd Year (2009) 3rd Year (2010)
Unit Sales (homes) 1 5 15
Major Takeaways
Projected market size (homes) 200 275 375 • A significant cash infusion is needed the
Market penetration 0.50% 1.82% 4.00% first year to establish the company
Operating Income 1st Year (2008) 2nd Year (2009) 3rd Year (2010)
($102,000). An additional infusion ($40,000)
Revenue $300,000 $1,500,000 $4,500,000 will be needed in the second year to cover
Cost of Goods Sold 270,000 1,350,000 4,050,000 working capital expenditures.
Gross Profit 30,000 150,000 450,000 • After the 2nd year, the company becomes
Gross Profit % 0 0 0
Operating Expenses self-supporting.
Sales & Marketing 30,000 56,000 52,000 • A $1 change in G&A results in about a $4
Website 5,000 20,000 5,000 decrease in breakeven revenue. Controlling
Flyers 10,000 15,000 20,000
Advertisements 10,000 15,000 20,000
these expenses will be critical to our success.
Misc. OE 5,000 6,000 7,000 • Since we are starting out by building
General & Administrative 72,000 77,000 182,000 custom homes, the money for construction is
Salary 25,000 25,000 125,000
put up by the customer’s bank reducing the
Office Supplies 2,000 2,000 2,000
Legal 15,000 10,000 10,000 need for capital expenditures. To grow the
Insurance 20,000 30,000 35,000 company will require us to start building
Misc. G&A 10,000 10,000 10,000 homes on speculation, requiring much more
Total 102,000 133,000 234,000
Operating Income ($72,000) $17,000 $216,000
in the way of capital expenditures to
purchase lots.
Break-Even Revenue $1,020,000 $1,330,000 $2,340,000

Investment Required
Capital Expenditures $0 $10,000 $30,000
Working Capital 102,000 133,000 234,000
Other Major Expenses 15,000 15,000 15,000
Non-recurring 50,000 0 0
Total $167,000 $158,000 $279,000
Financial Analysis - Assumptions
Revenue
 Due to the operational challenges of getting Operating Expenses - Sales & Marketing
established and finding good subcontractors, we do  Sales & marketing are broken down into 3 main
not want to grow the company too fast. channels and a 4th miscellaneous channel.
 Website expense will incur the most cost in the
 An appropriate growth schedule for the first three second year because of development and
years would be as follows implementation of the site. The first year’s website
 Year 1 – one house will be designed using boot strap tactics.
 Year 2 – five houses  Flyers and Advertising expenses will mostly be
 Year 3 – fifteen houses directed towards direct mailings and building
 We will reach critical mass somewhere around 7-8 industry relationship.
houses.
Operating Expenses - General & Administrative
Cost of Revenues
 A base salary of $25,000 is established for Tyler.
This expense will grow to $125,000 in year 3 as two
 Typically cost of revenues is carried by the cost of more partners come onboard full time.
building the house.  Legal costs are assumed to cost the most in the
 Having interviewed several contractors, the typical first year as certain non recurring expenses will
cost of revenues ranges from 80-85% of revenues. take place such as filing company papers and
To maintain a conservative approach, we used a establishing the partnership agreements.
factor of 90% to compute cost of revenues.  Insurance costs will grow as the business grows.
 It is not practical to break the cost of revenues The insurance cost is to protect the homebuyer in
case the company goes into default. Health and
down further because it is very project-dependent. other forms of insurance will not initially be provided
Some homes will have large landscaping costs but by the company.
little pavement costs. Others will have large  Miscellaneous G&A is not only a slush fund but also
electrical wiring costs, others will not. a resource to use in case of emergency cash
 Subcontractors will perform all site work. Since crunches.
there is no capital assets in our business model,
Peter Wolf Construction would not realize a
significant depreciation expense worth noting.
Conclusion and Recommendations

 Conclusion
 We see a valuable opportunity for success. It will be important to initially utilize our
professional network to get the company started on the right foot. From there, we must
anticipate change in the economy as well as trends in the housing markets. Our analysis of
both the industry/market segment as well as the potential consumers indicates that our
product will be well received at the time of its launch.
 We are confident that with some refinement in processes and product offerings as well as
continued consumer preference analysis, Peter Wolf construction will be able to enter the
Pueblo custom home building market successfully and will remain successful in the long
term.
 Recommendations
 Take this opportunity on to the next stage and develop a business plan
 We need better customer information. Sample size is too small and might not be
representative of the Pueblo Market.
 Delve deeper into the financials. We made some assumptions in our projections and need
to work to validate those assumptions. This will eliminate some risk and will improve the
accuracy of our projections.
References
 Anatomy of a Housing Recovery, by Frank Nothaft, Amy Crews Cutts, Calvin Schnure, Nela
Richardson- December 8, 2006;
http://www.freddiemac.com/news/finance/outlooks/Dec_06_frecom_outlook.html
 Construction Industry Intelligence Report - 2006, McGraw Hill Construction;
http://www.construction.com/Analytics/CIIR_G/2006/Fall_FullArticles.asp
 Florida has 5 of the 10 Best Job Markets, Vegas and Phoenix runners-up, by G. Scott
Thomas. http://www.preconstructionprograms.com/real_estate/florida/florida_job_growth.php
 Going your Own Way, by Megan Barnett, US News;
http://www.usnews.com/usnews/biztech/articles/050321/21Colorado.htm
 Green Building Guidelines to Become a Standard, by Calli Schmidt, Nation’s Building News;
http://www.nbnnews.com/NBN/issues/2006-05-29/Codes+and+Standards/index.html
 Colorado Outlook: News of Colorado’s Economy and Budget, State of Colorado – Division of
Financial Management; March 2006 XXVIII No.9
http://dfm.Colorado.gov/Publications/EAB/Outlook/IO2006/outlookmarch2006.pdf
 It’s All Linked: Mortgage Troubles can Roil Economy, by Steve Jordon, Builder Online,
http://www.builderonline.com/industry-news.asp?sectionID=30&articleID=451037
 While Housing Withers, ‘Green’ Materials Bloom, by Jim Carlton, The Wall Street Journal
Online, http://www.realestatejournal.com/buildimprove/20070222-carlton.html?refresh=on
References – continued
 BUILDER Online: Home Building News, Home Plans, Home Design Ideas and Building Products for Home
Builders. http://www.builderonline.com/content/resources/business-market-data-research-stats.asp?
channelID=74&sectionID=124 (accessed March 14, 2007).
 Comfort Zone: Creating a Middle Ground for Green Building and Great Profits.
http://www.builderonline.com/industry-news.asp?sectionID=718&articleID=2868 (accessed March 14, 2007).
 Market structure - Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Market_form (accessed March
14, 2007).
 Population Projections. http://www.valleycountyeconomicdevelopment.com/pages/PopulationProjections.htm
(accessed March 14, 2007).
 ReferenceUSA. http://reference.infousa.com/bd/matrix_list.asp (accessed March 14, 2007).
 Seeing Green. http://www.builderonline.com/industry-news.asp?sectionID=13&articleID=322693 (accessed
March 14, 2007).
 USATODAY.com - Building 'green' reaches a new level. http://www.usatoday.com/news/nation/2006-07-26-
green-construction_x.htm (accessed March 14, 2007).
 The New Ecological Home: A Complete Guide to Green Building Options, Daniel Chiras, Chelsea Green
Publishing Company, White River Junction, VT, 2004
 The Solar House: Passive Heating and Cooling, Daniel Chiras, Chelsea Green Publishing Company, White
River Junction, VT, 2002
 Photovoltaics: Design and Installation Manual, Solar Energy International, New Society Publishers,
Gabriola Island, British Columbia, 2004
 Solar Living Source Book, John Schaeffer, New Society Publishers, Gabriola Island, British Columbia,
2004
 Green Building Products, Alex Wilson and Mark Piepkorn, New Society Publishers, Gabriola Island,
British Columbia, 2005
 Professional Contacts
 Merten Homes:  McStain Neighborhoods:
 Based in Boulder, Colorado, Merten  Building a Better World: “We
Homes is a Green Builder believe that the only truly
specializing in the architectural sustainable human community is
design and construction of ultra one built in balance with the
energy-efficient homes. natural environment.”
 Donna Merten –  Tom & Caroline Hoyt
 President & CEO  McStain Founders
 Fireside Homes:
 Based in Pueblo, Colorado,
Fireside Homes builds
approximately 15 custom homes
per year.
 Joe Collins:
 Owner / President

 Bob Hughes Construction:

 Based in Boulder, Colorado, Bob
 SKS Ventures:
Hughes Construction builds high end  Real estate investment company.
custom homes greater than $1M  Chuck Berling
 Bob Hughes:  Use to own a high-end, custom
home building company based in
 Owner / President Evergreen, Colorado
Professional Contacts - continued

 McStain Neighborhoods:
Peak Properties:  Building a Better World: “We
believe that the only truly
 Develop green residential sustainable human community is
apartment buildings in one built in balance with the
Boulder, Colorado natural environment.”
 Avery Host:  Colleen Rozier
 President & CEO  Project Manager

 S & C Company:
 Custom Home builder in
Denver, Colorado
 Randy Thall:
 Vice President of Operations

 Suncor:  Pueblo Springs:

 Large scale commercial and  Pueblo’s first large scale
residential developer. Operate
Pueblo’s larges planned community residential development.
development  Frank Martin
 Bob Taunton:  Hidden Springs President
 President of Avimor Development