Some Brief Lessons from Scaling a Property Development Company
Dorian Payne is Co-Founder and Managing Director at Castell Group. Here, he shares some lessons learned from scaling their company, Castell Group.
Scaling a property development company is a difficult venture to undertake. The industry is very capital-intensive with a lot of uncontrollable yet significant ‘hoops’ to jump through, plus all the ‘red tape’ that accompanies it. It is also at full exposure to market volatility. That being said, it is a life-changing business if it works out well, and that’s why, despite the difficulty, there are new entrants to the industry looking to scale a property development company. We are early in our scaling journey but have reached some key milestones in a short space of time, and so I feel it is fitting to share some lessons that have been learned up to this point. These have been condensed as I could probably write a detailed book if I was to cover everything!
Where We Are:
Castell Group is a high-growth property development company that specialises in building high-quality affordable, social and disabled homes throughout South Wales. Over the past two years, we have raised in excess of £10M in debt and equity financing whilst securing a project pipeline of over £40M in project value, all of which has been forward-sold to local Registered Social Housing Landlords. We have secured the backing of a family office and are well on track to achieve our phase 1 goal of building 250 homes per annum for those truly in need.
Lessons (not in a particular order):
1. Clear Vision
Having a clear vision of what the company should look like in the future, and even now, is extremely important and I believe will continue to be important for as long as the company is operational. It doesn’t necessarily matter how big or small the goals are, or what type of developments the company focuses on. Having a clear vision keeps the company and team focused and reduces the likelihood of ‘shiny penny syndrome’. I’ve had personal feedback in various meetings with new customers, team members and investors that the clear vision comes across as inspiring and exciting; it makes people want to be a part of the journey.
It also helps with company goal setting and performance audits of what is happening versus what should be.
“Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion.” – Jack Welch
2. Strategy
It is probably best to say now that original strategy and timescales probably aren’t going to work out the way you thought. That’s why a lot of business development books advise on not spending a lot of time trying to map the exact route to success. It’s better to understand your starting position, have a clear goal or targets and focus on building the relevant team and support network who will share your goal. This will help you to keep motivated and make it easier to keep moving forward when things inevitably don’t go to plan.
“Let’s go invent tomorrow, rather than worrying about what happened yesterday.” – Steve Jobs
3. Cash
Cash management is phenomenally important within your property development company because, as previously stated, this is a very capital-intensive business. It really won’t take long for you to find yourself in difficulty if cash management isn’t high on the agenda. If this isn’t a strong point for you, then I recommend you find a business partner for whom it is, or that one of your first employees be someone with the ability to understand and manage the numbers.
Throughout your growth, funds will be needed for the following:
1. Company overheads, including admin staff
2. Pipeline project costs including design, planning, legals, reports etc.
3. Deal equitable contribution
4. Project funding shortfalls – due to overspends or forward funding elements of a build contract
We currently have over £1M invested in pipeline project costs, and this is only set to grow. We have a master cashflow forecast, which automatically takes the income or expenses from our pre-construction cashflow forecast, overhead forecast and individual construction project net cashflow per month. This is then compared with cash reserves and live finance facilities. Thus, it is a fundamental cash management tool that allows us to forecast when new facilities are needed and/or when strategic business decisions need to be made to prevent cash running out.
“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.” – Peter Drucker
4. Team
It is an understatement to say that your team is an important part of the business’s growth. At an early stage when the company is scaling, having a strong team is vital, which saves years of time due to higher performance. It’s harder than you may think to find good people who can fit in with the company’s culture.
Individuals (or yourself) may cause more damage than good by trying to undertake a variety of roles. It is better to get highly skilled team members who can fulfil clear roles required to take the business forward.
One of the difficult things about building a property development company is that cashflow can be very lumpy. So if you’re starting with no/low working capital, which will easily be eaten up in building the pipeline, there may not be sufficient funds to invest and grow a team to undertake all the roles required. This is a genuine risk that will need to be considered in detail by each individual business.
As you’re building your team, don’t forget that in addition to having clear roles and responsibilities, they need to have the relevant authority to deliver on their roles without being hindered. There also needs to be clear accountability and a culture of constant learning, with no holding back for fear of making mistakes. Invest in your team, and they will return dividends. Also celebrate successes, acknowledge their achievements, and undertake detailed one-to-ones with them in order to build trust and seek their feedback.
“If everyone is moving forward together, then success takes care of itself.” – Henry Ford
5. Leadership
Developing leadership skills is a constant learning curve as the company’s activity or size grows; this means dealing with different problems or opportunities. Thus, leadership can be quite fluid in the company’s early phases of development but must focus on both a charismatic as well as transactional approach where systems, controls, targets and individual performance metrics are emphasised.
Some key points for a leader to remember when scaling are as follows:
a. Remain humble
b. Focus on other people’s success and help them achieve the wins
c. Care more about the company’s growth and success rather than personal gains
d. Do whatever needs to be done
e. Accept responsibility
f. Seek feedback
g. Give feedback
h. Continue to learn/read about leadership, self-awareness and team management
i. Be honest and realistic
j. Learn from mistakes
“A genuine leader is not a searcher for consensus but a moulder of consensus.” – Martin Luther King, Jr
6. Execution
When scaling your business there is going to be a tremendous amount of ‘stuff’ to do. This will only get worse, and it can be very easy to become extremely busy whilst not really getting anything meaningful done. It is also very easy to be trading but not really understanding what the performance looks like.
It is difficult to explain in such a short piece, but focusing on execution will be the difference between growing slowly or growing more quickly without making avoidable mistakes. The business generates a significant amount of data that will normally be telling you what’s needed; you just need to have relevant systems and processes in place to organise that data in a way that makes decision making efficient. I will need to give examples in a future article to build on this in more detail. In a nutshell, try to consider the following in your business:
a. Face the facts – What’s working, what isn’t working, what are your team saying, what are you customers or other stakeholders saying? Seek feedback if you can’t see problems yourself.
b. What are the company’s priorities?
c. Consider doing an exercise where you honestly track what you spend your time doing in the working days for one week, then compare that against your priorities. The result will most probably show you actually spend a fraction of your time actioning your priorities.
d. What data are you capturing versus what you should be capturing/measuring?
e. What systems do you have in place or need to have in place to make operations more efficient?
“Without strategy, execution is aimless. Without execution, strategy is useless.” – Morris Chang
7. Culture
The culture of a company is critical to its successful growth because it is the intangible foundation that gives the team its sense of purpose. Until your company is relatively large, you will have a significant influence over this culture because a large part of it will be reflected by your leadership, personality, mannerisms, views, values and opinions. It is paramount that you become conscious of this and frequently undertake a self-review to ensure you are energising the company with the correct culture. Some key characteristics we look for within our culture are as follows:
a. Growth mindset
b. Purpose-driven mindset
c. Effective communication & feedback
d. Accountability
e. Constructive debate & teamwork
f. Proactiveness
g. Entrepreneurial & problem-solving mindset
h. Education & personal development
“Company culture is the backbone of any successful organisation.” – Gary Vaynerchuk