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
Pueblo
National
11000
1,800,000
10000
1,700,000
Pueblo Permits
1,500,000
8000
1,400,000
7000
1,300,000
6000
National Permits
1,600,000
9000
1,200,000
5000
1,100,000
1,000,000
4000
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Green Building Market Acceptance Projection
Green
11000
600
10000
500
9000
400
8000
300
7000
200
6000
100
5000
4000
0
2001
2002
2003
2004
2005
2006
Year
2007
2008
2009
2010

Green Starts
Traditional Starts
Traditional
National

In 2006, an estimated 1.4 million homes were built with a
total value over $500 billion.

For 2007, it is expected that total construction will decline
by about 15% but should return to steady growth
thereafter.

Green home building market size is now valued at $7
billion dollars.

Green home construction is expected to grow to between
5% and 10% of U.S. housing starts by 2010 – up from 2%
in 2005.
 This would equate to a market value between $19
billion and $38 billion.
Pueblo

In 2006, 7,169 New homes were constructed, down from
10,555 in 2005.

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 sales.

Several sources indicate Pueblo is a top 5 metro area for
anticipated job growth.
Green built home sales are expected to grow by over
30% per year through 2010.


Less than $10M in 2005.
Approximately $160M in 2010.
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 20082009 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
Breadth
Narrow – consulting
only
Narrow – only do
remodels
Moderate – Energy
efficient homes
Diverse – Provide a
variety of green
solutions
Product
Features
Consulting only
Green / Energy
Efficiency (remodel
only)
Energy Efficiency
Green / Energy
Efficiency / Renewable
Energy / Smart Homes
Need they
Satisfy
Green consulting
services
Green remodeling
solutions
Ground Up Construction
– Energy Efficiency only
Ground Up – Green
Solutions
Expertise
Good expertise in
green solutions
Good expertise in
green solutions
Good expertise in
construction. Low
expertise in green
solutions
Moderate expertise in
green solutions and
construction.
Price
N/A – don’t build
homes
N/A – don’t build
homes
Average – vary the level
of green to meet the
customer’s budget
Slightly more than
average – green
features will come
standard
Size
Very small – just
getting started
Very small – two man
show that is just
getting started
Small – Build less than
10 homes per year in
the Pueblo area. Father
and son operation
Conceptual only – goal
is to be building 25
homes per year by fifth
year of operation.
Strategic
Alliances
With Green Rem
With On-Point
None
None…yet.
Basis of
Competition
Green
Home Building
Features
Environmental Impact
Energy Savings
Customer Satisfaction
Reputation
Price
Value
Production
Home Building
Quality
Design
Architecture
Customizability
Custom
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
4
Medium
1
2
High
3
1.
Material Cost – Dependent on type of construction: Green construction typically incurs 35% 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/businessmarket-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/industrynews.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
Green Penetration into Pueblo Market
11000
600
10000
500
9000
400
8000
300
7000
200
Green Starts
Traditional Starts
National Market

In 2006, an estimated 1.4 million homes were built
with a total value over $500 billion.

For 2007, it is expected that total construction will
decline by about 15% but should return to steady
growth thereafter.

Green home building market size is now valued at
$7 billion dollars.

Green home construction is expected to grow to
between 5% and 10% of U.S. housing starts by
2010 – up from 2% in 2005.
 This would equate to a market value between
$19 billion and $38 billion.
6000
100
5000
4000
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
Pueblo Market

In 2006, 7,169 New homes were constructed, down
from 10,555 in 2005.

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 sales.
 Several sources indicate Pueblo is a top 5
metro area for anticipated job growth.

Green built home sales are expected to grow by
approximately 30% per year through 2010.
 Less than $10M in 2005.
 Approximately $108M in 2010.
Pueblo Market Statistics
Volume
Unit Volume
Total Homes Built
in 2006
$1,696
million
7,169
Green Homes Built
in 2006
$17,745
million
< 75
(1% of market)
Green Home
Projection For 2010
$107,846
million
375
(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 20082009 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
Breadth
Narrow – consulting
only
Narrow – only do
remodels
Moderate – Energy
efficient homes
Diverse – Provide a
variety of green
solutions
Product
Features
Consulting only
Green / Energy
Efficiency (remodel
only)
Energy Efficiency
Green / Energy
Efficiency / Renewable
Energy / Smart Homes
Need they
Satisfy
Green consulting
services
Green remodeling
solutions
Ground Up Construction
– Energy Efficiency only
Ground Up – Green
Solutions
Expertise
Good expertise in
green solutions
Good expertise in
green solutions
Good expertise in
construction. Low
expertise in green
solutions
Moderate expertise in
green solutions and
construction.
Price
N/A – don’t build
homes
N/A – don’t build
homes
Average – vary the level
of green to meet the
customer’s budget
Slightly more than
average – green
features will come
standard
Size
Very small – just
getting started
Very small – two man
show that is just
getting started
Small – Build less than
10 homes per year in
the Pueblo area. Father
and son operation
Conceptual only – goal
is to be building 25
homes per year by fifth
year of operation.
Strategic
Alliances
With Green Rem
With On-Point
None
None…yet.
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, cofounder 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
• Educated – BS or higher
• Enjoy all types of outdoor activities, particularly
hiking, backpacking, and fly fishing
• Differences in gender, race, or occupation do not
vary significantly
• Donate time and/or money to organizations
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
Projected market size (homes)
200
275
375
Market penetration
0.50%
1.82%
4.00%
Operating Income
1st Year (2008) 2nd Year (2009) 3rd Year (2010)
Revenue
$300,000
$1,500,000
$4,500,000
Cost of Goods Sold
270,000
1,350,000
4,050,000
Gross Profit
30,000
150,000
450,000
Gross Profit %
0
0
0
Operating Expenses
Sales & Marketing
30,000
56,000
52,000
Website
5,000
20,000
5,000
Flyers
10,000
15,000
20,000
Advertisements
10,000
15,000
20,000
Misc. OE
5,000
6,000
7,000
General & Administrative
72,000
77,000
182,000
Salary
25,000
25,000
125,000
Office Supplies
2,000
2,000
2,000
Legal
15,000
10,000
10,000
Insurance
20,000
30,000
35,000
Misc. G&A
10,000
10,000
10,000
Total
102,000
133,000
234,000
Operating Income
($72,000)
$17,000
$216,000
Break-Even Revenue
Investment Required
Capital Expenditures
Working Capital
Other Major Expenses
Non-recurring
Total
$1,020,000
$1,330,000
$2,340,000
$0
102,000
15,000
50,000
$167,000
$10,000
133,000
15,000
0
$158,000
$30,000
234,000
15,000
0
$279,000
Major Takeaways
• A significant cash infusion is needed the
first year to establish the company
($102,000). An additional infusion ($40,000)
will be needed in the second year to cover
working capital expenditures.
• After the 2nd year, the company becomes
self-supporting.
• A $1 change in G&A results in about a $4
decrease in breakeven revenue. Controlling
these expenses will be critical to our success.
• Since we are starting out by building
custom homes, the money for construction is
put up by the customer’s bank reducing the
need for capital expenditures. To grow the
company will require us to start building
homes on speculation, requiring much more
in the way of capital expenditures to purchase
lots.
Financial Analysis - Assumptions
Revenue

Due to the operational challenges of getting
established and finding good subcontractors, we do
not want to grow the company too fast.

An appropriate growth schedule for the first three
years would be as follows




Year 1 – one house
Year 2 – five houses
Year 3 – fifteen houses
We will reach critical mass somewhere around 7-8
houses.
Cost of Revenues

Typically cost of revenues is carried by the cost of
building the house.

Having interviewed several contractors, the typical
cost of revenues ranges from 80-85% of revenues.
To maintain a conservative approach, we used a
factor of 90% to compute cost of revenues.

It is not practical to break the cost of revenues down
further because it is very project-dependent. Some
homes will have large landscaping costs but little
pavement costs. Others will have large electrical
wiring costs, others will not.

Subcontractors will perform all site work. Since
there is no capital assets in our business model,
Peter Wolf Construction would not realize a
significant depreciation expense worth noting.
Operating Expenses - Sales & Marketing

Sales & marketing are broken down into 3 main
channels and a 4th miscellaneous channel.

Website expense will incur the most cost in the
second year because of development and
implementation of the site. The first year’s website
will be designed using boot strap tactics.

Flyers and Advertising expenses will mostly be
directed towards direct mailings and building
industry relationship.
Operating Expenses - General & Administrative

A base salary of $25,000 is established for Tyler.
This expense will grow to $125,000 in year 3 as two
more partners come onboard full time.

Legal costs are assumed to cost the most in the first
year as certain non recurring expenses will take
place such as filing company papers and
establishing the partnership agreements.

Insurance costs will grow as the business grows.
The insurance cost is to protect the homebuyer in
case the company goes into default. Health and
other forms of insurance will not initially be provided
by the company.

Miscellaneous G&A is not only a slush fund but also
a resource to use in case of emergency cash
crunches.
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-researchstats.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/2006-07-26green-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 Homes is a Green Builder
specializing in the architectural
design and construction of ultra
energy-efficient homes.

Donna Merten –





Bob Hughes Construction:
Based in Boulder, Colorado, Bob
Hughes Construction builds high end
custom homes greater than $1M
Bob Hughes:

Owner / President
Based in Pueblo, Colorado,
Fireside Homes builds
approximately 15 custom homes
per year.
Joe Collins:


McStain Founders
Fireside Homes:


Tom & Caroline Hoyt
President & CEO

Building a Better World: “We
believe that the only truly
sustainable human community is
one built in balance with the
natural environment.”
Owner / President

SKS Ventures:


Real estate investment company.
Chuck Berling

Use to own a high-end, custom
home building company based in
Evergreen, Colorado
Professional Contacts - continued
McStain Neighborhoods:


Peak Properties:



Develop green residential
apartment buildings in
Boulder, Colorado
Avery Host:

President & CEO



Suncor:
Large scale commercial and
residential developer. Operate
Pueblo’s larges planned community
development
Bob Taunton:

Custom Home builder in
Denver, Colorado
Randy Thall:


Project Manager
S & C Company:


Colleen Rozier


Building a Better World: “We
believe that the only truly
sustainable human community is
one built in balance with the
natural environment.”
President of Avimor Development
Vice President of Operations

Pueblo Springs:


Pueblo’s first large scale
residential development.
Frank Martin

Hidden Springs President