With strong demand for new homes in Western Australia, a building company can have plenty of customers and a healthy order book.
But strong demand doesn’t necessarily mean a builder is professionally managed or positioned for long-term success.
Warren Buffett, one of the world’s most successful investors, has spent decades identifying successful companies with the potential to remain successful over the long term.
His investment philosophy offers some useful lessons for WA building companies.
Here are five indicators worth considering.
1. It genuinely cares about its customers
Why does this matter?
Satisfied customers strengthen a company’s reputation, generate recommendations and support long-term growth. Losing their trust can damage its competitive position.
What does this look like?
A professionally managed builder listens to dissatisfied customers, takes complaints seriously and actively seeks to understand and resolve concerns.
In his 2020 shareholder letter, Buffett highlighted the enduring success of See’s Candies and its customer-focused approach. His central message was simple: the customer ultimately determines the success of the business.
2. It takes pride in its work and delivers value for money
Why does this matter?
Consistent quality and good value help a building company earn customer confidence, maintain its reputation and compete successfully over time.
What does this look like?
A builder takes pride in every home it delivers, whether modest or luxurious. Customers receive the workmanship, standards and inclusions they’ve paid for.
In his 2020 shareholder letter, Buffett explained how GEICO challenged much larger insurance companies by offering customers better value through a lower-cost business model.
The lesson is that genuine customer value can become a lasting competitive advantage.
3. It is organised and knows how to deliver
Why does this matter?
Efficient management reduces wasted time, controls costs and improves a company’s ability to deliver reliably and profitably.
What does this look like?
A professionally managed builder coordinates trades and materials, monitors construction progress and makes timely decisions when problems arise.
In his 2023 shareholder letter, Buffett highlighted that BNSF Railway’s profit margins had fallen behind those of its major competitors, despite the company’s enormous scale.
He made clear that operational performance needed to improve.
The lesson is that size and business volume are no substitutes for efficient management.
4. It learns from mistakes and continually improves
Why does this matter?
Companies that learn from mistakes improve their efficiency and competitiveness. Those that repeatedly make the same mistakes risk wasting resources and falling behind.
What does this look like?
A professionally managed builder investigates recurring defects, listens to customer feedback and improves its systems to prevent similar problems.
In his 2024 shareholder letter, Buffett openly acknowledged management mistakes and emphasised the importance of taking corrective action rather than allowing problems to continue.
5. It thinks beyond the next sale
Why does this matter?
Strong demand today doesn’t guarantee success tomorrow. Long-term survival depends on remaining competitive as markets, technologies and customer expectations change.
What does this look like?
A professionally managed builder invests in its people, technology, construction methods, management systems and customer relationships.
It is building a company capable of succeeding for decades, rather than simply chasing the next contract.
In his 2022 shareholder letter, Buffett explained his preference for companies with enduring economic strengths and trustworthy management, focusing on long-term performance rather than short-term opportunities.
⸻
A successful building company today is not necessarily a well-managed company. The real test is whether its management is building a business capable of succeeding tomorrow.