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A Corporate Titan Helps General Contractor Build Foundation for Business and Future
Aired May 7, 2005 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: And good morning, everyone. I'm Tony Harris at the CNN Center in Atlanta. "THE TURNAROUND" with Ali Velshi begins in 60 seconds...
HARRIS: ... news.
President Bush revisits a painful past. The president is in Latvia where he met with leaders of that country, Estonia and Lithuania. He told the Baltic leaders the U.S. recognizes their painful history during World War II. The president is commemorating the 60th anniversary of the end of the war in Europe.
Two American contractors are among the dead in insurgent violence in Iraq. A suicide car blast hit a convoy in central Baghdad killing at least 22 people, including the Americans. Also today, a U.S. war casualty, an American Marine was killed during combat in the Al Anbar Province.
A decades old serial killings case is reopened in Atlanta. And area police chief is again investigating several of the child murders from the late 1970s and early '80s. He believes convicted killer, Wayne Williams is innocent. Authorities blamed Williams for 22 of the killings. He was only convicted for the murders of two young men.
More news coming up in 30 minutes. "THE TURNAROUND" with Ali Velshi begins right now.
ALI VELSHI, HOST (voice-over): Next on THE TURNAROUND, a general contractor determined to grow his business.
BEN MOREY, OWNER, MOREY CONSTRUCTION: What is it going to take to retire comfortably, at least at this point in life?
VELSHI: A corporate titan with a home-building empire.
BRUCE KARATZ, CHAIRMAN/CEO, KB HOME: I've seen my company grow from less than $1 billion company to this year now approaching $10 billion.
VELSHI: Can this CEO help this small business owner build the foundation for his family's future?
KARATZ: I think he spends too much time doing things that don't help his business.
VELSHI: THE TURNAROUND begins now.
VELSHI: From groundbreaking to pouring the foundation to the best-looking home on the block, the home building and renovation industry gives structure to the American dream. It's a half a trillion dollar a year business, almost 5 percent of the entire U.S. economy.
(on camera): I'm Ali Velshi on Signal Hill in Southern California, where one general contractor is trying to make a living out of the growth in this area. Well, after 20 years in the business, he certainly knows how to build houses, but he's not making enough money doing so. So, we're going to surprise him with an introduction to one of the country's biggest home builders. And after three days together, we'll see if they can't develop a blueprint for a turnaround.
(voice-over): You probably don't recognize him but there's a good chance this man's empire reaches right into your neighborhood.
KARATZ: It's a great day for KB Home and I think it's a great day for the City of Los Angeles.
VELSHI: Bruce Karatz is chairman and CEO of KB Home, one of the largest home builders in America. KB is literally changing the landscape across the United States.
(on camera): There's nothing older than building houses but it's different than when you started in the business.
KARATZ: It is. I've seen my company, KB Home, grow from what at one time was considered large, but less than a billion dollar company, less than half a billion dollar company that this year, now approaching $10 billion.
VELSHI (voice-over): It's taken 30 years for Karatz to get KB Home to that level and he's earned a lot of respect along the way. "Forbes" magazine put KB on its 2005 list of super charged companies. The year before, "Business Week" magazine declared KB Home one of the top 50 companies in America. In 2004 alone, Karatz oversaw the delivery of nearly 32,000 new homes.
In the Southern California community of Signal Hill, you'll find a somewhat smaller snapshot of the construction industry.
MOREY: This year, we'll do over a little $2.5 million worth of business.
VELSHI: Ben Morey is the owner of Morey Construction. He's struggling to keep part of the $2.5 million for himself without compromising the quality of his work.
MOREY: The largest challenge to making a profit for the company is to have a real good control on your overhead. VELSHI: Aside from struggling to make ends meet, Ben needs to find new ways to make more money, and soon. But he also has a long- range dream, to eventually pass the business to his 21-year-old son.
MOREY: My goal is in eight years to be semi-retired. If my son is going to come in and take over the business, what is it going to take to retire comfortably, at least at this point in life? This is our 23rd year of being in business as a...
VELSHI: Ben Morey doesn't know it yet, but Bruce Karatz is getting familiar with the story of his business.
KARATZ: He looks good for 23 years of doing this.
VELSHI: Ben is about to get a rare opportunity, three days with a giant in the construction world.
(on camera): The thing I love about Ben's story is it's three American dreams wrapped into one. It's the American dream of running a business, the American dream of homeownership and the dream of being able to pass something on and leave a legacy.
KARATZ: I love that, too, Ali. I love the spirit. I love his excitement. I don't know whether I can help him, but we'll see over the next couple of days.
VELSHI (voice-over): Day one of the turnaround, Ben is busy directing his small staff...
MOREY: That's not a bad idea, is to go ahead and pre-submit that.
UNIDENTIFIED MALE: Right.
VELSHI: ...and fielding phone calls from clients.
MOREY: And they're working on that fireplace, trying to get that stain mark out.
VELSHI: He's wondering who his mentor will be and he's thinking about how to generate more profit from each project he takes on.
MOREY: The goal would be 10 percent.
VELSHI (on camera): What's the most profitable thing you could do?
MOREY: Our niche is a project that's going to be somewhere between $250,000 and $350,000.
VELSHI (voice-over): That means Ben wants to earn somewhere between $25,000 and $35,000 per project after all of his costs. But even though he always seems busy, he's nowhere near that goal and he's certainly nowhere near being semi-retired in eight years.
(on camera): What are your expectations for the next three days? MOREY: Well, I'm interested in finding information out. I believe that any time somebody has more experience than I do; I'm always interested in finding out how they do what they do.
VELSHI (voice-over): Now is his chance as his mentor, a man who heads a staff of 6,000 people, walks through the door of Morey Construction.
KARATZ: Good afternoon. How are you?
CANDY MEYERS, ASSISTANT OFFICER MANAGER, MOREY CONSTRUCTION: Just fine, thank you.
KARATZ: I'm Bruce Karatz. Is Ben in?
MEYERS: Hi, Mr. Karatz. I'm Candy Meyers.
KARATZ: Hello, Candy.
MEYERS: And yes, he is. Thank you. Just a moment and I'll let him know you're here.
KARATZ: OK, great, good.
VELSHI: Candy doesn't seem to recognize Bruce Karatz by name, but Ben sure does.
KARATZ: Hello, Ben, I'm Bruce Karatz, the chairman and CEO of KB Home.
MOREY: Nice to meet you.
KARATZ: Nice meeting you.
My first reaction was OK, there's somebody here that has been very successful. Anybody that has that kind of affinity for this business, I want to spend some time with.
VELSHI: Ben starts by showing Bruce around.
MOREY: It's not a big showroom. It's not designed up that way.
MOREY: You can't have them make a lot of selections but at least give them some insight into what we do.
KARATZ: It looks good. No, people like to touch and feel things, as you know.
MOREY: Yes, absolutely. From your experience -- you're in a little different boat but that's the idea.
KARATZ: Well, it's -- customers are probably -- there's a lot of similarities.
VELSHI: Bruce Karatz has studied up on Morey Construction and he thinks he can help in several areas. But in private, Ben has some doubts. He's worried the two businesses don't have enough in common.
MOREY: We'll take up to 10 projects at a time based on what we want to handle. KB Homes is doing 50 to 500 brand new homes at one time. In that scenario, just the economy of scale is very, very different.
VELSHI: Coming up, the mentor worries he hit a nerve.
KARATZ: I'm not being critical.
VELSHI: Plus, Ben's showroom springs a leak.
KARATZ: This thing is falling apart.
VELSHI: THE TURNAROUND continues next.
VELSHI (voice-over): It's not every day that a small business owner like Ben Morey gets pointers from the boss of a multi-billion dollar corporation.
MOREY: We sat down and basically talked about our viewpoints of what we do.
VELSHI: As CEO of KB Home, Bruce Karatz oversees the construction of a staggering number of houses every year. In 2004, his company delivered more than 31,000 homes. But for the next three days, the veteran home builder has only one project in focus, Ben Morey.
As Bruce takes stock of Ben's business, he talks about what his company and Morey Construction have in common, getting repeat business and making sure the clients they already have are happy. Despite the vast differences in the size of their two companies, Ben and Bruce both recognize that they need to gather information about their customers, but Bruce doesn't think that Ben is focusing on the right information.
KARATZ: One of the things that we learned was that first-time home buyers are the most difficult to satisfy.
VELSHI: The pair heads outside where Bruce learns of one of Ben's self imposed business limitations. While Ben's office is within 30 miles of prime Los Angeles real estate, like Palace Verdes, Bel Air, and Beverly Hills, Ben won't build or renovate houses there.
MOREY: I don't go north of the 110. KARATZ: You don't? That's what I'm saying. So, you just decided...
MOREY: If it's not 30 minutes within where we're standing there now, we're not going there.
VELSHI: That's certainly a different philosophy from KB Homes. Bruce isn't familiar with geographic limitations. KB takes on projects coast to coast in 13 states.
KARATZ: I'd like him to expand the zone that he works in.
VELSHI: But regardless of where Ben gets his clients, how he communicates with them is key. So Bruce takes a look at the material that Ben sends to potential clients and he thinks something is missing.
KARATZ: There's something that bothers me a little bit with your logo.
KARATZ: You've been in the business 20 some years?
MOREY: It's 23 years in August.
KARATZ: I think we ought to tell people that.
VELSHI: And while Bruce wants Ben to add that detail to his package, he'd like him to lose some other details.
KARATZ: I don't want to see your license. I'm sitting here already. I don't want to see an insurance thing that I don't understand. You know I'm already here. You don't have to convince me.
VELSHI: The information in the packet wasn't the only thing that Bruce found scattered. He found a messy crate of stone samples in the showroom.
KARATZ: Does this go with a dark cabinet better, a light cabinet, or is this for the floor?
VELSHI: And that's just for starters.
KARATZ: What bothers me is I went over here -- and you know I don't want you to get mad at me.
MOREY: Highly unlikely.
KARATZ: All right, OK, because like you, and I don't want -- here.
MOREY: What are the faucets loose? KARATZ: Yes. It just -- this thing is falling apart. If I'm in here looking at -- trying to do a $200,000 remodel...
KARATZ: ...and we haven't signed the deal yet and I come over here and pull this thing out, you're wincing.
VELSHI: While it makes sense that a contractor's showroom would have various cabinets and fixtures, Bruce thinks Ben would profit more of creating a book of before and after pictures.
KARATZ: Pictures, I know, will sell.
KARATZ: People want to see what you can do.
VELSHI: Ben also makes more money if a client ends up buying more expensive items than they had planned to. The key, create a checklist for clients to fill out, a list of possible upgrades. That way, they'll have more remodeling options and they may spend more money the process.
KARATZ: Would you like sliding glass door? Do you want a fireplace in the kitchen? Do you want -- you know, then you say, please sit down. Let me just show you a book of 15 kitchens. And in the course of an hour, you've moved this customer very far down the line toward signing a contract.
VELSHI (on camera): What are you thinking? You're open to this? Is it jarring?
MOREY: NO, I mean I think your point is well taken, that some of this can go away and still have the client feel very comfortable with proceeding with Morey Construction.
VELSHI (voice-over): But Ben feels like Bruce might not be understanding how he works. A company like KB Home has systems that Ben thinks are too impersonal for his clients.
MOREY: We have found that the interaction with a client and giving them the explanation of what they're spending additional money on really is an integral part of what we do because it's all about education.
VELSHI (on camera): But you guys are both are doing a lot to understand each other, but we've got to wrap it up and come back tomorrow. So, what do you think?
KARATZ: All right. I'd love to see before and after pictures. I would like to see it in big format.
KARATZ: OK. MOREY: We're not going to probably have time to get them blown up into the size of what he was suggesting there, but I think that's something that we'll definitely try to set up.
VELSHI (voice-over): Coming up, Bruce suggests a new image for Morey Construction.
MOREY: So, did you save the best for last?
VELSHI: And has some tough questions for Ben.
KARATZ: The statement that you made, I don't go north of the Harbor Freeway.
KARATZ: Why? You can't tell me that's inconvenient to drive to.
VELSHI: Next on THE TURNAROUND.
VELSHI (on camera): This is Day two of this three-day turnaround. In this episode, our mentor is Bruce Karatz. He's the CEO of KB Home, one of nation's largest home builders. He's mentoring Ben Morey. Ben Morey is a general contractor. In fact, this is one of the homes that he's working on. Now, yesterday, we got a chance to look at Ben Morey's showroom. Today, we're going to see how his mentor does business.
What's your sense of how yesterday went and what your approach is going to be today?
KARATZ: I hope I wasn't too tough on Ben because I think he's got so many great qualities. What I would like to accomplish today is one -- we talked about his logo. I put our designers to work and I've some new logos.
VELSHI: That's great.
KARATZ: Secondly, I want to show him our studio and I want him to understand the power of branding and the ease of presentation.
VELSHI (voice-over): Yesterday, Bruce took a tour of Ben's showroom and because Bruce feels one of the keys to a successful business is presentation, he wants to show Ben how KB does it without losing the personal touch that Ben so values.
KARATZ: I wanted to just show you how we present it and, hopefully, communicate branding, how important branding is, and, secondly, organization to simplify the process. VELSHI: Bruce Karatz is giving Ben a tour of one of KB Home's studios or showrooms. It's meant to show Ben that even though he's the craftsman, he needs to be a bit of a marker to help close some of those deals that he's got with clients. Let's see what they're talking about.
LAURA GRAD, REGIONAL VP, KB HOME: This is one of our kitchen vignettes. We have three kitchen vignettes here in the studio. Of course, at the models, we have the models fully decorated so they can -- buyers can see all of the choices that are available because buyers tend to know what they like when they see it, but sometimes they have a little trouble putting all the pieces together.
VELSHI: From kitchens and counter tops to cabinets and closets and everything in between, Bruce believes a well-organized and well- presented showroom helps buyers build their dream home and will help increase sales for Morey Construction.
KARATZ: We're making it easier for our home buyer to make the choice.
VELSHI: Bruce knows Ben can't have a showroom like his, but he can have photos of the available options.
MOREY: In essence, what you're saying is if you put the pictures up of what is available option wise then you give your customers a much more streamlined way to do business with you?
KARATZ: Yes. And I think that if you haven't pictures of the final product, you've got to go out and do it.
VELSHI: And on the topic of image, Bruce again brings up the idea of making over the logo.
KARATZ: It just sort of bugged me. I didn't like his little triangle with the big C and little M. I couldn't quite figure that one out and I don't think his clients do either.
VELSHI: KB Homes in-house ad agency developed some new logo designs for Ben to consider.
DON RICH, ART DIRECTOR, KB HOME: When we first went on the website and looked at Morey Construction's logo, we were sort of surprised at how outdated it looked. So we wanted to give them something more contemporary, something that had a little bit more flavor to it.
KARATZ: So, I brought you some logos.
KARATZ: Here's Morey Construction since '82.
MOREY: OK. KARATZ: Sort of the slide rule approach. Here is the same effect. Again, the orange sticks out, since 1982.
MOREY: So, did you save the best for last?
KARATZ: I want you to tell me.
MOREY: Well, of everything that you showed me, I would say the last one would be the one I choose.
KARATZ: Yes. To me, when I saw this, I said it's not too modern.
KARATZ: Very solid. The blue, I think, pops very nicely, and it says it all.
MOREY: Fantastic job. Thank your people.
KARATZ: All right. Take it. Take it and put it to use.
VELSHI: For their next order of business, Bruce wants to check out one of Ben's current projects.
MOREY: We're standing in what was the existing home, starting from the front door, that's really the only facade that's going to be left.
VELSHI: Ben shows Bruce a home that Morey Construction is renovating in the exclusive enclave of Belmont Shores, just south of Los Angeles.
KARATZ: How large is this?
MOREY: It's just under 3,000 square feet. The living room section here and where we're standing actually is going to be a petition wall that opens into the kitchen area itself.
VELSHI (on camera): Ben's certainly taking a lot in from Bruce about ways to improve his business. But what Bruce wants to do is see Ben get down to brass tasks, start making some changes that'll put him on a road to a turnaround.
(voice-over): Bruce picks up on Ben's emphasis of quality of his work so he goes back to the idea of a customer survey. But Ben already conducts one.
KARATZ: When do you survey the customer?
MOREY: At the end of the job is when we currently survey.
KARATZ: After they move in.
MOREY: After they move in, correct. KARATZ: I think it would also be a very good idea to think about surveying your customers a year later because there's lots of things that happen. One, people are very excited to move in. There might be one or two very obvious items that need to be fixed right away, but then the question is, how people feel a year after.
VELSHI: And that's just one more assignment for Ben. Bruce has already asked Ben to reconsider how his showroom is set up, think about expanding the area in which he works and fix his logo.
Coming up on THE TURNAROUND, Bruce weighs in on Ben's letter to his clients.
KARATZ: I'm already getting nervous.
VELSHI: And Ben has a problem.
UNIDENTIFIED FEMALE: I'm sorry to interrupt. Ben, we have a little issue we need to have you come talk to us for just a moment.
HARRIS: I'm Tony Harris in Atlanta. More of "THE TURNAROUND" with Ali Velshi in a minute, first stories now in the news.
President Bush is saluting democracy in the Baltic state of Latvia today. It's the first stop on the president's European trip. He's marking the 60th anniversary of the end of World War II in Europe but it's also calling attention to the take over of Iron Curtain countries by the former Soviet Union in 1945, calling it one of the greatest wrongs of history.
In the capital of Myanmar today, three bombs exploded within an hour of each other. Government TV reports at least 11 deaths and more than 160 people wounded. Two bombs went off in a shopping center as a third blast happened at a trade exhibition.
According to a report in today's "Washington Post," Chinese officials said no to a U.S. request to cut off oil supplies to North Korea as a way to push it back into nuclear disarmament talks. North Korea dropped out of six-nation talks in February and U.S. intelligence says the country could be preparing for a possible nuclear test.
We'll have more news in half an hour. Right now, "THE TURNAROUND" with Ali Velshi continues.
VELSHI (on camera): Welcome back to THE TURNAROUND. It's the middle of Day two of this three-day project. We're in Southern California where our small business owner is the general contractor. Our mentor is the CEO of one of the nation's largest home builders. Now, they've spent the last day and a half getting to know each other, getting to understand their shared background of more than two decades in the construction industry but now it's time to get down to work. Our mentor has some specific tasks for our small business owner.
This morning, Ben Morey got a glimpse of a different kind of showroom. He then gave Bruce Karatz, the chairman and CEO of KB Home, a tour of one of Morey's construction sites. Now it's time to sit down and tackle the details of Ben's turn around. In addition to putting some polish on Ben's showroom, the two men have already discussed improving Ben's customer survey, expanding his territory and using a new logo. First on today's agenda, building off Ben's base of satisfied customers.
KARATZ: What do you give one of your customers who refers someone to you?
MOREY: We'll either send them a certificate to a local restaurant or send them flowers with a thank you note of appreciation for that.
KARATZ: Maybe you would get more business if it were a true referral fee. The idea that comes to my mind is send out a letter to your whole history, very simple. We know now that virtually all of our business comes from referrals, from old customers. I'd like to thank you for your prior business and welcome any new business that you can refer our way. We would be pleased to send you a flat screen LCD television for any referral that signs a contract with us.
VELSHI: Bruce likes Ben. He thinks he's a positive guy, but you wouldn't know that from the letter he currently sends to potential customers.
KARATZ: Let me just read for you -- "Dear Mr. Potential Customer, thank you for calling Morey Construction to discuss your remodeling needs." Now, the third sentence, this, you got to listen to. "Homeowners are scared of remodeling and the invasion and risks it represents to your biggest investment." I'm already getting nervous. On the third sentence, you now -- you just reminded me that there's risks, and invasion and frightening things are going on. In my opinion, this letter has to be re-written.
VELSHI: Ben's been telling his mentor how important the quality of his work is to him. So Bruce again explains that before and after pictures will only emphasize Ben's workmanship. He's brought some examples.
KARATZ: This is not perfect, OK? But this gives you a sense. I, frankly, would even like it bigger than this.
MOREY: This is very good. Our clients, even before Bruce had this session with us, always commented upon was before and after scenarios. Just showing the finished product for us was not near as dramatic as showing what it was previously, before it was finished. VELSHI: Suddenly, there's an interruption.
UNIDENTIFIED FEMALE: I'm sorry to interrupt. Ben, we have a little issue we need to have you come to talk to us for just a moment.
VELSHI: The owners of the home Ben took his mentor to earlier have turned up at the office and they're not happy about something.
MOREY: Sorry for the interruption. What we had is a client that had a meeting scheduled but they were scheduled actually to go to a supplier and look at material types. Well, in their mind, there were enough issues they needed to come to the office.
VELSHI (on camera): And it's kind of under control now? You feel like it's under control?
MOREY: OK. We've got them headed in the right direction.
VELSHI: All right.
(voice-over): Ben rejoins Bruce and the mentoring session picks up with pricing. Bruce doesn't think Ben is charging enough for his services.
KARATZ: I've got to get him to believe how good he is because he's entitled to make a profit.
What happens if you went through the pricing and the contract number was $500,000? What happens if you add 10 percent to that and you tell me it's going to be $550,000? Do you not get the job?
MOREY: Good question.
KARATZ: You sign up. You buy a home for x. We deliver you a quality home for x, period, end of story. You do it just like the big builder does it.
MOREY: That's the goal.
KARATZ: Well, I think you're entitled to be paid for that.
VELSHI (on camera): He's working hard to take your thoughts and your ideas and make them fit his business.
KARATZ: He certainly seems anxious to do it. I think he's gone about this exercise in a very positive way.
VELSHI (voice-over): Ben is taking Bruce's advice to heart. In fact, while on the way to a meeting with a client, Ben stops at a nearby copy shop to make the before and after displays that Bruce keeps talking about.
MOREY: This is the format we're looking for.
UNIDENTIFIED FEMALE: All right and when will you be needing these posters?
MOREY: Now, here's the kicker, tomorrow morning.
UNIDENTIFIED MALE: All right.
MOREY: That would be a before. OK, so this has to be the after. No. Yes. That's the best shot of their house, correct? Let's print that and enlarge.
UNIDENTIFIED FEMALE: So, we have 10 pictures total. We're having it ready by tomorrow morning at 8:00?
MOREY: Yes. Thank you very much. I appreciate it.
VELSHI (on camera): It's the end of Day two of this three-day turn around and our mentor has given Ben Morey six specific things that he wants him to do by tomorrow morning. Number 1, Ben talks about quality, so Bruce wants him to develop a customer satisfaction survey to gauge how well he's doing. Number 2, Ben has made the connection between marketing and profitability so he's got to do something with that showroom. Number 3, Ben gets most of his clientele from referrals, so Bruce wants him to think of some way to give an incentive to past clients to get him more business. Number 4, Bruce wants Ben to consider expanding beyond just the immediate area. Number 5, Bruce wants Ben to rework the letter that he sends to prospective clients to make it a little bit more positive. And Number 6, remember that logo that Bruce worked up for Ben, it better show up somewhere.
(voice-over): Next on THE TURNAROUND, Bruce surveys one of Ben's clients?
KARATZ: Did he stick to the budget that you had when he started?
VELSHI: And later, Ben takes his mentor's lessons to heart.
MOREY: To see his face as he walked through, noting that we had paid attention to what he said, it was a good feeling.
VELSHI (on camera): It's Day three of this turnaround. Our mentor is the CEO of KB Home, one of the nation's largest home builders. Our small business owner is a general contractor and yesterday, he was given six specific tasks to fulfill by today. Now, before he's shown us what he's done with those, he has one last chance to show his mentor what he has learned about interacting with clients.
MOREY: To start day three off, we're going to go to a client's house that we've had a long-term relationship with. This is going to be an opportunity for Bruce to be able to talk directly to one of our clients.
VELSHI (voice-over): Before the meeting, Bruce reminds Ben to encourage his customers to give referrals by offering them an incentive.
KARATZ: Going out to prior customers with this, what I will call, a small incentive of appreciation, I think might accelerate referrals.
VELSHI: Ben takes Bruce into Christy Cleveland's home and it's Bruce's chance to gauge how satisfied Christy is with Ben's previous handy work. Five years ago, Morey Construction remodeled Christy's kitchen. Three years later, the firm handled an addition by the pool. Now Christy's family wants to redo their family room.
MOREY: Well, let me walk you through, if that's OK with you, Christy, a little bit of what we worked in the first time that we were out here with Christy. This wall section here used to be one little single doorway into the family room and then opened that up to have the lovely pool here, but really no living space that was attached to that. So, we pushed out behind the garage and created a side entrance pool bath. So, that was stage two. Stage three is the vaulted ceiling section here and then change the entry of the front of the house.
VELSHI: Bruce asks Christy about her experience with Ben so far.
CHRISTY CLEVELAND, CLIENT, MOREY CONSTRUCTION: The overall experience was wonderful.
KARATZ: Did he stick to the budget that you had when you started?
CLEVELAND: To the penny.
KARATZ: To the penny?
CLEVELAND: To the penny.
KARATZ: Are you shocked?
CLEVELAND: I was.
CLEVELAND: I was because I had heard all kind of horror stories from friends and they said, oh, you need to budget 10 percent above what you think it is. And we did. And we have -- we still have that 10 percent.
VELSHI: Bruce moves in to make his point that Ben is undervaluing his work.
KARATZ: I'm going to ask you a tough question.
CLEVELAND: OK. KARATZ: All right. If the number for your kitchen were $25,000, if he had told you it was going to be $27,500, do you think you would have decided to go with another contractor?
CLEVELAND: We went with Ben based on his reputation. And when I think of Morey Construction, I think of integrity, and we would have still stuck with Ben.
KARATZ: So, you thought -- I mean basically, you had made a decision on who you wanted to work with?
KARATZ: And plus or minus 10 percent would not have been the reason for you to select somebody else?
CLEVELAND: No, because we knew of his quality of work also and had seen some projects.
VELSHI: Ben has just learned a valuable lesson for any small business. The customer will pay a premium for quality work from a trustworthy company.
KARATZ: There's a repeat customer, who obviously trusts you and wants you to do all of the work in her home.
KARATZ: And who didn't hesitate when I asked her if she would have paid 10 percent more. I mean I knew the answer. I wasn't sure that she was going to give me that, but she had no hesitation. And she said what I think all your customers would say. I selected Morey Construction because I trust them.
KARATZ: The same as people who buy KB Homes.
VELSHI: To grow the business, Bruce reminds Ben that satisfied customers like Christy present a power opportunity, especially if Ben offers them an incentive to refer new business, like the new TV that Bruce suggested.
KARATZ: It would also remind them after they did one referral as they're watching it, that this came from Ben, maybe I -- you know maybe there's somebody else I can give it to.
MOREY: Our business has always been based on repeat business, referral business and to have Morey Construction be what's on their minds, because there is some incentive to have that is, you know, that's a good thing.
VELSHI: Coming up, Bruce and Ben head back to Morey Construction. The CEO is about to get a surprise.
KARATZ: I said, wow, I'm not sure how he did it, but he got it done quickly.
VELSHI: Big changes and an unexpected gesture.
MOREY: We did something special for you.
VELSHI: Next on THE TURNAROUND.
VELSHI (voice-over): Its' 9:30 on the morning of Day three. Ben Morey is buzzing around his small construction company's showroom. His mentor for this turnaround, KB Home chairman and CEO, Bruce Karatz, will arrive any minute for his final visit.
(on camera): When we first saw him this morning, he said he's energized.
KARATZ: I feel it. I hope these few days has allowed him to step back from a busy schedule, think about his business and really have sort of a fresh start.
VELSHI (voice-over): Ben's fresh start is visible the moment Bruce approaches the building. It's clear Ben is doing something with the new logo he's chosen.
MOREY: He kind of stopped and you know stared.
KARATZ: It was a significant, symbolic move that told me Ben was listening. Ben was interested in making some changes to his business to make it better.
VELSHI: Another assignment was to improve Ben's customer survey. Ben hasn't tackled this yet, but intends to and he shows Bruce the version he already sends to his clients once the job is finished. It's several pages long.
KARATZ: I would say it's a little daunting.
VELSHI: And Bruce knows exactly where to start cutting.
KARATZ: People look at something they have to write and they say I'll put this aside.
KARATZ: If you gave them two-pages, all they have to do is check through; I think you would get 100 percent response. VELSHI: Ben aced his second assignment, cleaning up his showroom, where once the walls were bare, Ben has hung before and after photos of Morey Construction's remodeling jobs.
KARATZ: It would make anybody walking in feel better than looking at samples over here.
VELSHI: Another improvement, remember those shards of stone samples? They're gone.
KARATZ: And I love seeing the fact that he's cleaned out a lot of this junk.
VELSHI: And he's fixed that embarrassing glitch from day one.
MOREY: We did take care of the faucet. And now when you turn it left or right, at least it operates like it should.
KARATZ: And it's not falling off.
MOREY: And it's not falling off unless you jerk too hard.
MOREY: To see his face as he walked through, noting that we had paid attention to what he said, it was a good feeling.
VELSHI: Assignment three, to offer an incentive to clients who refer new business to Morey Construction. Ben has a plan and he'll promote it in a newsletter he sends to customers.
MOREY: If you use this form, we'll be able to make sure you get a 13" LCD TV for each referral.
KARATZ: I like it. I might even say a beautiful 13" flat screen LCD TV, which will be perfect for your kitchen.
MOREY: Fit in their lifestyle?
VELSHI: Assignment No. 4, to consider expanding Morey Construction's area of operation.
KARATZ: The statement that you made, I don't go north of the Harbor Freeway?
MOREY: When you expand, the production problems that take place have to be addressed ahead of time.
KARATZ: Maybe you don't need to go to the whole South Bay, maybe you focus in on Manhattan Beach. MOREY: It's definitely worth...
KARATZ: Do you see what happens?
MOREY: ....the consideration.
With his encouragement, you know, jump over into Manhattan Beach or go to Palos Verdes, there's a tremendous amount of money in those areas and people are doing things like we're doing in Belmont Shore. One of the things that small business people have to prepare for is expansion. That's something we should pursue.
VELSHI: Bruce's fifth assignment, revising Morey Construction's cover letter to prospective clients.
MOREY: Dear Mr. and Mrs. Client, thank you for calling Morey Construction. I'm really pleased that you're considering us as the contractor of your future remodeling contract. Please call me with any questions before the appointment."
VELSHI: Bruce likes the new positive tone.
KARATZ: I mean it's a totally different approach from the other letter, where you reminded them that everything, even up to lightning striking them, could happen.
VELSHI: But he has a few more suggestions.
KARATZ: We keep using the word remodeling, and yet what we saw yesterday was you built a home. Remodeling, to me, seems too limiting...
KARATZ: ...as opposed to your construction needs.
VELSHI: The sixth and final assignment was for Ben to put the new and improved logo to good use. And Ben didn't just put it on the front door. He's plastered it at strategic points around the showroom so customers can't miss it.
Bruce Karatz is ready to wrap up this turnaround, but first Ben has a surprise.
MOREY: And we have a lady by the name of Jill Sharpless (ph) who does all our embroidery work, and in keeping with changing of the logo, I'm going to have Nancy present you a jacket with the first logo of Morey Construction...
KARATZ: Wow! That was fast.
MOREY: Amazing! KARATZ: It does fit. Terrific, terrific. God knows what kind of effort went in to getting this done. It's going to be a very nice souvenir of the last three days.
MOREY: The thing that I thought worked out really well between the two of us is the way we treat people was the same. That opened my mind up to accept things that I probably would have struggled otherwise.
VELSHI (on camera): You have done something interesting here, pushing a little bit and supporting a little bit.
KARATZ: You've got to hug and kick in the rear end at the same time in order to motivate while being supportive. And I think that builds a very healthy kind of relationship.
VELSHI: And I think you've done that.
MOREY: Thank you very much.
KARATZ: Ben, it was great spending three days with you.
MOREY: It's been a pleasure.
KARATZ: Like a good businessman, you keep your ears open and the fact that you did this overnight tells me that you're embracing it.
MOREY: To have him say, you know, I feel good about this now, was really an invaluable thing. I look at relationships as long term and so, I hope that that ends up being...
KARATZ: You call me any...
MOREY: ...where we take things down the road.
KARATZ: Any time.
MOREY: If I can get the business to operate and be successful, then as my sons or daughter, for that matter, came into the business, there is a confidence to pass on to them that says, this wheel is rolling. It can keep rolling if you're doing the things that we have been doing in the past.
VELSHI: When we got here three days ago, this was one of the signs in front of Ben Morey's office. It was functional, but it wasn't particularly appealing. This is now the sign in front of his office. But it's just symbolic of the changes that he's made over the last few days and of the changes he's going to have to make over the next few months. But from what he's done, it's clear that he is building a turnaround for himself.
I'm Ali Velshi. We'll see you next time. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com