After about six years in business, Katerra, the most highly funded startup in the construction technology field, filed for bankruptcy protection in June. A brainchild of respected Silicon Valley real estate and electronics heavy-hitters, the company had raised about $2 billion from private company investors, principally Japan-based SoftBank.
If ever there were an example of the old adage, “If you throw enough money at a problem, you can solve it,” Katerra seems to be it.
The company’s plan was to serve as a turnkey building company from design to installation and turnover. It controlled the entire building process, combining all the disciplines – design, general contracting, specialty subcontracting, labor management, materials procurement, and prefabrication in factories – essentially owning the entire supply chain.
As a con-tech company, the Katerra plan was to bring the Silicon Valley approach to making buildings. The business model vertically integrated and controlled all aspects of the project to infuse more streamlined processes. Katerra brought an outside perspective in trying to disrupt the industry in its many inefficiencies, from field to project management, vendor relations, inspectors, and many others in the cast of construction project characters.
It seemed to be the perfect company in concept.
Some people believe Katerra got into trouble because it grew too large too quickly. And the knockout punch was undoubtedly the devastating economics around the pandemic.
However, looking beyond that, another complication was that doing business in construction is incredibly complex. It’s difficult for outsiders to come in and grasp it. It is supremely difficult to control all aspects of a project when each project is unique. Considering day-to-day nuances, no two projects are ever the same, even if they look the same. Prefabrication and automation continue to increase efficiencies, but the human element is still dominant in construction.
Every project needs the combination of people with experience in day-to-day operations plus those who are educated in managing the big picture. We’re very ingrained in the way we’ve done things.
One of those is hoarding knowledge, which historically has given companies their competitive advantage. On the other hand, collaborating within the industry gives companies the opportunity to learn from each other and improve processes. A different perspective of the Katerra model is having multiple companies partner with each other, communicate better and share pains and gains. Peer groups that have been established around the country are a start.
Maybe the technology is not there yet to accomplish the Katerra model. The industry needs to find a solution for building faster with a lack of skilled labor. If it’s not labor, there is always something that delays construction.
A constant thread of conferences, podcasts, webinars, and news articles is that there is a need for companies with a business model like Katerra. But it is possible to bite off more than you can chew. It makes a lot more sense to become adept at a few things before taking on everything. For instance, get good at design-build before tackling the entire supply chain. Or perhaps focusing on a particular sub-industry, like healthcare, is a good inroad to doing what Katerra attempted.
You can hear the entire discussion about Katerra by tuning in to season 3, episode 6 of the AEC Disruptors podcast.
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