Flush with venture capital, a startup, Katerra wants to revolutionize the construction industry. But as history shows, it’s harder than it looks
From the end of the Second World War until a few years ago, when it cooled off, productivity surged across the U.S. economy, giving rise to what’s often called the “productivity miracle.” From manufacturing to agriculture to retail, industry after industry became cheaper, faster, more mechanized, and more efficient.
But the same can’t be said of construction. Productivity in construction has not only not risen, it’s actually lower now than it was in 1968.
Not surprisingly, having so many cooks in the kitchen leads to misunderstandings and finger-pointing. Add volatile material prices and a skilled labor shortage, and you have, in the now-familiar parlance of Silicon Valley, an industry waiting to be disrupted.
Silicon Valley has noticed. On May 30, a Menlo Park company called Katerra announced that it had acquired Michael Green Architecture, a 25-person architecture firm in Vancouver, British Columbia. On June 12, the company revealed that it had bought another, larger architecture firm, Atlanta-based Lord Aeck Sargent. This comes five months after Katerra raised $865 million in venture capitalfrom funders led by SoftBank’s Vision Fund, which has also invested heavily in the co-working startup WeWork.
“The construction industry is ripe for digital disruption,” said co-founder and chairman Michael Marks in a press release. (Marks is the former CEO of electronics manufacturer Flextronics, now Flex.) “This new round of funding will enable us to further invest in R&D and continue to scale the business.”
Katerra is not unique in its quest to streamline an unwieldy and frustrating process. The design-build model, an alternative to design-bid-build, has been catching on in the U.S. But Katerra stands out for two reasons.
One, its goal is radically ambitious: complete vertical integration of design and construction, extending from an architect’s concept sketches of a building down to the screws and bolts that hold it together. The company sources supplies directly from China and has a factory in Phoenix that makes roof trusses, cabinets, wall panels, and other elements. Last September, it announced plans to open a new factory that will make panels of cross-laminated timber, a kind of high-tech structural wood. It intends to open several more plants—plus warehouses for supplies—around the U.S.
Historically, the Achilles heel of progress in construction has been low investment in R&D, Bernstein said. “Margins are razor-thin, and competition is heavily predicated on price. Nobody has enough money to do capital-intensive [R&D].” On this measure, Katerra, with SoftBank’s huge infusion of cash, “is off to a pretty damn good start.”