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Disrupting Home Building: The Rise of IC Outsiders

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Off-Site Construction

Disrupting Home Building: The Rise of IC Outsiders

Industrial construction applied in state-of-the-art, vertically integrated manufacturing facilities is the future of the built environment


By Brian Sayre, Contributing Editor January 7, 2021
Light bulb switched on for a bright, innovative idea in home building
A look at the history of disruption for entire industries, shows that, time and again, the disruptors are outsiders. | Illustration: LVNL / stock.adobe.com
This article first appeared in the January 2021 issue of Pro Builder.

Industrial construction applied in state-of-the-art, vertically integrated manufacturing facilities is the future of the built environment 

If you look at history and study companies that disrupt an entire industry, time and again they are outsiders. Nokia dominated mobile phones until Apple’s iPhone; taxis ruled the roads until Uber’s ride-hailing; and Ford led the auto industry until Tesla arrived. But there hasn’t been a single major disrupter of the built environment to date, and we are due.

Yes, there have been innovative success stories, such as the rise of Procore for construction management, but that solution, and others like it, support the existing ecosystem, causing slight changes but not fundamentally altering the status quo—one that we at Shadow Ventures see as broken and unfixable.

Due to sheer stubbornness, the housing industry is an ecosystem choking on bureaucracy and suffering from a complete lack of transparency, with little room for efficiency gains and new cost savings. Rather than focusing on the broken process for how we design, build, and operate, we simply insert a new technology in an attempt to squeeze another half point of margin from a project. As such, I believe any new technology trying to work within the existing ecosystem will never be disruptive.


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The Rise of IC Outsiders

The entire built environment is gearing up for an awakening and moment of disruption. And the disrupters will be outsiders bringing state-of-the-art, vertically integrated manufacturing facilities with industrial construction (IC) at their core. I call them the IC Outsiders, and they are the future of the built environment, since any technology developed with IC at its core will drive exponentially more value to that environment than those that lack it.

So why won’t our industry incumbents drive disruption? Four reasons:

1. Rules, procedures, and processes

Large companies have ways of operating that are embedded in their culture, and any change meets resistance at every level. It’s also expensive to change: Change requires resources, time, and capital that could be used elsewhere. A dollar today for two dollars a year from now is a hard sell.

IC Outsiders are starting from zero, building processes and procedures from the ground up. They don’t have to disrupt the way they operate because they are the disrupters. They don’t care about how things were done, they care about how things will be done because the growth and survival of their business depends on that vision and its successful execution. Rather than outsourcing every aspect of the project to specialized trades, they hire in-house talent and arm it with technology, a digital kit of parts, and robotics to maximize efficiency, work faster, control costs, and drive value across the board.

Any technology developed with industrial construction at its core will drive exponentially more value to the built environment.

2. Competition

Most builders view competition as those building across the street today ... instead of watching who’s coming tomorrow. It’s a survival mindset. Nokia was competing against BlackBerry, Checker Cab against Yellow Cab, and Ford against Chevrolet. None saw their disrupters coming until it was too late.

IC Outsiders have a winner-take-all mindset and a ferocious appetite—not just in their sector, but for everyone else. For them, just surviving is equivalent to death. IC Outsiders also aren’t playing your game, they’re creating a new one and gaming the system to win. Vertically integrated developers aren’t putting projects out to bid, they are designing and building the projects themselves. Modular manufactures aren’t spending months or years designing and engineering a project, they are using generative design and digital kits of parts to computationally iterate thousands of options and are using data to determine the best design—in minutes. While the rest of the industry continues to talk about labor shortages, they are upgrading their factories with robotics to automate their product assembly.

3. Business disruption

Disrupting an industry means you also need to disrupt your business. You can’t preserve business as usual and also disrupt the industry—an impossible scenario that takes too much time and requires a transition over time. Rightfully so, stopping business as usual isn’t an option for most companies. Your business model is built around your ability to continue to operate as you do today. To stop and pursue a completely new model would cause a gap in your ability to generate revenue, which employees depend on to collect a salary.

Disrupting an industry means you also need to disrupt your business.

Simply, it’s a risk most builders can’t afford to take. IC Outsiders can grow their business and add new talent as they gain wider industry adoption. They have a luxury you don’t: They are young, agile, and possess the flexibility to adapt their business model on the fly.

4. Access to capital

To create a business that can disrupt an industry, you need access to lots of capital that can grow with your company. Incumbent players have existing budgets, and taking dollars from one area to fund a different area upsets egos and is extremely difficult to execute at scale. Further, the valuations and operating/governance structure of incumbent companies make it difficult to attract outside growth capital. As an example, a typical seed-stage technology startup in the built environment can raise anywhere from $2 million to $7 million, and hundreds of these companies are getting funded every year.

Follow-on rounds generate even more funding. Incumbents just can’t compete to fund internal technologies at the same rate. Spinning off that tech is an option, but these technologies have yet to be disruptive and they require a high level of sophistication. IC Outsiders can raise seed capital to get started at valuations much more attractive to investors than incumbents could ever offer. As they grow and reach milestones, their ability to raise increasingly large amounts of capital from more diverse sources also continues to grow, until they go public and unlock greater amounts of capital. It may take 10 to 15 years for them to get there, but there are enough patient investors willing to make that long-term bet in the market today, and several companies are well on their way already.

However, it’s not all doom and gloom for established companies, if they’re willing to act today. You may not be the disrupter of an industry, but you can survive a disruptive moment. It requires a committed vision from leadership and a strategy for how the company as it exists today will exist in the future.

I don’t have a crystal ball for exactly what the future will look like, but you can start to game those scenarios right now: “If this disruption happens, it means this for us, and we will do that.” You also can start to embrace IC technologies now and begin to reach out and form relationships with those that show the most promise. A dedication to innovation, adopting new technologies, and allocating resources to support these initiatives today is the key. 

 

Written By

Brian Sayre is a senior associate with Shadow Ventures, working to secure investments in built environment tech and lead research in several built-environment growth sectors, including industrial construction. Email: [email protected]

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