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Katerra Failed From Too Much Money, Too Many Opportunities, and an Inability to Execute

  |  Posted in Industry News

Katerra Failed From Too Much Money, Too Many Opportunities, and an Inability to Execute

Katerra had a big, bold idea: that much of the waste and inefficiency in construction could be eliminated. It’s an idea that just makes sense and whose time has come.

Every industry has gone through this transformation – except construction. Compared to everyone else, we’ve been moving at a snail’s pace. We’ve been making progress in efficiency on a product-by-product basis, but the industry as a whole is lagging behind.

Windows and kitchen cabinets used to be built on the jobsite by a carpenter. Eventually, we started producing them in factories and shipping them where they were needed. It was a major improvement and yet the rest of the construction process didn’t follow suit.

Instead, progress has been focused on improving the performance of individual products. Windows are now more energy-efficient and easier to operate, but they are still inefficient to select, order, ship and install.

Changing that wouldn’t be easy. It was going to take someone big and with no vested interest in a specific product or type of solution to make real improvements in terms of waste and efficiency.

That’s what made Katerra very attractive to investors, which made it easy for them to raise large sums of money. That might sound like a great thing, but it can easily become a problem. When you have stupid amounts of money at your fingertips, you lose the discipline that you would get from managing a tighter budget.

When you’re raising money, you need to sell a dream. At some point, though, you need to move from the dream to the reality. You have to actually make a profit.

The longer it takes to turn that dream into a profitable venture, the more likely it is to go up in smoke.

Katerra Had Too Much Money

Waste and inefficiency is so widespread in construction that it makes it difficult to focus.

Katerra started with the idea of reducing waste and inefficiencies in the supply chain by sourcing quality materials from China at a lower cost. They couldn’t understand why this wasn’t an instant success. They failed to do their homework to determine who would be their best customers, how to communicate with them and how to make it easy for them to place an order.

When I first heard about Katerra, I contacted them and took a tour of their facility in Phoenix. They were focused on building wood-framed multifamily buildings. I was impressed with the facility and their approach.

Katerra Factory

Customers could choose from private label and brand name products. They had a showroom with a designer to help them choose the right interior products.

In the engineering department, I was surprised to see a mockup of an insulated concrete form wall. It showed me that they weren’t limiting their thinking to wood framing in a factory.

Katerra Livestream

There were several flat-screen televisions broadcasting livestreams from various Katerra construction sites. This was real. It wasn’t just an idea or a dream – it was happening.

Then I went to a press event at the International Builders’ Show where they unveiled a number of impressive new products, including power distribution, HVAC, windows and a bathroom in a box.Their theme was the seemingly impossible goal of making construction Faster, Cheaper and Better.

Katerra IBS

Rather than taking the standard approach of “we need to find a lower-cost product,” they had some really creative people take on these challenges and search for innovative solutions.

The bathroom in the box idea is a great example of this. They looked at the time and cost it took to build a building room by room. What they found is that the bathroom took the most time and cost to put together.

Just think of all the different trades involved. You need plumbers, electricians, painters, tile contractors and more. It’s a nightmare to coordinate and can be a project planning disaster.

Their solution was to put the whole thing in a single box. A crate arrives at the jobsite and is placed in the right location. Two workers open the crate and four hours later the bathroom is completed. Any plumbing fixture company could have done something like this, but they just don’t think that way.

Katerra Bathroom

This was a fantastic idea. There was only one problem: how do you buy it?

It was like they were dangling a bright, shiny object right in front of the industry to generate interest. Only, they didn’t seem to know what to do with that interest. There wasn’t even an easy way to buy from them.

When I toured their facility, they were concentrating on two things: product innovation and multifamily construction.

Then, they quickly lost that focus. They started churning out press releases to show that they were a global company by announcing projects in other countries. Maybe this was meant to impress investors, but it certainly didn’t impress their US customers. If anything, it confused them.

After that, they went into mass timber in a big way. That’s not a bad idea in and of itself.

Getting customers to buy products from a new source takes time. Getting them to shift offsite takes even longer. It also takes time to get these things right.

As far as I can tell, Katerra expected everything to be easy. They were so confident in their product sourcing that they didn’t bother putting a lot of effort in selling it or even making it work.

They believed in offsite construction so much that they didn’t do the work of getting all the bugs out of the system. They just kept looking for the next new idea, hoping to land on one that would be easy to execute and would practically sell itself.

What Katerra Gave Us

1. Construction Can Be Faster, More Efficient and Higher Quality

Homebuilders, developers, bankers and investors now know that construction doesn’t have to be done the way it has always been done. We can expect more.

2. Building Product Companies Are Changing

There is now more focus on reducing installation errors and speeding up installation time. Manufacturers also realize that their products do not stand alone – they are part of a system.

3. Offsite Construction Is Booming

Katerra might not have been able to make it work in a sustainable way, but they popularized the idea of offsite construction. This helped other companies getting into offsite construction gain the acceptance they needed.

4. Opened the Door for More Disruption

The construction industry is notoriously slow to change. New ideas get dismissed and people cling to the old way of doing things. Thanks to Katerra, it is now easier for new companies with fresh ideas to be considered and taken seriously.

Construction Is Evolving – With or Without Katerra

I am sorry that Katerra didn’t succeed. They had visionary ideas and plenty of amazing people who could have continued to change the construction industry for the better.

To the extent that they succeeded, they taught us that the construction industry is capable of so much more. We can innovate like startups do. We can be as efficient as other industries. We can find new ways to solve old problems.

To the extent that they failed, Katerra taught us something too. It’s a reminder that having too much money and chasing too many opportunities can be just as challenging as dealing with too little funds and too few opportunities.

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I am the leading sales growth consultant in the building materials industry, I identify the blind spots that enable building materials companies to grow their sales and retain more customers.  As I am not an ad agency, my recommendations are focused on your sales growth and not my future income.

My mission is to help building materials companies be the preferred supplier of their customers and to turn those customers into their best salespeople. Contact me to discuss your situation.