Despite the hype, construction tech will be hard to disrupt – TechCrunch
From the outside Looking inside, the construction industry seems ripe for technological innovation. Industry represents 6.3% of US GDP. There are nearly a million general contractors (GCs) in the country and between 3 and 5 million workers on construction sites every day.
Meanwhile, there is a common belief (albeit somewhat justified) that construction companies are slow to embrace technology and are lagging behind the digital curve.
Success in construction technology will come down to proving the need for the technology, providing an immediate return on investment, and ensuring that workers know how to use it the first time.
But not all construction companies are lagging behind when it comes to technology. While GCs have historically been slower to adopt new technologies, that doesn’t necessarily make them lagging behind. About 60% of construction companies have R&D departments for new technologies, and the largest construction companies have substantial R&D budgets. Yet 35.9% of employees are reluctant to try new technologies, according to JB Knowledge.
One way to interpret this is that there is a strong interest and need to take advantage of new construction-centric technologies, but only if they are easy to use, easy to deploy or access on a job site, and improve workability. productivity almost immediately.
These factors have made construction technology attractive to investors, who have invested at least $ 3 billion in the sector. Is construction technology the right place right now? Is it ripe for disruption, the way venture capitalists find it attractive? If that’s true, what went wrong with Katerra? Is Procore justified losing $ 1 for $ 4 in income? And why is there so little investment in improving productivity on the job site where GC money is earned – or lost – versus back office operations?
My experience to date indicates that construction is different from other industries due to the significant variation between projects that comes from the way projects are funded, risk management, and the factors that cause variation between projects. The construction differences are not easily mitigated by data processing, compared to fintech, for example, where all the money is available to data for software processing. Dealing with project variations will be essential for success in construction technology beyond the back office. Here are the critical factors to consider.
Project finance makes capital investment more difficult. While the Commerce Department reported that construction spending in the United States reached an all-time high of $ 1,459 billion in November 2020, that doesn’t mean there are limitless opportunities for construction technology. The reality is that CMs make little capital investment because they have to fund technology investments from operating cash flow.
Construction projects are usually funded gradually in phases as the project progresses. Delays or accidents can have a huge effect on cash flow. Overhead and general and administrative costs are hated. It doesn’t always make sense to ask a GC to license a technology as a capital purchase.
GC ownership and corporate structure also make large capital investments more difficult. Most GC businesses were founded by tradespeople and started or remained family businesses. Borrowing what is considered “family money” is a much more prudent decision than how large companies assess productivity investments and put their assets at risk.