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Katerra – the future of end-to-end service in the construction industry?


  • Overview of the global construction industry
  • Emergence of Katerra, both as a company and a brand
  • Future outlook of the construction industry

 

The global construction industry has been one of the last few industries where there has been no radical change in the way things operate over the past few decades. This industry, in general, is not the most active when it comes to investment in research and development in comparison to other sectors considering the industry is very cyclical. This has resulted in innovations and productivity being limited and costs remaining relatively high. Katerra Inc., a US-based technology driven offsite construction company, founded only 3 years ago is strategizing itself to revolutionize the $11 trillion construction industry. Katerra is working its way up to disrupt the construction industry by moving more of the processes involved in the construction process into factories. In line with this methodology, the company offers standardized designs which are optimal for factory construction, whilst pursuing vertical integration and leveraging technology throughout the design and construction process. Till date, the company has raised over $1.1 billion dollars from investors such as Softbank’s Vision Fund, DFJ, Khosla Ventures and others, valuing the company at more than $3 billion, it is one of the best-funded construction startups in Silicon Valley’s history.

Since its inception in 2015, Katerra has grown and established itself both as a company and a brand. Katerra is bringing in a much needed change in an industry which has been static for way too long. Currently, majority of the projects in the construction industry follow the traditional approach of building from the ground up, making the construction expensive and time-consuming. Katerra’s suite of services include end-to-end new build, materials & supply chain, renovation and professional services. The company also has a very elaborated line of products, including, building platforms, structural systems, cross-laminated timber, packaged HVAC, energy system, window products, bath kit, finish materials and AEC software. In short, Katerra provides the entire line of service for construction, while leaving the developers with the flexibility wherein they can utilize the full stack of services offered by Katerra or only make use of selected services offered, depending on their requirement. The company, despite being a startup, has built a very reliable network of suppliers across the globe, which helps it keeps its quality standards very high, and with its bulk ordering materials for its multiple projects and developments, it has been able to keep its costs down and pricing competitive. By controlling every step of the process in the value chain, Katerra is assuming all the risk but also has the advantage of tackling any issues internally, if any. 2018 was an eventful year for the company in terms of its acquisitions, mergers and other strategic transactions to scale its core competencies and executional capabilities. The company acquired and partnered with multiple companies across the value chain of their business and even has plans laid down to further increase their factories count by the end of 2019. The significant investment inflow from some of the biggest funds in the world has helped Katerra have a big balance sheet which has and will further help convince real estate developers to sign over their construction pipeline to Katerra without the fear of it becoming insolvent.

Katerra with its suite of products and services for quicker house building has landed many projects and in its short timeline so far (since its inception) undertaken many projects (with more in its pipeline) both in the United States and outside of the US itself. The company has also developed a project whereby a house can be built with the help of concrete offsite technology in just 48 hours. Construction time reduction by huge margins has widely been accepted as a key selling point for Katerra, despite at times the cost being slightly on the higher side

There have been reports, stating that the company is having issues with its executives – many of whom have left the company and many of whom have little knowledge about the construction industry. Additionally, there have also been reports of its factory being error prone coupled with persistent delays in its construction. However, Katerra is no exception - the construction business is a hard and tough business, where even companies with benches filled with deep experience in the upper management have a hard time managing. Despite these shortcomings of Katerra, to the company’s credit, there have been no reports on the company falling behind on payments to suppliers, employees or its subcontractors.

Although other industries have embraced technology and modernized their workflow, construction remains one of the few industries where the traditional methods are followed and where projects are still treated as one-off prototype with a fragmented value chain. The solution is to create an ecosystem where the entire building process is owned by a single team from end to end, which will make it possible to build high-quality buildings faster and at a lower cost. This new model (as already followed by players like Katerra) presents an exciting opportunity and a big win for the entire industry. Customers can benefit in the form of reduced time and cost, new generation of skilled jobs in manufacturing can be created, and in turn modernize an industry that is vital to any economy as it drives many other sectors as well. The construction industry has seen a number of startups entering in the space and fail because of inefficiencies from operations to IT issues. Katerra attempts to prove itself different by doing all of it right. Competitors for Katerra includes companies such as Blu Homes or Guerdon, who are also building their own modular homes in their factories and then transporting them to the construction site where they are assembled, and the finishing touches are done. But a differentiating point for Katerra is its focus on very large components, like that of a pre-assembled wall along with the windows built-in, so that more time can be saved on the construction. If it succeeds, the opportunities are massive considering the global construction industry spend in 2018 itself was close to $11 trillion, and with the industry being extremely fragmented with many players who continue to employ only a minimal level of technology in their operations.

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