Life After Katerra: Where does the Modular Construction Industry go from Here?
When Katerra burst onto the modular scene in 2015, with about $1.5 billion in help from Japan’s Softbank, everyone hailed the quasi tech/construction company as revolutionary. Problem is that folks in construction don’t like revolutions. Never have, probably never will.
In fact, many companies within the modular construction sector – often hailed as “the future of construction” - looked at Katerra with a somewhat skeptical eye. Their business model seemed to be a bit ambitious, perhaps fueled by unrealistic investor expectations. It seems like every week we read about a new project in a new market in a different part of the world that the company was involved with. Housing in California? Sure, no problem. What about India? What about offices or hospitality?
My takeaway: Katerra tried to grow too big too fast. And the construction industry is littered with failed examples of this strategy.
Over the past eighteen years, I’ve seen my share of company successes and failures. Many of the failures have been the result of over-aggressive growth strategies. Not long ago, a company called Modtech began buying up factories in various parts of the country, creating one of the first truly national footprints for our industry. I recall once at a board meeting someone saying, “I hope they never go under; they are so big it will really hurt our industry and our association.” Well, they did go under. And the industry survived.
One of the challenges to the growth of our industry is that construction is regional and fragmented. But then again, maybe that’s also the secret to our resiliency. Numerous companies have been successful for decades in this industry by understanding and serving their regional geographies in one or two key markets.
Katerra certainly raised the bar and the level of conversation about the need for greater efficiency and productivity in construction, echoing the numerous research reports published by the likes of McKinsey & Company. But rather than one large investment in one company to bring about massive changes, perhaps we need many smaller investments in many companies to bring about steady, incremental improvements over time. Not necessarily an attractive pitch to equity investors, but it has kept the modular construction industry moving forward despite high profile setbacks.
Back to Katerra – their assets were recently snatched up in a big, bold move by Volumetric Building Companies for about 40 cents on the dollar, with plans to call back former workers and start supplying the industry again. Back on track with a bright future ahead.
The modular industry has doubled in market share over the past five years. And its going to double again. And it won’t be because one big company changed everything about construction. Rather it will be because a whole lot of companies moved closer to an industrialized construction process.
Started on August 12, 2021 by Tom Hardiman