The Rise and Fall of Katerra | WeWork 2.0

Katerra and WeWork had ambitious goals to disrupt and redefine the Architecture, Engineering and Construction industry. They preached the value of vertical integration where a company has direct ownership of various stages of its production process.

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Chapters
0:00 Introduction
0:33 WeWork
1:10 Katerra
1:55 External views
2:31 Mergers & acquisitions
3:22 Construction vs tech
4:50 Conflict of interest
5:38 Roofing4US Sponsorship
6:22 Why should we care?
7:36 Grand Designs UK

SoftBank, a Japanese conglomerate, pumped around $18.5 billion into WeWork. They also pumped $2 billion into Katerra, an off-site construction company. Katerra was founded by Michael Marks and Fritz Wolff. The company manufactured large building components off-site, and advocated the use of mass timber like glued laminated and cross laminated members. In many of its projects, the company served as a manufacturer, architect, MEP engineer, supplier, general contractor and subcontractor. However, within 4 years, the company had burned through their funding and their overambitious plans started to crumble. By June of this year they laid off many of their employees and filed for Chapter 11 bankruptcy.

So, what happened to Katerra, and what can we learn from its failures? For starters, we have to be cautious of outsiders, particularly from the tech industry, who have grandiose ambitions to “fix” Architecture, Engineering and Construction or AEC. While an external view is helpful, it is also naive. Michael Marks, the founder of Katerra came from an electronics field. He wanted to bring the electronics industry’s end to end process to the construction business.

In order to become a full service firm, Katerra spent millions on acquisitions and mergers around the world. Construction isn’t the tech field. Katerra thought it could save time and money by controlling everything - from manufacturing windows to making its own light bulbs. They believed that any structure could be built with assembly line parts in its own factories and then shipped to job sites. Instead of mastering a single type of building, Katerra built offices, hotels, single family homes, and apartment buildings.

The programmatic and construction requirements of a hospital are vastly different to those of an apartment building. In theory, producing repeatable, prefab components would bring in profit margins of 25-30%, as Katerra promised. In reality, Katerra underbid projects, missed construction deadlines, and blew through budgets. The racked up $2.8 billion in losses over the past 3 years.

So, why should we care? Plenty of businesses declare bankruptcy and companies with the highest valuations aren’t even profitable. Before we jump into that, let’s talk about the sponsor of this portion of the video: Roofing4US, the biggest online roofing materials supplier in the US. Roofing4US ships all their products nationwide to contractors. Roofing4US is cheaper than big name brands and offers high quality products for less. Brands such as Fakro, Velux Skylights, Suntec, National Nail, Trufast Walls, Malta Dynamics, Lucas Waterproofing, and more are available online to purchase today and to be delivered directly to your job site. Use Promo Code Belinda5 to receive an additional 5% discount off your next order with Roofing4US.com.

The entire construction industry has thousands of highly specialized fields. It is very disappointing when outsiders dumb it down into the ever-elusive “kit of parts”. Instead of automating small parts of the process and understanding how trades work together, Katerra tried to master every element at once and failed. Their “hypergrowth” strategy is employed by social media and software companies but it doesn't work in complicated, slower-moving industries like real estate and construction. I think, professionals who respect and understand the complexities of Architecture, engineering and construction will be the ones to initiate change.
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SOURCES:
   • WeWork Milan - Italy  
   • The Spectacular Rise and Fall of WeWork  
   • Видео  
   • KATERRA | Mass Timber Introduction  
   • The David Rubenstein Show: Masayoshi Son  
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#wework #katerra #bankruptcy #construction #prefab #automation