Brian Potter: evaluation

Transcript context

…Yeah. I'm curious about what the lack of skill in construction implies for startups. Famously, in software, the fact that there's zero marginal cost to scaling to the next customer is a huge boon to a startup, right? The entire point of which is scaling exponentially. Does that fundamentally constrain the size and quantity of startups you can have in construction if the same scaling is not available? Yeah, that's a really good question. The obvious first part of the answer is that for software, obviously, if you have a construction software company, you can scale it just like any other software business. For physical things, it is a lot more difficult. This lack of zero marginal cost has tended to fight a lot of startups, not just construction ones. But yeah, it's definitely a thing. Construction is particularly brutal because the margins are so low. The empirical fact is that trying what would be a more efficient method of building doesn't actually allow you to do it cheaper and get better margins. The startup that I used to work at, Katerra, their whole business model was basically predicated on that. “Oh, we'll just build all our buildings in these big factories and get huge economies of scale and reduce our costs and then recoup the billions of dollars that we're pumping into this industry or this business.” The math just does not work out. You can't build. In general, you can't build cheap enough to kind of recoup those giant upfront costs. A lot of businesses have been burned that way. The most success you see in prefabrication type of stuff is on the higher end of things where you can get higher margins. A lot of these prefab companies and stuff like that tend to target the higher end of the market, and you see a few different premiums for that. Obviously, if you're targeting the higher end, you’re more likely to have higher margins. If you're building to a higher level of quality, that's easier to do in a factory environment. So the delta is a lot different, less enormous than it would be. Building a high level of quality is easier to do in a factory than it is in the field, so a lot of buildings or houses that are built to a really high level of energy performance, for instance, need a really, really high level of air sealing to minimize how much energy this house uses. You tend to see a lot more houses like that built out of prefab construction and other factory-built methods because it's just physically more difficult to achieve that on-site. Can you say more about why you can't use prefabrication in a factory to get economies of scale? Is it just that the transportation costs will eat away any gains you get? What is going on?…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.