Katerra was a fast moving ‘pioneer’ across the construction sector, aiming to productise and reimagine the operating model via a vertically integrated technology platform, supply chains, and built for purpose factories. Why did it fail?
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Who was Katerra? ‍

Katerra was founded in 2015, with a mission to reimagine the construction sector operating model, by optimizing every aspect of building design, materials supply, and construction with an integrated, end to end technology platform.  
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The Vision
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The problem Katerra was focusing on solving in this space was massive! How to reduce the cost, improve the speed, and increase the quality of the final built world product (multi family apartment complexes). It was revolutionary for the construction industry ($12T in value) which has seen the least technological and systemic change for many decades.  
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Katerra’s Operating Model

Transferring manufacturing capabilities and operations to the construction industry was the mandate.

The founder, Michael Marks (ex CEO of Flextronics), kicked off an extensive hiring process, focused on building an ‘A-list’ leadership team across architecture, construction, engineering, manufacturing, and technology executives to ramp up it’s operating teams and capabilities. They were immediately focused on designing, producing, and delivering prefabricated materials that could be assembled on site.

Core elements of their operating model were as follows:

1. Vertical Integration - Connecting design, engineering, supply chain transparency across a vast array of Katerra’s product and OEM components from around the world, implementing, and finally managing the completed projects was a paradigm shift for the construction industry;
2. Focus on Narrow Construction Niche - multifamily apartment complexes which were relatively simple configure and replicate, city by city;
3. Modern Technology Platform - end-to-end process and data flows were powered by Katerra’s technology platform. Katerra started to be referenced as the ‘Salesforce of Construction’ which at the time I thought was a huge target, which in my opinion, would take decades to realise.
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Showcasing Katerra’s Operating Model

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‍What Went Wrong? Too Much Too Fast.

Observing from afar, the Silicon Valley ethos of growing super fast at all costs, in turn becoming the dominant category leader, was an ‘alien’ experience for folks across the construction industry including global supply chain participants, regulators, and governments. With the venture capital ‘fuel’ at several stages of Katerra’s short journey, valuations were skyrocketing with not many positive outcomes for the users of the end product.

It takes a long time to build new, modern infrastructure globally and at the pace they 're growing at, there will always be cracks along the way in the early stages.  

Challenges

1. Innovation complexity - as they say, ‘hardware is hard’ and at the level of complexity Katerra was trying to execute, it’s fair to say, a lot of ‘stuff’ along the journey is going to break;
2. Product Quality - the complexity in building Katerra’s multi location footprint of infrastructure (factories, logistics, transport, onsite operations) in some instances, produces sub par end results;
3. Speed to Execute - even from personal lessons learnt, product/market fit in a bootstrapped manner is the most important objective for any startup, as big the vision may be. Tackling problems with high leverage of value once solved, would improve the chances of long term success. Katerra seemed to have had challenges across all parts of the operating model and with their focus on growing their global footprint quickly. ‘Premature scaling’ seems to have become apparent in hindsight;
4. Global Supply Chain - challenges with their global supply chain became bigger once COVID hit global suppliers’ timelines and logistics, making transparency of goods across Katerra’s ecosystem difficult to anticipate when they would arrive and in turn pushing out construction projects;  
5. Senior Leadership turnover - in the later stages of Katerra’s short journey, the company’s leadership team including its founder and CEO were replaced as challenges we’re appearing;
6. Investment Capital - Based on crunchbase, ‘Katerra was by far the most heavily funded startup in the space.’ In its short journey, Katerra had raised close to US$2b across early stage, growth stage, and the record breaking round by Softbank’s Vision fund. Cracks started to appear when a financing facility via Greenshill did not materialise due to Greenshill’s own problems too.
   
   

I gather there would be more detailed explanations on what went wrong with Katerra but these are my observations coming from 2 decades of early stage, software / SaaS tech experiences.

Here’s a recent video conversation about Katerra’s rise and fall and good to watch to get into some of the specifics:

Source: the AEC Disruptors conversation on youtube (June 10, 2021)

HISTORY: The Shipping Container Productised, Standardised The Transport & Logistics Industries Changed The World

The logistical challenges of World War II, getting supplies to troops on the frontline, presented innovative opportunities to enable more efficient operations with standardized boxes of military goods.  

History provides us with great stories of how industries and sectors emerged and changed the way people and the planet changed forever.

One of these untold stories is the invention of the shipping container by trucking entrepreneur Malcom McLean who bought a shipping company in 1956 and reimagined how to standardise the process of picking and transporting goods across land and sea.

A decade post World War II, shipping containers we’re standardised, transforming the shipping industry and unfortunately provided the platform to amplify the growing consumption habits for the world’s growing ‘middle class’.  

Closing Remarks

From the time I heard about Katerra and it’s vision several years ago, I always believed it was a ‘mighty’ challenge to take on yet based on my own early stage tech venture experiences, it will take time (decades) due to the reality there are several stakeholders holding on to the existing operating paradigm.  

In one of the largest industries being construction, the pace Katerra was executing thanks to the BIG investment capital rounds they received, it appears they took on too much, too soon.  Based on recent history from the technology sector, there will be future versions of Katerra and let’s hope they learn from lessons learnt.

Key Takeaways for Circulist

List of key takeaways for all circulist:

1. Take your time - executing too fast without product / market fit sets you up for ‘premature scaling’.
2. Rethinking systems is harder - tackling an overall systemic problem is a lot more complex than reimagining product design. Make sure you tackle layers across the new operating stack you’re looking to build vs all at once.
3. Global supply chains are fragile - you must reprioritise the risks relating to fragile global supply chains during the current COVID times.
4. Are you capital aligned? - there are various flavours of capital out there. Make sure you truly understand what types of capital your raising and deploying, together with your capital partners’ expectations.  
5. Global expansion - underestimating the risk & complexity with global expansion. Keep as much within your local geographic region as possible.

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