Updated: May 30, 2019
It’s well known that Katerra has raised well over a BILLION dollars ($1.2 Billion according to Cruchbase). However, the expectations for that investment are not well known. Wealth begets wealth. When wealthy people/entities/funds/conglomerates/whomever invest that kind of money into anything, they’re expecting serious returns. And by serious returns, I mean 5X, 10X, 20X, even 100X. That means that Katerra is expected to return anywhere from a disappointing $6 Billion to an anticipated $120 BILLION.
What does a $120 Billion construction industry company even look like? Imagine taking $120 Billion out of today’s construction economy? That’s the equivalent of roughly 280,000 housing starts in a construction economy that’s currently producing 1.2 million starts annually. In other words, Katerra’s expected return is the equivalent 23.3% of the homes being built this year (assuming an average retail home price of $428K per NAHB). While that is an apples and oranges comparison, it gives you an idea of the scale Katerra wants to operate on. And, oh by the way, they want at least 23% market share leaving you and the status quo builders just under 1 million starts to compete over. Those are 2014 numbers if you’re not familiar with recent housing start history. How happy were you with your construction business back in 2014?
Another of Katerra’s main goals (among a long list of other companies’) is to make housing ‘affordable’. That sounds good, doesn’t it? Homes have creeped up in price over the last few years and the little people need a place to rest their poor little heads, so you can get on board with affordable housing. Until you start competing with the affordable housing techniques Katerra is bringing to market (they won’t stop with entry level housing). If they make housing more affordable by a mere 25%, that’s 25% of your top line you’re going to be forced to cut in a market with 23% fewer starts. Bye-bye amenities and adios floor plans, you’re building boxes with roofs. A recent NAHB survey showed an average net income for builders of 7%. It’s extremely difficult to defend that bottom line 7% with a 25% haircut off the top!
Katerra is a catalyst for the change coming to the construction industry. They may not be
the specific company to change the market, but the hundreds of other companies lining up behind them, learning from them and waiting to pounce as soon as they falter will certainly bring the change. It may be death by one strong cut or death by a thousand little cuts. Hopefully for you it’s the later. Incremental change is more likely and easier to adapt to. You should start taking notice to small changes you can make and implement everyday so that you’re in a better position to defend against Katerra’s attempt to take over the construction world or whoever is there to try again should they falter. Obviously one area to look for change is in your procurement techniques. While your buddy at the supply house is keeping you happy for now, you should be looking at ways to cut overhead (the costs with interfacing with the supply house) and the raw costs of materials (the extra points your buddy is putting on your account each year). LBM is in a perfect position to help you with that with streamlined and efficient purchasing solutions. Check it out and feel free to reach out regardless if you agree or disagree about Katerra!