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The Lesson in Katerra’s Demise


If Katerra can’t make it, can any prefab company?

    

That is the question raised in the article, “This prefab builder raised more than $2 billion. Why did it crash?” published on FastCompany, a business media platform.

    

Katerra, founded in 2015, announced in June that it was shuttering.

    

“Katerra’s closure will result in the loss of thousands of jobs and the company’s withdrawal from dozens of construction projects in progress,” FastCompany says. “It also raises questions about how it could have all gone so wrong.”



Loss of Focus

According to published sources, Katerra may have been trying to do too much and lost its focus.

    

“Very smart people can become undisciplined when they have every opportunity put in front of them,” says Travis Vap, CEO of South Valley Prefab, in Colorado. He refers to Katerra’s deep, venture-capital-funded pockets, which enabled the firm to rapidly invest in expensive facilities, acquire general contractors and architecture firms and even launch its own brand of building products.

    

Katerra “is a technology company” operating “every aspect of building development, design and construction,” the company’s website says.

    

Such lofty goals, however, appear to have led the company to over-extending itself.

    

“As nimbly and innovatively as its master-architects could navigate a digital thread of subassembly bill-of-materials-level code and detail,” wrote John McManus, founder and president of The Builder’s Daily, “its operators on the real messy ground of assembly tables, sophisticated CNC cutting machinery, and real estate development investment met more than their match.”

    

Vap believes that Katerra would have succeeded in industrial construction, and changed the multifamily wood construction industry, if it had just remained focused on and disciplined in its niche of multifamily prefabrication.

    

“Anytime you get a general contractor with that much focus on a deliverable model they can perfect,” Vap says, “they are going to have a high probability of success.”



Money Doesn’t Buy Mastery

Is Katerra’s demise a blow to construction prefabrication? No. It is, however, a cautionary tale for AWCI contractor members trying to ramp up prefabrication operations.

    

“They were funded with so much cash and had every opportunity available to them,” Vap says. “They couldn’t say no to buying architects, general contractors, engineers, and to doing medical, hospitality and high-rise, in addition to multifamily.”

    

He adds: “They were doing some neat and innovative things. But at the end of the day, they were trying to be a vertically integrated builder that controlled every part of the supply chain—the architect, the engineer, the general contractor, the supplier—everybody.”

    

Construction is one of the most complex industries out there. It has lots of moving parts. Prefabrication is manufacturing with lots of moving parts, too. But manufacturing is like an hourglass. You can go only as fast as your slowest bottleneck. If you go too fast, parts pile up, your shop turns into chaos, production suffers and costs get out of control.

    

Even South Valley Prefab has had to pull back and focus, Vap says.

    

“Our defining moment—when we were trying to get work and we were doing a backup panel one day, a rainscreen panel another and then finish panels,” Vap says, “that’s when Megan Washnieski [South Valley Prefab operations manager] said, ‘Travis, I only want to fabricate a few things. Just pick them, or we will fail.’”

    

Vap and South Valley Prefab picked three panel products—a backup panel, a finish panel and a masonry veneer panel.

    

“Right now, that’s all we offer,” Vap says. “And we’re really, really good at it.”



Stick to Your Plan

Construction prefabrication is accelerating, getting faster and meeting more demand. You can succeed in this manufacturing niche, but only if you remain focused.

    

Focus on load-bearing panel frames. Or, bathroom pods. Or, modular hospital rooms. But, don’t try to do all three, or any other prefab niches, at the same time and expect to master each.

    

“If we hadn’t listened to Megan, we would have failed. We would be jumping around instead of mastering systems,” Vap says. “Successful companies pick what they’re good at and don’t deviate from it.”

    

Does Katerra’s failure hurt our industry? Not one bit. Sorry to see a business go, but it’s a helpful reminder not to try to be all things to all people.



Mark L. Johnson writes for the wall and ceiling industry. He can be reached via linkedin.com/in/markjohnsoncommunications.

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