Katerra and WeWork had ambitious goals to disrupt and redefine the Architecture, Engineering and Construction industry. Katerra preached the value of vertical integration where a company has direct ownership of various stages of its production process.
WeWork gained fame for providing flexible shared workspaces for startups, valuing the business at $47 billion in January 2019. However, it soon became evident that the business model was unsustainable, leading to a sharp decline in valuation to $9 billion. Layoffs and the resignation of the CEO followed suit.
SoftBank, a Japanese conglomerate, invested heavily in both WeWork and Katerra, pumping around $18.5 billion and $2 billion, respectively. Founded by Michael Marks and Fritz Wolff, Katerra focused on off-site construction, manufacturing large building components and advocating the use of mass timber like glued laminated and cross-laminated members. As a full-service firm, Katerra acquired various companies worldwide to expand its capabilities. However, within four years, the company exhausted its funding, and its ambitious plans began to crumble, leading to layoffs and Chapter 11 bankruptcy filing.
Lessons Learned
The failure of Katerra offers several lessons. One being the caution against outsiders, particularly from the tech industry, with grand ambitions to “fix” the AEC industry. While an external perspective can be valuable, it can also be naive, as AEC is a complex field with unique challenges and requirements.
Construction is not akin to the tech industry; buildings are not iPhones. The theory of saving time and money through full control over all aspects of production faltered in practice. Katerra’s diverse projects, spanning offices, hotels, single-family homes, and apartment buildings, demonstrated a lack of specialization and appreciation for the intricacies of each building type. Buildings embody culture, tradition, and local environmental conditions, making a one-size-fits-all approach unviable.
Consequences
The consequences of such failures extend beyond the companies themselves. Bankruptcies impact stakeholders and taxpayers, underscoring the need for responsible growth and management in the industry. Slow-growth companies that respect the complexities of AEC are overshadowed by hyped, unsustainable ventures.
Construction is a highly specialized industry, and attempts to oversimplify it with a “kit of parts” approach are misguided. Nature’s unpredictability and the complexities of AEC make complete automation challenging. Katerra’s approach of hypergrowth, common in tech companies, was unsuitable for the slower-moving AEC field.
Conclusion
The future of AEC lies in professionals who comprehend and appreciate its intricacies. Respect for the industry’s unique challenges, alongside gradual, informed changes, will lead to meaningful progress. The rise and fall of Katerra should serve as a cautionary tale, urging the AEC industry to prioritize careful consideration, expertise, and an understanding of the complexity inherent in creating the structures that shape our world.
SOURCES:
https://www.youtube.com/watch?v=Xd8JjGYCzmI WeWork
https://www.youtube.com/watch?v=X2LwIiKhczo Bloomberg Quicktake
https://www.youtube.com/watch?v=Wwkr9leU6Ek Grand Designs
https://www.youtube.com/watch?v=qIGZI8Uk120 Katerra
https://www.youtube.com/watch?v=Sa2_VBu0d7k David Rubenstein
