The Rise and Fall of Katerra | WeWork 2.0

Katerra and WeWork had ambitious goals to disrupt and redefine the Architecture, Engineering and Construction industry. They preached the value of vertical integration where a company has direct ownership of various stages of its production process.

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Chapters
0:00 Introduction
0:33 WeWork
1:10 Katerra
1:55 External views
2:31 Mergers & acquisitions
3:22 Construction vs tech
4:50 Conflict of interest
5:38 Roofing4US Sponsorship
6:22 Why should we care?
7:36 Grand Designs UK

SoftBank, a Japanese conglomerate, pumped around $18.5 billion into WeWork. They also pumped $2 billion into Katerra, an off-site construction company. Katerra was founded by Michael Marks and Fritz Wolff. The company manufactured large building components off-site, and advocated the use of mass timber like glued laminated and cross laminated members. In many of its projects, the company served as a manufacturer, architect, MEP engineer, supplier, general contractor and subcontractor. However, within 4 years, the company had burned through their funding and their overambitious plans started to crumble. By June of this year they laid off many of their employees and filed for Chapter 11 bankruptcy.

So, what happened to Katerra, and what can we learn from its failures? For starters, we have to be cautious of outsiders, particularly from the tech industry, who have grandiose ambitions to “fix” Architecture, Engineering and Construction or AEC. While an external view is helpful, it is also naive. Michael Marks, the founder of Katerra came from an electronics field. He wanted to bring the electronics industry’s end to end process to the construction business.

In order to become a full service firm, Katerra spent millions on acquisitions and mergers around the world. Construction isn’t the tech field. Katerra thought it could save time and money by controlling everything - from manufacturing windows to making its own light bulbs. They believed that any structure could be built with assembly line parts in its own factories and then shipped to job sites. Instead of mastering a single type of building, Katerra built offices, hotels, single family homes, and apartment buildings.

The programmatic and construction requirements of a hospital are vastly different to those of an apartment building. In theory, producing repeatable, prefab components would bring in profit margins of 25-30%, as Katerra promised. In reality, Katerra underbid projects, missed construction deadlines, and blew through budgets. The racked up $2.8 billion in losses over the past 3 years.

So, why should we care? Plenty of businesses declare bankruptcy and companies with the highest valuations aren’t even profitable. Before we jump into that, let’s talk about the sponsor of this portion of the video: Roofing4US, the biggest online roofing materials supplier in the US. Roofing4US ships all their products nationwide to contractors. Roofing4US is cheaper than big name brands and offers high quality products for less. Brands such as Fakro, Velux Skylights, Suntec, National Nail, Trufast Walls, Malta Dynamics, Lucas Waterproofing, and more are available online to purchase today and to be delivered directly to your job site. Use Promo Code Belinda5 to receive an additional 5% discount off your next order with Roofing4US.com.

The entire construction industry has thousands of highly specialized fields. It is very disappointing when outsiders dumb it down into the ever-elusive “kit of parts”. Instead of automating small parts of the process and understanding how trades work together, Katerra tried to master every element at once and failed. Their “hypergrowth” strategy is employed by social media and software companies but it doesn't work in complicated, slower-moving industries like real estate and construction. I think, professionals who respect and understand the complexities of Architecture, engineering and construction will be the ones to initiate change.
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#wework #katerra #bankruptcy #construction #prefab #automation

[NomenNescio]

"In theory there is no difference between theory and practice, but in practice there is."

[richd]

After turning 50, you will have even lower tolerance for "stuff" from a bull. Great episode!

[epicuritus]

As an IT professional I definitely concede that most approaches that work in tech do NOT scale out to other industries, no matter how much people want them to. Very informative video, as always. Keep up the great work!

[coyjin]

I've worked as a tradesman before and I really appreciate it when and engineer like your self recognizes the complexity and work it takes to get a project to come together. others I've interacted with think we are just monkeys with hammers.

[GarbageDevon]

The "Why should we care?" section is so spot-on! You are a necessary voice of rationality and practicality. Thank you so much for these videos. It's fantastic to hear from someone with such a level-headed perspective.

[owtkast]

Hey, I worked at a Katerra site. Weird to see a video about it randomly. It's a Hyatt in Austin at Congress and 8th. Site shut down for a while due to bankruptcy. Worst site I've ever worked.

And yeah, it was really weird to see giant pallets show up with all the prefab. Adding to our problems was also design. Plans were made by an architectural firm that mostly uses employees that are pretty much fresh out of school. Sure, you have to start somewhere, but a lot of experience is pretty much OJT. There is a LOT of dead space in that building that could have been easily avoided. I'm an electrician and we regularly had to disregard plans (if we had them) because they wouldn't work.

Just a complete mess. It made me miss the military.

[whateversup]

I know nothing about construction or architecture, but I especially appreciate your content for demystifying information for most laypeople who have no idea what goes into building anything

[privileguan]

1. Become CEO
2. Ruin company
3. ???
4. Profit (1.7 Bio.) - sounds completely logical

[skiptrace]

I applaud these guys for figuring out how to cut out all the middle men and skim all the money for themselves. Takes a real magician to outgraft the construction industry. Almost every large "public" commercial construction project I've worked on someone's gone to jail for skimming or fraud. Seen entire banks go belly up as well.

[paulkelly]

That’s a hell of a episode and the content is brilliant

[automateconstruction]

Considering how lumber dependent Katerra was I wonder how much of an impact the lumber costs had on Katerra shutting down. Great video as always!

[deivclayton]

Again, Belinda, your well founded common sense approach to viewing the world is a breath of fresh air. Keep up the great work!

[marksoberay]

I have 26 years experience in construction and real estate and the way she articulates this is absolutely brilliant

[Paul-hnen]

"After turning 30 I have a very low tolerance for bullshit"
This is my life motto

[AZJKURA]

I've watched three of your videos:
1. Aircrete video... Everything I wanted to ask about aircrete before I knew I had questions
2. Refinishing your bathtubs (I.e. How to spectacularly fail at taking the easy way out - We've all been there) - Subscribed
3. This one.... Another Grand Designs fan?!?! For the love of Pete, there are literally dozens of us!

I really enjoy your videos, and your late-night DJ voice. 🙂 I look forward to more!

[jamesrice]

Your videos are marvelous and unbiased, Belinda!
I wish we had seen your channel before we built our house.
You should have 1, 000, 000 subscribers! Cheers!

[davidjudge]

As a former architect at Katerra (2018-2020) I agree with your analysis. They tried to revolutionize everything at the same time instead of perfecting one building type in one region of the country. Thanks for sharing!

[fredflickinger]

I can always count on Belinda to deliver the "No bullzzzz" vantage point and so thoroughly connect the dots. Well done!

[malaikamahlatsi]

I am a young Geographer/Urban Planner in Johannesburg and I just came across your channel. I'm now binge watching your videos. You're eloquent, rational and highly informed about issues of spatiality. I've just subscribed and I look forward to more content from you, ma'am.

[metrazol]

In Katerra's case, it was their investors who got zeroed... except for the benefits and safety net for the employees, that's on taxpayers. Then the follow on collapses, from suppliers and subcontractors who find themselves getting pennies on the dollar to developers who took a risk and are now looking at a project in crisis. While bankruptcy is better than some alternatives, it's still painful for a lot of people.