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There is plenty of opportunity for contech firms, as $50 billion in investment since the pandemic shows. But a recent report from global consultancy McKinsey also found that the fragmented nature of construction is holding back potential for increased productivity in the sector.
Here’s a breakdown of how contech firms can overcome this hurdle, and help contractors succeed, according to the report.
The right tool for many jobs
To combat the issue of fragmentation, where dozens of smaller contractors and subs are working on the same project, contech companies should develop tools that help solve problems for multiple stakeholders instead of just targeting one-off, point solutions, the report said.
For example, one AEC tech company that focuses on predicting project outcomes expanded beyond contractors and planners to also sell to project owners, banks and insurance companies. Another took a design platform tailored for architects and engineers and incorporated product suppliers to monetize building products used in actual designs.
Another challenge in the space is the tendency for tools to focus on problems instead of on the people who use them.
“Niche, technical design tools are often built by self-taught developers and construction professionals who built the tool to solve a specific problem or fill a gap in their workflow,” the report quoted one respondent as saying. “As such, the very nature of those tools focuses on the tech and not the user experience.”
Stay flexible, avoid customization
Beyond making sure customers are the focus of their products, contech firms also need to remain flexible in their vision once they get to market, the report said. For example, one start-up initially developed an app to measure material waste from construction sites but eventually evolved it to measure embodied carbon in materials.
While contech firms should offer solutions that apply to as broad a market as possible, they should also avoid tweaking those tools for specific customers.
“Successful businesses have a product that can be deployed with minimal customization and training,” the report said. “Where customization or training is required, they invest time only in high-potential customers and often partner with independent software vendors to deliver at scale.”
Just say no to progress-based payments
Another issue for contech firms is building recurring revenue streams while building up their free cash flow to fund more innovation. Both can be held back when payment for a product is modeled after a common compensation structure in the industry: pay based on the percentage of a project’s completion.
As one investor explained in the report, “because construction is often subject to delays, this means the risk attached to these revenue streams is very high, which puts off potential investors.”
Crowdsource for success
Finally, the report advised contech firms to keep their internal costs low by seeding forums and user groups that can help their customers help themselves.
For example, large AEC tech companies often have “customer success teams” and run conferences and training for their users.
Customer support can also be delivered at lower cost by cultivating user communities and promoting online tutorials, the report said. One AEC tech company gained thousands of users without spending any money on marketing by leveraging its community forums and industry networks — effectively putting its own customers to work.
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