How Cuby Is Changing The Construction Industry With Mobile Factories

In this episode, Aleksandr Gampel, the Co-Founder of Cuby, explains how they catalyze change in the construction industry to deliver more sustainable, more affordable, and higher-quality buildings on a scalable and repeatable basis.

Cuby is building better buildings for the people who live, work, and play in them by reshaping processes for those who deliver them. It makes construction simple, efficient, sustainable, and cost-effective. It offers solutions to vertically-integrated developers and construction companies.

Know more at: http://cubytechnologies.com.

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How Cuby Is Changing The Construction Industry With Mobile Factories

On the show, we have Aleksandr Gampel, Cofounder of Cuby Technologies, which is pioneering the idea of transportable factories, offsite production, and scaling it onsite. Aleksandr, tell us a bit about what the headline means. This is a very catchy way of describing the future of construction.

Thanks for having me. I'm excited to be on this show. I have been reading it for some time. I am humbled to be on it. What we are doing is a little different in an industry that's now capturing a lot of attention from generalist VCs at this point because, obviously, the VCs’ entire mandate is to find an industry that's lacking disruption. Is it capturing a large enough TAM? There's no bigger TAM than construction.

What we are doing is fundamentally different in two ways. One, as opposed to building gigafactories that help you productize and create a lean manufacturing approach around construction. Think what the court has done with the conveyor belt but now you are essentially moving a process to the construction world. Instead of launching these gigafactories, we have developed a way to launch these mini mobile factories near or around the construction site, sometimes on it, where we are able to produce essentially a kit of parts and global blocks to build the building. We think this is a very fundamentally different approach because we get rid of the entire supply chain logistics piece of this new manufacturing approach in construction.

Maybe you could educate some of our readers on the old-school way of doing things more about where the problems lie with the current way the construction industry operates.

If you look at the last 200 years, every other industry has 8X in productivity due to technology efficiencies, supply chain, logistics, etc. Construction in the last 200 years is still at a 1X in terms of productivity. There are a number of reasons for that but there's even a saying in construction, “When Jesus comes back to Earth, the only thing he would recognize is the way we build a building.”

The ultimate solution will be hardware and software cotangent.

It's true. On top of that, there's now this perfect storm that's evolving. We need to build more buildings than we've ever had to build, not just multifamily but in every asset class. We need to build more as the population globally continues to grow. As you can imagine, people in my younger demographic are not entering the construction labor force.

Now you have this peak demand but you are lacking physically. The laborers needed to build buildings and it's creating this perfect storm. A lot of it is translated to a lot of the conversations with hearing around affordability, crisis use, etc. All of that is because of this big storm that's growing. If you look at the construction companies historically, they are continuing to do things as they've done because they are not very motivated to spend R&D dollars on innovation because, on average, construction companies produce about 5% EBITDA margins.

It's wild to think because they are playing with billions of dollars in revenue and take so much risk as what their process is as their company and so laborious to do what they do, yet they are left to 5%. It doesn't exactly leave a lot of room for error and innovation to take a step back and rethink the process. If you look at how everyone has tried to approach the industry, thinking of innovative venture-backed groups that play in the construction tech space, everyone quickly points to Katara.

It was the right approach in terms of lean manufacturing. What that means is that conveyor belt that we keep talking about but the way that everyone has tried to solve this problem is they keep quoting Henry Ford and creating this conveyor belt but they launched these $200 million gigafactories. These gigafactories live 4,000 miles away from the actual construction site. Although lean manufacturing works to solve some of the problems in the industry around labor hour reductions, productization or efficiencies, it leaves these 4,000-mile gaps in between, which is what we call supply chain logistics risk.

We tried to solve that essentially. There's a big problem, the way that everyone is solving and it works but then no one solved that supply chain piece, and no one is able to scale it. We think that our approach is the practical desk. It can be scalable because you are trying to make everything this localized approach as opposed to these super CapEx intensive non-venture story gigafactories that have to ship their kits of parts or their modules because, in this space, there are two categories. There's modular and prefab. In both instances, they have to ship their end product to the construction site. Whereas we are trying to create a different process for constructing that's disguised as regular construction through a proper lean manufacturing approach.

PromptTech is full of opportunity but construction technology as a sector is estimated to reach $10.5 trillion by 2023. We are trying to figure out why things have moved slowly? You gave some good insights there. Five percent EBITDA margins, in your view, are the reason why people have to play it safe and can implement technology. Are there any other reasons why you think the whole construction tech sector has been slow with technology adoption? You've talked about the construction process, which we will dive into in terms of how you build homes. Solely, the software isn't going to impact your EBITDA margins as much as it will improve them.

Given this as a PropTech show, anyone that is reading agrees that if you look at any other sector, there's no slower adopter than anyone in the real estate or construction ecosystem. The reason being is there are many layers to the onion, especially in this ecosystem. You can work with the most innovative construction company and developer but then there's the limited partner that's backing the deal and the debt, then there's red tape around regulatory zoning codes, etc. There are many layers to this onion that is tough to approach this solution from one corner, so you have to approach it from a bunch of different angles and hope that it adopts and takes off.

If you look at the construction ecosystem as a whole and the top ten construction companies, they have been around for a hundred plus years and do $20 billion to $30 billion in revenue, yet some of the biggest only hold 2% of the market share. It's extremely fragmented. When you look at the space that way, you talked about even the biggest player adopting some solution.

They are capturing a small subset of the market. For that reason, you don't see this mass adoption happening. On top of that, the solutions that have existed to date lack some sort of practicality standard where it's not an all-in-one solution, but it's some small component that takes a lot of bureaucratic time to implement. The biggest challenge is the red tape around the legality, codes, and inspectors.

That's what's holding back some of the construction solutions. Katara is a downfall. Although they were on the right approach, it hindered a lot of investment in the sector because people were scared of hardware. People say hardware is hard. The ultimate solution will be hardware and software cotangent. When you look at the hardware, it's tough to find the right backer in this space that's willing to make that bet. For that reason, venture now is very much focused on the Band-Aid, which is software related. Anything that solves construction from a software angle. Unfortunately, at least our opinion and we are biased. We still live in sticks and bricks. You still need to focus on the physical as well.

It still takes us months to build a single-family home when it takes us a day to build a car, and that's where the industry is headed.

There's a tendency to pattern match, especially among venture capitalists investors. I'm one of those. I do like the software a lot more because it's worked well in other industries but you are fundamentally dealing with bricks and sticks, as you said. There has to be a trying between the hardware and the software side. When we look at what's holding back the construction industry, how much of it do you think is cultural? By cultural, I mean, you've got so much competence focused on the hardware and science side that's much to digest, swollen, and get right, that even bringing in tech is such another new skillset.

This isn't like financial technology, marketing technology or other areas where there have been big opportunities for venture capital. What are your thoughts on the cultural side? Is there a lack of sophistication? Is there the stereotype that perhaps a lot of blue-collar type workers that have risen up in the construction industry haven't been familiar with the technology? This is a stereotype. I am not suggesting that this is representative of things but there's a stereotype that people in the construction stuff didn't go to school or get an education and built the way up from the top. What are your thoughts If you can unpack everything I've laid out?

I don't think that's necessarily wrong. If you are looking at the top 200 construction companies, they are sophisticated. There's a reason why you are seeing some of the software companies like the construction sector emerge, raise tens of millions of dollars, and hit multibillion-dollar evaluations. It's because they are being adopted by someone. That someone is in the top 200 space. If you look at the construction industry, there are thousands of general contractors in the US that are extremely fragmented.

Those folks tend to come from more blue-collar workforces, work their way up, grow in size or acquire someone else. There's less focus on adopting technology because, as you said, there's less culture to push the envelope a little bit. From that perspective, it's right. The chicken or the egg, the perspective of the larger GCs, thinks they are innovative. They are launching their own in-house corporate venture arms. They are trying to push the envelope. The question is, “How quickly can they implement it given the scale of their organizations?” There's this push from both ends.

A hypothesis I have is that this is a lot of pride in being hands-on and getting your hands dirty, and there's so much to do there that getting familiar with technology is such a different skillset but there are some parallels with PropTech. Construction second PropTech overlaps. They are both parts of each other. In certain sectors of PropTech, what you've seen as vendors. Let's look at some vendors as an example. You have real estate agents or brokers where you don't have property managers.

We’ve seen that firms that have embraced technology can then start to build efficiency in how they operate and start to consolidate and acquire smaller folks. I would like you to touch on that because as I broke into PropTech, Aleks was one of the folks with who we brainstormed a lot together and looked at where the industry is heading.

PropTech is fascinating because this is happening everywhere. I'm curious about that and also the powers with construction where larger firms are getting larger, are bringing in tech, and then now I have smaller folks. Maybe you could start with the PropTech and transition to contact when it comes to industry consolidation.

You and I share many similar thesis use and thoughts around PropTech, and both have this undying passion for the industry. Many people should have that passion because if you size, real estate is the biggest asset class in the world. It's massive. Theoretically, anything that layers on top to solve the solution should also get to that size.

PropTech generally, one thing you and I will agree on, there are a lot of interesting companies out there but a lot of them are not necessarily billion-dollar companies but they solve some specific niche. Why you are seeing this consolidation is because the sum of these little parts can aggregate into something bigger. In terms of PropTech, we share a similar thesis around sectors and what everyone is solving.

Construction is still in a bit of an earlier stage. It's now emerging. PropTech was the first work. Construction tech used to fall under the subset of PropTech, but now, it's getting big enough that contact is its own thing, and you have specific firms dedicated to construction tech, not just PropTech. There are a lot of solutions still to be had, and a lot of solutions in construction tech are emerging specifically in the software sector because that's where the venture dollars are flowing. I think that now there's this emergence of, “Katara was what Katara was,” but as much as the metaverse builds up, we still live in sticks and bricks. We live, work, and play in physical buildings.

We have ant innovated materials and physical processes around the way we construct. It's wild. It still takes us months to build a single-family home when it takes us a day to build a car. That's where the industry is headed. There are a lot of interesting players with a lot of interesting approaches in the physically built environment of the sticks and bricks that we keep referring to. Everyone has a different solution but so far, no one has scaled. I intimately believe that the next Tesla will emerge from the construction sector.

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About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.