A veteran tradesman himself, Khalid built Tracflo to help both PMs and subcontractors to document and manage the change order process. This led to the development of Tracflo capital, a financing service that helps subs to supplement cashflow driven by change orders. Overall a fascinating look at the documentation process involved in real-world change orders.
https://tracfloapp.com/
https://capital.tracfloapp.com/
Hugh Seaton: [00:00:00] Welcome to constructed futures. I'm Hugh Seaton. Today, I'm here with Khalid David, founder and CEO of Tracflo. Khalid, welcome to the podcast.
Khalid David: [00:00:11] Hey, thank you for having me.
Hugh Seaton: [00:00:13] So let's start by telling everybody what Tracflo does. What do you guys do and what problems do you solve?
Khalid David: [00:00:21] So Tracflo is an online platform that helps contractor track and manage change order work. Or changing project costs and one simple place saving them time and money.
Hugh Seaton: [00:00:33] Talk to me more about what that means. Like, I think one of the ways when we were kind of pre-gaming you talked about at risk work, TNM or ticket work. Tell me a little bit more about that.
Khalid David: [00:00:45] 90% of projects experience change orders.
And it's mostly because of the speed of jobs. If you talk to a project manager, oftentimes it's, Hey let's get the work done and submit the change orders later. And what we do is we've created a way to allow trade contractors, general contractors, to be able to manage that entire documentation and approval plan, an approval process in a digital platform in order to be able to make more informed decisions and get people paid faster. Our product helps reduce approval times help speed up access to capital and it, and it saves engineering teams, 10 hours a week.
Hugh Seaton: [00:01:26] That's awesome. So, and I think you described it as, you know, work that is some of the people listening, know this stuff cold. Some of the people are less, less familiar with it.
So I actually liked hearing you describing that, you know, you're discussing work, that's above and about above and beyond the base contract. What do people do without you.
Khalid David: [00:01:47] So typically most people are managing this process through pen and paper, email and Excel. You know, when I'm explaining change orders to lay people, I always ask them about that kitchen or bathroom renovation.
And what happened with the first price, the contractor gave you and what was the price at the end of it? And these large commercial projects, if you're building a tower and let's say Midtown, you're dealing with these same challenges, but now the costs are in tens of millions of dollars. And and we help contractors with those kinds of problems.
Hugh Seaton: [00:02:22] And how, what does that look like?
Khalid David: [00:02:25] So how is really by creating a mobile platform to connect all the decision-makers kind of in one space to make a decision. I kind of compare it to you know in the same way you use Zelle and PayPal, you're pretty much you're in a mobile environment, you have a few stakeholders, let's say it's dinner and you guys are trying to come to an agreement on who owes, who, what we kind of help coordinate that decision-making process by giving the foreman a digital tool, to be able to document everything that's happening, be able to create completely digital approval process between the foreman and the superintendents, and also being able to inform both of the project managers simultaneously about where everything is in approval process.
And allowing them to add prices and, and, and, and back up and documentation.
Hugh Seaton: [00:03:17] So there's a couple of cool things you brought up that I want to dig into just a bit more. One of them is you said you save about 10 hours a day on average. What are those 10 hours you're saving normally spent doing? Cause I'll bet it's not fun.
Khalid David: [00:03:30] Yeah. 10 hours a week.
Hugh Seaton: [00:03:32] Excuse me, eight hours a day. It's like you don't have to work.
Khalid David: [00:03:36] Well, thanks for being so generous, but I'm really, you're talking about that engineering staff or depending on your size, your company, it's that project accountant or what have you. And a lot of times they're waiting on stacks of paper from the job site.
They're going to Excel trying to update the costs they're searching for backup and just trying to figure out, they're calling up the job site to figure out, you know, how much pain was actually used. And and we just saved them time from. Just the coordination effort that they use to try to produce that monthly report, to try to understand how things have changed in the last month or so.
And that's really where they see most of their time saving is no longer having to aggregate all the information, having it all in one place and automatically updating as the project is progressing.
Hugh Seaton: [00:04:29] Awesome. And, and the other thing I wanted to dig in is, from what you're telling me, you know, you're taking like, and this is a lot of the story of construction software, right?
Is you're taking a manual and paper process. And by making it digital, you make it faster, but you also make it more auditable. So, so do people, do you find that by working through Tracflo, the disputes are a little bit easier and, and it, you just, you're not arguing over pieces of paper.
Khalid David: [00:04:58] Absolutely.
So part of how we actually improve the approval process is just a simple "ball in court". I don't know if you've ever been in that meeting and, you know, one guy's arguing at, Hey, you know, I sent you the email last week. The other guy's like, well, they didn't have backup on it and I didn't see it. And now everyone's in this meeting, trying to figure out who owes who, what just by holding everyone accountable and not only do they know what's in your court, but you know, what's in your court.
So you show up to that meeting more prepared. You knock those things out. There's this whole psychology of how people respond to the information once it's that transparent. So we turn that meeting from a shouting match to a: "all right. I saw you got an, a last Tuesday. Okay. Your PM updated it. All right. You're waiting on me for pricing. Okay." There's no dispute about who else, who, what.
Hugh Seaton: [00:05:54] I love that. And , you know, any way data can help make arguments into conversations is always a plus. Right? So talk to me about some concrete examples of where customers have really seen value in this.
I don't know how you want to tell that story, but, but you know where they've, where you've been in there and you've seen it make a difference.
Khalid David: [00:06:14] That's a great question. Well I'll talk about a recent project that we're on. So recently we we landed it our first project in Hudson yards. And we onboarded about 31 of their, their trade partners within those first 30 days.
And we did that to a process, a customer success process where we really get out there on the field with the guys and make sure that they're learning to adjust and learning to do things in a new way. And in that first 30 days, we were able to help this team. See about over half a million in financial exposure that was out there in TNM work that had been sitting in a desk draw that had been in some gang box and they'd have had to wait until all that got processed before the project team knew the exposure.
And we were able to show them, give them a whole new level of clarity around what's actually out there so they can make informed decisions. We were able to pull in labor rates and material costs to help them get pricing estimates faster. And you know, in a relatively short time we gave them a level of clarity and we knew we couldn't have done it without making sure that we were out there helping the guys on site to change the way that they do their work and turn this, this information into a digital medium.
Hugh Seaton: [00:07:35] I love that story. And actually you you've kind of lead right into the next thing I wanted to talk to you about. And that is, you know, the process that you use to discover what people ...and... It's kind of selling and it's kind of understanding the customer's need. But talk to me a little bit about your approach to the market.
Khalid David: [00:07:54] So Yeah, I have to talk about just how I grew up. So I grew up in three generations of carpentry, my father and my grandfather and my uncles. My dad actually recently retired from local 1 57 carpenter's union.
So at 12, you know, my chores were learning how to level a wall or how to make something plum. And that's really important because I get what the tradesmen of going through. I know that sometimes his fingers are so big that if the buttons too small it doesn't work and we've discovered that it's easy to sit in a meeting with a project engineer or project executive and tell him, Hey, we can aggregate all this information.
But as much harder to get the people who create the information to be able to feel heard, feel needed and feel like you're making their job easier with the tool. So at Tracflo we're the type of technology company who likes to make sure our guys have hard hats and boots and is willing to show up in shantytown.
And that time that you spend with the trade men really helping them adjust, has been crucial to the success that we've had and has been crucial to making sure that they are, they feel heard, they feel present so that we can get the information to these project executives down the road, but it starts with the guys on the field.
Hugh Seaton: [00:09:15] And I think, you know, as we talk about what your, how you've created the product and the decisions you've made, a lot of it comes from, where the your own personal background. But also going out there and listening. I mean, so one of the things that impressed me is the fact that you're, you're addressing things at the ground level instead of at sort of in abstract.
What was the genesis of the company? How did you, so you've got this background from your family, so you really have insight and intuition into the problems that are out there, but what kicked off Tracflo?
Khalid David: [00:09:46] Man that's a long story, but for me it was so I worked as a subcontractor, with my dad and uncle for years and they ran the field and I ran the books and I began to understand the pains and the challenges that trade partners face.
Eventually I ended up working for a large commercial builder in New York Turner construction and was part of the innovation team. And while with the innovation team, we did a bunch of things. We created a bunch of solutions and there was a time where I got an opportunity to build technology with them.
Eventually they realized they're a hundred year old construction company and not a software company. And we decided to wind down what we were building, but I fallen in love with construction and tech and the senior vice-president engineering wrote my letter of recommendation to MIT.
Where I was really able to combine my passion for construction and technology. And that's really was the birth of Tracflo. I consider myself a builder first and I believe technology are the tools that builders use to get their job done. So that's, that's kinda where it came from. It was a long story of constantly trying to innovate in the industry and then formalizing that training before launching Tracflo.
Hugh Seaton: [00:11:00] I love that. That is one of those founders stories that's like, yeah, you paid some dues. And so you, what happened? You came out of MIT and said, all right, I'm ready to roll.
Khalid David: [00:11:12] Yeah, really. So we came out to, I was part of MIT, part of the entrepreneurship accelerator, Delta V. And at first we were creating a product for the trade partners.
We felt like they were the most exposed. They took on the most risk when it ain't getting paid. And you know, for me personally, I knew that I knew. I knew the families that these guys were, these were tradesmen who started businesses, who knew the work, but wasn't as sophisticated with you know, with their tools.
And we did that for about a year and we discover that the information we were capturing that that general contractors, they also had a need for it. And a lot of the solutions that they were using did not really work for their subs. And then we became a multi-sided platform for both subs and GCs, so that to kind of one protect both parties allow each other share information, but give the subs the ability to work with multiple general contractors and organize the information.
And the same for GCs, allow them to work with multiple on GCs. So it's, it's really been a journey of growth and discovery and really following and listening to the needs of the industry to continue to kind of expand our services.
Hugh Seaton: [00:12:24] That's great. That's the way it should be right, is you kind of get in there and help folks out on what they actually need. So one of the things that you talk about on your website is payment cycles and approval process. Talk to me about how there's, forgetting for a moment about what the number is, but you're talking about, capturing additional revenue from lost tickets and some other things. Talk to me about how are you know, helping with the payment cycle, you gave a great example from Hudson yards,that may be exactly the answer that I'm looking for, but how are you guys helping to kind of capture more revenue and help? Cause at the end of the day, 10% of revenue is more than most people's margins.
Khalid David: [00:13:06] Yeah. So you know, statistically, most contracts, 90% of contracts gonna have a contingency budget between five and 10%. So they're going to plan for unforeseen work. The challenge becomes really when your guys onsite writing tickets and writing these documents or, you know someone asks for a favor and they go do, and they don't realize, Hey, this is on company time.
We've heard the stories of a gang box full of signed tickets that never made it to the back office or a desk drawer that had all this ticket work that ultimately never got to the pricing. Or I was recently speaking to a developer that now you're in closeout. And you're like, Hey, I never got paid for that $50- 60,000 and no one know, no one knows where, where it was.
So what we discovered that just by giving the trades a digital tool, I don't care if you create the ticket on the app. or, if you write the ticket out and snap a photo of it, then you start to kind of capture the documentation, the backup, and the whole team knows, Hey, that on this job site, their ticket work being created.
So that 10% increase came from paperwork that just slipped through the cracks, paperwork that just never got to the powers that be. And by digitizing that, and I bring the level of accountability up a lot higher.
Then a lot of theseguys like, you know, the writing, the description is hard, and they're not, they're great at their job. So we discovered that when they use digital tools, if you can provide photos, if you can provide video with the description, that piece of information is more defendable in those project meetings and that they were finding that they can get a little more before it was kind of, did he move the two things or not?
How big was the hole, but just by giving them a ability to kind of show their work, they can negotiate. Prices always get beat up in that meeting, that they had a little more staying power. And so we've, we saw that contractors went from. You know, you just lose this money from, you know, "this paperwork slipping through the cracks it wasn't that legible. I don't know, was it a favor not", to "Hey, here's some proof here's some backup" and even if it gets beat up, you gotta, you starting at a better place. So that even in the challenge you end up receiving what we would more than what you have had. If, if you did, if you didn't have a digital tool.
Hugh Seaton: [00:15:34] I love this. I mean, one of the things you talk, you hear anyway, is that better documentation wins disputes. And what you're saying is. You can write all day long, but a picture, you know the old adage about a thousand words, right. Maybe it's more like you know, a picture wins one argument and it seems that's the argument you care about.
Because I could see how you would, it's one person's word against another about whether it was really that big a deal or whether it was the whole, I mean, like you say, how did you move the things? Or was the whole big enough.
That's, that's a really interesting point, right? Is you're talking about things that nobody measured or some of them, they may have measured, but, but by, by providing better evidence, better documentation, someone, and you're right. It's a, it can be a game of inches. If it's 1% more, 10.5% more, it's still money that matters.
And especially in a, you know, this is a low margin industry as everybody he likes to say.
Khalid David: [00:16:28] Yeah, exactly.
Hugh Seaton: [00:16:30] So the other thing that you talk about is not just money, but also time. So, so how does, I think we've kind of covered this, but I'd like to get into it a little bit more about, so, you know, Winning an argument is, is the money, right?
So you're going to get a little bit more money, but also how, how are you reducing cycle time?
Khalid David: [00:16:51] So there's a number of ways. I think the biggest thing is that monthly approval meeting you know, everyone has like a date when you gotta get the reckon. Everyone on the team is working on that date and what you don't get done in that monthly meeting.
Means that it's going to have to be on the next one. And so we discovered with our approval process and our ball in court, you can see exactly who's in what's court when it was signed off. When the superintendent looked at it it, it changes the psychology of the meeting. Some people come into the meeting prepared for chaos, but once - one, when people know that not only are everyone else accountable, but they are also accountable, they show up to that meeting with things done. They know that if they're not going to be able to hide under "I didn't see it" so people come to the meeting, more prepared and we pretty much... we're decreasing the chances that you're going to miss getting a decision in that pay cycle and just that improves approval time. So if there was ambiguity and you're not going to get it in this month, you're going to have to wait another 30 days.
You're gonna have to keep running your guys and keep burning payroll and not know if you're going to get paid on this additional work, just by holding people accountable, giving them a digital platform where they know exactly what everybody did when, that's really how we speed up the approval time.
Hugh Seaton: [00:18:16] I love it. And presumably make the meetings a little bit less annoying because if you're in there and everyone's saying, God, I didn't see the thing it's got to, it's got to drive people crazy.
Khalid David: [00:18:26] Absolutely.
Hugh Seaton: [00:18:27] It drives me crazy.
Khalid David: [00:18:31] And the piece about , how it's saving time is that we also, we pull in a lot of the pre-approved labor rates and material aids.
So instead of a ticket book being created about a sub. It has to go back to their PM. That happens maybe once a week, when they go back to the main office that PM has to sit down and look up the rate to make sure it's priced out before it sends it back.
When that foreman creates that ticket on that digital log, his PM and his back office is notified right away. So they don't have to wait for the stack of paper to come because we preload the material rates, they click a button and all those rates that was agreed to at the contract, it pulls right in. And it's agreed to both the subs and the GC. So, no, one's worried about if you added an extra, you know, 10 cents or something.
And then that price, within two clicks that price goes back to that project management team. So it takes a process that just between the logistics of getting the work, that person finally getting around to it, getting them back out, it turns that from what would normally be maybe three or four weeks, to now within three or four days, those people can get that work done without necessarily having to wait on information. So that's how we actually, that's also how we save time is just the speed of decision-making.
Hugh Seaton: [00:19:52] And it sounds like there's also, you mentioned you gave a really good example a second ago about, because the decision hasn't been made, they have to continue to operate not sure if they're going to get that money or not. And, cashflow is such a big thing for, I mean, it's true for every company, but, subcontractors are famously, you know, at the tail end of, the whole cashflow problem.
So just knowing that, or operating less, when you're uncertain about how you're going to do money wise has got to have a huge impact. I mean, do you see that?
Khalid David: [00:20:23] Yeah, absolutely. That ability to not just forecast, but to be confident that you're going to get paid or confident that this rec's going to go through, helps those teams really perform.
If you have a lot of, let's say your contract expanded 25%. And it's all on change order work, but that change order work is going through its own separate approval process. And you're not getting that, that requisition that you planned on and you're spending time, money, materials, and resources to do this additional work.
You want to do a good job. You want to expand your contract, but having that additional capital can be a problem or it can start to you know, it could start to weigh on you. Or every guy has a hunch that. Well, shoot. If I don't get an approve after 45 days, 60 days, the probability of getting it approved at that price point starts to shrink.
It starts to say at this point, I'd be lucky if I get half of what I billed. So what we've seen is this we've tried to quantify, how do you quantify peace of mind, but when we can get those PMs, confident that "Hey, one, they're looking at this faster. Two, there's nothing that's sitting outstanding or nothing that I'm afraid won't turn around.
And three I'm confident that I have enough backup that I'm going to be able to get through whatever this negotiation process is. It does help those teams feel confident to, maybe to continue to potentially take on more work or continue to say, Hey, we can work at this pace, expand the contract and do a good job.
And there's not this fear of, Hey, I don't know if these contractors getting paid , these change orders getting paid or how long they're going to be outstanding. Is this going to kill my profit margins before I get a decision?
Hugh Seaton: [00:22:15] Yeah, so you're really talking about both sides of the equation.
You're giving more sense of certainty, right? The PM isn't afraid that they're going to get hit with something, you know, at the end of a job. And the, the sub is saying, well, you know, I'm more likely to get paid within that and I totally get it. It'll everything is like that, right. Is if they haven't paid in a certain amount of time, they have leverage over you to say, well, why don't we go ahead and give you a half? What do you think by that point, you know, you're a thirsty man in the desert. You're like, "sure, sure whatever."
So I want to shift gears real quick and talk about something else you, as a company have started to explore.
So you'd said something really smart, which was change orders are a leading indicator for the need for additional capital. I just love how that sounds. Talk to me about what you guys have done about that.
Khalid David: [00:23:01] So during the pandemic, we saw the news of our customers change. And we thought we're thinking about how we can be helpful and supportive not just with our tool, but to really address their needs.
And that's where Tracflo capital was launched. And Tracflo capital allows contractors to be able to quickly and digitally be able to apply for additional capital to meet their needs, whether it's factoring on certain receivables to, you know, being able to get a line of credit depending on what their needs are.
We wanted to make sure that our customers felt like not only do they have a tool that make them more efficient and more effective. But also that we can offer them within a few clicks, the ability to go ahead and say, all right. By using Tracflo, I realize I'm a little bit over leveraged.
I realize that I have a lot of money out there outstanding. And I have more clarity around with my financial picture. Now I can make a decision about how I want to share that up. So whether it's factoring, whether it's a short term alone we want to provide that additional level of security for our customers throughout our Tracflo capital program.
Hugh Seaton: [00:24:10] I love that. So you're helping people to smooth out their, not really cashflow, so much as cash position, right? So if it looks like they've got a bunch of work that's, that's gonna, that's required more labor and materials and basically expense, which is what you're saying. If someone had to do a change order, it means they had to do more work and which means they needed to buy more things and pay more people.
So this idea that it's an indicator that they're going to need some cash to cover that is huge. One of the things that you hear about a lot is, how the need for ongoing cash and capital it isn't as well-served in construction, as I think it may be.
So I really love that you guys saw that need and are starting to do something about it.
Khalid David: [00:24:52] Absolutely. Yeah, that's really what, what drove those experiences. Just listening to the customers and figuring out what they need and seeing if we could be helpful.
Hugh Seaton: [00:25:00] And how far into it are you?
So, so it sounds like it was during the pandemic, which kind of technically we're still in. So if you guys have been at this a couple of months or has it been, you know, a little bit longer than that?
Khalid David: [00:25:10] So it's been, I think, I think we probably started in June of 2020, so I guess we're approaching a year.
Hugh Seaton: [00:25:18] That's great.
Khalid David: [00:25:18] Yeah. So and then, you know, we partner with a few banks, so you pretty much... a contractor can apply, get multiple quotes, figure out what makes sense for them. And we just kind of help facilitate that process for them.
Hugh Seaton: [00:25:31] I love it. When you're doing this, so you're offering something... I think digitize the change order workflow, people can probably figure out pretty quick. Right? Like you don't have to explain it so much. It's just probably have to explain the product a bit, but the idea is probably pretty clear. Do you have to do a little bit of education for people that are looking to use Tracflo capital or do they get that immediately too?
Khalid David: [00:25:53] I think if you've been around a long enough, I think you get it.
I think if you've ever been in a cash crunch and had to factor some, a couple of receivables from the local company you've seen it before. Or if, you know, you have, you've gone through your process with your own bank. So it's pretty simple. It's just all online and it allows you to weigh your options.
And it just helps you kind of when you're in that space and you're looking at your capital to be able to say, "Hey you know, with the click of a button you know what, let me see if this, this can be this could be a resource to keep us as we expand."
Hugh Seaton: [00:26:29] That's great. And obviously track flow already give some of the documentation to make that process easier, which is why you even started it. Right?
Khalid David: [00:26:37] Yes, we're able to to help demonstrate this kind of the work that you're doing and, and kind of how this could be helpful. So, yeah.
Hugh Seaton: [00:26:47] Awesome. Well, so Khalid, thank you for a really good time. This has been a great, great podcast. Let's talk a little bit about where people can find you.
Khalid David: [00:26:56] So you can find us on website tracflowapp.com. That's T R A C F L O. App.com. There, you'll see some customer testimonials learn about a little bit more about what we do. You can schedule a demo and you know, we're here to serve and we're from industry. And we believe that, you know, technology are our tools for the future of builders.
And we get not just the challenges on the boardroom, but also what you're dealing with in a boiler room. And we make sure that our product reflects that.
Hugh Seaton: [00:27:28] Love it. Thanks so much for being on the podcast.
Thank you. I appreciate your time. I'm excited to be here and yeah. I will, I will. I continue to serve man.