Suffolk has long been an innovator in Construction processes and technology. A few years ago, Suffolk created Suffolk Tech, an investment arm that works closely with Suffolks innovation teams. As investment director, Raja is part of the team that assesses, guides and helps companies at different stages of the investment cycle - a position that provides a unique view of the construction technology landscape.
Learn more here:
https://www.suffolk-tech.com/
Constructed Futures
Raja Ghawi Podcast Transcript
[00:00:00] Hugh Seaton: Welcome to Constructed Futures. I'm Hugh Seaton. Today, I'm here with Raja Ghawi investment director at Suffolk tech. Raja, welcome to the podcast.
[00:00:10] Raja Ghawi: Thank you for having me, great to be here.
[00:00:13] Hugh Seaton: Awesome. So let's start where I always like to start, which is talk about what you do and about what Suffolk tech does.
[00:00:21] Raja Ghawi: Yeah, definitely. So I'm assuming your audience knows enough about construction. It's a $4 trillion industry. If you combine construction and property one of the largest contributors to GDP in the us and globally as well for an industry that size it's obviously very fragmented, it's fragmented across asset types, it's fragmented across stakeholders, it's fragmented geographically as well. And that creates a massive opportunity for both how you can drive productivity and drive efficiency, drive safety and de-risk the process of building buildings and managing them. So here at Suffolk tech, we are tied to Suffolk construction, which is a four and a half billion dollar national builder here in the US and we're keenly aware of a lot of the problems that plague our industry, but we're also keenly aware of the opportunity to push the envelope forward.
So where we sit, we actually see a lot of tech tailwinds that are unique to our moment in time. We've seen the progress of first-generation solutions, be it wifi making it to the sites, be it a mobile smartphone penetration rising up to over 80, 90% in the last several years across folks working in the industry, but also the first generation of digitization tools.
I'm not just talking about the Autodesk suite or some PDF readers, but Procore, PlanGrid even some for the smaller contractor. Where you finally have several years’ worth of decent quality data that is digitized. In parallel, we're also starting to see a tech leap in artificial intelligence and machine learning and IOT where you can finally take a photo of a receipt or even just scan a PDF document and extract data out of it where you can upload several images from an otherwise messy construction site and be able to identify people, material that was all not available a couple of years ago.
In tandem, there's a people shift, right? We all know about the labor shortage, but there's a generational shift there. You have tech natives, gen Zs and millennials joining the industry, rising up the ranks and becoming decision-makers. And these are folks that are very excited to use tech. They grew up surrounded by technology. If you talk to any fresh college graduate or someone just entering the trades, and they've done most things over a smartphone or digitally, and they're like, why can't I do that at work as well?
So we think it's really the right time to double down on construction technology and property technology more broadly. And that's really our mandate at Suffolk tech. We are Suffolk's corporate Venture Capital arm. We have been deploying capital at the rate of a 75 to a 100 million dollar fund for the last couple of years.
We've made about a dozen investments ranging from pre-revenue seed stage companies all the way to pre IPO. And I'm more than happy to tell you a little bit more about how we think about different themes and how we've worked with our portfolio companies.
[00:03:09] Hugh Seaton: That's great. So you guys come from, I want to start just for a second about the innovation heritage of Suffolk as well, right?
I mean, Suffolk is known for being a pretty forward-thinking construction company. How has that impacted how you guys think, and then we'll talk about you as kind of a standalone entity, but I'd love to talk just a bit about the heritage of Suffolk as well.
[00:03:32] Raja Ghawi: Totally. My very biased opinion, I strongly believe that Suffolk is one of the more innovative GCs, if not one of the most innovative GCs here in America.
We are privately held by our founder, chairman and CEO John fish, who is a big visionary, who's been a great support to innovation. We were one of the earliest GC serving Wifi to our sites. We were one of Procore's earliest enterprise customers, and we were one of the first GC's to even set up innovation champions with dedicated staff and space and resources across our portfolio, across the country to support digitization innovation across our sites.
The journey with Suffolk tech started around 2019, when we said it is one thing to have a portfolio of over 50 tech pilots across our a hundred sites and work with them and give them product feedback and scale them. It's really another ballgame altogether to have skin in the game, right. To share in the upside and be even more invested in their success, not just to benefit your own sites and your owners and your people, but the ecosystem at large.
And that was really the first step in how we conceived about Suffolk tech. And as much as we were working closely with these companies, we believe in the founders and their missions and what they're doing, let's have more skin in the game. And the best way to do that is to invest. Right. But then if you're investing, let's also make sure that we're deploying capital consciously that we're not just aligning our incentives with the founders, but we're also being really good investors.
So our mandate at Suffolk tech is actually financial first, strategic second, in that we are very happy to invest in and work with founders that we can be a direct customer of, and we find other ways to support them. And I'm happy to go into more detail there but hope that answers your first question.
[00:05:10] Hugh Seaton: It very much does. And I want to spend one more second on the difference between, I don't want to say difference between the conscious decision that your fund has made. So for people who are that don't spend a lot of time thinking about venture capital, the fact that you're have made the decision it's been, or the decision has been made internally, to let the investment team be an investment team and not a pure strategic arm of senior management. It doesn't happen all the time. And I think it's, it's really cool that, that distinction has been made that you go do your jobs the right way as, as VCs. And obviously we want you focused on things that are relevant to the business, but that's not your number one mandate.
I think that's really, really amazing. Did it start that way? As far as, you know?
[00:05:55] Raja Ghawi: Yes. So from the very beginning while at the senior most leadership level it's the same close group of senior executive leaders. One or two steps below, we said there will be dedicated folks just doing investment work and dedicated teams doing operational support for the portfolio companies and innovation, more widely beyond the portfolio.
And the two teams work hand in hand. So actually we have a team of seven CoLab directors across the country and they monitor all of our pilots and that feeds into our investment pipeline. Right, because they're getting pitched startups all the time. They're talking to folks in the field, they have a good pulse about both problems and solutions.
And then as we pilot, they also gather a systemic feedback ROI, quantitative and qualitative, and tell us here's what works and what doesn't, here's what scales faster than what as well. And that becomes really good data points for us on the investment side. And then the other way around as well, we see some sort of, we see companies and deals that we think are interesting and we send them to our operational team and say, "Hey, we think this is a great founder, this idea makes sense to us at a high level. Do you know any teams that are willing to pilot it and give us some feedback and help inform our investment decision?" So, while the teams have distinct mandates part of our secret sauce, so to say, is that we're able to work in tandem together, coordinate together very closely.
[00:07:26] Hugh Seaton: That's great. Yeah, letting everybody be the best at what they do, but still having meetings where you, you know, swap notes, so to speak, obviously I'm simplifying. So let's talk a little bit about... you gave a great intro. But let's dig in a little bit more about how you view the market at this moment in time, it feels like there's been a lot of change, there's been a lot of money around. How are you seeing things?
[00:07:49] Raja Ghawi: Yeah. I think the Procores and Plangrids of the world have done an amazing job being that first digitization platform across the industry. Looking forward though. We're super excited about tools that help automate and augment expertise in labor. Now that we have some data that exists.
How do we analyze it? So a superintendent, for example, doesn't have to spend too much time. Doing manual work, but a lot of what they need to do is just present it to them, for them to bring that, build their expertise, tweak it. Correct any issues that the computer got wrong. And then do their job faster and more efficiently.
For example, Openspace.ai in our portfolio tries to do that, right? You don't have to walk the entire job site yourself. You can send someone, you can even send a robot to go and do the data capture for you. You can automatically now do production tracking as well. And then you present that semi-final output to the construction team and it augments their expertise.
And now they can do more with less time and do it more efficiently as well. You think about what nPlan is doing as well. They're analyzing scheduled data, augmenting the expertise of our planners, giving them a heads up to say, here's what might go wrong. And here's what you can do to avoid that by changing sequences of different tasks.
Robotics as well and labor augmentation. So we're investors in a company called Canvas that does drywall finishing. It can bring a five day cycle down to one and basically takes away labor from folks who have to do very repetitive tasks, very taxing on your body. A lot of folks end up leaving the trade just because of injuries to their backs and joints.
And that's a big theme for us. How can we augment labor and expertise more and more? We're not going to be replacing people anytime soon. And I don't think that we will or should, but how can we get them to do even more with the few hours they have in the day?
[00:09:39] Hugh Seaton: There was just an article. I think I came across it in LinkedIn, but it wasn't published by them that the construction industry needs a million workers.
I'm not sure where they got that because the BLS data isn't quite that high, but it's not a bad rule of thumb. And the idea that we can both make it a little bit easier to become a qualified construction worker by not requiring seven years to do certain things. And as well as the people that are there, we're making better use of them were scheduling them better.
And I love your idea that the repetitive things that don't really require a human brain to do. I mean, you got to move your hands, but is amazing. And, and construction is like, everything is loaded with that sort of.
[00:10:22] Raja Ghawi: Totally. And if you roll back 5,000 years ago, right?
We're not thinking holes with shovels, we have excavators, we're not doing things up a building on the back of on our backs. We have hoists and cranes for that, right? What's the next version of that? What are the new construction jobs where you're operating the machine, you're overseeing the robot and how to make sure that we are able to upskill people to get to those jobs, right?
People are not fungible that way. And I think construction is a great use case in how you can bring more automation in harmony with the people on site where everybody's happier and more productive and safer as well.
[00:10:59] Hugh Seaton: I agree. And it's also a group of people that are pretty good at using tools. I hear.
So you're giving them better tools to do. And another related point obviously is that it isn't always that we use fewer people to make the same amount. It's often that we use more, you know, the same number of people to make better things or more of them. You know, I can imagine what New York would look like if everything was entirely done by hand.
[00:11:21] Raja Ghawi: Right. And labor shortage is a big problem in the industry. Right? If you look at the number of folks in the industry between 2007, 2008, which was at a peak, and then that financial crash happened, we didn't really recover until 2019 and then 2020. Right. Yeah, exactly. And continues to grow, not just in the US but globally.
And we need to build, we really need to build one way or another.
[00:11:46] Hugh Seaton: You know, what's interesting is if you look at the BLS. again, I spend a little bit more time than is healthy with the bureau of labor statistics. There was a shortage at the peak of employment. So there was still still 200,000, 150,000 jobs across the U S that were open in the trades, specifically in the trades.
So, and that's not nothing, that's more than I think a natural unemployment rate. I mean, I'm not an economist in that regard, but even, so I think…you know, we just don't have enough kids like demographically. We're not going to get have enough kids. So I think I love to hear about the automation and augmentation.
I think that's a really great theme. Yeah. Keep going. Are there, so that, that feels like one, one kind of bucket. Are there other buckets that you're finding are, are good places to look?
[00:12:33] Raja Ghawi: A couple more. So the way we think about design needs to evolve. In an ideal world you will have what we call model driven construction, where you design the building somewhat generatively.
You might have AI that is able to fill the gaps for the architect. Do the part that is tedious somewhat. Filling in details, making sure everything fits that is constructable in the site. And in as much as you can create that fully look full information, loaded model and the abstract, you should be able to drive your schedule off of it.
Your staffing plans, your procurement plans. Think of it as designing something for a factory, right? You have everything's figured out upfront, and then everything is driven off of that design. Ideally construction should get there. Now that is the long-term vision and the mean time, where it starts is with optimizing different designs and models.
So for example we had our boost program which is a startup program we launched last year. One of the participants is called Thrux and they are able to take in electrical mechanical plumbing designs, optimize them. And then as different design changes occur, incorporate them into the systems saving two, three weeks worth of work, condensing that into hours that excites us a lot.
And as you think about optimizing design at the system level, then you bring it all together. And all of a sudden, the hundred thousand stakeholders that need to figure out every single nook and cranny in a high-rise. Don't have to coordinate with each other as much because the computer can, it fixes any changes just in one go.
And then the way you drive, all planning off of that also becomes very interesting. A few startups are trying to do that already, like Alice Tech out in the bay area, some very interesting technology there, but I think we're not even in the first innings we're just getting to the stadium.
[00:14:28] Hugh Seaton: That's an exciting vision. I think this idea that, you know, you ask yourself, why can't we just go do it? We, you know, we can make models like that and we can make databases like that. And the interesting thing is how the industry is so interconnected that the contracts have to be the right contract for that.
And the way the risk is, is allocated and, and specified in the contract, but also in who you've chosen and, and the, the delivery method, and probably the kind of building all of these things kind of have to also keep moving forward for some of these things to really become what the vision is.
[00:15:07] Raja Ghawi: Totally. I think contractual structures and obligations are set up. So risk is very much parceled out and roles and responsibilities are very spread thin. And you look at design build and the contractual innovations quote - unquote, happening there. I think you'll probably see more and more of that become increasingly the norm over a long period of time.
And you'll probably see a lot of smaller innovations happen in very simple builds. Like someone renovating their kitchen or bathroom or building. A small studio in their backyard, or maybe a single family home where the existing supply chain let's call it. The network of stakeholders is already fairly vertically integrated and can benefit a lot more from some of these technologies because it is the same person or small group of people doing everything.
And then in as much as technology can figure out how to optimize these kinds of systems and builds at a small scale, you go from a bathroom to single-family to a small multi-family. To maybe strip mall to a 3, 4, 5 story building all the way to the New York high-rise and that classic disruptive innovation that we're seeing.
And that also excites us a lot. Although Suffolk doesn't really build smaller single family homes, but at Suffolk tech we keep a close eye on the innovations happening there because sooner or later they're going to bubble up to the concrete high-rises and the complex builds that Suffolk specializes in.
[00:16:34] Hugh Seaton: Yeah. I mean, it goes in both ways sometimes, right? Someone figures something out on the smaller scale that can scale up and somebody figures something out on the bigger, expensive scale, but once the model is trained or the software is built in and more or less, you know, amortized you're able to say, well, we can sell it for less or we can carve out some functionality that makes it easier for smaller crews and smaller jobs.
[00:16:56] Raja Ghawi: Totally. Disruption happens from both ends and you can't lose track of one for the other. Yep.
[00:17:01] Hugh Seaton: This is great. So you, I think you had one more theme, at least kind of in waiting.
[00:17:08] Raja Ghawi: I have a couple more, but I've hit on them very quickly. Supply chain is pretty important, how you procure materials, but also equipment and also people and how you bring them to the site.
It's very important for investors and company like Agora, which helps electrical contractors, procure materials, more efficiently and equipment share, which helps contractors rent and even buy and track their equipment much more easily and Trade Hounds, which is all about getting workers and matching them with jobs.
We think about mass customization a lot. So it's one thing to have a robot that can print a box that looks like a home a hundred thousand times, but how do you make sure that you can customize to your customer's needs and wishes and actually deploy that in a way that a factory production rate would look like and how you optimize these mass customizations at scale. Financial services, the industry has so many broken transactional chains.
And how do you streamline both the flow of capital from the banks all the way to the workers and then the flow of documentation, from the bottom all the way to the top. And then smart buildings. Right? How do you generate better experiences for the people who work, live and play there? How do you make sure that the buildings are more energy efficient?
How do you make sure that you're also utilizing your buildings, the maximum profit, you can generate off of them as a developer.
So that's how we think about the world. And I know this is a lot but it's a massive space, right? And there's no one finite set of themes that captures everything, but this is our attempt, at least at categorizing some of the innovations that we foresee.
[00:18:46] Hugh Seaton: Great. Yeah. It is a big space, but it's nice to have areas of focus that that seemed to, you know, a lot of them relate to each other. Right. It's kind of tightening. A lot of processes. I love that you you're looking at financing. Cause I feel like that is, that is also... financing and contracts are sort of, they're supposed to be supporting the work, but they wind up being an impediment because of how they dole out risk and how, how they change... you know, at the end of the day, if you're extending how long it takes you to get paid, you're disincentivized to do something. So a lot of offsite and prefab, you know, suffers from that, right, is that you bought your material potentially weeks before they get installed. And that's just one example of how I think really rethinking finance and bringing some FinTech into construction, I think could be, could be really important.
[00:19:36] Raja Ghawi: Totally. Cashflow is a major problem for subcontractors, especially the smaller ones that don't have access to really good capital products, because the banks don't really understand how to underwrite these smaller shops, and they're not going to spend the time to figure it out. And I think that's a massive opportunity for a startup to go and offer basically working capital products in a thoughtful way to these contractors.
[00:19:59] Hugh Seaton: I think there's a few looking at it, but that's for another podcast. So let's say you've got your themes and within those themes, you've obviously found, at least 12 companies that you like enough to have invested in, this probably another dozen or so that you're really keeping a close eye on.
How do you think about founders from the, you know, they're out in the periphery and let's keep an eye on them to, you know, how do we work with them all the way through to, you know, in some cases an IPO?
[00:20:27] Raja Ghawi: Yeah. So we're always excited to talk to founders who are looking to start something new in the industry.
Where we get super excited is for founders who are working on their second or third startup or who have a tie to the industry. So, a lot of the founders that tend to get it very quickly, either have worked in the industry or their family comes from the industry. Their father is a contractor. Their mother is a contractor. Maybe their grandfather owned a general contractor somewhere. They might be on the supplier side, on the equipment side. They tend to have a more nuanced appreciation of some of the problems that are out there and a much better understanding of who the stakeholders are, what do they actually care about and what kind of a solution they would be excited to pick up and use and benefit from.
And then if you're a repeat entrepreneur, then you have a really good sense about how to build a team, how to build a product, how to avoid some common pitfalls and your journey's, hopefully faster. And a little less bumps along the way.
[00:21:31] Hugh Seaton: You're making new mistakes.
[00:21:33] Raja Ghawi: Exactly. Hopefully fewer better, better ones.
So in my ideal world, all founders would have ties to the industry, and this is their second or third try not to say that founders who don't come from the industry. Or this is their first try are not going to succeed to the contrary. A lot of such founders have succeeded before elsewhere.
But in general we try to meet our founders as early on in their journey as possible. Sometimes they're a bit too early for us to actually put them in touch with our operations team and help them very hands-on. Especially if they're pre-product. But it's also great to just share through our thinking maybe point them some warm introductions here and there.
And then as soon as there's a product that we can put either in our operational folks hands, but also in the hands of folks, in our networks, being our owners, our architects anybody in our network of 15,000 contractors across the country, that's where we think things get really exciting for us.
[00:22:31] Hugh Seaton: You gave some examples of, so that's kind of the early part when you and I spoke earlier, you gave some examples of how a little further in when people have something that you've actually worked with founders to help them actually build their product, whether it was data or other things.
And that's that, you know, you also, I think rightly brought up that that's a bit of a secret sauce, it's something special that Suffolk tech can bring to founders. You want to talk a little bit about that?
[00:22:57] Raja Ghawi: Yeah, definitely. Let me give you a couple of examples just to make it real. So our very first investment SmartVid.io. We've known Josh, the founder and CEO there for awhile and in 2018, 2019, we're like, okay we have 10 years worth of safety data, both observations, but also images. Josh you're building an algorithm that can see people in images and videos and identify whether they're wearing their PPE or not. If we give you our 10 years worth of data, can you train an algorithm on it to say based on people's PPE compliance.
Can I predict the likelihood of an incident happening on next week. If I can do that across sites, now I can give everybody a risk score. So the safety team sitting in corporate can send city managers, preemptively to sites to help rote lower those sorts of risk scores and Josh is like yes. And we gave him the data, he analyzed it, and we actually published some of our findings in the MIT tech review.
A year and a half later, we're working with Kevin at Canvas. And we told him like, look, Kevin, we have schedule data from hundreds of sites. Can we give it to you and work with you to basically run simulations, to say if we were to use canvas and shorten our drywall finishing cycle by 80%, what kind of schedule savings overall does that generate?
And can we correlate it to financial statements as well for the owners? So through the boost program last year, we shared that data with Kevin and his team. And we had some very interesting quantifiable ROI quantitative insights into what a robot can do to your overall schedule, which was predicted.
Another way we work with companies other than sharing data and running analyses is through pilots. Right? And when I say pilots, it's not just getting the tools on our sites and making sure it goes from one to three to five, to 10, to 40, but beyond that how do we help you figure out your second set of features and third set of features?
Fourth product, fifth product. How do you guide you towards integrations? So for example, there we were sort of, we've been working with Openspace.ai, which is a portfolio company for awhile. We've scaled them from one site to about 40 right now. And we were one of the first beta sites where they tested their production tracking tool, which they recently launched publicly.
Right. So our folks worked with them for a couple of quarters to make sure that the product is ready, giving them feedback around it. Hand-in-hand seeing how we can be helpful there. And then as I mentioned earlier, we're not always able to be that first customer, just because the company doesn't serve a GC or they're not in our geography.
So we try our best to open our wide network to those companies and introduce them at scale to the contractors we work with. So we're working with Trade Hounds and Agora right now, trying to introduce them to all of our subs across the country to help them shorten their sales cycle and access more and more customers.
And where it makes sense. We're even bringing some of our portfolio companies to our sites. So we worked with Trade Hounds in Boston, for example to bring some of the founders and marketing team there to meet folks, help them sign up for the platform put up banners.
And then we're also investors in a company called Brunt, and we're working with them to figure out ways to bring their boots which are phenomenal by the way, another shameless plug, go check it out. And how do we make sure that if somebody is on our site and they're interested in a Brunt boot, maybe we can give them a discount for it. And so win-win for everybody.
[00:26:13] Hugh Seaton: I love this. So we're, we're kind of coming to the end here. Talk a little bit about where you see the next couple of years. How do you, how do you see things flow?
[00:26:21] Raja Ghawi: In terms of where the industry's headed or our team is headed. Let me, let me tell you a little bit more about where I personally think the industry is headed.
I think digitization in the industry started three, four years ago, and COVID only accelerated things. What I think is going to happen is you'll have more and more people using those first-generation digitization platforms, but also these second generation that we're seeing right now that are able to do analytics, capture and analyze unstructured data.
And connect fragmented portions of the ecosystem between supply and demand different stakeholders within each more and more efficiently. And then there is going to be this network effect where the more people who use these tools, the more exposure these tools have to other folks that the original set is transacting and working with.
And the tech adoption curve is only going to grow exponentially from here. And with that, all of these companies are going to have even more and more data around the way different contractors do work. They manage their businesses and there'll be able to give them even better products, even more compelling output to make everybody's life more efficient.
Really. I think the industry is headed towards a tech enabled, even more efficient future. And I'm hoping for a virtuous cycle where as long as you're thoughtful around the tech, you pick up, you use it, you like it you'll get other folks that you work with to use it. Use similar products, get more and more data, give more value to everybody.
So now they have a bigger incentive to actually use tech, help get others to use tech. Getting more data and so on and so forth.
[00:27:58] Hugh Seaton: Yeah. I think there's some possibility for some really discontinuous innovation and discontinuous change, right. Where people are able to out-compete dramatically, in some cases it would probably depend on what kind of building.
[00:28:09] Raja Ghawi: That'd be very interesting to see as well. Will we see contractors building tools in house that can meaningfully differentiate them from competition and help them work. That'd be fascinating to watch.
[00:28:19] Hugh Seaton: We've definitely seen some things come from contractors, whether it's Red Team or MSuite, or honestly, a bunch of others, but you're right.
A lot of times they were solving an existing problem that they'd made them just better and more efficient and, and often some really great software actually, but, but it isn't, step-change stuff it's usually you know, tightening and making things better. We'll see. I think, I think there's also a demographic change going on, right.
Where the average age is, is 48, 49 at this point. And so I think at some point and Gen X being such a small cohort, there's probably going to be a quick, switch almost, you know what I mean? Where it won't be a little different. I think you'll find that there's a meaningful amount of, of retirements that lead to that age dramatically dropping which I think have a huge impact in what you're talking about.
[00:29:09] Raja Ghawi: Totally. And I think the problem is after the financial crisis in 2008-2009, people just didn't join the industry. So the solution is somewhat bi-modal right? Yeah. You have a lot of senior, very experienced people and you have a lot of junior just getting to mid career folks. And very few folks who are say 45, 52 60 ish, right?
That's the age gap. That's a 10 year age gap that we're living with and it's more and more people retire, to your point, the average age is going to drop very quickly, right? Because of that bi-modal distribution.
[00:29:46] Hugh Seaton: And it's made worse by the fact that gen X is the smallest generation since the world war II.
I mean, I'm in the middle of it. They called it the birth dearth and it showed up that it's the irony. Is that right? When that group would have been kind of hitting their stride in the, in the industry, you know, they got talked out of it. It's a crazy, crazy industry. Really exciting to be here.
[00:30:04] Raja Ghawi: More reason to get more technology out there.
[00:30:06] Hugh Seaton: Absolutely. Good thing you're here. Raja. Yeah, that's right. That's right. Raja thank you so much. This has been a really great podcast. I enjoyed it.
[00:30:16] Raja Ghawi: Thank you. Always a pleasure to listen to your podcast and very thankful that I now have the opportunity to be on the other side of it for change.