Scott Ellison has invested in a number of contech startups, and is actively involved in the space. We talked about his "respect/disrupt" ratio, and how some of the unique aspects of the construction industry affect technology adoption, startups and the future of the industry. A great set of perspectives for startups, investors and innovation teams.
Hugh Seaton: [00:00:00] Welcome to constructed futures. I'm Hugh Seaton. Today. I'm here with Scott Ellison, investor and advisor to companies in the built environment. Scott, welcome to the podcast.
Scott Ellison: [00:00:10] Thanks so much, hugh. Really appreciate you having me. And I've, I've mentioned this before we started playing record, but I think you're doing a terrific service for what is arguably a very old industry, but a newer sector, at least in terms of Contech.
Construction has been around for millennia. And so has technology depending on how you define it, but it's I think given a number of different dynamics that maybe we'll touch on during the course of the conversation I'm a big believer that the next decade we'll see a number of really interesting stories created on the startup side and then what the broader world would think of as as technology Contech.
Hugh Seaton: [00:00:52] Yeah, I think you're right. And I think, you know, one of the things that we've discussed is the trajectory of this new technology in what is still a tradition bound industry can mean that the way a construction technology, a Contech startup, especially in the beginning has to kind of get off the ground can be a little wobbly or a little bit different. What, what have you seen and what do you think about?
Scott Ellison: [00:01:19] Yeah, I think just for context, I think it's useful to ground us in terms of technology has been used in, in construction for decades now. Right. And arguably when some of the tools that we even have in our home the hammer and the saw were created. That was technology too. And so I, I always want to be careful not to describe where we are in terms of the sector and in terms of technology adoption is sort of the beginning point.
I think it's also fashionable to say that Contech and prop tech and build tech and old economy sectors are two decades behind in terms of technology adoption. And I personally don't buy that. I think there certainly are examples you could find of people still doing purchase orders via fax machine.
So yes, that's out there. But quite frankly, that's still the case in certain doctor's offices. What I do think is a relatively fair description is to say that Generally speaking, a lot of the players in Contech are still on some sort of primarily desktop platform or client server platform.
And so there is an opportunity. So, so you might, you know, perhaps the rule of thumb is better, said as 10 years versus 20 years. And again construction is not a monolith. You've done for those who haven't seen some of the work that Hugh's put together that drills into the, the headline numbers that everyone likes to quote from certain consultants.
I highly recommend it. But it's Within those who are adapting and looking at technology, they're coming at it now from a client server perspective and starting to adopt mobile technology and cloud infrastructure. In terms of your specific question is building a startup in construction tech different I think it is, if what you're comparing it to is what most people would find in what I think of that as the tech Twitter verse.
Right? Right. So there's a, there's a lot of information on Twitter now, that's fantastic for entrepreneurs. But it, if you follow that for construction, you'll end up in some dead ends that aren't as productive as it could be for you,
Hugh Seaton: [00:03:36] And you will end up depressed. Like there were things out there that take off much quicker than, I mean, especially if you're focused on, on consumer as a comparison.
Scott Ellison: [00:03:46] Yeah. It, you know, I think the exciting thing about building a construction technology startup now is you get to write the playbook. But if you're going to rely on one. You're probably better off dusting off something from, you know, eighties enterprise software versus the tech Twitter today.
That's you know, we all know the examples of put up a website and then in a year you're hopefully a unicorn. This isn't the sector for that. It's not a field of dreams sector, it's a sector in which you have to have a certain level of respect for certain processes and the way that people have done and will continue to do business in getting a building safely out of the dirt and, you know, into the hands of, of owners and occupants.
And so, yeah.
Hugh Seaton: [00:04:34] Hey, hang on. Before you, before you continue that, there's you said something that I want to come back to and explore a little bit, you had this really great statement. It's not a field of dreams sector. I think there's a lot in that statement. Can you tell me a little bit more about what you mean?
Scott Ellison: [00:04:49] Yeah, a reference to the movie and the tagline that at least. Those who have seen it would remember you know, build it and they will come. It's the concept of, if you're smart enough, if you develop a cool enough piece of technology, then the world will recognize your brilliance and pay you for it.
And that's true in some sectors. But it's absolutely not true in construction. You really have to have.... you can certainly be enthralled by the cool, right. I mean, I love new technology, new software, new tools but you better be more focused on precisely what problem you're solving and for whom.
Hugh Seaton: [00:05:30] And the workflows, the reason I keyed on that is we do see that folks from outside the sector sometimes come in and there's a lack of depth into how things are really being done in the field. I mean, I think the field is what you see that the most, it's really important. It's always important to understand your users, but I think in construction it's even more, it's less obvious. It's less intuitive sometimes from outside the industry. And it's where you see people falling down.
Scott Ellison: [00:06:00] Yeah. There's I don't know if this metaphor lands for folks, but I've, I've come to think of the dynamic, that the sort of mindset here in this sector as, leans a bit into math, I suppose, but as the respect/ disrupt ratio, right? And Silicon valley, everybody talks about disruptive, disrupting everything you want to just you want to change as much as possible. And certainly that's true to a certain extent, no matter what you're doing, if you're starting a company.
But it it's my belief, at least, that respect disrupt ratio of better be greater than one. Cause there are certain things that you have to just acknowledge about the sector that if you don't, you know, you'll end up having again, a really cool piece of technology that doesn't necessarily get traction.
Hugh Seaton: [00:06:47] I really like that. And, you know, the reality is that even, even highly disruptive companies still have to respect the fact that the laws of physics and the way human beings do what they do are what they are. I mean, like everyone has to respect something of the status quo, even if they are disrupting key areas.
And your point is that in this sector, that's a bigger deal than it might be somewhere else.
Scott Ellison: [00:07:08] I think that's right. And, and it's even goes into more mundane, perhaps things such as the purchasing process that the industry is used to using and has been, you know, it's been embedded for decades now.
You can do things that some people would say are disruptive. But you should also keep in mind the way that relationships has been built and the importance of those over time. And if you don't, you'll end up having a lot of conversations where people will, who are inclined to think about technology will say, boy, that's kind of interesting, and you know, if they're really personally interested in it, they'll spend a half an hour with you. But you want to end up getting the sale.
Hugh Seaton: [00:07:50] And so as we think about that, this internal adoption how have you seen that different from other B2B sales?
Scott Ellison: [00:07:58] Well, there's a couple of pieces to the answer to that question.
And certainly one of them is what we've just been talking about, right. This sort of respect disrupt balance. Right. Another piece in the, and the reason I mentioned the eighties enterprise software versus current tech Twitter playbook is, it's very rare in the construction space to be able to go into a big general contractor and win one huge enterprise sale, and then just have the next couple of years be about rolling it out, you know, to all the different branch offices.
The sales process, as you know, and as your listeners know, is much more fractured than that in terms of having to win project by project, geography by geography, and even within geographies you certainly over time can build up momentum in a company, but it's unlikely that you're going to be able to parachute into headquarters convinced.
Even, you know, in those cases where the GC has a full innovation team which I think is fantastic. And it's actually one of the reasons why I think we'll see more adoption of innovation over the next decade, but you're not going to parachute into headquarters, convince the VP that Hey look, isn't this incredible, and then just sit back and watch the orders.
Hugh Seaton: [00:09:24] Yeah, I completely agree. And so how does that ladder up to the idea of a startup in, construction tech? You spend time advising, you make up your mind sometimes to put personal skin in the game, so to speak, how does that change the way you think about a startup and their trajectory?
Scott Ellison: [00:09:41] Yeah. You know, there are some people who would say that given some of the dynamics we've just talked about, that you, in order to be a successful entrepreneur in this sector, you must come from the sector. I think that's a reasonable rule of thumb. The place I would break it is in cases where an individual or a couple of entrepreneurs Have for whatever reason, a connection to the space, personally, that they have a passion for construction, or connection to construction in such a way that they're motivated to learn the ways and mores of construction, right.
To learn why it's different, to learn why perhaps workers in the space have a different approach than in other places. You know, for me, my connection is I have a general contractors as uncles, my in-laws are contractors. And a lot of my life, actually, when I was in other sectors, I kept an eye on construction and the built space, but didn't see an opportunity.
And now I think there really is one. But it is important to have at least a passion to really understand, what problem are you solving? And who are you solving it for?
Hugh Seaton: [00:10:54] And I think, back to your disrupt respect ratio, this is another piece to that, right? Is that you have the humility to listen because I think what is definitely a danger sometimes is a couple of smart engineers might think they know better that not that that's ever happened in software.
Right. I think that that's the danger.,
Scott Ellison: [00:11:11] Well, yeah. I mean, I think we'll see in 10 years that if I, and others who have a similar thesis are right. But I, I think there's an opportunity to build a number of very interesting and also valuable for their founders, employees, and shareholders companies in this space over the next decade.
But I don't necessarily, I think that when we get to the end of the decade and look back on the companies that have been successful, there will be just as many who describe it, how you will. I think, you know, being a good listener, which captures the concept of really being focused on customer. I think there'll be as many that are led by people with those sets of skills, as there are individuals who are just amazing computer programmers.
Hugh Seaton: [00:11:55] Or a good blend of the two, right? I mean, at the end of the day, you definitely need both. And I'll say that, we don't even have to look to the future. There's already some... you know, sometimes we're in the middle of it and we can forget, but the digitization of construction workflows is already pretty impressive.
And it, you know, there's still literally hundreds of thousands of companies that are primarily Excel based, but lots of thousands of them are not. Thousands of them are adopting BIM or they're digitizing their project management or they're using, you know, scanning various other things. So I think we're already seeing and there's, and the money is following.
We're already seeing, you know, a fair amount of traction especially on the higher end of the company scale.
Scott Ellison: [00:12:40] Yeah, that's certainly true. And I suspect as a let's call it, young gen X, young, half of gen X, millennials gen Y gen Z, continue to move into the sector and take over a larger and larger portion, both of the workforce, and then increasingly of management as well.
These are all individuals who have grown up using computers, are arguably most of them, mobile native certainly social media savvy. And so the old line... and this isn't unique to construction, but let's call it old school sectors. Well, we do it this way because that's how we've always done it.
I don't think that's going to resonate as much over the next decade. It's one of the reasons that I'm bullish on where things can go. Another reason to your point of folks using Excel which is a great program, right? And it has a lot of things to argue for it, but I think the fact that we have such an interesting collection of cloud-based technology now and for this example, I'm talking specifically about the back office.
We can also talk about the field and onsite as well. But the fact that there's such a robust development development environment in cloud software, I thinkportends well for adoption of some of the different things that you were talking about.
Hugh Seaton: [00:14:01] And I think you could also safely argue that when it was harder to adopt, because it was, harder to adopt. Maybe that was the kind of thing that wasn't going to work for construction.
I give as an example, anyone who went through SAP implementations in the nineties knows that it wasn't a comfortable experience. Like they said, well, no, you've got to enter things this way and you have to do them this way because that's how the system works.
And, 20 years later, it's 15, 25 years later. We're now in a place where everything is abstracted two levels more, and you can, you have such flexibility and you can stand up a company that has, that is world-class in terms of its its stability and the availability of the software. It's not gonna go down anywhere. Speaking of, of Twitter.
You know, it is really a different world where a smallish company can provide, pretty rock solid software early in their cycle, as opposed to, after they've grown a little bit and, and pull in some investment.
Scott Ellison: [00:14:59] Yeah. And without, without the upfront investment on the customer side, right. We're all familiar with the freemium model. And it's taken over the software world, but it's particularly powerful... you talk a lot about the long tail in construction with the number of firms that are south of 250 employees and then even south of 50 employees, right. That world almost by definition was not going to adopt a, even a million dollar tech installation 20 years ago.
Much less some of the bigger ones that you just alluded to. Right. But now if someone comes to them with a relatively light piece of software or heck, even an app. Number one, they're used to using those things in their personal lives.
And number two, they realize, well, I can, you know, I can give it a shot and see if this works. And if it doesn't, then I just cancel the subscription.
Hugh Seaton: [00:15:57] Right. Well, it's always easier to hire people when you know you can fire them. That's kind of a basic rule of employment. Isn't it? Is by making it expensive to quit people say, well, then I'm not going to start because then I'm stuck with it.
That actually leads to something else, coming back to this contech startup thing again. One of the implications of a lot of what we've just said is that early traction is lumpier and slower than it might be in some other sectors. Are you seeing that as you look at different companies and what does that mean to you?
Scott Ellison: [00:16:28] Yes, it's it's very rare... I'd be surprised if there will be any examples of companies that, a year after they've launched are unicorns, like you have in other sectors, right?
This is this is a business that if, and it goes back to another reason why having some sort of connection and a passion for it is really important, right? Because you, you've got to have a mission mindset. That says I'm doing this. Yes. I'm doing this to build an interesting, valuable company.
But I also have some other, you know, personal motivation or connection to the space, whether it's the workers in the space, I want to help, you know, make their lives safer or easier, or whether it's, I just, you know, I've always loved building. And I love seeing new structures emerge from nowhere.
There's gotta be some of that right? So it can't just be, I want to create a unicorn in twelve months..
Hugh Seaton: [00:17:24] Right, right. You should go make another social app, but that speaks to the other question I might have wanted to ask. And that is when you're thinking about startup teams. What do you look for? And you used a great word a minute ago, which was the mission mindset. I'd never heard that before, but I really like it.
Is that one of the key, I mean, obviously that's one of the key ingredients. What else do you think would be key ingredients for a team that's building something in this space?
Scott Ellison: [00:17:50] I think it really does come down to both the passion and the mission mindset.
But even as much an appreciation for the rules of the game in construction technology, right? So an understanding that from the very beginning, it's actually in some respects, good news that the sector demands discipline on unit economics, right? You don't get to walk in and for five years Mess around with some software and then maybe figure out the ROI that you're delivering a few years down the road.
You'll be out of business. So you have to, right from the very beginning, think about is there a specific thing that I'm solving for that my tool can do better, right. And it's that third leg in the stool, if you will.
But that idea that, do I really have something that, based on what I'm trying to sell in the market, does it better than the way they're doing it currently? Cause in most case, sure, there are some cases where you're going to be offering something completely new, drones I guess, would fall into that category.
But in a lot of other cases, you're almost by definition, the technology that you've built or are building is solving a problem that has been solved before. Maybe not great. But it's been solved enough. Right? So the way that whatever you're bringing to the party better, it has to be better.
Hugh Seaton: [00:19:17] I think there's something really powerful in what you just got to, in this unit economics idea, and we talk about how it's a project based industry and that slows things down and so on.
And there's obviously merit in that. And I think some of the merit is you don't have a lot of time to prove out that it works. They have a distinct P & L that they can point to. Like it doesn't get lost in the wash. It's this is the project's P & L, we used it for this project and they can much more cleanly see whether it had an impact than might've been true for a bigger enterprise.
Is that some of what you meant by unit economics?
Scott Ellison: [00:19:52] Yeah, I think that's part of it. I think that certainly understanding Again, we're talking about a construction in broad brush strok es here but figuring out who the customers are that you want to sell to and whether the way that they're doing business right now has enough inefficiency that you can step in with your solution.
And it'll be, maybe not an easy decision, but it can't be a nail biter decision, right? Where you say, boy, if you just spend a hundred thousand dollars on X, Y, or Z you'll get an ROI of 9% relative to, what you could get somewhere else. That's obviously not going to work.
Hugh Seaton: [00:20:38] Right. So as you think about the industry and what you've seen, where do you think there's some opportunities?
Scott Ellison: [00:20:44] Well, I think there's opportunity across the value chain. And I'll mention some potentials but I would say that in all cases it really comes back to not necessarily the technology underlying it. But what problem it is that's being solved. I've been fortunate to make a couple of investments in companies sitting at the confluence of Contech and FinTech, for example. Companies that are streamlining the payments and PO purchase order process.
There's I think a lot of work to be done at the intersection of construction tech and risk management, insurance, safety, certainly supply chain. You had, you had a guest on a few episodes back is working on, I think some interesting potential products in the legal world, right? That's back office and there are a number of others. Also when people talk about contech often what's described is robotics or drones or offsite and prefab, and that's, there's some really interesting stuff that's happening in those sectors. But I think there's also an opportunity. And what many might think of is just more mundane, and improving processes that haven't been touched for a while.
And by the way, one other one other area that doesn't necessarily have a direct connection between the two, but I think it's worth mentioning. And that's sustainability. There are a couple of threats. One being, as we know, the price of lumber has skyrocketed over the past couple of years, and people are really starting to think about how can we put up structures in such a way that they're ultimately more sustainable for the planet. And then certainly with the contribution, negative contribution, I guess you'd say, that the built world has on on sustainability and energy management. It's something that increasingly the sector, both construction , and just more prop tech and smart buildings is going to have to wrestle with over the next decade.
Hugh Seaton: [00:22:46] No, it's inevitable. And we're just seeing, I mean, I spend a lot of time with CSI obviously, and standards, and you're seeing a lot of talk about how do we make it easier for people to understand aspects of what they specify or what they use to build, that they didn't have to worry about before, whether it's the health content, because certain chemicals are used or the carbon content and methane actually in some cases.
You're right, we're just, getting started and it's a big complex problem.
Scott Ellison: [00:23:15] Well, I was just going to say, in terms of just getting started, I'm a believer that we're only in the second inning here of what's possible. We've seen over the past couple of years in particular a number of things coming together, whether it's you know, companies like Procore that are filed to go public, which will inevitably kick off individuals who have been there for awhile and are excited about running their own thing.
There are a handful of startups that have been successful already. There are venture firms that both here in the US as well as in Europe. They're there three or four in Europe that are actually even bigger in terms of capital under management in the US but focused specifically on the built world.
And so I think it's an exciting time. I mean, we'll see all of us who are spending time in this space. We'll see if we're, we were right in a decade, but There's a heck of a lot of work on some really interesting problems to be solved.
And to bring that one home. You know, you think about where the world was and in a really easily understood metaphor, where the world was with the Blackberry.
And then what happened when we got used to an iPhone, then apps then, you know, on and on and on, and you look at how we interact with so many parts of our lives, based on that, that simple transition from the thing you carry around only really being good at voice and text to being a supercomputer that now you carry around with you and you think about that transition.
And it took a little bit more than a decade from where we are to, well, you know, 07 to 17 is not a bad use of a decade. You can imagine where that sort of follow on and progression of this, that this made that possible, made that possible, made that possible. And now we're somewhere totally different from where we thought we were going to be.
Yeah. And when you mentioned Blackberry relative to your earlier topic, we were touching on with the big upfront installations as a consumer. Very few consumers had their own blackberries. A lot of people have blackberries, but it was all through their office, their company, because there was such a significant commitment that you had to make in terms of infrastructure and ongoing support.
And now, yes, it's a dramatically better platform, the iPhone or smart phones in general. But it's also really easy to use which is another important feature that you have to have to win in this space, but because it's easy to use, everyone's used to using it at home, in their personal lives.
And then of course, while, none of us would have chosen what happened in the last year. The pandemic had the impact of, I think everyone's had the experience of basically being able to do their job more or less. And I'm not talking about obviously you know, actually putting buildings up, but in terms of a lot of the things that enable that process , we've done that from home or not connected to a corporate server.
Hugh Seaton: [00:26:07] And I think that is why I'm going to invite you back, is to talk about consumerization and the effects of some of the more recent events. But for now, I want to say, thanks for being on the podcast. This was a great conversation.
Scott Ellison: [00:26:19] Thank you. And thanks again for everything that you've done and are continuing to do in this space. Exciting time, and I look forward to, as we get back to maybe the opportunity to get together in person, even connecting with others in your listening audience because there's a lot to talk about here, and we're just scratching the surface.
Hugh Seaton: [00:26:41] I agree. Thanks Scott.