 I think, genuinely, the marketplace is shifting, and it's becoming more well-adopted. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. All right, everyone, welcome to another episode of Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. My name is Beth Potmuculov. I'm your host. And in the studio today, we have someone to talk to us about one of my very favorite subjects. We are going deep on prefab construction. I'm really excited to welcome Scott Meyer. He is the Chief Operating Officer of Integrity Building Products and has some really cool stuff to share with us today when it comes to prefab construction. So first and foremost, Scott, thanks so much for your time. Welcome to the show. Thank you, Beth. Happy to be here and looking forward to the discussion. Yeah, us too. So, Scott, let's dive right in. Tell us a little bit about yourself and tell us about Integrity Building Products. I joined Integrity back in 2009 as an operations manager. Over the course of my tenure with Integrity, we've doubled in the expansion of the building products industry into Calgary, specifically prefab walls, trusses, floor systems and lumber supply. Our intensity was a typical retail lumber yard. We've evolved to more of a business to business customer base. We primarily only service business to business, which has changed how we operate and allowed us to be a little bit more innovative and creative, I feel. So we're now 12 years into my tenure. And we've gone from servicing Okatoks, which is a small town just outside of Calgary, Alberta, to servicing all of Southern Alberta and into the lower portions of DC. We service approximately a dozen builders, but 2,500 single-family or multi-family homes or units per year. It all scopes that associate with lumber or component manufacturing. So, tell us a little, how does Integrity Building Products come into the prefabricated wall construction arena? We kind of had a change in our culture, so to speak. We didn't want to be just a lumber yard. We didn't want to just be sticks and fasteners. My brother and I, who Jerry founded the company, we built it on the premise of innovation. It's one of our core values. And if we were going to ask our people to think like that, we had to do that ourselves. So we took a dive into prefab specifically about four years ago. I went on a trip to Germany with some much smarter and much more experienced individuals in component manufacturing and went on a tour that showed me what's possible that really just amplified how much work we have to do and how much opportunity is out in front of us to evolve this space. So really we look at it as an industry improvement and value that we can add to our clients and to our industry and form more of a legacy than anything. So that's where it started. So after that trip to Germany, obviously some market research and some discussions with some of our higher valued clients, we made the commitment in 2019 to purchase a line built by Wyman. Since that time, we have expanded and we now have two Wyman lines, one operating in our original facility and one on order soon to arrive for our second facility that will both support the Alberta, primarily the Alberta marketplace, but we are seeing more traction at a VC as well. So that really, really it was the innovative side. Rather than just simply doing material takeoffs and sending sticks of lumber, we decided that we would get a little bit more precise. We would get a little bit more construction savvy and intelligent with how we appropriate our materials and offer something different. I don't know if every market is the same, but ours is a very tight marketplace. It is highly competitive. If you are not doing something different, you are going to be swallowed up by either larger providers or you are going to be ignored by some of the bigger builders that require it. We all sell the same things. You are going to be driven by price or you are going to be driven by relationships. So we decided to diversify a little bit. So we still offer sticks. There is a traditional stick frame builder out there. Happy to support and we will work on conversion into the pre-sab space at a later date when we have a little bit better handle on their business. But yeah, that was one of the primary goals of it was again the innovation side. I'm very passionate about it. It's silly as it may sound. It's just cool. No, it is. It's just cool. It is. I love the tech side of it. I like using software to improve both our business and the business of our clients. I think that we again, we have a long ways to go and we are just scratching the surface. But again, you're starting to see the shift in what people are willing to explore. One of the biggest strategies around it was customer retention. Because it is such a competitive market, we do have to look at how it's not, it's very difficult to replace some of these larger builders that do hundreds upon hundreds of homes annually. So what we did it for was a lot to make sure that we all own the larger share of their wallet. But we're also more integrated with our business so that it was harder for them to move on. Now that isn't a manipulative strategy. It is a security strategy. And we get held to the task to ensure that what we're bringing is truly valuable. But yeah, I look at it as both a way to gain business but to retain business. So what does the conversation look like? Were you responding to demand in the market? Hey, we're seeing that there's a growing demand for prefab wall panels. Or are you flipping builders who come to you and with an order request and you say, you know what? I can actually save you time, money, labor by taking your order and doing it prefab. When we first cracked into this back in 2019, when we first started, I guess, commercializing our wall panel, we did a bit of an incubation and trial and error phase. But once we started actually selling it into the marketplace, it was a, why don't you try this? Let's talk about this more. We leveraged a couple of our relationships to give us an opportunity. So I'll give you an example. Calvary Tomes is a, they're about a 200 a year builder, maybe 250 on a high year. So not a massive volume, but they're a custom builder in a sense. So they're a custom production builder, which is kind of an oxymoron. But they do a very good job at it. They actually took the first risk with us, which basically they carved out a community of approximately 50 addresses annually, where we would prototype this system, where we would be giving the full gamut to run with wall panel and they would trial it. That turned into a success story for them. And now we're servicing four out of the six communities, full scope wall panel. The two other communities we have yet to service are just, they're the most complex areas. They're more estate level homes. They're on an island on a lake, things like that. So we're basically starting from the simplest form and trying to evolve all the way to the most complex. But they went that route based on frame or capacity. So going back to 2019, it was not a, they didn't need it. They didn't want it. They didn't ask for it. We made a pitch. We showed them some small samples that might give them some intrigue and then really leverage the relationship piece to allow us the chance. Once given the chance, it was our responsibility and our goals to make sure that it was never given back. And we feel like we've done that effectively. And then spiral that through the COVID surge and demand that amplified the need for it. So Calbridge did it based on, we sold them on the methods, we sold them on the technology, we sold them on the innovation, sold them on the efficiencies. And then the surge of the last two years in demand has not only asked them to ask for more of it because they have less field support, but it's now starting to see the intrigue from others. Now is it based on the fact that we've had success with Calbridge? Perhaps there's a portion of that. But I think the general feeling then I share the sentiment is skilled labor is not coming back. It's tight right now. It is only going to get tighter. So we feel that we need to continue to push the envelope a little bit and we need to convert builders more rapidly than we have in years past because they have to and if they don't, they will get left behind. And you're seeing a lot more. Ironically, I was driving down Calbridge the other day and it was just something that I'd never noticed or never maybe taken sight of. Then you see panels transporting much more regularly in Calgary than you did 12 months ago, 18 months ago, 24 months ago. I think genuinely the marketplace is shifting and it's becoming more well adopted. I mean, so labor is obviously something we talk about on this show all the time and talk with other manufacturers about as well. And I was reading an article yesterday that said 91% of contractors had trouble filling labor positions on their workforces on their teams in 2022. So it's so fascinating for all of the benefits that we hear about prefab construction and I'm not shy about just being just a general fan, being really interested in the technology and the potential there. Often the benefits are cost saving, time saving, labor savings has typically in the past kind of come at the bottom of those top three. And to hear that a builder in your area, which 200, 250 homes, it's not the biggest builder, but that's not the focus stick at. That's definitely a respectable midsize builder. To hear that it was like, you know what, we can probably get the same margins. We're not really looking for more margins. We know that materials are going to waver here and there, but we feel that we've got the flexibility in our ultimate price point with our with our buyer in order to meet that demand. We know that homeowners, especially in 2023 have been so beaten down about demand on the marketplace that time isn't really that big of a proponent. And if you want a house, and I tell you it's going to take you 18 months to get into that house, you're going to say please and thank you and you're going to sign on the dotted line and no one's going to care. But labor is the thing that is keeping us from having enough homes to meet demand. And it's so interesting, Scott, that that was the tipping point for a builder in 2019 where it we're just at like the standard rate of labor shortage being an issue, not, you know, the exacerbated state where we are today. And it'll be interesting to watch how that moves up the rung of time, money, labor is probably would be labor. So it's got all that to say, you know, before, right before we started talking, you and I were agreeing that when it comes to prefab and offsite construction, once every couple of years, it feels like it really comes on the radar. And we think everybody who's interested in the field is like sitting on the edge of our seats, we're all like, this is it. This is the moment that it's going to catch fire. And for a number of reasons, it just doesn't seem to and it kind of teeters off and then it comes back on and comes back off. You see this way this kind of ebb and flow of demand and interest. I'd love to know from your perspective, if you have any thoughts on why that is and why it hasn't really ever had that significant snowball effect that we want. So I think the wavering is is a little bit of trepidation or a lack of risk tolerance, we'll say. I know we're speaking from just conversations that I've had with some of our other clients that we haven't been able to convert. It is a risk to them, perceived risk, that they're going to put all their eggs in one basket. They will bastardize, pardon my friendships, that's okay, that they're framing partners. I think that one of our one of our biggest challenges with conversion was the fact that we weren't bringing collaborative framers along for the ride. We were asking them to convert their framers to our methods. So you're going from up and again, it's an older marketplace of labor that is traditionalists. They like their craft. They've mastered their craft over a number of years. Change is never going to be something that's easy for them. So we were kind of fighting two fronts. We were fighting the risk that the builder was about to undertake and we're fighting the risk that we're presenting to the framers that they were dying breed or going to lose an opportunity. I think that's one of the reasons why it maybe never caught on fully. I think the other part was, and this is again speaking specifically about maybe just Calgary or Southern Alberta is there hasn't been enough positive outcomes in our space. Whether people have tried it and failed or they've quit on it, whether from a supplier side, not just a builder side, a lot of the instances that I've known have been basically that somebody has tried it, they've put their best foot forward, but they've never been able to fully bridge the gap of what the capital investment is, what the time investment and adapting your business model to support it. So you look at a company like ours, it was challenging. We went from a traditional lumber yard, very arm's length on the component manufacturing side. Fortunately, we wouldn't have been able to do what we did without the partnerships that we had with our clients that bought in. It simply wouldn't have happened, both from a funding standpoint and from a trust and a cadence that it creates. If you're going to do this, you have to go all in. You can't dip your toes in. So again, I think a lot of companies got washed out in that. I think one of the reasons why you're going to see it stick possibly more now or at least maybe not at the same rate that it's increasing, but at least a constant climb is simply that there is more success stories. There's more validation to it, but our marketplace specifically and our supply chain is very tight. So we have good relationship with our competitors. Some of the other guys that have tried this, they've had successes. So their customers are feeling that positive. We've had successes. So we're starting to create a model that other builders can take off of. What is the imitation as best form of flattery? That sort of mentality is other builders want to see others take the risk and then they will then decide whether or not they're going to make a strategic decision themselves. So I think there's a lot more of those examples that we can use to leverage the conversations that we're going to have later on with other potentials. So Scott, based on everything that you're saying, what predictions do you have about the adoption of prefabrication over the next three to five years? Um, broad question. Well, I think, again, you're going to get pinched on a number of friends that are going to force some hands. One of those is going to be the fact that labor is going to continue to be a problem and demand is going to continue to be high. Now I know interest rates whether Canada or US are extremely high. There's a lot of noise around the fact that that's going to suppress a single family marketplace, whether I would assume it's very similar for you guys down in the US. I think that Calry specifically is in a unique position because we're still underpriced in comparison to other major cities, whether it's across Canada or the northern US. So I think Calry has a long runway of continued demand. It might not meet what it met, you know, at the beginning of 2022 where we saw numbers that I don't think anybody predicted we would see. But I do think that we're going to continue to see an increased climb. We are underpriced and we are under inventory dramatically. Alberta had the largest single year of immigration into our province since the early 80s. There's no signs of that closing down. We have a, we have a government right now that is really incentivizing immigration to Canada. We're looking at, I think it's half a million people by the end of 2025, which for Canada is lots. Yeah, I think I saw somewhere that Canada had the highest immigration rate of any country last year and like is even developing a backlog. We see that and we feel that now. So whether that goes into a, maybe it's a price point thing where, because again, multifamily is much more adapted to the pre-fab game than the single family side. So you're talking about a marketplace that is going to have a demand for probably more multifamily. You're talking the entry level, lower income homes, things like that. On the single family side, I think what we'll see in Calgary is just strictly that builders are going to look to try to shorten the build cycle as much as they can. They went through a period of time in the last two years where it could have cost them their business with surging pricing. So the longer the window of time is that a home is under construction, the more risk that you have. We're going to continue to leverage technology and innovation and efficiencies and precision. That's going to be the obvious. So I think now coming out of what we've just experienced over the last two years, people aren't going to be simply just graded on price. And can you get it there? Can you get it there? It's going to be price of course, but it's going to be, can you get it there when I need it there as precise as I need it to be and with limited risk to my efficiencies or my ability to control my costs? One thing that we do, and this is something that I suggest, everybody that does a blended model is what we call or we consider ourselves a blended model. We have stick frame and we have prefab. We use what we call variance purchase orders to quantify how much more efficient from a budget standpoint, a wall panel job is versus a stick frame. So you look at a, right now we average five to seven percent on variance purchase orders, which is basically the field calling us for more stuff. You look at prefab. Because again, we are controlling the products going into the home. We are precise. We are precision. We, we have 3d model, modeled it to a 16th of an inch the way that it is designed and the walls that we send for that design, unless we have an error production, which again doesn't impact the builder's budget might impact their constructability or whatever. But the reality is we have sent you exactly what you need to build that house. There should be no cost overrun and it should be fixed. And that we use that immensely. Can I ask you a question about that? First of all, it's fascinating that you measure that. And if, if I just hear you say like the difference out loud, like 1% versus let's say at the top end, 6%, 7%, like statistically, I know that that's pretty significant. But if I just like the difference between 1% and 6% in my mind could maybe not be that much. Do you have any additional data? Like, do you know how much from like a time or dollars standpoint that 6% or 7% gap is? That would, that would change. So when at all time commodity highs, it's very high. But let's say we'll be a good example. So we do consolidated variance purchase orders. So at the end of the project, we submit for all of our variances at the end. It gives the builder a chance to analyze all the information and gather their thoughts. We have to validate why we were either short on estimate or misappropriated materials or whatever. Recently submitted one that was $7,000 on probably a $105, $102,000 package sale. That didn't include trustee. So this is a very large lumber package. It's an estate home. So a true 7%, $7,000 that they didn't budget for. Right now, again, just speaking of this specific example, they made a choice through construction. Again, a state home walkout backing onto a lake. They made a decision based on the needs of their clients to improve some of the materials that were going into that house. So it wasn't a misappropriation of materials. It wasn't a missed on the estimating side. It wasn't a framework cut something wrong on site. It was a decision that was made. So, but those things all contribute. Now, in hindsight, if that was a prefab house, that would have been a much different challenge. And that's one thing that you lose on prefab is being nimble and being able to be dynamic and make changes through the course of the build of the house. So you have to be very diligent. So Scott, if I'm a manufacturer or a lumber dealer considering investing more or getting behind prefabrication in some way, what advice would you have? The software that we use is the biggest catalyst for what we're able to provide as an output. We use my tech in almost every aspect of our business. Obviously, one of the most pronounced and used softwares in the world. But we use it for its intended purposes. We use it all the way through. We use it for management. We use it for structure. We use it for production. We build our business based on the resources that are available to us in my tech in a lot of ways. But we ask our customers to engage in that. So we ask our customers to provide us with AutoCAD files that we're able to create 3D modeling and we ask our customers to convert their process to adapt to ours to allow us to give them the best output. So I would suggest that they, prefab is not for the faint of heart if you're not prepared to put in the lightwork and pre-construction. If you're not going to do the lightwork on the pre-construction side, you will fail. The other piece of that is we dedicate one specific employee that is basically out there demand planning. And what I don't mean from a supply chain side, I mean from a field side. They travel the greater metropolis of word we service and they go around and they analyze site readiness. Because the last thing that we could do, especially in the last couple of years is dedicate a bunch of resources to something that wasn't real. We did not have that luxury to sit on a pre-made 3000 square foot home. Well, Scott, this has been so great. I just want to say thank you so much for your time. If any of our listeners wanted to get in touch or reach out, what would be the best way for them to do that? You can reach me at my email, my cell phone. I'm very active. I love what we do. I love this industry. I love the innovation that we're starting to see and I'm going to try to be a part of the cultivation of that. Reach me at my email. It's scott.m at integritybuilt.com. You can reach us on our social side. We do have a Twitter account and Instagram account and that would be at integritybuildingproducts or give me a call. My number is going to be on our website about us. Again, I am very passionate and that's one of the things. As much as you have to, don't worry about the profits. If you think that the idea has legs and you're passionate about the idea, I truly believe you'll find a way to convince others of the same. That's really what we did over the last three or four years here is really try to exude our passion and our commitment to the innovation and the improvement of the industry upon our clients and we're blessed to have clients that trust us. I love that. I love that a ton. Well, thank you again for your time. For our listeners, if you want more great content like this, head to ventvio.com slash podcast. Until next time, I'm Beth Papi Kola. Thanks, everyone.