 It will be no surprise to any that I would say that we are massively short on our labor resource to be able to deliver our built environment. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. All right, everybody, welcome to Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. I am Zach Williams, alongside my co-host, Beth Poptiklomf. And today we are talking about the future of construction. There's been a lot of talk about technology that's being rolled out, new products, innovation, and we've got an excellent guest on the show with us today to talk about changes that we see that are happening in the marketplace. Beth, you want to introduce him? Yeah, absolutely. We're really excited to welcome back Steve Yates. He is the executive vice president of Enterprise and Industry Partner Channels at BuildExec. He's also the chairman of Clifton Yale, which is a wholesale building material brokerage house. He's living and breathing in the center of how building materials and technology are coming together. So, Steve, thanks so much for your time. We're excited to get into it today. Thank you, Beth. Thank you, Zach. I'm good to be here. It's an honor. Thank you. Steve, before we dive in, why don't you give our listeners a 30-second view of who you are, who BuildExec is, and then we're going to dive in with some questions. Yeah, of course. I'll start with BuildExec. BuildExec is a SaaS cloud-based software product, which delivers a collaboration platform into the construction vertical. And within that platform, we have five primary stakeholders centered around the Builder remodeler. And of course, downstream from the Builder remodeler is the asset owner, the homeowner, and upstream is the supply channels and the manufacturers and the associated trades. All of these people collaborating together on our platform. I've been with BuildExec since late 2019. I have over 25 years experience in the supply chain and different roles from demand to supply side. And my responsibility inside of BuildExec is to deliver that network connection between builders and the different stakeholders in getting a fit for purpose product into the market. Steve, you know, one thing I really appreciate about you and your team, actually, I heard Jennifer speak at Heery back in October on your team. And it's just your perspective about what trends are happening right now and more specifically what's going to happen over the next three to five years, which is what I really want to dig into. You guys are, you know, really pushing the industry forward. But I want to hear from you. What do you see as the macro trends that are impacting construction across North America that manufacturers specifically need to pay attention to. Well, it's a big subjects act. So the way to eat that elephant is one bite at a time. So I'd suggest we kind of break it down into five different subject areas. Labor and really around inputs and influences, right? Labor, one, building materials to regulatory environment, three economic influences, and then the fifth would be environmental. And so if we could kind of break down over those five areas, it would be no surprise to any that I would say that we are massively short on our labor resource to be able to deliver our built environment. The numbers are astounding. The shortfall is astounding. And whether you look at demographic trends, your workforce participation, whether you look at interests of new workforce to entrance vis-a-vis the construction industry, whether you look at federal policy around immigration, it doesn't matter where you look. It doesn't seem that there's relief coming to this labor shortage. And so it's a major factor that everybody has to take into account. We are not going back to a new normal. So if people are waiting for things to open up, they're probably going to be waiting a very, very long time. Can I ask a question about how to put this together? When you say things to open back up, do you just mean the amount of labor available, or do you mean something else? For us to kind of get back to some kind of mean that we're all used to experiencing. That is not going to happen. If you're struggling to stand up a good sales team right now, many of your sales members are probably going to age out. And looking at retirement and you're struggling to replace them. This is a significant factor in future planning. We're thinking over a five-year period. So how do you solve it? Yeah, well, you've got the answers, right? Yeah, you've got the answers. I'd love to hear what your opinion is on the strategies people are using to bring new labor into the market. Well, we're a technology company, but we consider ourselves to be a people company. It's about people. And so when we look at applying our tools to this problem, it is how can we allow our technology to make people who are available to work more effective and more efficient? One. And two, how can our technology contribute to making the workplace more interesting? So when we talk about diversity and inclusion, imagine somebody, a Gen Y or a Gen Z, looking at the construction space and saying, oh, is that job interesting to me? I'm going to go in. I'm going to take a traditional sales role and I'm going to run a book out of a CRM and go out and press the flesh and create all these relationships. Or am I going to become a user of this really incredibly dynamic technology that has all of this exciting capability that I'm used to as a digital native? That's exactly right. So actually, adoption of some of the principles around technology coming into construction is actually a pretty positive in terms of workforce, recruitment, diversity and inclusion that will help you solve some of that problem in the short term. All right, we interrupt to do. What's next? Materials is next. So you're going to have a lot of manufacturers on this call that have been looking at consciously or unconsciously solving the labor shortfall problem. How can we design and create manufacturing goods that reduce the onsite labor quotient in full delivery of the outcome? And so as a result of that, manufacturing products are becoming more complex. And as they become more complex, it becomes a little bit more interesting when it comes to procurement and delivery into the market. And you have all heard of the terms configurators, right? So all of a sudden now I've got a complex building assembly rather than a set building component. And how do I make it easy for somebody to buy that? It had to configure that assembly, buy it and introduce it into their total build and make it part of that building environment. This is a really interesting challenge because as we add capability into the product and complexity to subsidize the shortfall in labor, we're now making, we're adding friction into the procurement process. So building sectors look really close closely at this piece and we've developed tools to be able to now buyers of manufactured products in the construction space actually configure in real time against the total project. Really, really important piece. If you look at the first problem you mentioned here, Steve, labor is a big issue, which we've covered extensively on our show. But then the introduction of technology, but what I like what you're saying is people say, oh, technology needs to improve the speed of production and speed of build and things like that. But you're really focusing on an issue, which is the procurement process of building materials. Like one thing that we see that's a challenge for most manufacturers is how they sell their products to the different channel partners in different audiences. It's incredibly fragmented. It's not like the DTC market where you've got a website and then you just go online and you buy it. It's like, oh, you've got one step, two step. You have direct model there. You can go through a big box. You can go through a number of litany different ways of selling and what you're getting at is, hey, regardless of how do you sell, how do you make that transaction process happen more quickly, utilizing configurators or something like that? Like that's something we've seen from our clients. So let's take an example. Let's take a deck. So go back five to 10 years and you say, how does a deck get delivered through the vertical? I've got deck planks. I've got footing. I've got peer and post. I've got rail. I've got hangers. Let's say I've got 12 or 14 different SKUs going through the vertical. And the buyer has to range out all of those SKUs you manage. And what we've done, what the manufacturing industry's done, is let's consolidate that. Let's actually just make it possible just to buy the deck, one SKU that includes all of those components. So you've solved a really big problem, but you've created another one because now, how do I configure that one SKU? Right. How do I know that it's going to fit into the place that I have, be the size that I have, the height that I need. It's going to accommodate the foundation that I have, the structure that I need for it, all of those things. So I want to 10 by 14 deck. How many posts? How many beams? How many planks? How many rails? How many, right? So all of a sudden you've solved the problem, but created another one and it's adding friction in. So now a lot of the manufacturer channels are saying, oh my goodness, I've got a problem. How can we actually buy this product? How can our pro customers buy this product? We've got all this configuration capability that we need to be able to deliver that's still being done manual. And that's the area that Bill is actually really focused on solving. So we can get the best of both worlds. We can actually reduce the number of SKUs, deliver components in that reduce the labor costs without adding complexity into the purchase process. To come back and summarize, as manufactured products become more intelligent, become more of a construction services solution rather than a commoditized product, there are other issues that we create. And we've got to be aware of that and solve for that. And I think that's probably enough. I mean, everybody's sat in webinars and podcasts and talk about what the material costs are going to be looking at. We're looking at a five year timeframe. Let's not go there. I think in terms of materials, just delivery into the market, I think is really probably the most important comment that I would make. The third item that I put in here is regulatory. And not only do we have a labor shortage, we have a housing shortage in this country. We've got housing affordability issues. And locally, I live in coastal California. We've got all of the cities in coastal California getting heartburn, trying to meet a state law that requires their housing element to deliver x number of housing units. And if they don't deliver to a deadline, all of their local municipal codes sunset, and developers can come in and actually build to a state mandate without any local influence. So you can imagine how much fun it is in land planning in California right now, right? So the regulatory environment is quite dynamic. It's harder to find greenfields development, greenfields that are effective to build the housing that we want. And they have water and all of the resources required to do greenfield development. So you see a lot of municipalities actually coming in and issuing infill policies. So if you're a manufacturer serving the construction industry, you probably divide it between production builders and custom builders and remodlers. Then you'll notice macroeconomic trends where people are saying, well, our custom home builders and remodlers are looking really solid over the next 18 months, more so than production builders. Well, there's reasons for that. And one of them might personally be regulatory. A custom home builder and remodler is much more likely or much more adaptable or capable of addressing the infill build market than a greenfields developer is. That's a really excellent point, Steve. I was talking to a manufacturer recently about how nobody's really thinking about infill and how that's a very much unoverlooked market for where construction is going to happen and how to service that. Heavy listeners just Google upzoned single-family residential areas in the United States and just see how many municipalities are upzoning their single-family zones and who's best set to serve that market. And that takes you back to the prior problem we were talking about, which was configuration. We kind of put all builders into one box, right? They're a builder. That's like saying, you're in a marketer. Yeah, think about it this way, right? So I always like to kind of give an analogy a little story to illustrate this point. If I'm a production builder, I build this box or design this box once, right? I get a bill of materials and a bill of quantities and maybe I can offer my homeowner two or three very minor changes to this box. But then I'm going to duplicate this box 500 times, 2,000 times. That's my goal. That's my business model. So I can take that box or the bill of materials from that box and I can go to a supplier or a manufacturer and I can complete what I call a client-level negotiation. There's a hey manufacturer, hey supplier, here's my box. I'm going to build this 2,000 times this year. I'm going to need 6,000 water closets. I'm going to need 12,000 vanities. I'm going to need that. And you can go ahead and do that once. Complete a contract, suck as much margin out of that manufacturer's business model as I can to drive my prices lower. And now my relationship is about fulfillment. Give me all the technology. When's that going to arrive on site? And this is where the focus is, right? But if I'm a custom home builder or a remodeler, every time I start a new project, I'm starting a new box. So I can't do client-level negotiation. I have to do project-level negotiation. That's a very good point to think about when you talk about splitting up the different types of builders and the problems that they're dealing with. So if you're thinking about a smaller builder or a custom home builder, they're going to build a handful of homes a given year. They have a smaller team. Oftentimes the actual owner oversees procurement, client satisfaction, delivery. Maybe they've got a small team because they've got higher margins because they're doing more expensive homes. But they don't have a one-stop shop. I was on a job site recently doing some market research and talking to a gentleman. It's him and his wife. They are a local builder. I was like, hey, who handles your procurement? And they're like, oh, well, we do. And like, well, who manages the team? Well, we do. And like, who talks to clients and manages their expectations? Oh, well, we do. And so that to me feels like it's obviously a pain point. And anytime there's a pain point, there's opportunity for a market to serve that, whether that's a manufacturer or somebody like yourself to fix that problem. Well, yes. And the important thing is the pain points are very different, right? If I'm a production builder, I've got that client-level negotiation. It's all about fulfillment. Actually, what slows my project up or what eats my overhead and profit is how well I coordinate my trades. So that's where my technology focuses, right? So you go to all the big content. You look at the content offering. It's all around that on-site coordination of trades. But if I'm a custom home builder and remodeler and I don't have that level of sophistication and I'm doing a new bill of materials on every project, I'm likely to forget things. I mean, this is really banal, but let's just go through this for a minute. CSI Master Format gives you these days up to like 45 divisions, I think. I think when we began building buildings in California in the 1990s, we were talking about 14 CSI Master Format divisions. So I got to think about all this stuff and I got to remember it all. And so when I'm working with my manufacturer or my supplier in pre-planning of my project, there's a chance I'm going to forget a few things. When I'm out working actually on the job, I realize, oh, I forgot something in my bill of materials. I've got all these trades here. I'm burning all this money. It does not matter how good my manufacturer's sales rep is or how good my relationship is with my manufacturer. I'm 150 miles from my depot and I'm 150 miles from my sales rep. And I'm going to go to the nearest yard that I can go to to solve this problem. So what is that? That's leakage out of your total market opportunity. So if you're standing up a sales team and you're addressing a custom home builder and a remodeler and they're making, they've got those errors and omissions in their bill of materials, you're only one. And this is statistically, this is empirical data. You're only one of four suppliers. They're using to complete that total job. And so if you're the best and at the top of your game, you're getting 65% of the total bill at the top of your game. So it's more likely, much less than that. So if you think about how do I grow my business? If you're only getting 65% and there's 35% opportunity within your existing relationships for you to grow your share of business. It's going to be a lot less costly than going out finding new customers. There's a bit of a vested interest in actually solving these pain points for these custom home builders and remodels. Zach, you mentioned higher margin. As a manufacturer, which would you prefer, one customer spending a million dollars with you at 10% gross margin? Or 10 customers spending $100,000 with you at 30% gross margin? I need to get my Excel spreadsheet out. But I think I would argue that it depends. Depends because what's my strategy as a manufacturer long-term? Do I see that there's repeat purchasing from those builders? Is it a one-time burn and churn type of scenario? I can easily make an argument for both, but as a manufacturer, your business is built on long-term relationships, not the one-time sale. There's a bit of a trick question too, right, because it shouldn't be either or. We're talking with one of our channel suppliers and distributors a couple of weeks ago. They had, up until November, they hadn't chased new work for over two years. And they told a story about one production builder came in and they signed a client-level contract and said, we're going to deliver $2 million. We're going to purchase $2 million with the building materials over the next 12 months. Well, they were nine months into that contract and they were going to be lucky if they got to $800,000 over the plane period. $2 million, which I guarantee you, was what the pricing was based. $2 million contract is going to deliver $800,000 in outcome. Another way to look at that is when you get a really, really big client, what's the first thing you should do is go and get another really, really big client because this is risk management. If you've got all your eggs in one basket, you start losing pricing power. So, Zach, it's a balance of both. I'm not suggesting that one is more important than the other, but you have to consider both in your go-to-master strategy. Steve, how are you finding the manufacturers you're talking with responding to the conversations that you're having? Because you're disrupting a lot of what's kind of, you know, we do what we do because it's always what we've done and we're going to keep doing what we do because we've always done it that way. So, you're not only trying to disrupt how they are going to market, how they're doing their sales process, but also you're introducing technology and what, like, we're on your side, but I can only imagine what those conversations sound like from your perspective. So, we divide our market by scale and an easy way for you to visualize that is to use a fishing nomenclature. So, we have our marlins, we have our tunas, and we have our Dorados. We have our very large national players. We have the real substance of the industry, which is the key regional multi-location players, and then we have the independents. The people who need technology the most, the tunas and the Dorados, right? It's these regional players who don't have big IT budgets that instead of investing $5 or $10 million in developing technology solutions to solve this friction in the vertical we've been talking about, they can go and get a SaaS product and just pay a monthly fee, right? So, they can actually level the playing field and compete for the big players, like Builders First Source, without a $400 million investment, right? But they're also the ones most likely to say, oh, I get it, but I got so many things to deal on. I'll look at it in six months' time. They're most likely to say it. So, I think what is happening is that the nationals also get it, but they're not waiting six months. So, as much as the channel, it's the mid to lower market players in volume that need this the most and who are actually serving these custom home builders and remodellers the most, need to be careful because the national players are solving this over the top of them. So, they respond differently by segment. And I get it, right? We've got day-to-day problems. It's always easier to put something like this off and not deal with it now, but you'll get to the point where you look back and go, or I can't recapture market share. Steve, this has been excellent. I really appreciate you taking some time to come on the show. I took a page full of notes based on what you said. For our listeners, if they want to connect with you, what's the best way for them to do that? Well, my email address is pretty straightforward. It's first name and initial at BuildExact.com. So, it's Steven with a P-H-Y at BuildExact.com. Just ping away or go to LinkedIn and you'll find me on there. And I'm more than happy to engage with anybody and a conversation about how we can help them. I mean, we have a saying inside of the company that we keep our customers at the heart of everything we do. And the one thought I'll leave you with, and this is less about work or more about life, is that I don't know anybody who doesn't want to change something. Right? Everybody wants that. When they get up in the morning, wants to change something. And I also know that we mostly get up and worry about our own problems. If you could tomorrow get up and recognize, hey, I want to change something, but I'm going to start worrying and thinking about my customers' problems more so than my own, it's a principle that will feed you forever. And it's foundational to the way that BuildExact has solved for each of the stakeholders in the vertical. Having the manufacturer think about the distributor. What is my customers' pain point and how can I solve for that? And the distributor thinking about the builder, what is their pain point and how can I solve for that? And so on to the homeowner. And if you just shift that paradigm and have a conversation in your organization about it, you might find that, oh, wow, there's a whole bunch of things we could be thinking about here to help drive that business. I love that. Steve, again, thank you so much for coming on the show and for our listeners. If you enjoyed this episode, check us out at venvio.com slash podcast to subscribe and get more. Until next time, I'm Zach Williams alongside Beth Lobney-Glove. Thanks, everybody.