 It's a completely different mindset to the project and most people just don't have the experience. 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 and my co-host, Beth Poppeglav, is out. It's our first episode of the year and she's out. She's not feeling too hot, but we've got a great show lined up for you today. We've got Tim Sims with John Burns Real Estate Consulting on the show with us today, longtime friend and longtime fan. We're really excited about having on the show. We're going to talk about modular, we're going to talk about off-site construction, but for our listeners, Tim, just real quickly, why don't you introduce yourself and just share a little bit about what you do at John Burns Real Estate Consulting. Yeah, you bet. Thanks for having me on. I can't believe it's been, I don't know, over three years since we did the first episode about modular and a lot has changed and a lot has stayed the same. So, I'm Tim Sims from John Burns Consulting and I have this weird title of Director of Building Products Intelligence, but what that really means is diving into what's going on in the market and then sharing that information that we get through surveys or anecdotal or things we learn or speaking engagements that we hear people's questions, sharing what we learn with our clients when it relates to building products. And so, one of the couple of big things I work on are our Lumber and Building Materials Survey, which we asked them a lot about modular over the year. And also, we just have a new collaboration now with the Structural Building Components Association, SBCA. And so, that is going to be a lot of survey work too. So, those are the things I do. So, Tim, let's just dive in because I think a lot of people hear modular and they hear off-site construction and their eyes glaze over a little bit like we've talked, we've been talking about this for a long time. But I'm really curious to get your perspective on why should a manufacturer or somebody in the building product space care about off-site and modular today? Like, we're looking at 2022 and beyond. Why should they be listening? Why should they care? And what does it mean to them? Yeah, that's such a good topic and relevant right now. And there has been a lot over the years of, we've tried this before, we've been down this road before, but some things have changed. And in general, the capital stack for the industry has changed in terms of investment, which we were talking about a little bit before we started recording. And I think that's what makes this space very fascinating. And we had that section, the Wizard Summit with Mark Mitchell about how building product manufacturers can can stay relevant and or how they could fall into irrelevance. And one way to fall into irrelevance is to ignore something because it's been tried before and hasn't been particularly successful, especially when there's so much focus on it. So a couple things have changed since last time we spoke on the podcast. One is there is now a new standard, a code standard for modular offsite construction. It was a collaboration between the Code Institute and the Modular Building Institute. And so it actually addresses multiple building technologies, but really focused on volume metric modular. And so that wasn't in place last time we spoke. And it's just in the last month that that has been announced and published. The other thing that's happened is we have a lot of institutional money and private investment and R&D investment by by some building product manufacturers and builders into this space. So you have all these kind of funnels of cash coming in. And whenever there's a big catalyst, say labor, and you have a lot of money, and now you have a standard, I'll give you an analog for why it's important. There were people in the building material space that poo pooed engineered wood products. They're like glue lamps. That's not going to work. You know, people are always going to use solos on them. Like 10, 15 years ago, is that what you're saying? Yeah, it was probably like 30 years ago. 30 years ago. Builders aren't going to use this. Well, the thing that changed was labor and a technology component for resin that made it better for the application. And then standard span tables, standard in construction, things code officials could really grasp and sink their teeth into. Those things change. And that's why it's important to pay attention to modular right now too. Yeah, I think one thing, like I've seen, gosh, it's probably like once or twice a quarter, I get somebody from our team, Evenvio, like sending message on Slack or email, like, Hey, did you hear about this? Have you heard about this company before? It's some like, it's like some sort of I've never heard. I mean, like, got a beautiful website and they're constructing like offside housing. It's like, Hey, choose your one, two or three bedroom, like cabin, and we'll like literally drop it off for the A for you to like just set up in a day or B will just literally drive it to your, you know, your lot of land or wherever it is and set it up. And you're seeing that for like, gosh, office settings, cabins. It's primarily like spaces where you, you know, it's not like in a residential neighborhood, but it's like a lot of times you see it like as a secondary dwelling unit or something that's adjacent where you're seeing a lot of these, you can actually purchase them right online and they're, and they're smart because a lot of them, they've given out like payment plans for like, Hey, you can go buy this two bedroom cabin for you and your family and we'll, we'll hook you up with, you know, financing like similar to Carvana, you know, and so it's, yeah. And so like companies, just to that point, like companies like Affirm are really looking at the space hard. Can you do a buy now pay later situation with this? Because you can't really, for all of it, you can't use conventional financing. So on the micro scale with residential, you know, the financing is almost always something like, you know, a HELOC or, you know, a cash out refi. And then with institutional with like multifamily or something like that, there's usually some bridge component because most, most, most commercial loans don't have something that will allow them to prepay, which is what you have to do for modular for the units before they even get to the site. So there are some of those kind of hiccups in the space. You know what makes me think of Tim? It makes me think of like code, like actual coding, like web programming, like 10, 15 years ago. Like when you talk about like offsite and modular construction, like us in the industry, we're like offsite modular panelization, like we're like, we're like fighting over which thing is going to work and which thing is going to win. And to the end user, like the thing winning, like nobody, like frankly, like the average Joe Schmoe who's going to buy one of these products or these built dwelling units, doesn't know maybe the difference between offsite and modular. But what they do know is that they're like, Hey, I can go on this website and I can purchase a house and it's going to get delivered to my lot of land or whatever it is. You know, and so people in the industry fight over the technology, but that the technology is never the thing that wins. It's the end result of what the users want, like makes me even think of without going down a rabbit hole, like crypto cryptocurrency. It's like, which cryptocurrency is going to win? Like, nobody's going to like 10 years from now, people aren't really going to think about that. Like, like same with code, they're going to think about what's the end thing I'm trying to accomplish that has now been changed because of the cryptocurrency, you know, right. And so there's, there's some sort of pick and ax type strategies going on right now, say with code, you might have GitHub or you have, you know, this the settling on the branding of low code and no code. And those are actually kind of modular components. Interesting, right? World. Yeah. Yes, it was really cool. And then with with crypto, you know, you have blockchain kind of being the platform for a lot of other things. And then with some things, some of these pick and shovel type approaches to the industry, you see a lot of design for modular offsite construction, whether it be single family ADU backyard office or something like that, or apartment buildings, 20 story office buildings, whatever the case may be, there's companies like generate technologies that are looking at how can they automate the design. High arc is another one that is trying to is putting together these plug and play plans, where they have all the plans and the permit documents and all these things in one place. And they can be modularized or stick frame, whatever the case is. So there's but they're not providing a product. They're providing that customer experience. I think that you're right. You're so right, Zach, because people get hung up on the modality when the real deliverable is experienced. I think, you know, I'd be curious to get a perspective because if I'm a manufacturer, I'm listening to this and going, okay, like, maybe there is something to modular offsite. And I mean, three years from now might be what if we're if we're guessing high 5% of the market, like that would be insane. It was that high. But right, it begs the question of like, well, what firms like architecture firms are leading the charge in the space and what actual builders or companies are the ones that I should be paying attention to? Do you have any do you have any information on that, Tim? Like, do you have any ideas about who are companies I should be paying attention to that are really the forefront of what's actually going to work? And, you know, both both from a user perspective, the end user, as well as financial, like, actually making money, because we're going to talk about Katara here in a minute, like, because that's what people are thinking, like, what about Katara, which I want to get your take on? But is there any way I should be paying attention to? Yeah, I always think about people in terms of kind of four buckets, someone that can't help me and can't hurt me, someone that can't help me and can't hurt me, someone that can't help me, but can't hurt me and someone that can't help me and can't hurt me. So I kind of think of people in those quadrants and the analog for that is in the cladding world, a lot of people ignore the power that the installer has in certain markets. And they just for years didn't get any attention, but very specialized. And now a lot of focuses on the general contractors who have been largely ignored for times and facilities managers and stuff like that. In the offsite world, there's this kind of area of a shadow sort of lack of attention. And one of those areas is say that they call them the setters and the stitchers, you know, basically, that put these units together and they call them like box setting events. Sometimes you'll see a big developer do something on the news or do their own video and post it. And so these box setting, the people putting those together may be the general contractor. A lot of times it's a specialized team that knows how these units are supposed to go together, that knows that has specialized in how this assembles. And that is an area where if you know it's a terminology thing that can show you as a building product manufacturer that you're an expert, you know what a set is. And you know that's a specialized person. They're often very under the radar companies that do these specialized services. That's somebody that you would want to know as a building product manufacturer. But if you don't have someone that's a champion at your organization, you're not going to have someone that knows kind of the jargon and can speak to these people with confidence knowing exactly what they're up against on a daily basis. That tactical empathy that Chris Voss talks about never split the difference. You need to understand their business before we can actually go talk to them. And more and more building product manufacturers are giving people in the organization's resources to understand these things. And some of these kind of standardizations like the recent code standard for modular, that will help. But it's going to take pouring over those details, becoming a sort of matter expert, giving people in the organization an opportunity to step up or hiring somebody that knows the business, that can help a building product manufacturer, lumber and building materials, folks and distributors to understand what their customers are up against and how they can solve for the problems they face on a daily basis. I'm so glad you bring that up, Tim. Because when you started talking about the different players in the market, I immediately started thinking, well, which manufacturers are selling to them well? And it begs the question of, it's probably not just like, hey, this is part of my job. You need to have a person on your team that they are, as you said, the champion of going after this audience. Have you seen any manufacturers who are embracing this idea? They're like, hey, we're going to start to invest in this area, even if it may not be a huge part of our market yet, or companies who are dabbling in this. What are they doing? Can you speak to that a little bit? Yeah, so where I've seen, and it's such a great question, because we want to look at something to aspire to, and see if companies that we respect are investing in the personnel and the intellectual property, then that means that the rest of the industry should be looking at pretty hard at that. So a couple of pretty easy parallel universes are, say, your component folks like Myotech and Simpson, they have people dedicated to off-site construction, whether it be manufactured housing, modular or panelization and floor panels. And that sort of makes sense, because they make steel components for those industries and the connections and stuff like that. And they're very focused also on mass timber. An easy way to see, because we want this episode to be evergreen, is an easy way to see who's making progress over time, is to go to Indeed and LinkedIn and just search for jobs, modular off-site building product manufacturer, mass timber building product manufacturer. Look at those and see what jobs come up. And you'll see that hopefully over time there will be more and more people. The engineer wood products folks definitely have specialized people, but there's some other ones that seem to be, because they're typically hardly ever installed off-site, like cladding and roofing. Let's say it takes something really obscure like landscaping. Why should landscaping or paver manufacturer or Allen wall manufacturer care about modular off-site? Well, modular off-site panelization, some of those things affect how the site is treated and the scheduling, because it might be very much sooner in the process where you have to install those products. It might be out of your normal scope. It doesn't change the products that need to be installed. It doesn't change the trade that installs them, but it might change the timing. If we don't understand that, that could really throw off even our forecasts. So it's really not necessarily about does my product get installed in the factory. It's more of a mindset of how does this affect the construction schedule? How does this affect where I fall? And so I should know some of those things. And so another one that I think has done a good job is, I used to work at Nietzsche Ha, and when we think we really talked about there is, do we need to even care about this? Because all of our stuff has to be installed pretty much on site. Well, we ended up, we did need to care about it because the mate lines and plate lines and transitions really played into the detailing of the project. So a lot of times we would go talk to the architect, and they didn't have no idea that we had come up with these specialized details that made their job easier as an architect to be able to put together the documents for this project. And a lot of times, they were inexperienced. So you're educating the architect on how to do offsite as the manufacturer. Is that what you're saying? Right, because, you know, in the design field, I mean, those folks work so hard and you saw that AIA paper published several years ago about how much those folks get paid. It's not a lot for what they actually accomplish. And so we were always trying to make easy to buy, easy to sell. So easy to spec is part of that easy to buy scenario. And so putting those things ahead of time and sharing with them how this could go so they're not figuring out on the run, which is hard enough in the first place when things are going well. I've made such huge fans of them, the specifier, the architect and designer, because interiors change a little bit when it comes to interior design, when you're doing something volumetric module, like a hotel or apartment building or a house. So those things, they really appreciated over time for sure. I love that, Tim. That's so smart. So if I'm a manufacturer who's targeting, like you mentioned, Simpson Strong Tie, MyTech, Nietzsche Ha, they're targeting modular offsite penalization, some capacity. What are the people in those roles doing differently? And let's say somebody who's just targeting, you know, multifamily or targeting commercial or targeting, you know, residential builders, something like that. What is different about the role? Is it just education? They know things differently? Are they actually doing their job a little bit differently than what a traditional, let's say even sales or marketing person might be doing? I think it's the latter, at least from, in my experience, it's part of probably one of the biggest things about being a subject matter expert on something, even if a lot of folks are going to do other things, they're not going to necessarily be full time in this role at a billion product manufacturer. But it is a lot more folks, there are a lot more folks involved. There are a lot more folks in the value chain that don't necessarily, that's not something they're an expert on. So becoming the expert, huge resource for them. A lot of that has to do with education. And then there is a lot, I feel, where the most successful projects we were involved in involved a lot of site and factory visits. So to understand and to share that knowledge and to really show the support that we wanted to let them know that, hey, you know, we're here for you, and we may not have all the details put together for this, but let's work on it together. What we found was really interesting, though, a lot of the factories, especially the factories, would say, hey, let's roll up our sleeves together and get all the right people in the same room, which I know admittedly is a little hard physically right now, but at least on Zoom. And there was a big hesitance at the factory level to do that. But when we got the architects and the owner involved in those meetings, they could see that we were really trying to solve for the challenges. Because when you're bolting units together, hauling them over the road and then bolting them together and trying to finish them out, it's a completely different mindset to the project. And most people just don't have the experience. And so when you have that as a manufacturer, and you're trying to help them, even with things that aren't part of your scope, because there are a lot of things that are intertwined that you don't necessarily manufacture, but you should know about, then they really, really valued that. And then it led to a lot of repeat business. Yeah, like I like what you said there, because I think what it translates to is it's pull not push, you know, because you're going to have people coming to you because you have the expertise versus going, hey, would you like to spend my product and you're competing against everybody, you're kind of creating this blue ocean of sorts for yourself because you've got the expertise. And the other thing that helped was putting together content so that digitally, the digital presence was we are, we're the experts, we have someone that you can call or email about this, talk to our technical department, talk to our person in charge of this and whatever the job title is. And that actually drove quite a bit of traffic. So creating like thought leadership pieces and technical content, frequently asked questions about is this even possible? What does it affect in my job? Those things really made a big difference too. So it's not just the tactical out in the field, but it's also the digital. I like that. Tim, I want to get your take on Katerra. I've been a lot of talk about, hey, this offsite modular construction won't work. Katerra had all the funding in the world, all the PR, all the awareness in the world, didn't work out. Do you think it's the end of the industry? Or do you think that it's a signal of something else? Right. What was that in Gulliver's travels? It's over. We're doomed. Yeah. There's been plenty of talk about how that would impact negatively the funding sources, acceptance and adoption. One of the challenges with Katerra, and we dealt with them quite a bit, really good people. And the good thing is those people took the good things they've learned and they're now at different organizations, which is really, I think, can be very fascinating over the next five to 10 years. It is fun to think of taking over the world in terms of domination in a space, because when you look at the construction space, there's so much inefficiency. There are really good people doing really good things and making advancements, but they're very incremental. So when you look at that as an opportunity, not only to change it for housing and residents and tenants and buyers and make life better, but as an opportunity to make money, it's very alluring. And that's why so much money was fed into that space. But it was a lot of money all at once and a lot of pressure to go acquire and roll up all of these. But it's not a typical roll up. If you wanted to roll up and acquire a bunch of physical therapy centers and put them all on one ERP and point a sales system and make all those things work together, integrating construction companies, concrete contractors, framing contractors and buying lumberyards and building factories and having all these things work together in a short period of time, it just isn't a situation where money can be thrown at it and have it fix it. It's not a situation where just hiring people and acquiring companies can be thrown at it and fix it. I mean, just look at code adoption across the country is totally different. There's some places certain code is mandated and there's some places where it's kind of up to the building official. So it really is hard in that space to put those together. But there are some companies doing something similar, but just at a slower pace and they're self funded as opposed to outside money at a fast pace. And so it's a different level of focus, a different level of attention to detail and a different level of training and integration. So a couple of companies that are doing it well are Oakwood. So they have their offsite folks and then Van Meter, they have their fully integrated project delivery, but they're doing it kind of step by step. They're doing a prototype and they're not trying to take over an entire category and and they're also mostly self funded. So they have to be a lot more fiduciary when they're looking at how they're making those things go together. And they're very people focused too. So both those organizations are very focused on making sure their people are developing, that they're happy there and stuff like that. And when you have turmoil and frenetic pace of energy, then it really makes it hard to get people on board sometimes. So one thing what Oakwood has done too is they've actually gone and this was in our NHTI webinar in August, they were talking about how they have purchased concrete companies and some of these contractors along the way to roll them into their organizations. But again, it's at a pace that is acceptable, that's digestible. And I think that was the biggest difference that made Katera an untenable effort was just and looking at it posthumously. But it was because it was a lot of money and management that wasn't ready for it, people that weren't ready for it and organizations that were trying to be integrated that just weren't ready to be integrated. That's great. Tim, this has been fascinating. I feel like I could talk to you about this forever. It's a fun subject for sure. It is fun. For our listeners, if they want to connect with you, what's the best way for them to do that? Yeah, the easiest way where I get most messages and communication is through LinkedIn. So just Tim Sims on LinkedIn and shoot me a message. My phone number, email are also on there. So feel free to reach out to me anytime about this subject or anything building materials. It's cool. Again, Tim, thanks so much for coming to show me. This has been awesome. And for our listeners, if you enjoyed this content, make sure you go to venue.com slash podcast to subscribe and get more. Until next time, I'm Zach Williams. Thanks, everybody.