Adopting Modular Construction At Scale

Season 2, EP 10: Lucas Carstens

Show Notes

As the Founder and CEO of Modulize, Lucas Carstens knows more than most about the potential of modern methods of construction.

In this episode of The Time & Materials Podcast, Lucas explains:

  • How collaboration, open standards, and data sharing could boost productivity in the construction industry
  • Why off-site construction hasn’t been adopted at scale, and how it could be
  • What the construction industry can learn from other industries is a web-based software designed specifically for modular construction companies that helps them make better project bids, procure materials, and estimate their costs – and lots more.


What Led You To Start Modulize?

Ciaran Brennan

What’s your background? Where do you come from? And how did you eventually end up dealing in construction technology?

Lucas Carstens

I guess I have a slightly different background from you, but we ended up in a similar space, which I think is pretty cool. So I’m originally from Germany, spent about nine years in London before moving to Oslo three years ago, where we’re based now, where Modulize is based.

While I was in London, and also even before that, I’ve kind of always moved somehow around all things technology, specifically data. So while I was studying, I kind of got into computer science, then ended up doing my PhD at Imperial College in London with a focus on artificial intelligence.

Then from there I moved into the corporate world for a few years, then ended up working at a not-for-profit. And so I’m neither traditionally from the startup world nor from the construction sector, but I think the thing that has always fascinated me is that there are these areas where there’s just so much potential and so much white space where technology can have a meaningful impact.

And I think especially nowadays, with all the advances that we see in technology, so much of that relates to data and how we use that.

And then at one point through that journey, I got more and more interested in startups initially, and then tried to figure out, okay, is there something that I can contribute to building that will end up having an impact?

And then on the back of that ended up in construction through initially looking at what I and my two co-founders thought was a really interesting problem, which was the amount of waste that the industry produces.

We were just kind of fascinated by that, that there’s this huge global problem that so desperately needs a solution. And we at that time, being kind of the naive lay people looking at this, not seeing an obvious solution, we just went headfirst into that and kept digging and trying to see, okay, is there actually some systemic solution that can help us tackle that?

And that’s where we ultimately ended up with Modulize, trying to help address that and other challenges that we see in the construction industry.


What Did Modulize’s Research Into Inefficiency In Construction Discover?

Ciaran Brennan

What were the big striking points when you started to do that research? I always reference this as an ‘aha’ moment that says, “We should continue to research this” or continue to grow this, or even we should start a business around this. What was the striking piece of research that you came across that said, “Oh, we’re onto something here”, or “We need to continue to research this problem?”

Lucas Carstens

I think initially just getting really into the problem was realising the real kind of scope of it, the fact that it is actually 40% of waste globally being produced by the construction industry. I think that just in its own right, I was like, no, that’s crazy, that can’t be right. And then as you dig into it, actually there’s a lot of truth to it. And then you see, or it is the right number, and then you kind of start digging further.

And that was the first one for me. This is a huge problem and one that deserves to be solved. And also, I think on top of that, just a sense of even if we can build something that makes a small contribution to that, because it’s such a large problem, we’ll be onto something and we’ll have a real impact.

And then as we started digging into that, I think the next ‘aha’ moment was, and I remember sitting in a room with one of my co-founders, and we were having a meeting with, it was an architect, actually, who kind of made it all come together for us, because as we were talking to people up and down the value chain, trying to understand why this was such a big problem and what could be done about it.

The topic that we’re now working on and are passionate about, offsite construction, or MMC, modern methods of construction, prefab, it kind of kept coming up as, okay, have you guys looked into this? But then at one point, we had that meeting where the two of us were in a room with this architect online, and he made some comments around how it actually makes that contribution to addressing and reducing waste, whether it starts with a design and being.

Moving work away from the construction site where you’re in a much less controlled environment, moving it into a factory where you can actually have control over the waste that you produce. Then he kind of brought it all together for us. And then I remember after the meeting, my co-founder was, like, pacing around me in the room going, okay, this is it. And I think then we haven’t looked back ever since and just kind of kept digging from there on out.


Are Some Markets Better Suited To Modular Construction Than Others?

Ciaran Brennan

Were there different markets that you looked at that were, say, worse than others that would give you an idea of where you could actually start the business?

Lucas Carstens

So, for us, the way that we landed on the first markets wasn’t actually based on, say, where’s the most waste being produced? Because, as with many other areas in construction, maybe the data available isn’t all that granular or amazing.

The thing that really drove us was one – where are wet? So in northern Europe, in Norway, there is a lot of timber frame construction, a lot of prefab in that space. Sweden, even more so. And that was then kind of a natural starting point to start with the Nordics.

And then to see how that connects to other markets. And then the logical extension of that was kind of the Baltics, eastern Europe, because there’s tonnes of manufacturers there. Lots of them actually deliver to projects in the Nordics, so there’s a very clear tie in. And then on the back of that was really just doing the work on the research front to see where are there slightly more or less developed markets, like realising that the markets in Scotland and England look quite different and there’s quite a lot of use of, for example, timber frames in Scotland, but much less so in England.

So that’s kind of what drove our initial focus where now we ended up with at our stage, which is still pretty early, we’re really mostly focused on the Nordics, eastern Europe and the UK and Ireland, and that’s kind of our initial core. But because we’re building a SaaS tool, at the end of the day, if somebody else wants to use it, that’s obviously great. So building a market elsewhere, there is tonnes of opportunities outside of those areas as well, but it’s kind of a natural starting point for us.


How Do You Decide What To Build Into A Modular Construction SaaS Software?

Ciaran Brennan

So you start with a problem, which is a really good place to start. You move into solution mode, then and eventually Modulize is born, let’s call it. And I suppose on your website, it basically says you unlock the potential of offsite construction with ultimate takeoff and cost estimation software. So how do you then progress from “We’ve identified a problem” to “This is now what we needed to go and build”?

Lucas Carstens

Yeah, it’s kind of a process. So I think very early on, we were trying to figure out what is looking across the value chain that is involved in building something. What are the real bottlenecks that prevent, say, higher or at scale adoption of offsite construction?

Because that’s really what it’s about for us at the end of the day. We see a market that has this incredible potential, but there are these barriers that in some countries keep offsite construction to a 3% adoption rate, which is obviously not where we want to be, and we see other countries making more of a success of it.

For us, the process was really trying to find the problem. The first problem that is a real problem and one that we can actually solve. So with what we know and with starting to understand the complexity of different types of problems, the step in the value chain that is broadly the tendering and procurement stage, we thought that that was the perfect entry point for various reasons.

So, one, because there’s real concrete problems, for example, super inefficient takeoff and cost estimation and calculation. So that was an obvious first tool that we could build, also because the technical challenges are kind of constrained to the point of us not risking to do an R&D project for five years and never building a company around it.

So that was a really good starting point, but also for other reasons.

So the second reason is that we wanted to start with that stage because that’s where kind of the rubber hits the road with the manufacturers and a lot of the real decisions get made. But you’re not yet at the detailed engineering level.

So it’s a good kind of middle ground almost, where you don’t risk making small mistakes that have a big impact, but you do really help the manufacturer with their work, and it also allows us to capture a lot of data and insights into what is feasible, what is not feasible, how do these different manufacturers work?

And that’s really what it then all builds on, right? Because then you can decide, okay, what does a good project look like for offsite construction? What makes it more difficult to deliver? So it was this kind of really neat spot to slot into this much larger value chain for us to very quickly build something that solves a real problem and we can actually build a useful product. And it doesn’t end up being this never ending R&D cycle that we end up in.


How Will Standardisation Of Data Roll Out Across The Modular Construction Industry? 

Ciaran Brennan

You mentioned data there, and your background obviously starts back with data as well. One of the massive issues we have in construction is the standardisation of data. It’s just everyone works in silos and does their own thing and, as an industry, that’s a problem. What’s your experience there and what can we do to help that?

Lucas Carstens

So a couple of points, I think. One, to me, very early on, I felt it was important to distinguish between these two different types of standardisation, where on the one hand, we talk about standardisation from a point of view on the physical product, right, we want more standardised building elements because it will help us build more repeatably, efficiently, so on and so forth.

And then it’s the data itself that might enable that. And I actually think part of that is actually why I think offsite construction as a subset of construction is kind of the perfect breeding ground for developing more data driven solutions, because you do want the standardisation on both of those aspects.

But from a data point of view, I think one really important point is openness and having the overall willingness, I think, to share and use open standards. I guess it’s not always the case when for quite a lot of the work happens based on proprietary format, which to me initially having experience in other industries was quite striking.

Where you can get all of these weird underlying artefacts that just occur only based on the fact that people import and export out of these various formats all the time. Say you go from IFC to some other format, back to IFC, you don’t get back the same thing. Right. And that’s kind of crazy.

So I think that’s a really important point, that you need to be able to work based on a commonly agreed standard, and for a standard to be commonly agreed, really the only way to do that is for it to be open. So I think that’s really important that that is broadly acknowledged, and also that we maybe work less trying to build value capture based on coming up with our own formats and creating lock in. I don’t think that’s the way that you create lock in that ultimately creates value for everybody. So I think that’s really key in a lot of ways.


Why Hasn’t Modular Construction Been Adopted At Scale?

Ciaran Brennan

We had Gerry McCaughey on the podcast in a recent episode, and Gerry’s a bit of a legend here in Ireland when it comes to offsite. Very much a visionary within that space. And I asked Gerry a question that I’d ask you as well: why do you feel that offsite hasn’t been adopted at scale?

Lucas Carstens

Yeah, and obviously I listened to the podcast with Gerry, and he had a much more informed view on that than I have, obviously, with his I don’t know how many decades of experience. It’s pretty crazy.

I think there’s a couple of reasons. On the very practical level, the way that we’ve tried to approach it, like I said earlier, what are the kind of key bottlenecks that need to be unblocked across the value chain to just put ourselves into a position where we even can use more offsite construction?

And there, on a more practical level, the two big ones that we really see are one, basically how procurement works, and it’s not really geared towards facilitating good uses of offsite construction in a lot of cases. And the second one is then the earlier stage, where it can be pretty difficult to plan and design a building in the earlier stages in a way that it then becomes very clear and economically viable to use offsite construction.

Because oftentimes, say as an architect, you want to design something for offsite construction. How do you go about that? Unless you commit to a certain system early on, there might be some set of kind of kit of parts that you design within and then you know, okay, there’s somebody who can deliver that on the other end

But outside of that it’s quite difficult to go and say, “I know my walls need to be within this length because otherwise it’ll be like three walls in the factory instead of two wall elements.”

So those kinds of practicalities I think are one. But then more broadly, I think there’s a few different things more at the macro level. So one thing that I found really interesting in my construction education was this set up, and I think that then hampers the adoption of offsite construction.

But innovation more generally is the setup in terms of economic incentives, where with exceptions, every single project has to deliver a profit, right? So it’s very difficult. Like you look at tech companies, they go, okay, we’ll just lose some money here, but we’ll come up with a great product that makes tonnes more money later on. And that’s kind of commonly accepted.

But I don’t think it’ll be very common for people to say, okay, we have this pipeline of projects, we’re just going to lose some money on the first three projects, but we learn these things that will allow us to then make that back end more on the next seven projects. So I think on a more systemic level, I think that makes it quite difficult to experiment and test things.


How Can A Construction Company Test New Models Of Construction?

Ciaran Brennan

It’s an interesting point, isn’t it? I suppose Amazon would be a great example of that, where they can sell groceries and undercut every competitor in the US. And AWS / Amazon Web Services will underpin that with its massive profits. And it is a really good point. I think in construction we don’t think that way. You’re right, it’s got to be a project by project basis.

How do you see that then? Because obviously we’re both in a startup phase and failure and testing models and testing markets – it’s all absolutely acceptable and it’s encouraged that we should do that because the only way we can really figure things out. So how does the offsite construction, how does a company go and test new models then, as you say, if it’s got to be profitable from day one?

Lucas Carstens

Yeah, I think within that it’s obviously slightly more constrained than say, may like you’re saying, us trying to build a startup and being in this venture capital world where there are certain assumptions that you’re not going to make money from day one, and that’s all kind of take it for granted. I think without that there’s obviously some other constraints but I feel like there are enough proof points for offsite construction and also other ways of doing things.

Like I said, I think it’s a more general point around trying innovative approaches, but I think offsite construction is just kind of maybe one of the biggest ones on that one. We’re kind of trying that and obviously we’re figuring that out because we’re an early stage startup.

Lucas Carstens

But a lot of it is finding the right level of commitment and comfort on this individual project. I don’t think in these early stages we want to try and go out and convince, say, a contractor that has a project in front of them that is just not made for offsite construction.

I don’t think we’re going to necessarily try and go and say, hey, but you should go back to the project owner and try and rejig everything and throw everything out. I don’t think we as an early stage startup can maybe facilitate that.

But I feel like we know and we see a lot of construction companies and contractors especially that are kind of on the fence and want to go for it, but need a bit more of a framework. So I think for us – and that kind of goes back to the point around data as well – I think for us to then be able to go and say, hey, we have this network of offsite manufacturers that are using our SaaS product for various takeoff calculations, and we understand some of the common themes across these manufacturers and we can create a level of insight that is maybe more difficult to achieve when you look at individual contractors and you call somebody up.

I think it’s kind of setting the boundary conditions where it doesn’t create insane amounts of risk for an individual project, but still lets you kind of iterate and take the next step if you’re kind of ready for it. But there’s these final bits that are missing.


What Can Modular Construction Learn From Other Industries?

Ciaran Brennan

One of the biggest learnings for me from going from, let’s say, running a construction business like a business generally just operates in construction. And me and my competitors were very much the same, really. We didn’t have any major USP, it really comes down to service and good delivery, and there’s a lot of honesty in that. We deliver what we say we’re going to deliver, and that’ll get you a long way. And just being able to actually do what you say you’re going to do, it really gets you a long way.

And one of the learnings from transitioning into technology is that there’s so many other companies you can look at that will nearly deliver you a blueprint and say, this is how it’s done. And they could be in ed tech or could be in whatever it might be in shore tech or anything like that. They’re in a completely different industry to you.

But the blueprint is something you could look at and say, well, actually that really makes sense. We could deploy that to ourselves. What can offsite learn from looking at other industries?

Lucas Carstens

That’s a really good question. I feel like some of it, and I think Gerry talked about that as well, but I think it’s also with his background, I think some of it is how you present it. So we see the offsite construction market on the supply side is super fragmented, and lots and lots of SMEs, like, say, 20 to 200 employees.

It’s very difficult to get to any kind of consistent storytelling or branding for the real benefits and the real upside of offsite construction right, when it is so fragmented. And that’s also one of the things that we’re trying to explore. So how can we actually build a consistent story around offsite construction that really conveys the benefits? And then, yeah, I think other industries have probably done a better job and have come further in that. And then I’m sure there’s tonnes of other things to learn.

I was never technically in finance, but I was involved in building products for finance. And I think the willingness to just look at data and trust it and go, okay, there is a quantitatively right decision to make.

I think we can also get better at that, where I think a lot of it is kind of still, because data is often lacking and so much of it is – rightly so – trust based. But there are ways of just being more quantitative about things and saying, here, this type of project, we will save you this and this and that, say on the footprint, the amount of waste that we produce, delivery time, and then actually, to your point, deliver on that.

I think to really quantify these things, we’ve talked to some manufacturers where I have a pretty good sense that they’re doing an amazing job at not producing a lot of waste in their factory, but they don’t measure it.

So they have a very clear USP that they could just put data behind and say, hey, we produce, say, 3% off-cuts in this factory rather than whatever number you have on site when you just deliver the beams – that’s potentially huge. Right. But for that to make any impact, you need to measure it and be really precise about it with the product itself.

Lucas Carstens

So what we’re building is basically a procurement platform. And the way that we’re going about that is that we started initially building basically a quantity takeoff and cost estimation tool for offsite manufacturers to basically facilitate their side of the procurement process.

So they receive a tender from a general contractor, and they need to come up with that cost estimate. Say, “What are we going to charge for producing all of the outer walls in this school?”, to give you an example. And then the manufacturer will use Modulize to basically do these calculations and put together that bid. And then today they would just then send it back to the contractor. And then you get this email and call kind of set up, typically.

So we’ve built that tool, and now we actually just recently started building basically a platform around that to actually let both the contractor and the manufacturer be on and use Modulize to facilitate the entire tendering and procurement process so that the contractor can put together their tender, send it into the network of manufacturers that we’re building.

We can figure out which manufacturers should be bidding on that project. Then we can collect the bids, put them all in a consistent format, because that’s another challenge today, right? That oftentimes the contractor will end up almost being pushed back to onsite construction because they’re in that tendering phase under a lot of time pressure to put together their bid for their customer.

And during that time, they need to look at their numbers and their estimates for doing the work on site. And then they need to compare that to various types of approaches and offsite construction, and they might end up with one estimate for onsite and, say, three to five offsite estimates that all look completely different. And then they might not have the experience, know how, or even the time to make an informed decision.

So the logical choice becomes sticking to the on site alternative. So that’s the thing that we’re trying to solve, to make the whole tendering stage a really consistent process for the construction company, the GC, and these manufacturers.


What’s Next for Modulize?

Ciaran Brennan

What’s the overall vision with Modulize? Where do you want to take it?

Lucas Carstens

Yeah. So our overall vision is really rooted in that first problem where we want to contribute to building a world where construction is faster, cheaper, and greener. And we think offsite construction has a pivotal role to play in that, and also to play in that without sacrificing quality or character, which is super important, right?

Because some of the knocks that offsite construction has traditionally gotten is that you lose flexibility, you lose character, and we don’t actually think that needs to be true.

And so our vision is on a broad scale to contribute to that, and the way kind of our mission to contribute to that and to achieve that is to one, build an incredible and scalable procurement platform that really creates what you could think of as project manufacturer fit for every single project, and just makes offsite construction the obvious choice for every single project where offsite construction actually makes sense.

And that then leads to the second point, where not every single building project in the world should be all offsite. Especially with that second challenge that we’ve seen, or that we think is one of the big bottlenecks, is that a lot of projects aren’t designed for offsite construction.

And that’s then kind of the secondary vision for us is because we can collect all of these incredible insights and data into what is actually possible, what are the parameters and constraints that make a project a good fit for offsite construction.

As part of that in the longer term, we then also want to use all of that data to help that earlier stage planning and design process.

Say it could be a set of APIs – application programming interfaces – for the technical term to basically feed that data into, say, a CAD tool for architects, but that’s more of a longer term thing. So for us today, it’s really about building this incredible network of manufacturers and connecting that to the demand side in a way where offsite construction just becomes a no brainer.

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