
Razor Thin Margins Make Construction Ripe for Innovation - rsuttongee
http://www.plangrid.com/blog/razor-thin-margins-make-construction-ripe-for-innovation
======
jessriedel
Um, doesn't thin margins mean generally mean the industry is mature and most
things have been tried? I guess if you hold constant the "degree of difficult"
for innovation, then large _revenue_ make an industry "ripe for innovation".
But this applies just as well to Apple, right? A 1% increase in efficiency in
a $100 billion industry nets the same profits, regardless of the existing
margins. Or am I misunderstanding?

~~~
kevinpet
A thin margin is a little like being highly leveraged.

Spacely Sprockets buys sprockets at about $9.50 and sells them at $10.

Cogswell Cogs makes cogs from scratch for $5 and sells them at $10.

If these companies are "the same size" meaning they generate roughly the same
profit, then SS is selling 10x the volume of CC. If they can both cut costs by
10%, then SS's profit almost triples, while CC's only increases by 20%.

This cuts the other way too -- if you are operating at thin margins, a small
change can push you into unprofitable. If you have fat margins, your profits
just decline.

~~~
jessriedel
Thanks, this was the only reply I got that gave me a decent explanation. I
guess it all boils down to defining business size by the amount of profits
rather than by revenue or assets. The article's claim, then, is contingent on
the cost of a single unit of innovation being set by this size metric and not
the others. I'd say this is a very non-obvious assumption, but at least I now
understand the claim.

Can anyone give an argument for why the cost to reduce costs by 1% should be a
function of profits rather than of revenue or assets?

------
leashless
There's a long path-not-taken on housing. Most things in our society have
gotten a lot cheaper per unit service in the past hundred years or so,
including many entirely new categories of services. Housing has stubbornly
resisted change, with the result that an ever-larger portion of our culture's
capital is tied up in providing housing. And housing hasn't gotten any more
useful, either.

[http://hexayurt.com](http://hexayurt.com) gives some notion of how radical
that shift could be when it arises. Industrial panels (of whatever kind)
directly into owner-build housing. Free Hardware. You may laugh, but half the
world lives in cinderblock-and-tin-roof shacks and worse.

Nobody said the innovation had to start here, or look like what we do now.

~~~
sjm-lbm
Indeed, it actually seems like we've gone the other way. During the first half
of the twentieth century, buying and living in Ikea-esque "Kit Houses" was
actually not entirely unheard of. The Wikipeida page for Sears Catalog Homes
[1] actually lists the price range as between "$12,590 and $55,390 in 2008
dollars," which certainly seems like it could be price competitive with other
methods of new home construction, even taking into account costs like land,
etc.

[1]
[http://en.wikipedia.org/wiki/Sears_Catalog_Home](http://en.wikipedia.org/wiki/Sears_Catalog_Home)

~~~
VLM
My grandfather did that in the 50s with my dad helping a little. You need to
scale for sq footage, the average American house has increased from 1000 sq ft
to something unaffordable recently. By sq foot its probably not so much of a
deal.

Apparently it takes only a couple weeks for one man to build a house, but the
labor involved in general contracting to get the subcontractors to do their
thing exceeds the time spent swinging a hammer. He sub'd out to dig and pour
the foundation, some electrical, gas, some plumbing...

For those of a certain generation it was how you proved to the employer that
you could complete long complicated projects, basically the equivalent of
completing your college degree (which was hard to complete during WWII)

This is still done on a regular-ish basis for large garden sheds and garages.
Home Depot and others will dump a pile of wood at your location with some
plans and bulk pack of nails and other hardware and a weekend or two later
you'll have a garden shed.

The permitting and inspection process is more about revenue generation than
safety.

------
josh2600
A formula for disrupting Construction in the United States:

* Pre-fabricate everything

* Assemble onsite using non-union labor

* Move away from "Cost-Plus" pricing structures

Construction has Razor Thin Margins for a number of reasons, not the least of
them being the incentives associated with Cost-Plus bidding. Non-Union labor
and Pre-fab would literally upend the industry.

The problem, as with most mature industries, is policy-based and not technical
in nature.

Construction is as ripe for Innovation as Medicine, and an equally difficult
water to navigate.

~~~
Avshalom
You're missing the step that includes a decades long pr campaign to
destigmatize pre-fab housing.

~~~
VLM
On the way. Believe it or not my parents house was so old they built the
cabinets and original doors onsite by hand! Back in the old days they
literally dropped off a pile of raw wood, none of this prefab cabinets, prefab
windows, prefab doors, etc. They even hand laid tile rather than using a
fiberglass tub surround.

------
Bjartr
This is half plug and half relevant to the article, I like to think we're
worth knowing about.

I work for Ekotrope[1], we're looking to make those margins bigger and help
build green at the same time. Believe it or not, they're not mutually
exclusive and we know how to make it happen.

[1] [http://www.ekotrope.com](http://www.ekotrope.com)

------
Zigurd
I don't understand the focus on margins. While bigger margins would be nice,
it seems like modular construction would have a more direct effect on turnover
rather than margins. Maybe the term "profitability" would be more accurate.

------
smackfu
That chart sure could use a label showing what years it covers.

------
Ultron
Disruption may be in finding gold where others see garbage, like the Banana
King did: [http://cbpowerandindustrial.wordpress.com/2013/04/10/you-
cou...](http://cbpowerandindustrial.wordpress.com/2013/04/10/you-could-be-the-
next-banana-king/)

