By Benjamin Sack & Alyssa Tsenter

Major federal legislation – namely the Infrastructure Investment and Jobs Act (IIJA) and the 2022 CHIPS and Science Act – is driving a surge of manufacturing construction spending at a moment of reckoning for the sector. Three ongoing challenges plague the construction industry: poor productivity and efficiency, economic uncertainties like supply chain disruptions, and labor shortages. One in four construction workers is older than 55, and with younger workers less inclined to enter the skilled trades, more than 500,000 additional workers in 2024 need to be hired above normal rates to meet demand.

What unites these three challenges is their most promising solution: emerging technologies that could usher in digitization, automation, and upskilling to an industry in dire need. But with historically low technology adoption, can the construction sector embrace new technologies at the scale necessary for transformation?

At 53 Stations, we’re optimistic. The key barriers to construction tech adoption are clear, and founders in the space are tailoring their go-to-market strategies to align with the unique situations that construction leaders face. Let’s take a look at these barriers – high customer fragmentation across a massive TAM, multiple stakeholder personas, and low margins – and how overcoming them could finally transform an industry, and the American economy, for the better.

A TAM like No Other

For most VCs, network effects are the holy grail – a phenomenon where the value of a product or service increases as more people use it. Think of Facebook, Uber, or Airbnb; their entire business models thrive on growing networks that become more valuable as they expand. But when it comes to construction, this tried-and-true venture playbook often falls flat. In industries like social media or transportation, a user in New York benefits from a network that includes users in Los Angeles. But in construction, networks are deeply local. 

A contractor in Dallas rarely gains direct value from another contractor’s presence in Chicago, even if they roll up to the same organization. The unique conditions and regulations of each region mean that what’s valuable in one market might be irrelevant in another. This localism makes it incredibly challenging to build scalable, network-driven products.

So what is there to be done when a traditional startup playbook is mostly irrelevant? Based on what we’ve seen in the industry, largely through our relationships with Lithko and STV, we believe creating multi-stakeholder value is a must when building a construction tech company. This means GCs, subcontractors, owners, suppliers, and beyond. The more stakeholders that derive value, the stickier and more indispensable the solution becomes. 

“We believe creating multi-stakeholder value is a must when building a construction tech company. This means GCs, subcontractors, owners, suppliers, and beyond. The more stakeholders that derive value, the stickier and more indispensable the solution becomes.” 

What about solutions that can impact all stakeholders? Platforms such as these exist – such as 53 Stations portfolio company GreenLite – and are better positioned to succeed than localized solutions that tackle a problem for a percentage of the industry. With 745,000 contractors and 7.6 million workers, the construction industry offers an enormous TAM and an even greater opportunity. Even major players like Procore have barely scratched the surface, with just 2% market penetration in 2023. And we expect to see the sector grow from $2.46T in 2024 to $3.11T in 2029 – around 5% of GDP.

Today’s construction projects vary widely, with some contractors concurrently working on a semiconductor manufacturing plant in Ohio and a commercial parking lot in Illinois, having to adapt to different climates, regulations, and so forth. GreenLite’s permitting platform is addressing major foundational challenges all stakeholders in construction face, no matter their location or project type. 

“We focus on permitting because every builder and owner feels this pain,” said CEO James Gallagher. “Working directly with the developers and government agencies, our Private Plan Review is a comprehensive solution to our nation’s permitting problem, and with this model we are on track to privately provide the bulk of 20 million annual permits by the end of this decade.”

The ENR 1000 (top 400 GCs and 600 specialty contractors by revenue) have been inundated with point solutions in recent years, often eroding confidence that a better point solution isn’t coming around the corner. Point solutions need to share a clear roadmap to scale to end-to-end support when they are pitching to customers.

Procore has exemplified this approach by offering tools that serve the needs of various roles on a job site, making it an essential collaboration and transparency tool. Integrating with Procore, BuildingConnected (acquired by Autodesk in 2018), similarly takes a multi-stakeholder approach, providing a platform for GCs, subcontractors, and owners to efficiently manage the bidding process. Prioritizing a platform that delivers meaningful value to every stakeholder involved will lead to far greater impact on adoption and customer loyalty.

Where the buck actually stops

Beyond providing value across multiple personas, founders must understand the tangled decision-making landscape within these stakeholders. Identifying the true decision-maker is challenging, making it harder to close sales. Beyond understanding the stakeholders involved, negotiating across many decision-makers creates even more complexity. In a recent 53 Stations qualitative study, we found 100% of surveyed early stage contech founders must receive sign-off from at least two stakeholders prior to closing a sale, with 50% requiring sign-off from four or more stakeholders. Stakeholders mentioned included owners, architects, C-suite of the GC, project managers, and human resources leads.

We found 100% of surveyed early stage contech founders must receive sign-off from at least two stakeholders prior to closing a sale, with 50% requiring sign-off from four or more stakeholders.

53 Stations Qualitative Study, 2024

In an industry where credibility and trust are paramount, new solutions often face deep skepticism from these stakeholders, especially when it comes to onboarding. Contractors frequently rely on a mix of disparate systems, and finding a solution that seamlessly integrates with all of them is rare. With limited integration options, the onboarding process can be cumbersome and time-consuming, deterring contractors from exploring new tools.

One bright spot in the sector is the widespread adoption of Building Information Modeling (BIM) technology. The federal government has played a crucial role in promoting BIM adoption through mandating its use on federal projects, which has encouraged the private sector to follow – including large industry leaders like STV and AECOM. Continuous advancements in BIM software and hardware has improved accessibility and user-friendliness, fueling adoption.

Seamless integration is critical. Some construction professionals we talked to are self-admittedly less tech-savvy than their counterparts in other industries, so a simple, intuitive user experience is non-negotiable. Moreover, new solutions should integrate effortlessly with entrenched software like Procore or Autodesk. 

Kaya intentionally replicates the user interface of traditional software used in construction, like Excel, to make adoption easier. The platform pulls in data from existing solutions, but does not require any integration with customer ERP or other systems – allowing for smoother onboarding and a quicker buy decision from stakeholders. By minimizing disruption to current workflows and making the onboarding process as simple as possible, founders can accelerate buy-in from key stakeholders.

Low margins require strong cost validation – and a long term view

Despite delays in major projects such as EV plants and data centers, manufacturing construction is surging throughout the US. But contractors operate on razor-thin margins, with tech spending accounting for just 1.5% of revenue today. Economic headwinds, such as consistently declining Architectural Billings Index (ABI) scores and ongoing supply chain volatility, further strain the industry. June marked the 17th consecutive month of declining billings at firms everywhere except for the Northeast as inflation and supply chain issues continue to affect business. Most pressing is a growing labor shortage, which tends to focus GCs on solving immediate, operational challenges rather than exploring new technologies.

To break out of this near-term focus, startups might consider presenting business cases that emphasize long-term, enterprise-wide value in addition to project-specific benefits. Yes, it’s important to show immediate, quantifiable returns on investment to validate the cost. But to avoid the trap of project purgatory, where tech solutions are piloted on a single project, but fail to scale across the enterprise, early meetings should include clear, scalable metrics that demonstrate how the technology can deliver value across multiple projects and departments.

We’ve seen companies in the concrete monitoring space, like Converge and Exact Technology, excel in this regard: flexing both immediate impact via keeping schedules intact (or even sped up) while also proving out long-term impact on safety and efficacy. Indeed, companies in the space that have experienced successful exits generally pay special attention to long-term impact. Bentley Systems, which went public in 2020, balances the immediate industry need for project delivery and workflow optimization, while offering infrastructure lifecycle solutions such as digital twins and AI-powered asset analytics to secure long-term viability. By presenting data that shows the potential for long-term cost savings, operational efficiencies, or risk reduction beyond just a single pilot, early-stage teams can make a stronger case for company-wide adoption and avoid being confined to small-scale pilots.

We spoke of point solutions earlier – a quick transition from point solution to platform is particularly important to avoiding this “purgatory”. Take Preconstruction, especially Estimation, for example. It is particularly littered with point solutions today, and we see white space in the market for a platform-type solution that can do it all. If Autodesk is the platform for Design, and Procore is the platform for Construction, who will be the platform for Precon (which sits in between those two) to effectively de-risk construction delays and cost overruns? We’re paying close attention.

“By presenting data that shows the potential for long-term cost savings, operational efficiencies, or risk reduction beyond just a single pilot, early-stage teams can make a stronger case for company-wide adoption and avoid being confined to small-scale pilots.”

Despite the significant challenges, startups in construction technology are uniquely positioned to drive transformative change. While local networks can slow growth, they also provide founders with opportunities to secure local champions and build deep roots within each region. The inherent complexity of construction projects presents a chance for technology to streamline processes, establish standards, and boost efficiency across the project lifecycle. Though slow to adopt new technology, the industry offers immense potential when solutions address critical needs.

At 53 Stations, we’re energized by the opportunities in construction technology and the built world. The road to success may be tough, but we’ve navigated it before and know this space inside and out. We’re ready to stand alongside founders, guiding them through the GTM journey to build successful, scalable products and platforms. Let’s build the future together.

🚀 Calling Contech Founders!

If you’re a founder and building in construction technology, we’d love to hear more about what you are building! Feel free to reach out to benjamin@53stations.com. 

Additionally, we’re creating an exclusive Contech GTM Playbook combining founder insights with learnings from our interviews with industry leaders from Lithko Contracting, STV, and buyers across the country.Want to contribute? Complete our 5-minute survey and get access to the full GTM insights once live. Your individual responses are strictly confidential and will not be identifiable in any reports or analysis.