Trouble in Katteradise

See the latest issue of Briefings at newsstands or read in our new format here.

By: Vindya Burugupalli

First, you need to hire a subcontractor to build the foundation, then a roofer, plumber, and painter. But only after lengthy negotiations, months of tedious planning, and hundreds of thousands of dollars spent will your dream home be complete. In 2015, Katerra was formed with the aim of using technology to revolutionize the traditional construction process. The idea was to streamline the process, with a one-stop shop that vertically manufactured prefabricated structures and assembled them on-site. A customer simply had to hire Katerra, and the company would do everything. 

Katerra went on to raise $2 billion in capital, and in 2019 was valued at $4 billion. At one point, it had more than 700 projects in progress. But despite this promising start, it would experience enormous project delays with the onset of COVID-19, followed by leadership changes and layoffs. After many failed attempts to stay afloat, the firm filed for bankruptcy in June 2021. But experts say that the pandemic was far from the only crack in the company’s foundation.

Part of the issue may have been one common among start-ups: going for scale before knowing what customers wanted. That forced the firm to pivot often and to delay. Katerra tried to build not just homes, but also apartments, hotels, and other commercial projects, each requiring a different kind of expertise. “I think we underestimated the complexity of executing self-perform projects at a large scale,” Katerra’s chief operating officer, Paal Kibsgaard, told The Wall Street Journal.

But the biggest lesson of the Katerra saga may be how hard it is to disrupt the mold for any industry—even with great technology. For all the firm’s efforts, many of the contractors they acquired continued to operate according to their set-in-stone methods. Experts say that tech executives and their dreams often don’t fit smoothly into other industries’ operations. “The overly optimistic and youthful perspective can be a hindrance,” says James Ward, a lecturer and expert in construction logistics at Columbia University’s School of Professional Studies.

Still, few in the home-building business are dismissing the concept that was behind Katerra’s bold plan—and in today’s struggling housing market, more efficient, one-stop construction that brings prices down amid high mortgage rates may someday emerge as a popular solution. But as Ward sees it, the goal of building faster can’t be rushed. “You’re not reinventing the wheel here,” he says. “You’re adapting the wheel."