Should a market meltdown ward off entrepreneurial activity or attract it?
Historically, the highly conservative U.S buildings industry has been reluctant and slow to adopt any kind of innovation. Recent events are accelerating a major shift away from this outdated mindset. Today's industry is ready to embrace advanced building technologies and new approaches to achieve better performance and efficiency at lower cost.
At least, that's the view outlined in a free industry report from Nth Power, a veteran cleantech venture capital firm, and Fraunhofer, a leading non-profit R&D organization.
In an effort to stimulate discussion and to encourage innovation, Nth Power and Fraunhofer CSE have identified the forces that are enabling sound investment opportunities within the U.S. new building construction industry. The report calls this investment space Better Buildings – the subset of Green Buildings that is appropriate for venture capital investment. (Click here to download Innovating for Better Buildings: An Opportunity Disguised as a Meltdown.)
The report explains the market dynamics that create Better Building opportunities and how the current residential and commercial market meltdowns are actually quickening these industry shifts. The report also includes a guide for entrepreneurs interested in pursuing these large, yet challenging opportunities, as well as an overview of some exciting emerging technologies.
Industry leaders Christine Ervin, the first president & CEO of the U.S. Green Building Council and former U.S. Assistant Secretary of Energy, and Gino J. Gemingnani, Jr., Senior Vice President at the Whiting-Turner Contracting Company have each come forward with glowing endorsements of this joint report.
The U.S. building construction industry is extremely large and diverse, comprised of hundreds of different billion dollar markets within the residential and commercial sectors. As such, the investment opportunity is far from singular, and conducive to a portfolio approach.
The fundamental industry problems underlining the opportunities are massive and growing. First, the industry has consistently produced buildings that are severe energy wasters. An estimated 34 percent of the energy consumed by buildings is lost directly through the building exterior, or envelope, due to poor thermal integrity. In terms of carbon, U.S. residential and commercial buildings alone account for more carbon dioxide emissions than the entirety of most countries, ranking only behind the U.S. itself and China.
Secondly, the typical building construction process is also quite wasteful in terms of time, materials, and costs. Within the residential sector, for example, the construction of a typical U.S. 2,000-square-foot stick-framed house produces 2,000 pounds of construction waste. Within the commercial sector, over 3 percent of all building project costs in the U.S., estimated to be $36 billion annually, are inefficiencies related to software non-interoperability issues.
Lacking in "checks and balances," the U.S. building construction industry has had little incentive for improvement. This is now changing in a very big way.
Today there is a strong confluence of social, political, economical, and environmental drivers that are transforming the industry to deliver cheaper, greener, and better performing buildings. In general, legislation, volunteer programs, energy codes, and corporate sustainability programs are all requiring the use of better building techniques, technologies, and operational strategies. Minimum building insulation levels have risen sharply in recent energy code revisions, where they previously remained fairly steady since the codes were first introduced.
In order to respond to these growing pressures, the industry is changing how it functions. There is a growing transition away from the traditional, severely compartmentalized construction process and towards a more standardized and collaborative one. The general contractor, for example, is commonly now part of the initial, goal-setting discussions for a project. This change enables the industry to produce higher quality buildings that cost less, and it facilitates collaborative learning amongst stakeholders.
The current market downturn is accelerating this transition. With the recent attention on the industry, it has been well studied and its problems are now much better understood. This is accelerating the implementation of change drivers. As building valuations fall due to the meltdown, the industry finds it harder to build for a profit. This is driving the internal change of cutting costs within the building process itself, while also delivering a better product. From an entrepreneur's perspective, the market downturn can make it easier attract key decision makers' time and attention. When business is booming, there's not enough time to consider new approaches. During this downturn, stakeholders within the building construction process (developers, architects, general contractors, engineers, owners, and occupants) tend to be less inundated with business and have more time to assess new technologies and approaches.
Today the dynamics for innovation, entrepreneurship, and venture capital investments are excellent and improving within the U.S. building construction industry. Join Nth Power and Fraunhofer in taking a deeper look – download the detailed report and get in touch.