Latest / The Mobilization Mindset / Episode 148 | Where Construction Growth Is Really Headed with Jay Bowman

Transcript

Episode 148 | Where Construction Growth Is Really Headed with Jay Bowman · The Mobilization Mindset

• 0:00
  SPEAKER_01: I think one of the reasons why it can be challenging for firms as they grow to define their right to win is because they all start from like a a point zero, let's call this, where there's these seeds of right to win, which I would say come down to three things.
• 0:16
  SPEAKER_01: One is relationships, you know, because if you're a founder-led company and you're just kind of getting started, usually it's because you've got really good relationships.
• 0:22
  SPEAKER_01: There's people who trust you.
• 0:24
  SPEAKER_01: The second thing is that you have sort of a execution capability.
• 0:29
  SPEAKER_01: Like people trust that you will actually get stuff, you know how to get the work done.
• 0:33
  SPEAKER_01: And then the third might be some technical expertise.
• 0:36
  SPEAKER_01: Generally, because you're not going to be diversified when you're first starting.
• 0:38
  SPEAKER_01: I know how to do a particular type of work, you know, in a particular type of setting.
• 0:49
  SPEAKER_00: Hey folks, welcome to mobilization mindset.
• 0:52
  SPEAKER_00: We're really happy that you are joining us today.
• 0:54
  SPEAKER_00: I am really excited to help have a fellow Georgia Bulldog on this podcast.
• 1:00
  SPEAKER_00: We got Jay Bowman, partner at FMI Consulting, an investment banking and consulting firm.
• 1:06
  SPEAKER_00: Really happy to have Jay here.
• 1:08
  SPEAKER_00: Go Dogs.
• 1:09
  SPEAKER_00: Uh Jay, welcome to the podcast, man.
• 1:11
  SPEAKER_01: Yeah, go dogs.
• 1:12
  SPEAKER_01: Thanks for having me.
• 1:12
  SPEAKER_01: Appreciate it.
• 1:14
  SPEAKER_00: Yeah, I think to I think to kick off things here, I kind of like to um just kind of give a little bit of bit of background on you, um, a little bit of background on FMI for the for the folks out there that don't know it, uh know about it.
• 1:26
  SPEAKER_00: Um, I'm gonna kick it over to you on that.
• 1:28
  SPEAKER_01: Yeah, no, I appreciate that, Drew.
• 1:29
  SPEAKER_01: Like I said, uh I'm a partner here at FMI.
• 1:33
  SPEAKER_01: I'm based in uh Raleigh, North Carolina, and I've spent probably the last 30 years working with contractors, and by that, you know, general contractors, CMs, specialty trades of all kinds, really on questions of strategy.
• 1:48
  SPEAKER_01: So, you know, where should we grow?
• 1:50
  SPEAKER_01: Uh, which markets are worth worth pursuing?
• 1:53
  SPEAKER_01: What do our best customers actually value?
• 1:55
  SPEAKER_01: And how do we stack up against competition?
• 1:57
  SPEAKER_01: Where is demand actually heading over the next get next decade, you know, not just the next quarter?
• 2:02
  SPEAKER_01: And I think the thing I value most about this work is the vantage point.
• 2:06
  SPEAKER_01: I mean, I sit across the table from a lot of firms, just like yours in a lot of different markets.
• 2:11
  SPEAKER_01: And over time you start to see patterns that are hard to see from inside any sort of one single organization.
• 2:17
  SPEAKER_01: That's usually where I'm I'm most useful.
• 2:19
  SPEAKER_01: And uh, you know, FMI, uh, we're an investment banking and consulting firm, probably not much different than you would expect from a name like that.
• 2:27
  SPEAKER_01: The only uh I'd say difference is that we are exclusively focused on the built environment.
• 2:33
  SPEAKER_01: So, yes, my expertise and and focuses on the contractor side, but anybody that touches the built environment, FMI has probably touched somewhere over the last 75 years that's in business.
• 2:46
  SPEAKER_00: Yeah, no, I appreciate it.
• 2:48
  SPEAKER_00: And I full disclosure to all of our viewers, uh, we are a client of uh FMI, we're a client of Jay's uh directly.
• 2:56
  SPEAKER_00: Uh they they do incredible work, particularly um in the in in the respect that we've worked with them, is on the kind of the market analysis.
• 3:02
  SPEAKER_00: Where do we want to grow?
• 3:03
  SPEAKER_00: Where's our focus?
• 3:04
  SPEAKER_00: Which is kind of what I'm gonna focus on today.
• 3:06
  SPEAKER_00: I mean, the construction market is massive, right?
• 3:09
  SPEAKER_00: And we kind of uh, at least from a uh mobilization funding standpoint, we kind of look at it in in sort of three-year increments, right?
• 3:16
  SPEAKER_00: 26 through 28.
• 3:18
  SPEAKER_00: Um and the construction market is not sort of uh is not uniform.
• 3:24
  SPEAKER_00: I mean, there's a ton of things going on within different subsectors.
• 3:28
  SPEAKER_00: Our audience, Jay, is is mostly commercial subcom commercial subcontractors.
• 3:33
  SPEAKER_00: So with the construction industry, I think you guys have on your website of over$2 trillion over the next three years, right?
• 3:41
  SPEAKER_00: Um, but talk to me a little bit more um specifically about kind of the commercial uh construction market as a whole.
• 3:48
  SPEAKER_00: What is the what is that size of the market look like and how do you define that size?
• 3:53
  SPEAKER_01: Yeah, so if you and I think you really hit the nail on the head when you said it's not a uniform market.
• 3:58
  SPEAKER_01: In fact, I mean we say it's a two trillion dollar market.
• 4:01
  SPEAKER_01: I mean, it was only a couple of years ago.
• 4:02
  SPEAKER_01: I used to joke that we were the smallest trillion dollar, you know, uh industry in the country.
• 4:07
  SPEAKER_01: Now we're the smallest two trillion dollar industry.
• 4:10
  SPEAKER_01: Because that it in some ways, and this is a setup to your your question about the commercial side of things, is that there's almost no such thing as the US construction industry.
• 4:22
  SPEAKER_01: Uh, because you're you're right.
• 4:23
  SPEAKER_01: I mean, that$2 trillion represents everything from single-family homes to nuclear power plants, everything in between, Gnome, Alaska to Miami, and nobody, at least nobody I've come across yet, serves all those things.
• 4:38
  SPEAKER_01: And so that's why I think it's important to, as you're is like you're saying it's not uniform, is to really think about like, well, what components of it are moving up, which ones are moving down, where is the activity taking place, et cetera?
• 4:54
  SPEAKER_01: Because I'm I'm a huge believer that bull markets and bear markets coexist at all times, meaning that that you can always find growth uh in the construction industry.
• 5:04
  SPEAKER_01: Now, to you to the point about commercial, so it's sort of like how you define commercial construction, but let's start with it is we're not going to talk about heavy civil, we're really not talking about residential.
• 5:14
  SPEAKER_01: So if we take those components out of that$2 trillion, you're talking somewhere in the neighborhood of 40 to 45%.
• 5:22
  SPEAKER_01: So close to a trillion dollars of just, you know, in this year alone, and what we would call sort of non-residential vertical type construction.
• 5:31
  SPEAKER_01: And even if you were to kind of even drill that down further to what we might say is commercial in the sense of uh let's talk about just restaurant and retail work or office construction or hotels and motels, you're still in the neighborhood, you know, take manufacturing out, which has been a real growth area.
• 5:50
  SPEAKER_01: Some of you know the other areas, you're still talking, you know, a third of even that spend.
• 5:55
  SPEAKER_01: So it's still a massive market.
• 5:58
  SPEAKER_01: Now, commercial construction on its own, you know, I think office construction, you know, overall has gotten a uh a bad rap because of what's happening from an AI perspective and and everything else, you know, how's that replace office workers and you know some of the things that you see in places like New York and and Los Angeles and other areas, and even on the commercial, so I mean like the restaurant retail.
• 6:23
  SPEAKER_01: But that that sort of you know belies the fact that there's still even growth pockets in those areas.
• 6:30
  SPEAKER_01: And you know, so one is you know, if you look at particular areas of the country, so the southeast, you're still seeing a lot of growth in commercial and office construction and other sort of uh work like that.
• 6:43
  SPEAKER_01: I mean, when I say growth, I'm I'm not talking about like you know, two, three percent.
• 6:46
  SPEAKER_01: I'm talking, you know, close to 10% growth in some markets, uh, which is best even accounting for inflation, that's that's real growth.
• 6:54
  SPEAKER_01: But one of the more interesting areas that we're even seeing is in the flight to these excerpts.
• 6:58
  SPEAKER_01: I mean, one of the big issues is housing affordability and everything else.
• 7:02
  SPEAKER_01: We're starting to see areas, you know, outside of Dallas, you know, Wichita, uh and yeah, Wichita is Kansas, I believe.
• 7:10
  SPEAKER_01: Yeah, that's gonna sound bad.
• 7:11
  SPEAKER_01: Wichita, I can confirm is in Kansas.
• 7:13
  SPEAKER_01: Yeah, so that sounds terrible.
• 7:15
  SPEAKER_01: So, like, is it in Kansas or Nebraska?
• 7:17
  SPEAKER_01: But uh these are really interesting places where we're seeing real investment in commercial construction.
• 7:25
  SPEAKER_01: So um, that's why I said that bull markets and bear markets coexist.
• 7:28
  SPEAKER_01: You just have to you just can't take everything at a surface level.
• 7:31
  SPEAKER_01: You gotta think about where those opportunities really exist.
• 7:34
  SPEAKER_00: Yeah, and Jay, that's a really good point.
• 7:35
  SPEAKER_00: Um, I want to eventually get into the sectors where where the majority of the growth or the majority of the market's gonna be kind of residing uh over the next few years.
• 7:43
  SPEAKER_00: But first, I kind of want to kind of break it down from the top, sort of, sort of the top down, and then uh corn it sort of get more granular.
• 7:50
  SPEAKER_00: You talked about geography and the where, right?
• 7:53
  SPEAKER_00: If you look at the United States construction market only, not international, where are you seeing most, like kind of the three or four top areas where you're seeing the most growth and most demand in the commercial sector?
• 8:07
  SPEAKER_01: So I so that is a great question because I think you have to balance the two, because growth is not necessarily demand in and of itself.
• 8:17
  SPEAKER_01: Because when I think of demand, you can yes, part of it is growth, but the other is just pure volume.
• 8:21
  SPEAKER_00: Yeah.
• 8:22
  SPEAKER_01: So let's talk about that first, because you could have a very strong growing market, but is it also producing the similar volume of activity, right?
• 8:33
  SPEAKER_01: And those aren't those aren't always the same thing.
• 8:36
  SPEAKER_01: So I think it's important, you know, for people to keep that in mind.
• 8:40
  SPEAKER_00: Uh but if we what exactly I'm gonna I'm gonna ask you a follow-up.
• 8:43
  SPEAKER_00: What do you what do you mean by that?
• 8:44
  SPEAKER_00: So the uh for example, XYZ region may be experiencing growth, but it might not be relative to the volume in other areas.
• 8:54
  SPEAKER_00: Can you can you kind of dig into that a little bit?
• 8:56
  SPEAKER_01: Yeah, no, absolutely.
• 8:58
  SPEAKER_01: So if you take uh I believe it's Fulshire, Texas, which is the fastest growing city under 50,000 people.
• 9:05
  SPEAKER_01: I mean, oh wow, where is that?
• 9:07
  SPEAKER_01: North of Dallas, I believe.
• 9:09
  SPEAKER_01: North of Dallas, okay.
• 9:10
  SPEAKER_01: Um, but it is don't hold me to that.
• 9:13
  SPEAKER_01: Um, but it's grown from something like 17,000 people to I think like 70 something thousand people in five years.
• 9:20
  SPEAKER_01: So that growth is tremendous, right, from a percentage basis.
• 9:26
  SPEAKER_01: And there's real construction activity that follows that, but that volume of construction spending relative to say a market that is not growing, say Los Angeles, yeah, is two different things.
• 9:39
  SPEAKER_00: So it's it's a minute, it's yeah, it's that is there's that balance between the things.
• 9:43
  SPEAKER_01: So we when I say like you know, the volume is important.
• 9:47
  SPEAKER_01: So if you say, okay, there are uh uh roughly 400 metro markets in the US, the the official term is metropolitan statistical area, that's just a census term.
• 9:58
  SPEAKER_01: Basically, for any metro area that has a hundred thousand people or more, give or take.
• 10:04
  SPEAKER_01: Uh so you know uh I in I grew up in Georgia, so Atlanta is an MSA, but it's not just the city of Atlanta, like it extends kind of around, you know, uh a couple of Roswell, if people know where that is, and Mariette and other parts of Atlanta.
• 10:20
  SPEAKER_00: I mean, Atlanta is almost almost up to Lake Lanier at this point.
• 10:24
  SPEAKER_01: That's right, that's right.
• 10:24
  SPEAKER_01: And so that when I say MSA, same thing with Dallas, it's Dallas and Fort Worth that make up the MSA.
• 10:30
  SPEAKER_01: So these aren't necessarily city proper, but the the point being there's about 400 of these.
• 10:37
  SPEAKER_01: And if you take that$2 trillion number you were talking about, you said, okay, well, if I spread it across, and it you know, some of it's not in these MSAs, it's in rural areas, etc.
• 10:48
  SPEAKER_01: How much of it is in these different MSAs?
• 10:51
  SPEAKER_01: And so the 400, roughly 25 of those make up a little less than 25, make up half of all that spending.
• 10:59
  SPEAKER_00: Wow.
• 10:59
  SPEAKER_01: So it is a highly concentrated market.
• 11:04
  SPEAKER_01: New York is number one on the list, uh, Dallas, Fort Worth is number two on the list, and Los Angeles is number three on the list.
• 11:12
  SPEAKER_01: Well, only one of those three is actually growing.
• 11:16
  SPEAKER_00: Yeah.
• 11:17
  SPEAKER_01: So if I was looking for opportunity, like you know, the whole fish in the barrel, where is there a lot of activity though?
• 11:23
  SPEAKER_01: It's New York and Los Angeles, even though the growth doesn't exist there.
• 11:28
  SPEAKER_01: By comparison, like if you said, okay, well, where are we seeing growth?
• 11:32
  SPEAKER_01: Again, probably to nobody's surprise, is the sort of the southeast kind of part of the country.
• 11:39
  SPEAKER_01: Uh, but is some of those markets that are on the outside of that top 25, Nashville, Austin, Birmingham is becoming one of the faster growing markets in the country, Charlotte, Raleigh, some of these are kind of in the 25 or just outside of the 25, but that's where you're actually seeing a lot of growth.
• 11:58
  SPEAKER_01: So it's two different sort of ways to think about opportunity.
• 12:01
  SPEAKER_01: You know, am I better at being in a place where there's a lot of things going on and I can dig in the ground that I'm in, or am I better potentially looking for opportunities where there's a growth or an acceleration of demand that maybe the local uh capacity isn't really there to deliver on?
• 12:21
  SPEAKER_00: Yeah, you you just kind of talked about Newark, Los Angeles being, you know, the highest sort of volume spend, right?
• 12:27
  SPEAKER_00: But there's really not there's really not growth there, right?
• 12:31
  SPEAKER_00: And then you're talking about a Birmingham or a Nashville where there, where there's a ton of growth.
• 12:35
  SPEAKER_00: Do you all think about these markets as like mature markets versus sort of growth immature markets?
• 12:42
  SPEAKER_00: I mean, is that how you kind of think about it?
• 12:44
  SPEAKER_00: And then from a contractor's perspective, if you look at a growth market or kind of what you said, growth market like a Nashville or Birmingham, um, are there enough incumbents there, incumbent construction companies there to fulfill that growth?
• 13:01
  SPEAKER_00: Or are you advising your clients to say, hey, if you want to go to a growth market like Birmingham, there's a shortage of XYZ trade, you should go there versus, you know, a place like Washington, D.C.
• 13:12
  SPEAKER_00: that's probably a pretty mature market.
• 13:14
  SPEAKER_00: Am I thinking about that correctly?
• 13:15
  SPEAKER_01: You're thinking about exactly the right way.
• 13:17
  SPEAKER_01: Um, because again, a Los Angeles, a New York may not be a growth market per se, but it is sort of like the same thing where we say is the US a growth market from the construction industry standpoint?
• 13:32
  SPEAKER_01: And you could argue, okay, well, components of it are, but it's like GDP.
• 13:36
  SPEAKER_01: Like once you reach a certain size, it's just like the the additional work you would have to add to achieve a high growth.
• 13:45
  SPEAKER_01: But if you think about it from a project basis, so you know, uh I so take my hometown.
• 13:51
  SPEAKER_01: I grew up in Macon, Georgia.
• 13:53
  SPEAKER_01: Um, it wouldn't take a whole lot of projects of you know, let's say reasonable size, to all of a sudden say, look at the the growth that we've had.
• 14:04
  SPEAKER_01: I could take those same number of projects, same volume, I could stick them in Atlanta and it wouldn't even register, right?
• 14:11
  SPEAKER_01: Yeah because the base of which we're we're coming off of.
• 14:15
  SPEAKER_01: So to answer your your question about, well, you know, where are you better off in some ways?
• 14:21
  SPEAKER_01: Well, I would say for most of like the general contractor level and above, there there are opportunities, but the opportunities tend to concentrate more in the type of work rather than just the geography itself, right?
• 14:35
  SPEAKER_01: Yeah.
• 14:35
  SPEAKER_01: So but for the trade contractors, I would say that there is opportunity in both of those.
• 14:42
  SPEAKER_01: The the opportunity in a in a established mature market, you know, take New York, for example, or New York.
• 14:49
  SPEAKER_01: Yeah, it's about there's just not capacity.
• 14:51
  SPEAKER_01: There's not enough capacity to get things done because there's there's we're competing on a large volume of opportunity.
• 14:58
  SPEAKER_01: So there's demand for trades and skilled labor just because of the sheer volume.
• 15:05
  SPEAKER_01: In a place like Birmingham, I mean, there are great contractors, like general contractors CMs in Birmingham.
• 15:11
  SPEAKER_01: You know, I don't know how many more they need, you know, but from a trade contractor perspective, there would absolutely be demand for it because you know that that's what's getting the stuff actually done, right?
• 15:23
  SPEAKER_00: Yeah.
• 15:24
  SPEAKER_00: And I kind of want to touch on that.
• 15:25
  SPEAKER_00: And let's take Newark and Birmingham, for example.
• 15:27
  SPEAKER_00: And you could you could replicate a different city on either end of the spectrum here, but Newark and Birmingham.
• 15:33
  SPEAKER_00: Um, so you got Newark, high volume, you know, relatively mature market, and I'm that's kind of my term, and then Birmingham, a growth market.
• 15:41
  SPEAKER_00: For for a specialty contractor thinking about growing into new markets, if you were to advise one of your contractors on sort of the barriers to entry into a mature market versus a growth market, what should they be thinking about with regard to barriers to entry from a specialty trade perspective?
• 15:59
  SPEAKER_01: Well, a specialty trade perspective, I think it first begins with the barriers of entry are largely defined by how that company has decided to compete in a marketplace.
• 16:10
  SPEAKER_01: So I don't mean to get the philosophical here or anything like that, but I think that is a thing that's often overlooked, which is you know, how we have chosen to win, let's say, you know, in a market, which really comes down to defining three things, which is you know, what's the territory that we have decided to participate in?
• 16:31
  SPEAKER_01: By territory, I just mean like the types of of customers that we serve, the type of work we do, you know, the type of you know, just that sandbox, if you will, that we've decided to play in.
• 16:42
  SPEAKER_01: That does not necessarily mean geography, right?
• 16:44
  SPEAKER_01: Yeah.
• 16:45
  SPEAKER_01: Um, the second is, well, what what's the business consequence that we're solving for?
• 16:49
  SPEAKER_01: And that can be different things.
• 16:51
  SPEAKER_01: I mean, are we solving for schedule?
• 16:53
  SPEAKER_01: Are we solving for quality?
• 16:55
  SPEAKER_01: And you know, uh no, you know, these are like no-fail type projects.
• 16:59
  SPEAKER_01: But what is the issue that we're truly solving for?
• 17:03
  SPEAKER_01: And then the third piece is what's our right to win?
• 17:05
  SPEAKER_01: Because I don't care how good a firm you may meet, may be.
• 17:11
  SPEAKER_01: I mean, like especially a trade contractor, and how good a market is, if you do not know what your right to win is based on, you're just it's a right to compete at that point.
• 17:23
  SPEAKER_01: You may be capable, but now you're just another number.
• 17:27
  SPEAKER_00: Tell me tell me what you mean by right to win.
• 17:29
  SPEAKER_01: What do you mean you want to win?
• 17:30
  SPEAKER_01: I mean, so I think a lot of firms see it as well, you know, they get to the right to compete, which means am I capable of doing the work?
• 17:40
  SPEAKER_01: Absolutely.
• 17:41
  SPEAKER_01: Do I have a resume for doing that work?
• 17:44
  SPEAKER_01: Probably so.
• 17:45
  SPEAKER_01: Do I have the people?
• 17:46
  SPEAKER_01: Do I have good leadership?
• 17:48
  SPEAKER_01: You know, et cetera.
• 17:48
  SPEAKER_01: So I have all the components that are required to do the work.
• 17:54
  SPEAKER_01: So if a customer is considering you know, my firm for that work, am I capable?
• 18:02
  SPEAKER_01: Absolutely.
• 18:03
  SPEAKER_01: Am I preferred?
• 18:05
  SPEAKER_01: Well, that depends.
• 18:06
  SPEAKER_01: And that's where right to win comes in.
• 18:08
  SPEAKER_01: Have I established the right to be preferential in anybody else?
• 18:17
  SPEAKER_01: And so what is that that makes me different in that regard?
• 18:24
  SPEAKER_01: Uh, that gives me that right to win.
• 18:26
  SPEAKER_01: Um, you know, people will call it competitive advantage and a lot of different things.
• 18:32
  SPEAKER_01: I think it more as like, what is it that you're doing that is unique in the solving of that those business consequences I meant for those people that I serve.
• 18:44
  SPEAKER_01: So yeah, that that's that's how I'm kind of distinguishing.
• 18:47
  SPEAKER_00: I I love that you kind of said a minute ago, you said, I don't want to be all philosophical about this, but the reality is um every business or enterprise should have some element of business hypothesis that they're that that that they're working toward.
• 19:04
  SPEAKER_00: Like it's my hypothesis that I will do, I will, I will be the uh the high um the high quality provider, like I'll do the best work, right?
• 19:12
  SPEAKER_00: Or I I'm gonna make sure, may not be the best work, but I'm I'm gonna be on schedule, right?
• 19:17
  SPEAKER_00: How am I gonna compete?
• 19:18
  SPEAKER_00: You have a business philosophy of how you are gonna compete in the market, right?
• 19:23
  SPEAKER_00: Um my question to you is out of out of the clients that you work with, or the or maybe even just the the the uh contractors that you work with, how many of these clients actually have that business philosophy versus the ones that just grip it and rip it?
• 19:39
  SPEAKER_01: Um I I would say the minority of firms have that uh strategy or or right to win articulated.
• 19:50
  SPEAKER_01: I don't want to say that I don't want to say they don't have it.
• 19:53
  SPEAKER_01: I'm saying it's not articulated.
• 19:56
  SPEAKER_01: But that that in and of itself is critical as well because it really becomes the the filter or the lens by which all of the decisions are made.
• 20:06
  SPEAKER_01: Meaning if if we have articulated this is how we're going to win in the marketplace, well, our decision of what markets we're gonna go into, what we're gonna invest in, you know, what we're doing from a leader development perspective, our financial you know, sort of uh profile, all those things have to be decided against that.
• 20:28
  SPEAKER_01: Because otherwise you you're just chasing bright, shiny objects.
• 20:32
  SPEAKER_01: Everything potentially looks good, right?
• 20:36
  SPEAKER_01: And so I I I think that a lot of firms, you know, a lot of times when I'm going in with somebody like a new firm that's brought us because they're looking something.
• 20:46
  SPEAKER_01: I think there's this fear that that they're I'm gonna come in and or somebody else at FMI and we're just gonna critique them, like here's all the things you're doing wrong, like you screwed up somehow.
• 20:57
  SPEAKER_01: And my my viewpoint is that most contractors didn't do anything wrong, they just grew.
• 21:02
  SPEAKER_01: Yeah, and I think that distinction is so important because again, that that maybe that strategy or whatever was under the surface, it just didn't evolve like into something they could articulate and speak to people.
• 21:16
  SPEAKER_01: They say, okay, now we can rally behind this that establish our go-go-no go, all these types of things.
• 21:21
  SPEAKER_01: So back to your your your question, like you know, why don't more have it?
• 21:27
  SPEAKER_01: I think it's because our industry, particularly the firms that that you know, FMI serves, that that you serve, you probably see this as much as as we do.
• 21:37
  SPEAKER_01: And even I think the people listening can even probably see themselves in this.
• 21:42
  SPEAKER_01: As I call there's these inflection points or these stages that all sort of contractors go through, like you know, from you know, from the very start, like these founder led companies.
• 21:53
  SPEAKER_01: Well, yeah, a lot of times it's really heroics, right?
• 21:56
  SPEAKER_01: You know, it's like it's so tactical.
• 21:58
  SPEAKER_01: I mean, because you know, the in And that's not a bad thing.
• 22:01
  SPEAKER_01: It's just that when you're a small firm, you know, the owner might be the estimator, the head business development person, the HR manager, you know, they're doing all of these things.
• 22:10
  SPEAKER_01: That's why they need like these partners like yourself and others, because they're trying to do everything.
• 22:15
  SPEAKER_01: And it is based on heroics.
• 22:17
  SPEAKER_00: And often Jay, just one point on that.
• 22:20
  SPEAKER_00: It's so funny that you bring that up because one comment that was from a, you know, actually Scott Pieper, who's our CEO and uh another um mentor of mine uh independently told me this line when I started at mobilization funding.
• 22:36
  SPEAKER_00: Um companies that scale and and and grow into real enterprise level companies are not built on heroics.
• 22:45
  SPEAKER_01: They are not.
• 22:46
  SPEAKER_01: It could only last so long, right?
• 22:48
  SPEAKER_01: Yeah.
• 22:48
  SPEAKER_01: Yeah.
• 22:49
  SPEAKER_01: Until you you outgrow it.
• 22:50
  SPEAKER_01: But it's it's not necessarily a bad thing.
• 22:53
  SPEAKER_01: I mean, you just become something else.
• 22:55
  SPEAKER_01: I mean, and I hate to say like, but I think there's even like you could probably even see natural law in this.
• 23:00
  SPEAKER_01: Like, I mean, I told this is I'm I told you I'm sorry to get philosophical, but no, I'm I I'm into it.
• 23:05
  SPEAKER_01: If you think about like, you know, a caterpillar becoming a butterfly has to go through some change.
• 23:10
  SPEAKER_01: They can't continue to be the same thing if they want to be a butterfly, right?
• 23:15
  SPEAKER_01: Yeah.
• 23:15
  SPEAKER_01: So it's the same thing.
• 23:16
  SPEAKER_01: I mean, there's natural sort of evolution in companies.
• 23:19
  SPEAKER_01: And here's another example of this.
• 23:21
  SPEAKER_01: So you were asking about right to win.
• 23:23
  SPEAKER_01: And I think one of the reasons why it can be challenging for firms as they grow to define their right to win is because they all start from like a point zero, let's call this, where there's these seeds of right to win, which I would say come down to three things.
• 23:40
  SPEAKER_01: One is relationships, you know, because if you're a founder-led company and you're just kind of getting started, usually it's because you've got really good relationships.
• 23:47
  SPEAKER_01: There's people who trust you.
• 23:49
  SPEAKER_01: The second thing is that you have sort of a execution capability, like people trust that you will actually get stuff, you know how to get the work done.
• 23:59
  SPEAKER_01: And then the third might be some technical expertise, generally, because you're not going to be diversified when you're first starting.
• 24:05
  SPEAKER_01: I know how to do a particular type of work, you know, in a particular type of setting.
• 24:09
  SPEAKER_00: I've got great relationships with some of the smaller companies, you might be surprised on how many have been trying to be as diversified as possible.
• 24:15
  SPEAKER_01: But I'm sure, yeah.
• 24:16
  SPEAKER_00: Just by taking any work that they can get, you know, but you're you're exactly right.
• 24:20
  SPEAKER_00: That that that's a sort of can be a dead end.
• 24:23
  SPEAKER_00: Right.
• 24:23
  SPEAKER_01: But if you think of those as like the seeds, and I can have, and I kind of need all three of those at the start, is it's like they began to branch out.
• 24:32
  SPEAKER_01: And at some point, you know, each one branches, you know, the further you scale, how can you be that?
• 24:38
  SPEAKER_01: Then you become like, is all things to all people, which is really then you're you're not anything special, you know.
• 24:44
  SPEAKER_01: You you you're versus you get at some point when you're scaling, you gotta start to say, okay, where is it that we really excel?
• 24:51
  SPEAKER_01: Where does our right to win?
• 24:53
  SPEAKER_01: Really is the genesis of that in the relationships, is it in the technical uh expertise, is it in the the delivery, the kind of components of it?
• 25:03
  SPEAKER_01: And I think a lot of firms have been able to say, it's not that you know, I can't be good, like if I got relationships, that means I can be bad at you know technical uh capability.
• 25:13
  SPEAKER_01: It just means that one just has to be as good as everybody else, but one is gonna be much better and it's gonna be this version of it.
• 25:21
  SPEAKER_00: Yeah, I uh I talk a lot with our uh clients about um there's really uh you could probably name a number of different ways you can compete in the construction market, but um you know, I say there's really two two air ways, strategies you can compete, right?
• 25:35
  SPEAKER_00: You can be the low-cost provider, low margin provider, right, but have high volume.
• 25:42
  SPEAKER_00: Or you can kind of be the high margin, lower volume uh specialty differentiated provider, right?
• 25:48
  SPEAKER_00: Value-driven provider.
• 25:50
  SPEAKER_00: And a lot of times what we see with the with the folks that we talk to, that sometimes those are mismatched and and and they might not have the infrastructure to compete the way they want to compete.
• 26:00
  SPEAKER_00: Like if they want to be the high volume, low margin provider, you better have your internal controls and your deployment and your scheduling and your materials costing and estimating down to the penny, right?
• 26:12
  SPEAKER_00: Um and then on the on the flip side, if you're gonna be the differentiated or high value provider, you better actually do really, really good work and also stay on schedule, right?
• 26:22
  SPEAKER_00: And um, how how do you see this?
• 26:25
  SPEAKER_00: Might be kind of a weird question, but how how do you see going forward certain specialty subs um in the kind of higher technical spaces, you know, that are higher margin businesses, probably a little a little bit more differentiated, versus sort of the high volume, think like drywall painting.
• 26:42
  SPEAKER_00: Those two sectors, how do how are they going to compete, growth, you know, stuff like that?
• 26:49
  SPEAKER_01: Yeah, well, I think one thing maybe a common misperception to dispel here is that the margin profile does not have to be different for those two firms.
• 27:00
  SPEAKER_01: Meaning that those that choose to compete on sort of low cost can oftentimes have as big large or larger margin profiles than those who compete on premium.
• 27:16
  SPEAKER_00: Yeah, because their operating models support it.
• 27:18
  SPEAKER_01: That's right.
• 27:19
  SPEAKER_01: But that's the key, like you said.
• 27:20
  SPEAKER_01: It's like, where do I focus my attention?
• 27:23
  SPEAKER_01: Well, it better be on making the most efficient company possible.
• 27:30
  SPEAKER_01: Yeah, that is that is the key to it, right?
• 27:33
  SPEAKER_01: So I a way to think about it where I've thought about it is like if there is a and I'll say this from the general contractor perspective, it might be easier.
• 27:43
  SPEAKER_01: But you know, general contractors can do the same thing, they can compete on price or they can compete on relationship, let's say, or premium, that's probably a better way to put it.
• 27:52
  SPEAKER_01: Um to me, the difference between those is is frankly, if there is a a dispute, okay, who is the final arbiter of that dispute?
• 28:05
  SPEAKER_01: Is it the relationship?
• 28:07
  SPEAKER_01: If I'm a premium, it might be even though that's not in the contract, I'm gonna do it because how I win and how I make money is because people prefer me in a certain and they're willing to pay a premium for me versus if I'm the low cost.
• 28:20
  SPEAKER_01: Well, the the final arbiter is the contract, you know, and my loyalty is to my subcontractors because that's how I compete.
• 28:27
  SPEAKER_01: And it it you may want this change, but you're gonna pay for it, right?
• 28:31
  SPEAKER_01: Because it those are two different things.
• 28:33
  SPEAKER_01: Um, but to your your question about you know how how do these things uh sort of play out over time, I think one of the the biggest challenges to these things, like whether it's on the drywall side, like you said, or if it's maybe on the more technical work, is that for those probably on the more technical work, I think there is currently more upside.
• 28:57
  SPEAKER_01: The reason I say that is if you look at construction overall, this goes back to your very first question of where's the growth.
• 29:04
  SPEAKER_01: Well, growth, if you took away data centers and digital infrastructure and power, yeah, over the last five years, there was zero growth in this industry.
• 29:15
  SPEAKER_01: Zero.
• 29:16
  SPEAKER_00: Yeah.
• 29:18
  SPEAKER_01: All the growth has come from those two areas.
• 29:20
  SPEAKER_00: Um yeah, and I'm kind of looking at a little breakdown, and that was kind of I'm I'm really glad you brought that up because I was going into the last thing I wanted to cover today was sort of sectors.
• 29:29
  SPEAKER_00: And you look at this construction industry over the next three years, I'm looking at manufacturing power, education actually, is is is meaningful and sort of public works like highway, water, uh, stuff like that.
• 29:42
  SPEAKER_00: Can you talk a little bit about some of the sectors that are going to be growing and why?
• 29:46
  SPEAKER_01: Yeah, I mean, the the the two that are growing the most are are those, hands down, full stop.
• 29:53
  SPEAKER_01: Um, you know, if you if you thought about it in terms of where we're actually, you know, seeing the growth overall, you start with with data centers.
• 30:03
  SPEAKER_01: Um, data centers is growing at roughly 16% per year on average between now and the end of the decade.
• 30:11
  SPEAKER_01: Uh power is sort of right behind it at uh 11.5%.
• 30:16
  SPEAKER_01: So that's why.
• 30:17
  SPEAKER_00: And what's driving what?
• 30:18
  SPEAKER_00: Which one's uh which one's driving which?
• 30:21
  SPEAKER_01: Well, is it yeah, that that's that's a good question.
• 30:24
  SPEAKER_01: Because I think the the the answer that the that most people would give you is well, uh data centers are driving all this power investment because the the megawattage that they eat up is huge.
• 30:38
  SPEAKER_01: I mean, that's why you're seeing a lot of pushback in areas like Maine, um even in Illinois, where Governor Pritzker has uh uh temporarily uh halted the incentives for data centers, even though two years ago he's one that brought these incentives in to bring data centers, is because people are concerned, like, you know, how much power, even here in North Carolina where I live, there's a there's a smaller town outside of Raleigh.
• 31:05
  SPEAKER_01: They're fighting a data center because they see like, well, what does this do to the infrastructure?
• 31:11
  SPEAKER_01: Uh not just from a power side and water.
• 31:13
  SPEAKER_00: So And how does that affect my bills?
• 31:15
  SPEAKER_00: Yeah, you know, as a as a resident, right?
• 31:17
  SPEAKER_01: And uh so to your to your to answer your question, there I would say that the most people would say, well, all this power construction is a direct result of all the the hyperscale data center construction that we're looking at.
• 31:31
  SPEAKER_01: And that would be there is some truth to that.
• 31:35
  SPEAKER_01: I think that it's also though that we're seeing a renaissance in manufacturing in this country uh that is not only due to national security issues, supply chains, and just you know, consumer behavior, I think it's frankly a technology issue, just as much, you know, that with robotics, that is changing the face of how we think about uh manufacturing.
• 31:57
  SPEAKER_01: I mean, part of the reason why manufacturing went overseas was the labor was so much cheaper.
• 32:01
  SPEAKER_01: Well, a robot you know doesn't take a break, doesn't have sick leave or any of those things that has changed the dynamic of where is it actually more cost effective to manufacture?
• 32:13
  SPEAKER_01: And that has a huge impact on power consumption.
• 32:16
  SPEAKER_01: But at the same time, we've got a grid system that is frankly, you know, been so neglected, you know, for 30, 40, 50 years, depending on you know who you you listen to, that this has just been deferred to the point that it can't be deferred anymore.
• 32:34
  SPEAKER_01: Yeah.
• 32:35
  SPEAKER_00: I think and on that note, Jay, you you had mentioned, and sorry to interrupt, but you had mentioned to me in a conversation a few weeks back about, and this might play into what you're talking about right now, and I'm not gonna use the right terms, so correct me here, but uh like a appropriated or earmarked uh construction spending versus sort of that discretionary spending.
• 32:53
  SPEAKER_00: Can you talk to me and how that uh also affects the data center, uh our sort of general energy infrastructure system and stuff like that?
• 33:00
  SPEAKER_01: Well, that that goes into every one of the segments that you were asking about.
• 33:04
  SPEAKER_01: And um the the way that I've sort of described it to people is if if you're if you looked at your backlog, or even if you looked at markets that are just growing in general now, the question is is that secular demand or is that borrowed demand?
• 33:20
  SPEAKER_01: Secular versus borrowed and what I mean by borrowed demand is is there a government policy, is there a stimulus, are there capital conditions that have to be just right for that demand to exist?
• 33:37
  SPEAKER_01: Meaning if I take that away, does that demand go with it?
• 33:41
  SPEAKER_01: That's what I mean.
• 33:41
  SPEAKER_01: It's borrowed against something else versus there's just structural secular demand in there.
• 33:47
  SPEAKER_01: It's not going anywhere.
• 33:49
  SPEAKER_01: Um, so you take highway construction, let's say.
• 33:53
  SPEAKER_01: So IAJA, which has funded a lot of the growth and highway and bridge construction, you know, over the last or just transportation in general over the last several years, uh, that that ends September 30th of this year.
• 34:06
  SPEAKER_01: And there's nothing behind it, you know, other than probably continuing resolution.
• 34:10
  SPEAKER_01: So that's what I mean by that.
• 34:12
  SPEAKER_01: That all that demand has bar has been borrowed against a government stimulus.
• 34:17
  SPEAKER_01: And now that stimulus is about to to sunset.
• 34:20
  SPEAKER_01: Um lodging construction has been like hotel motel construction has been really, really good, but it's been good because we've seen high rev par, we've seen uh high occupancy rates, et cetera.
• 34:36
  SPEAKER_01: But now we're in a capital market that is starting to go from, you know, just 90 days ago, the Fed was talking about two potential cuts.
• 34:45
  SPEAKER_00: Yeah.
• 34:45
  SPEAKER_01: Now they're talking about a potential increase.
• 34:48
  SPEAKER_00: Yeah, because inflation ticked up a little bit.
• 34:50
  SPEAKER_01: That's right.
• 34:51
  SPEAKER_00: Yeah.
• 34:51
  SPEAKER_01: So now you're seeing that showing up in lodging construction because it was borrowing against a a lending environment that does not appear to be going in that direction anymore.
• 35:03
  SPEAKER_01: So that's you know, anytime you look at this and say, okay, well, gosh, there's a ton of growth, and I would argue there's probably some element of borrowed demand in all of them.
• 35:12
  SPEAKER_01: It's just where's the balance of it?
• 35:15
  SPEAKER_01: Um, you know, with with data centers, you know, if interest rates go up, they're not gonna stop building these things.
• 35:21
  SPEAKER_01: You know, they'll stop building when the you know the technology changes, and I can do the same thing.
• 35:27
  SPEAKER_01: I can make the same ones and zeros into something else without the need for a million square foot type of facility.
• 35:35
  SPEAKER_00: Yeah.
• 35:36
  SPEAKER_00: Well, Jay, this has been absolutely outstanding.
• 35:38
  SPEAKER_00: I know we're we we we actually went a little over time.
• 35:41
  SPEAKER_00: I mean, I could honestly probably do three different podcasts with you.
• 35:44
  SPEAKER_00: Uh, I probably had 40 other questions, but for our listeners, I mean, this was uh an incredible opportunity for you guys to learn from the expert.
• 35:53
  SPEAKER_00: I mean, the expert in in in this subject matter.
• 35:56
  SPEAKER_00: And hopefully it provided you guys with uh uh enough information and a lot of information to think to yourself how am I going to compete over the next few years?
• 36:05
  SPEAKER_00: You know, so FMI is a great firm.
• 36:07
  SPEAKER_00: Again, we're a customer.
• 36:08
  SPEAKER_00: They're they're awesome.
• 36:09
  SPEAKER_00: Jay's Jay's amazing.
• 36:11
  SPEAKER_00: Jay, thank you so much for being on the podcast.
• 36:14
  SPEAKER_00: Go dogs.
• 36:15
  SPEAKER_00: I always like to have uh uh other Georgia grads on on uh on the podcast in the office, et cetera.
• 36:21
  SPEAKER_00: But uh folks, this is signing off mobilization mindset.
• 36:24
  SPEAKER_00: Thank you for joining.
• 36:25
  SPEAKER_00: Hope hopefully you did enjoy.
• 36:27
  SPEAKER_00: Check it out on YouTube, on our website, uh mobilizationfunding.com.
• 36:32
  SPEAKER_00: Until next time, signing out.