This week:
(02:30) Outcome-as-a-Service models in AEC, inspired by IT giants
(15:06) Construction industry's ripeness for tech-enabled service disruption
(21:26) Strategic branding advice for AEC startups
(32:48) Building defensibility through track record in AEC tech businesses
Did you know: OaaS has produced $80-180B Unicorns with no venture funding at all
We're always on the lookout for hidden giants in the tech world, and this week we stumbled upon some eye-opening examples. Did you know that TCS, the world leader in outsourced IT and knowledge processing services, has a market cap of $180 billion? Or that Infosys, another major player in this space, is valued at $80 billion?
What's even more surprising is that most people in the Western tech world have never heard of these companies. They've flown under the radar, quietly building massive businesses without any venture capital backing.
These companies represent a huge market opportunity. The annual revenue from outsourced knowledge services from India alone is around $140-150 billion. Globally, we're likely looking at a $400-500 billion industry.
Mirroring the success: The service revolution moves into AEC
So what does this mean for the architecture, engineering, and construction (AEC) industry? We believe there's a massive opportunity to replicate this success in our space.
The AEC industry is massive - we're talking about a $10-12 trillion global market. Yet it's been largely ignored by VCs and tech entrepreneurs. Why? Because it's seen as a traditional, service-heavy industry that doesn't fit the typical VC model.
But that's exactly what makes it ripe for disruption. Just like how TCS and Infosys revolutionized IT services, we believe there's room for innovative companies to transform how services are delivered in AEC.
Rethinking traditional software: Target buy-ready services
Here's where we diverge from the typical VC playbook. Instead of building software first and hoping for product-market fit, we advocate for a different approach: start with services, then build software alongside it.
This flips the traditional model on its head. By starting with services, you're eliminating all assumptions about what features your software needs. You're building based on real-world usage and customer needs. The result? Software with 100% product-market fit, developed in the most capital-efficient way possible.
Think about it: in AEC, there are countless buy-ready services. These are services that companies are already purchasing, often from fragmented suppliers. By targeting these existing P&L line items, you're not trying to create a new market - you're just delivering an existing service more efficiently.
Prime breeding ground: Labor shortages and under-utilization
The timing for our approach couldn't be better because of labor shortage and under-utilization. Sounds paradoxical? It is not. It is rooted in AECS' unique market dynamics.
Let's unpack.
The AEC industry is, among others, facing two major challenges that create the perfect breeding ground for OaaS businesses:
- Labor shortages: There's a dramatic shortage of qualified white-collar workers in construction. This is especially acute in the Western world, while in the Easter world labor is more abundant but needs further skilling. Same issue.
- Under-utilization: For the first time in 15 years, many AEC companies are not operating at full capacity. This gives them breathing room to consider new approaches and technologies.
Both challenges exist at the same time because incumbents know that if they lay off their work force due to under-utilization, they will not get them back once business grows again. Therefore, the shortage paradoxically is the reason for the temporary under-utilization.
And both challenges together create an opening for innovative service providers. If you can deliver high-quality outcomes more efficiently, you're solving a real pain point for the industry.
Defensibility: Track record compounds
One of the most fascinating aspects of the AEC industry is how reputation and track record compound over time. Unlike many other industries where clients often seek to diversify their supplier base, in AEC, a proven track record often leads to more work.
Why? Because construction projects are high-risk, high-penalty endeavors. Once a client finds a reliable supplier, they're likely to stick with them and even expand the relationship. This creates a powerful moat for well-executed OaaS businesses in AEC.
Branding choice: Go traditional, not "techy"
Here's a counterintuitive piece of advice: if you're building an OaaS business in AEC, consider branding yourself more like a traditional company than a tech startup.
This means choosing a name that sounds more like a local engineering firm than a Silicon Valley unicorn. It means focusing your PR efforts on industry publications rather than tech blogs. Why? Because your customers are looking for reliable partners, not the next overfunded startup.
See? Our OaaS approach aligns with the industry's working principles, because it does, it helps build the kind of trust and reputation that leads to compounding success in AEC. And best of all, it has already produced Decacorns to Centicorns, if you know where to look.
Companies mentioned in this episode
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Keywords: #ConstructionTech #OutcomeAsAService #VentureCapital #ProductMarketFit #SaaS #practicalnerds #aec #founders #startup