tl;dr
- Design automation in AEC is more complex than just 3D modeling
- 2D design still has a crucial role in the industry
- AI and automation may lead to "super fragmentation" of architectural firms
- Venture capital plays a vital role in AEC innovation, but beware of hype
- Pricing and customer retention are key challenges for AEC tech startups
- The future of architectural firms may be drastically different from today's landscape
"Automation. You know, so when I think through all of the ways that we accomplish automation, it's never taking a 3D point cloud and saying, okay, how do we back in from this 3D point cloud to the algorithm we need to generate that space? Like you go the opposite, what's the least amount of information that I need to go get that geometry created?" - Clifton Harness, CEO of TestFit
Listen to this episode
00:00 Introduction and Background
09:31 Issues with the Design Stack
18:44 The Importance of 2D Design
23:43 Automation and Problem Solving
26:01 Challenges in the Design Stack
26:53 Building Meaningful Automation in AEC
30:07 The Impact of Narratives in the Venture Industry
33:24 The Future of Architecture and Design in an AI-Driven World
34:21 The Potential Fragmentation of the AEC Industry
41:07 Picking VCs and the Importance of Customer Retention
The Myth of 3D Supremacy in Design Automation
We've all heard the hype from BIM evangelists for at least 3 decades: 3D modeling is the future of architecture, engineering, and construction (AEC). But is it? Clifton Harness, CEO of TestFit, challenges this notion and provides a fresh perspective on design automation.
Clifton argues that the focus on 3D interfaces as the primary tool for design automation is misguided. "You can build BIM without BIM," he says. The key is to think about the essential information needed to generate the geometry, rather than starting with a complex 3D model.
This perspective aligns with what we've heard from other experts in the field. 2D design isn't going anywhere. It's often more efficient for quick iterations, reviews, and collaboration. As Clifton puts it, "2D is such a better way of understanding a complex problem simply and to collaborate with other people that need to understand this complex problem simply."
We debated a compelling example from the oil and gas industry, where 2D designs are still crucial for reviewing and marking up complex industrial plants. The speed and ease of use of 2D designs make them indispensable, especially when dealing with time-pressed executives who need to quickly grasp and comment on designs.
The Power of Dimensionality Reduction
Clifton's approach to automation is all about simplification. He advocates for reducing 3D problems to 2D, and 2D problems to 1D whenever possible. This method allows for solving complex issues at scale.
"If you can lower the dimensionality, you can be successful," Clifton explains. This principle applies not just to design but to the entire problem-solving process in AEC. It's a reminder that sometimes, the most powerful solutions come from simplifying the problem rather than adding complexity.
This approach challenges the common narrative in tech circles that more complex, feature-rich solutions are always better. In the AEC world, where projects can involve countless variables and stakeholders, the ability to distill problems to their essence can be a game-changer.
The Realities of Building Design Automation
Building meaningful automation in AEC is no small feat. Clifton shared his frustration with companies that claim to be innovating but are merely scratching the surface. He emphasizes the years of work, millions in investment, and thousands of points of feedback that go into creating truly valuable automation tools.
"It is impossible to go from zero to what we did at TestFit," Clifton states, highlighting the blood, sweat, and tears that go into building a successful AEC tech company. This reality check is crucial for both startups and investors in the space. It's easy to get caught up in the hype of new technologies, but creating lasting value in AEC requires a deep understanding of the industry's complexities and a commitment to long-term development.
Clifton also points out the importance of go-to-market strategy in AEC tech. It's not just about building a great product; it's about understanding how to deliver it respectfully to an industry with established practices and relationships. This insight underscores the need for AEC tech founders to have not just technical skills, but also industry knowledge and business acumen.
The Future of Architectural Firms: Super Fragmentation?
One of the most intriguing ideas Clifton shared was the concept of "super fragmentation" in the future of architectural firms. He suggests that AI and automation tools could lead to a landscape with hundreds of smaller companies rather than a few dominant players.
"I think AI leads to just super fragmentation," Clifton predicts. "You're basically going to have a place where... there's going to be a lot of hundreds of smaller companies instead of, you know, one Gensler might be a hundred smaller companies."
This shift could democratize the industry, allowing for more entrepreneurship and specialized services. It could lead to a world where individuals can have multiple careers simultaneously, choosing where to apply their efforts and get rewarded. However, it also raises questions about how larger, more complex projects will be managed in such a fragmented environment.
Clifton also speculates on broader changes in the industry structure. He questions whether organizations like the American Institute of Architects (AIA) will continue to exist in their current form, and whether current contract structures will remain relevant. This vision of the future challenges us to think about how the entire ecosystem of AEC might evolve in response to technological changes.
The Role of Venture Capital in AEC Innovation
Our conversation highlighted the crucial role venture capital plays in driving innovation in AEC. Unlike other industries where companies might reinvest profits into R&D, many AEC and commercial real estate firms lack the liquidity or structure to do so effectively.
As Clifton puts it, "Nobody is investing in AEC or CRE except for magical VC." This underscores the importance of patient, knowledgeable investors who understand the unique challenges and timelines of the AEC industry.
However, this reliance on VC funding also comes with challenges. Patric Hellermann warns about the "disease of narratives" in the venture industry. There's a tendency to build more stories than substance, especially when a topic like design automation becomes hot in venture circles. This can lead to wasted time and money as investors and customers chase hyped-up narratives rather than real solutions.
Pricing Conundrum in AEC Tech?
Pricing remains a complex issue for AEC tech startups. Clifton advocates for a flexible approach, emphasizing the importance of respecting long-time customers while also recognizing the need to adjust as the product evolves.
"You need to figure out what makes sense for you, your startup, your customer. How do you respect your customer?" Clifton advises. He warns against abusing loyal customers during renewals, even if they initially bought "really shitty software" from you. This approach prioritizes long-term relationships over short-term gains.
Our own Patric added valuable insight, stressing the importance of customer retention over acquisition, especially in the early years. "Retention is cheaper than acquisition. It's a universal physical principle," he notes. This perspective challenges the often short-term, growth-at-all-costs mentality that can dominate in venture-backed startups.
Patric also cautions against constantly tinkering with pricing due to investor pressure. He argues that in the wrong investor setup, the principle of "retention is cheaper than acquisition" can be easily broken. This insight highlights the importance of having aligned, patient investors who understand the unique dynamics of the AEC industry.
The Impact of AI and Automation on AEC Services
Patric shared an interesting trend he's observing: the rise of "outcome as a service" companies in the design space. These companies are using automation and AI to deliver services traditionally provided by large design or AE firms, but with significantly higher profit margins.
For example, some of these new companies are delivering structural design services for single-family homes at gross margins of 80-85%, compared to the 30-40% typical of traditional firms. This efficiency is allowing them to expand their services as customers keep coming back, potentially challenging the business model of established AE firms.
This trend suggests that we might see a similar transformation in AEC as we've seen in other industries. Patric draws a parallel to how Palantir has evolved from a data science company to potentially "eating the ERP market," much like how these new AEC tech companies might evolve to challenge established players.
Final Thoughts
As we've seen from our conversation with Clifton and insights from Patric, success in automating AEC-Design requires a deep understanding of the industry, patient capital, and a willingness to challenge established norms.
Whether it's rethinking our approach to design automation, preparing for a more fragmented industry landscape, or navigating the complexities of pricing and customer retention, the road ahead for AEC tech startups is far from straightforward. But for those who can navigate these challenges, the opportunity to transform one of the world's largest and most important industries is immense.
As we continue to explore these topics on Bricks, Bucks & Bytes, we're excited to see how innovators like Clifton and companies like TestFit will shape the future of our built environment. Stay tuned for more insights and discussions on the cutting edge of AEC tech.
Companies Mentioned
TestFit, Autodesk, Shopify, Palantir, Accenture, Good Eggs, Grubhub, Katera, Prologis, Gensler
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Keywords
Design automation, AEC tech, 2D vs 3D design, architectural firms, venture capital, AI in construction, startup pricing, TestFit, Clifton Harness, super fragmentation, outcome as a service, customer retention