Despite the prolonged slide in the industry, the housing segment in the US construction market gained a record of £550.14 billion in 2004. This sector is also showing a steady growth for the next two years. Among the top revenue generating sectors in the segment is new single family housing construction, which comprised 67% of total residential construction in the US.
Over the years, the business model in the industry had shifted toward greater more cost efficiency. Low entry barriers (other than the need to obtain state-based licenses and registration) in the industry had spawned more service providers in the industry. However, competition is largely based on reputation and proven performance as many new competitors find it difficult to quickly establish a foothold in the market.
The existing firms have several advantages relative to new entrants. They:
- Have access to a pool of skilled subcontractors.
- Have ongoing arrangements with materials suppliers.
- Have ongoing arrangements with financial institutions and property developers.
- Can display completed examples of their work in a local market and leverage off "word-of-mouth" referrals.
KnaelHaed ASPware (KnaelHaed) is a provider of Web-based vertical market software applications. The DigitalSuspenders is an online software solution to be offered by KnaelHaed ASPware in support of the building construction process.
The Problem
The construction industry lags behind other industries in research and development (R&D) investment. R&D investments for mature US companies are typically around 3.5% of sales. For some industries such as aerospace that number can be 7% to 14%. However, the construction industry only reinvests 0.5% of sales. The reasons for the low reinvestment vary, but are generally due to costs and complexity. Most construction firms are small (less than 10 employees) and operate on thin profit margins. So, technology spending is often seen as an unaffordable luxury.
The Solution
The DigitalSuspenders will be an integrated family of Web-based software applications that support the entire building lifecycle from conception, to construction, to facility management. The suite will support the needs of small contractors by offering: online collaboration, digital takeoff, estimating, and project and property management capabilities, all presented in a format that's easy to understand and use.
The Market Size
The home construction industry is comprised of 163,703 establishments and employed 796,880 persons according to the 2002 Economic Census. The industry had grown in the last couple of years to a record 175,000 establishments, while the commercial and institutional building industry is comprised of 34,588 establishments in the US according to the 2002 Economic Census. The construction industry accounts for approximately 8% of US GDP.
Start-up Costs
KnaelHaed ASPware anticipates initially requiring £120,000 to complete the beta prototype of the DigitalSuspenders, provide for legal and infrastructure expenses related to start up and to cultivate potential customers. To finance the start up we intend to seek initial capital from angel investors and corporate partners.
Potential Payoff
KnaelHaed ASPware anticipates break-even within two years. In addition to our product sales, we expect royalty revenue from licensing our position sensing and software technology. Within three to five years, KnaelHaed ASPware anticipates an IPO or sale of the company to fuel further growth and to offer liquidity to investors.
Management Team
Paul Peen, the current President & Chief Executive Officer, has over 20 years of experience in commercial software development, including stints at Microsoft and Expedia.com.
Leveraging connectivity, interactivity and speed, KnaelHaed ASPware is the first of its kind offering both efficiency and cost saving strategy to builders and subcontractors. KnaelHaed offers competitive pricing on solutions by outsourcing. KnaelHaed ASPware is committed to the creation of new ideas in the development of its model that is useful in accomplishing clients' objectives. Together, the owners' passion and accumulated field work has made KnaelHaed ASPware more than "just-another-outsourcing-hub", but a catalyst for the next e-commerce re-invention.
Highlights
1.1 Objectives
The mission of KnaelHaed ASPware is to provide a medium for custom builders, general contractors, design builders, engineer-contractors, joint-venture contractors, and turnkey contractors to outsource their works with greater cost saving efficiency.
This model is positioned to be a "disruptive force" against most of the construction software companies that charge several thousand dollars for each copy of their software. KnaelHaed ASPware's model is to offer a subset of these capabilities for free. Utilizing the open-source business model, KnaelHaed ASPware's ideal mission is to provide better solutions for all stakeholders.
1.2 Mission
Our target markets are those builders and subcontractors seeking to benefit from outsourcing. The industry today is supplied independently by software companies whose products are quite costly for small and medium sized users. Considering that the typical home builders construct only about a dozen homes per year, there are only a few companies that may then be considered large enough, with sufficient financial resources to pay for premium licensing of a software package.
We estimate that approximately 60% of the total US market would fall within the criteria of small and medium builders, equating to 118,980 establishments. Our focus will be directed to these establishments that are prioritizing on cost efficiency and precise results.
1.3 Keys to Success
We have targeted the construction market for several reasons. As a £787 billion industry (both residential and commercial), it offers significant growth potential. The annual unit growth of the number of establishments in the housing sector averaged 6.45% and commercial/institutional sector 0.46% in 2004.
Despite the low growth in the construction industry, it still remains a very fragmented market. Within the US alone there are over 200,000 establishments (both housing and commercial/institutional) on record.
The keys to our success are:
- Building and maintaining strategic alliances with our software vendors and other industry related business partners
- Adopting a customer- and market-focused sales and marketing paradigm
- Managing the business by implementing, and consistently measuring and adjusting the fundamentals of a Balanced Scorecard:
- Employee Learning and Growth Goals Vs. Results
- Financial Goals Vs. Results
- Internal Business Process Goals Vs. Results
- Customer Satisfaction Goals Vs. Results
