Eric: Trust, efficiency, and profit. How can you achieve all of these in your construction company? That is the topic of conversation today with Robert Salvador, the CEO of DigiBuild. DigiBuild is a software company for construction organizations.
In the first part of the conversation here today, Robert and I discuss how software can be used in construction companies. We're going to be going over some of the ground that we've covered in previous Construction Genius episodes, but I do think it's worth going back over because so many construction companies are going from zero to one when it comes to technology adoption. It's something where you need to embrace it from a cultural perspective, as well as a process perspective, and we explore that. [00:43.5]
Then, in the second half of the interview, we pivot to a discussion about how blockchain can be used to build that trust, lead to efficiency, and then impact the profitability of organizations. Robert speaks to that, to me, in a way that's very helpful, because I'm a dummy when it comes to blockchain, but it's something that is, for instance, revolutionizing the logistics industry and could help to revolutionize the construction industry as well, so we explore that. I think it's well worth your time to listen to that part of the discussion as well.
Thank you for listening to Construction Genius here today. Feel free to share this interview with other people that you think would benefit from listening, and, of course, give us a rating or a review wherever you get your podcasts. Enjoy my conversation with Robert.
This is Eric Anderton, and you're listening to “Construction Genius”, a leadership masterclass. Thomas Edison said that genius is one percent inspiration and 99 percent perspiration. If you're a construction leader, you know all about the perspiration, and this show is all about the one percent inspiration that you can add to your hard work to help you to improve your leadership.
Eric: Robert, welcome to Construction Genius. [02:11.4]
Robert: Eric, thanks so much for having me. Really excited to be here and to talk through construction and everything in between.
Eric: That's beautiful. I know one of the things that you obsess about is productivity for construction companies. Your company has deep experience, not just in developing software, but actually building projects. Why do construction companies struggle with productivity?
Robert: I think there's a multitude of reasons. Number one, it starts with just the psychology of the market, in general. Construction is unique where a lot of the leadership in the industry has come up through the trades or through the field, so they were a foreman at one time in their career and then eventually became a director, and now they're the VP of operations.
That's great because you have some incredible builders in the organization, but what happens there is you kind of get this old-school mindset, where maybe the company culture isn't a really good fit for technology, because the people who are leading the company aren't really familiar with technology. [03:07.0]
I think one of the reasons we struggle with productivity is just because we do things in a very old-school way and some companies struggle trying to modernize. I think another reason you can look at is the labor crunch in construction. It's been bad for a while, but it's really bad right now, and I heard a good project-manager friend of mine say—he's out in Scottsdale, Arizona—that the labor crisis isn't just in the field with trades and things like that. It's also in the office. Project teams are just overwhelmed, and so that's obviously going to affect productivity.
Then, just in construction, in general, because there's so many dependencies, so many other trades, so many things that happen across workflows, it just makes it so you have to do a lot of manual processing and manage all of these different dependencies and whatnot. That's going to eat away at your productivity when your team is spending all day doing busy work and signing purchase orders, and having to call up your trades. It just really zaps productivity. [04:09.5]
I think construction has a few different reasons that we struggle with productivity. We, as a company, have noticed that just in the material side of things, companies are losing about 26% of their productivity annually by doing things in kind of a manual, old-school way. Hopefully, the industry is waking up to that.
Eric: Yeah, let's explore that a little bit because this whole idea of the old-school mentality, and you mentioned specifically there the materials aspect of it—is that, you think, a sort of low-hanging fruit for a construction company to take a shift from the old school to the new school, in terms of materials management?
Robert: Yeah, in certain places, it is a low-hanging fruit, because when I say an old-school industry, that's not necessarily a bad thing coming from the industry. There's just certain things that require that old-school experience. There's so many things in construction that are just so tiny, measurements and things like that that you can't fully automate. It's a good thing that we have people who have built those things over 50 years. That's why we can build some of the incredible structures that we can. [05:10.8]
But, yes, exactly to your point, in order to improve companies, there's low-hanging fruit in areas that you just shouldn't be spending all of your time on, and material management and procurement is one of those, going through so many different suppliers and material types, and trying to track all that material and manage it is something that's busy work.
Remember in school, they said there were days where we did busy work. We just colored pictures and whatnot. We have busy work and construction, too, where it's a brain drain and a time drain on our teams, so utilizing software and automating processes for things that are some of the low-hanging fruits in the industry that can really, without too much effort, improve your most important things, which is your schedule, budget, scope and safety.
Eric: It's interesting because one of the huge issues that's impacted construction, particularly in the last two years, obviously, with Covid and all that kind of stuff, is the supply chain. What do you think is in control of that? What do contractors have control over, with regards to the supply chain? [06:07.7]
Robert: Yeah, that's a great point. If you look at since March 2020, when Covid really started here, at least in the U.S., material pricing is up 20% across the board, everything, and then there's some things that are even more, outliers like steel and lumber that you've seen that have gone way, way higher. Come back down a little bit, but they're still in the clouds right now.
Then lead times are another thing that have gotten so much worse. Lead times are up 50% across the board. If you look at things, I always use this example, cabinets, those used to be four to six week lead times, and now you're looking at eight months or more. Those are things that will knock your project right off the skids. Those are things that you cannot control.
To your question, what can contractors do? They can make more efficient, the things that they can control, so they can get out further ahead of these problems, so that when the time comes to deal with that problem, you're already prepared for it, or you already have it baked into your budget or your schedule. [07:05.8]
It used to be that, okay, I'm not starting metal, heavy gauge framing, for four months, so I won't even look at it for four months. Now you might need to look at that material availability and pricing up front. Using software to do things like always have visibility into lead times, always have visibility into current price points when prices might be going up or down, those are things that companies can do to get ahead of those problems, getting more quotes as opposed to just using the two suppliers that you've used for the last 50 years.
Again, just being more prepared, having more visibility, and having tools that do things for you, because, again, these project teams are overwhelmed. They have ten thousand things to do. If you can take something off their to-do list, like having a software tell you when you need to order material by in order to get it there in time, that's really beneficial for construction companies, because as we all know, 70% of these projects finish late or over budget, so we have to start doing things to stop that. [08:04.6]
Eric: I'm curious, obviously, because you're in software, you've gone through a variety of implementations—you've seen contractors who do it well, contractors who do it poorly—in your experience, what are the top two or three things that the best contractors focus on when they are doing software implementations?
Robert: Yeah. I would say one thing is consistency within the organization. What you see at many companies, we work with a lot of big ENR 400 companies and there's even kind of a split there in the biggest companies. There's some where the innovation is top to bottom. It's been built in culturally or it's being built in culturally.
VCC Construction is one company we work with that, top to bottom, their organization knows we use software. It's important we use software, and the messaging goes from the president of the company to the CTO, to executives, to PMs, and everyone in between. Company culture is really important, because you also see we also work with big companies that they might have a great innovation leader, but they can't get any traction within the rest of the organization for innovating and bringing in technology. [09:09.0]
Eric: Hold on a second. They have a great innovation leader. In your mind, where is that person sitting in the organization?
Robert: Usually, an innovation leader is like a director, in and of their own right, and so they have the ability and the autonomy to bring in new software to suggest things they want to do, maybe even line up pilots, but you need the buy-in from the CFO or the VP of ops, or their project executives. If you don't get that, sometimes it makes that fragmentation of these organizations and makes it hard to get software up and scaled within the org, so number one is just top-to-bottom culture.
Then, I would say, number two is really being able to self-reflect. There's so many construction companies that know in theory that they need to use software and technology, but then when you go in the organization, their answer is “Oh, no, we don't need that. We've done this so well for so long. Our spreadsheet is built out. It's the king of kings,” and this no matter how good and internal software is. [10:08.5]
We can get into this in a second, if it's just an internal software, it's not as efficient as it should be, because construction is not built solely on internal processes. Construction is a very unique market where you have all these important internal processes, but you also have all these important project processes or intracompany processes. That's very important, because, again, if you're just building your software for your company, you're not taking into account the other stakeholders and things you're going to work with and that you have to work with in order for software to actually be effective.
Again, we're a weird industry. Our organizations matter, but the other, the project itself, the external organizations matter to us, too. Yeah, the two things, I would say, are culture and self-reflection, as far as construction companies implementing technology. [11:00.0]
Eric: Okay, let me explore that with you. I think this is really important. I know because, obviously, you have a software company, you may have a certain perspective on this, but I do think it's an issue. I was chatting with a couple of executives just this week in construction companies and one of them was describing an implementation of an off-the-shelf package of software. Another one was describing that “Hey, we don't do that. What we do is we develop low-code apps ourselves for our particular issues.” I think it's interesting what you talk about, because it's true that, obviously, construction is an intracompany industry.
Dive into that a little bit more. Why shouldn't I be having the perspective, Hey, I’ve got this pain point in my company. I can develop this no-code or low-code, or a specific software package to deal with that issue. Why should I be thinking more globally in my selection of software packages?
Robert: It's good to have an internal process, but if what you've built—let's say you're doing something with payments, just as an example—while your process may work internally for your company, your accountants, and your project managers and whatnot, when you get into the actual business of construction, what makes you money, what your business is built off, it's interacting with other stakeholders on a project. [12:08.7]
Maybe your no-code or low-code, or your internal solution, is good internally, but it doesn't work with an ownership group that you work with all the time. Now while you may have some efficiency in your processes, say, approving pay apps or something, the AIA forms, G702/G703, if when you get to the project, the owner in the architect, when they're issuing change orders or contract deducts or whatever, if those aren't tied to your internal system, you now have extra work to do, and we're right back to the same place of, okay, we have all this siloed data, inefficient non-automated processes.
It could be an RFI, right? Maybe you internally have a great way for your estimating team and your project team to identify and capture and turn in RFIs, but if your system is internal and the GC is using Procore or the owner is using Procore, again, you've created that siloed issue, which now instead of 50 different stakeholders on a project all with siloed data, now you have 51 different siloed data stakeholders on a project. [13:15.6]
Again, if you can boil down all of construction to one word, I could say that would improve it across the board, just one word, it would be standardization. Building something internally for your company only is not standardization. It's maybe standardization for your company, but, again, in construction where we work with 50 different stakeholders, that's not the standardization that is the most efficient.
Eric: Let me just push back on that standardization because I can hear my audience saying, Robert, obviously, standardization is a good thought, but this is construction. Every single project is unique, unique geographic location, unique blend of subs, unique plan. We're not cookie-cutter widget type people. That standardization, though, in theory, sounds good, in practice, it's extremely difficult. What would you say to that? [14:03.0]
Robert: Yeah, I would say that when you say standardization, it doesn't mean the entire process, right? I'm not talking fintech where the whole thing is automated. I actually had an innovation leader from a large ENR 400 company we're working with say that to us. They asked us about our processes internally, how we do things at DigiBuild, and we basically told them it’s semi-automated, when we're doing takeoffs and things like that, and they go, “Thank God, because if you would've said fully automated, I would've said no thank you.” Construction isn't fintech. To your point, that's exactly right. I would say, something along the lines of 70% standardization, 30% customization.
What we try to do, what we're building when we're building software, and I think any company that has succeeded on the software side in construction, and Procore is a great example, what they do really well is they've captured the workflows enough to where you have that good amount of standardization, but, to your point, because construction comes in so many different shapes and sizes and project types, you also have to make it so you're never stopping a user or impeding a user from doing something. [15:08.1]
Eric: Let me ask you about that standardization versus customization. How do I know, as a contractor, the difference between those two things, what I should standardize and what I should customize?
Robert: Sure. I mean, I think it is important to have a good overview of your metrics as a company, right? That's where your CFO and your executives come in, because there are different things that different companies are good at, so it's important to see where you're bleeding at and where the low-hanging fruit is. That's number one.
Then I think it depends on what you specialize in, where the biggest return on investment can be for those. Again, really good software allows the users to standardize things, but doesn't stop them from doing anything. One of the ways, I guess one of the easy ways you can look at it is, let's just talk purely documents and workflows, not talking in the field, just kind of talking managing the workflows, we consider them, we break them down structured documents versus unstructured documents. [16:01.5]
Structured documents would be documents that are the same every time, right? Your pay applications, the G702/G703, RFIs, change order requests, even field reports, lien waivers, things that the structure of them do not really change that much. You can automate a lot of those and you see software that starts to do that, right? You see the Texturas of payments or the Levelset of lien waivers, or the DigiBuilds of material management.
Then you have unstructured documents and that's just kind of all the stuff that's created in construction. It could be a random soil report. It could be something the city needs. It could be some random red line of a drawing or of an engineered prefabbed wall, whatever. Structured documents you can automate or at least semi-automate pretty easily, because most of the data, most of what's happening there is consistent across the board. [16:56.6]
To your point, what you have to make sure that you're not stopping a contractor from doing is all those unstructured documents because there's so many in construction. Our projects, large projects, create over 700,000 documents. Again, it's an important balance and that's where construction is unique. You need automation standardization, but not too much of it. That's why you need that good balance.
Eric: Going back to the cultural piece, I think you're right on where you say the best companies have that mindset from the C-suite that's saying we embrace technology. One of the challenges for C-suite folks is obviously that they're not building projects every day. They're not getting their hands dirty or they're not going on the job sites, because they're running the company from a higher level. How do the most effective companies that implement technology [do it]? How does the C-suite identify the low-hanging fruit or the pain points that technology could be applied to?
Robert: Yeah, I think it's really having close collaboration and communication with their field team, the two C-words we always use in construction that, if we could ever implement them perfectly improperly, we'd be in heaven, communication and collaboration from the executives to their team and their actual project teams in the field. [18:06.0]
Again, just to use VCC as an example, I was down in Dallas, Texas, a couple months ago and they actually invited us in to speak at their annual leadership and team meeting. I say that because a part of their annual meeting was nothing but their executives, their highest-level executives talking to their field teams about technology, about their pain points, and, again, even inviting a software vendor in to talk to them directly.
Eric: What was your topic there?
Robert: Material management and supply chain, why digitizing it is so important, and just how it can drive return on investment for their project outcomes and for their company as a whole.
Eric: What was the main takeaway you were driving for that audience to go away with? What was the one thing you wanted them to understand?
Robert: Just that supply chain is in a very volatile place right now, and doing things manually in the way we've always done them, it's just bleeding on their projects. It's taking away their important time. I think that was the most important thing I told them, which was this is your time. You are an overwhelmed project manager, so if you want to keep spending two hours a day managing purchase orders and tracking material, you can, or you could spend 10 minutes a day doing it and take those other two hours and work on managing the project, improving your schedule, budget, scope, and safety on projects. [19:19.3]
I think we geared it really towards them. How can we make your life better? We know we have the buy-in from the executives. We know the numbers are there. How can we make your life better as a project manager? If you look at our just mantra for DigiBuild, in general, we say that we're trying to revolutionize construction projects, profits, and people. People are the real overlooked thing in construction. People are miserable in construction, so we really approach the people aspect when talking to some of their field team.
Eric: Going back to the culture piece, I know, obviously, technology has had a huge impact on construction over the years. If I own a construction company or I'm in a senior position and I just don't have that mindset of technology adoption like you're describing, but I want to be able to inject that into my culture, what do I need to do there? How do I take that leap? How do I bridge that gap between where I am now and where I really need to be? [20:09.4]
Robert: The first thing we tell people who are just unfamiliar with the tech is, okay, instead of looking at technology, instead of thinking about all these fancy digitization things and whatnot, why don't you just put together a report objectively, pretend we're not even here as a software company vendor, put together a report in your own company of the waste and inefficiency annually that you see? Then look at that. Where does it come from?
Then if you kind of dive a little deeper and peel back the onion, you can start to look at, why is it created? Then it becomes a natural progression where people realize, Okay, I don't even know anything about software, but I know that I'm spending 80 labor hours per week managing these processes. and that costs me 10 grand per week. Then it's easier to say, hey, okay, imagine if you only had to spend 15 or 10 of those labor hours. We always do an exercise like that with contractors who are not quite as able to see the direct benefits or who might be a little old school. [21:07.4]
For example, we have a general statistic from one of our other customers. They're a large company. They do about 100 million per year in construction building, so not a massive GC or anything but of decent-size builder, and just an inefficiencies, in labor managing, material and procurement, they're losing about $700,000 per year, just pushing paper, making phone calls to suppliers, “Where's my material? Is your prefab going? We need this in eight weeks,” whatever, and they're losing about 1.2 million per year in material pricing.
Most of these companies have two or three suppliers that they always work with, and they get great pricing or good pricing, don't get me wrong, but if you consistently were getting, say, 10 or 15 quotes like many other industries do, you click one button, you get 10 quotes, if companies were doing that, they'd have over a million dollars in material savings. I mentioned earlier, we see 26–28% losses in productivity from the field, just by their foreman having to do two-week look-aheads and calling the material they need, and, again, coordinate deliveries, all that. [22:11.0]
The last thing is just the intangible. We talked about the labor costs 700,000 a year lost, over a million in material pricing not captured, 26% productivity lost. There's also kind of some of the intangibles that go along with that.
Bad estimates. You're too overwhelmed, you put together a bad estimate. It sinks a project.
You miss your scheduled date. You get liquidated damages. Oh, sorry, your lead time was eight months. Too bad. Liquidated damages. Now we have a dispute. Now we have a lien.
Again, all these things tie together, and then once we throw all that out at the contractor, usually, they're like, Okay, if you have a simple software that can help all this for us, you're right, let's start trying it. Then you don't have to be perfect upfront. It takes time to get a new team used to it all. Start using it with the low-hanging fruit, some of the easier, more simple workflows, and build up from there. [22:59.3]
Eric: What if I'm stuck in the middle of a construction company, I see the benefits or, let’s say, I see a problem, I see that technology may be able to solve that problem, but I'm in one of those companies where that culture of innovation, that culture of technology adoption just isn't there? What's the best way for me to manage up the chain of command in terms of technology adoption?
Robert: We get a lot of introductions from mid-level project managers and directors and whatnot, who may not be the decision makers in their company, but they've been around their company long enough where they think they have a voice of some sort—and so, usually, just a positive email introduction, and if the software is good, it'll sell itself to the executives.
Now, if maybe that employee is not as comfortable or doesn't have the clout in that company to do that, I think it's promising what you're seeing now with all these industry technology groups, groups like BuiltWorlds and whatnot. I think you can get involved in organizations like that or you can suggest to your company, Hey, I saw a great technology organization, so that's another thing, utilizing some of those organizations.
Focusing on and mentioning peers that are using this technology, if you know about them, is important. Nothing gets a company moving towards technology than saying their biggest competitor or the biggest company they're bidding against consistently is using something. [24:12.8]
The last thing I'd say about that is, if it's just one of those orgs where you don't have a voice—they're not wanting to use technology. You're living that miserable life of working 70 hours a week to keep your project afloat—we have a huge labor crisis in construction right now, there's many other places to go. Hopefully, that's not the case, but there's always options. Everyone knows they need tech.
One last thought on that just because I just remembered we were in Florida for the Florida Wall & Ceiling Contractors Association trade show group about a month ago, and, literally, the board of that organization approached us, just because we were a software vendor who showed up and signed up, and they were like, We need you guys. They were like, Our whole organization and all the contractors, framing, drywall, and roofing contractors, for the most part, they all know they need tech. They have no idea where to start. A lot of people, even the oldest school of the old school, know they need it. They just don't know where to start, so just find somewhere to start. [25:06.8]
Eric: That's another question there then. In your experience, who's driving this more? Is it the subs or the GCs?
Robert: GCs right now, for sure, just because they have the resources they have. Most of them are the ENR 400 and are the biggest of the big in our industry, so you see innovation leaders. Subs know they need it, but, again, so many subs are SMBs and the ownership of those subs usually came up as the foreman, the people doing the work, so it is a little bit tougher, although you're starting to see the subs get into it now, for sure.
Eric: Let's move on to payments here. I was chatting with one of my clients earlier this week and we were putting together a job description for a controller, and one of the jobs that the controller's going to have is making sure the accounts receivable is in order. How can a contractor be more efficient at getting paid?
Robert: Just not to beat a dead horse, but standardization. It's good because payments on most jobs are the same, right? You're almost always using G702/G703. It's always the 20th of the month when the invoices are due or the 25th, or the 30th. Then you always need a lien waiver. You might always need lower-tier affidavits. It's always based off some percent complete. [26:10.7]
All of that can be standardized, so I think just, first and foremost, and that's why you see it, call it Generation 1 of payment software, starting to succeed in the industry, right? If you look at GCPay or Textura or Siteline—we even have some payment modules within our general construction management software at DigiBuild—you're starting to see companies adopt those because the workflows are standard. You can standardize those enough.
And, again, going back to our early discussion about the dependencies of all the stakeholders, usually, the GC can make the subs and the suppliers get on board with whatever their process is. They at least have enough control of those lower-tier trades stakeholders to make that happen. Standardization is one.
Now, where we are lacking, and I actually just commented on-- I don’t know if you know Alice from Brick & Mortar Ventures put out a nice little write up on payments, and I actually commented. I mean, we were having kind of an interesting back and forth discussion on Generation 1 of payments kind of were to a point where they all looked similar. The companies I just listed, they all do some variation of automating or semi-automating the collection, the approval, and then the distribution of payments. [27:18.8]
But the problem is going further than that, automating more of it or automating different parts of it, like maybe the percent complete, maybe using some sort of mixed reality combined with a building information model instead of having it be a subjective percent complete. Right? I look at this wall and I think it's 20% done. There's a way where we're going to be able to scan that wall and the building information model is going to say, “Nope, it's 12% done. That's what you're owed this month.”
That's cool, but in order to get there, there's a couple problems. The problems are all those stakeholders, right, and the risk associated with all that—you've got insurance companies. You've got your owner. You've got your architect. You've got maybe a title company—and they all have their own risk parameters that they associate with their construction project. Remember, this is where the intercompany workflows clash with the intracompany workflows on a project. [28:12.0]
In order to take the next step, we're really going to need a level of standardization and collaboration that we don't have yet. It may take a while to get there. That's one of the reasons why many people, ourselves included, have a lot of hope for the future of blockchain in construction payments, because, at the end of the day, what construction stakeholders lack right now is trusting each other, and that's what stops us from taking the next step in functionality of these payments and automation.
In the future, when you may be able to have trust be digitally native to a software, maybe you can start to go to those more advanced workflows, where instead of submitting payment applications and all that, you scan a wall and everything is done for everyone. The percent complete is done. Here's what you're billing. The lien waiver is created. Here's what you're signing your rights away for. Everything is created automatically. [29:05.4]
Right now, you can't do that because these companies don't trust one another. If I'm a sub or I'm an owner, whoever, and I say, “Oh, you're going to scan that wall for me and tell me how much I'm owed and sign my lien waiver for me, I can't do it. I don't trust you. Even if I like you, just business-wise, I can't trust you.” That's where blockchain and having trust digitally in our projects could have a major future in our industry. But I digress and we could talk about that.
Eric: That's an interesting digression. I'm a dummy. Explain blockchain for me. Consider me a fifth grader at best when it comes to blockchain. Tell me what blockchain is.
Robert: Okay. Let's say, Eric, me, you and all of our friends are in fifth grade and we have a little friend group, and we like to give money to each other. Maybe we bet on a sports game or play a video game, and whoever wins gets that money.
Eric: Right on.
Robert: I'm going to say, “Eric, all right, you beat me. I'm going to give you $50,” and I'm going to send you a text message. Now, in the current world, that text message is only between me and you. It's part of a closed-off database. When I send you that text, it goes into your database and I lose control over it. Nothing stops you from deleting it and saying, “I never got that text,” and I really have no way to prove it, that you have it. [30:14.5]
That's what happens with all of our construction workflows and everything on the internet right now. I'm always sending a copy from me to you, and because when you have other people involved, I can't see into your database, I can't control your database. Right? I can't change if you delete my email or if you forward my email to someone else without me knowing about it, because you have a closed off database, right? That's a problem. It's a lack of visibility in the current internet.
Back to blockchain, back to our fifth-grade example here.
Eric: That visibility then leads to the lack of trust. That lack of visibility equals lack of trust.
Robert: Exactly, which then equals some document or some manual process that creates trust building. Think about a lien waiver. Why am I signing a lien waiver? Literally, it's only because you don't trust me not to file a lien after you’ve paid me. If you were a magic genie in a bottle and you could guarantee I would never file a lie after you’ve paid me, we wouldn't need to sign a lien waiver together. We could skip that workflow. Exactly, and that's why we have to build trust. If we can't see in the database, lack of trust. [31:14.4]
Back to our fifth-grade example. Blockchain is kind of like a group text message. Instead of me saying, sending a text saying, “Eric, I'm going to send you $50,” and really there's no way for that to be proven, think of blockchain as a group text message where our friends are also part of that group. Now all the other members of the network saw me send that message to you saying, “I'm going to give you $50, Eric.” Now there's no way for me to deny it. I can't say, “No, no, no, I never sent that to Eric. I don't owe him money,” because the other members of the network have verified it.
Think about that in a construction project. Instead of when I send a lien waiver, only being able to verify it in someone else's database, like Procore, for example, and because I have no visibility into that, again, I still need a lien waiver. I just can't trust it. [32:02.7]
But now imagine if the other members of the network had a computer-based way to, basically, guarantee that lien waiver was sent and I received that lien waiver. There's no way I could change it. Now we can start to remove many of those trust processes you talked about. What blockchain will allow you to do is have trust digitally built to a platform, where it meets the risk parameters of these companies and it enables us to do things that we can't do right now. I'll give one example before I shut up on this.
Eric: No, it's good. It's good. It's good. You're doing a good job.
Robert: Sure, thank you. Let's look at just auditing, for an example. We work with insurance companies, workers comp companies on these projects, bonding agents. You tell them what you think you're going to spend for the quarter, for the year, whatever, and then you turn in your reports, but what do they have to do? They have to audit you, right? Because their business is built on that project. Their risk is built around that project, and they don't trust you. [33:02.8]
You might say your payroll is $100,000 for the quarter, but they need to be able to verify that—so what do they do? They build trust manually by sending an auditor into your office and saying, “Hey, give me all of this paperwork. Let me prove that the numbers you turned into me are actually real,” and that's just a manual form of building trust, that's it.
When you take a software where trust is built into the system, the auditors, when this information from a construction project hits the blockchain, they know that data can't be changed. As my payroll numbers are getting reported on the blockchain, there's no way I can manipulate it or change it, or lose it. That's called immutability. That data is immutable.
Now the insurance company goes, “Oh, I know that data I'm getting is accurate. I don't need to send an auditor to your office and I can save $20 million a year in auditing fees. Oh, and by the way, at any given time, with one click of a button, I can download the audit that I need, instead of a two-week process.” That's what happens when trust is built into the system. It enables user behavior that wasn't possible before. [34:15.1]
Think about Uber. Twenty years ago, it wasn't safe to get in a car and take a ride from a stranger, but as the cloud computing came around, it allowed you to create a credit score on drivers and also allowed you to have real time GPS monitoring. Then that made ride-share possible. That enabled the user behavior of ride share. Blockchain will enable the user behavior of trust, which allows for more automation, better data and audits, and just less risk in construction, in general. That's where we believe the future of blockchain could really be promising for construction.
Eric: It's interesting how the trust leads to efficiency.
Robert: Exactly, because it's the lack of trust that creates so much of this inefficiency. It's extra paperwork. It's extra time for your project teams. It's extra steps in the payment processes. Exactly. [35:05.5]
Eric: What is the major obstacle to the construction industry adopting blockchain in this manner, do you think, besides being dummies like me and not understanding it?
Robert: Sure. No, no, I mean, it's a great question, because to think about trust from a tangible perspective, it's very difficult to think about it and it's a really complicated subject—so, no, it's something that should need to be explained.
Eric: The group text message, I think, is something, that analogy is a good one. That's the first time I’ve heard it like that. I mean, because I already know that, that's super helpful. Anyway, talk to that a little bit more.
Eric: Yeah, the issue is blockchain is a network technology. What makes it trustable is the fact that instead of just my computer, right, or just Procore's database having all control over all the data, instead of that, 10 of the stakeholders in the network are the ones actually sending the transactions and verifying it. They're not seeing your data. They're not seeing your contract between you and your subs. They're basically seeing, okay, Eric's GC company has the right to submit this work. It hasn't been manipulated. Basically, some calculations happen where you can trust the data. [36:13.9]
The problem with it is it's a network technology. You need the GC to buy in. You need the owner to buy in. You need the insurance company to buy in. That's why we're definitely going to get there. It's just something that, as you know, with innovation and construction, it's going to take some time, because not only are you asking, one, some old-school stakeholder, like a general contractor, to introduce this tech, but now you're asking an owner as well, an insurance company like Chubb Insurance, an architect. It's just a matter of doing case studies, showing the benefits, and then, eventually, getting more stakeholders to utilize it.
Eric: It's a matter of time. It would seem like it would be something where this very thing needs to be done in another industry or in another situation that people can see and understand, and then be able to translate that into what's happening in construction. What do you think about that? [37:01.2]
Robert: Yeah, that's definitely one of the scenarios. If you look at another kind of industrial use case like construction is shipping and logistics. Right now, one of the biggest projects in all of blockchain, especially industrial blockchain, is a project called TradeLens, which is Maersk, the biggest shipping company in the world, and IBM. Right now, almost half of global shipping containers go through the TradeLens blockchain platform.
Shipping and logistics workflows are very similar to construction. Only it's a horizontal supply chain, right, from producer to end consumer, whereas construction is more of a vertical and horizontal supply chain, because you've got your supplier supplying and then you've got your vertical construction happening. Yeah, shipping and logistics is very similar and you're seeing kind of a real-life example of the effectiveness. Again, half of global shipping with the biggest shipping companies in the world using it shows the potential of blockchain and industrial use cases like construction.
Eric: Are they pulling, from that usage, any statistics in terms of savings or efficiencies, or things like that? [38:03.8]
Robert: Oh, yeah, massive, massive. I mean, I don't have their specific numbers across the board, but they're seeing direct percentage-point increases in labor, decreases in output, spent labor spend. They're seeing productivity increases. Again, it used to be that you had, think about it like this, 10 different shippers or suppliers or members of the supply chain using 10 different platforms. Now they all use one blockchain platform. It’s similar. You could see where the efficiencies and gains, and return on investment are there.
Eric: Okay, let me just ask you another dumb question real quick about the blockchain, going back to this idea of trust. I think I’m beginning to get the idea of there's this network, and I'm verifying it and you are verifying it, and the other party's verifying it, but when it comes to my turn to verify it, how do I know that you are telling the truth? Do you know what I mean by that?
Robert: Basically, the blockchain isn't verifying the actual data from the construction project. What it's verifying is that the company or whoever it is that sent that data, one, is part of the network and has the right to do that, two, that it hasn't been changed. If something has been changed, that's fine—things change—but everyone knows who changed it and when the last time it was changed was. [39:17.0]
That's important, because if I say, “Oh, I never got that pay app. You never sent me the pay app, so I don't know,” the blockchain says, “Yes, yes, it did.” Maybe 10 of the other members of the blockchain network can't see the numbers on that pay app, right? They can't see how much you're billing for and stuff, but what they can see is, on September 20, at 6:50 in the morning, with this type of data in it, this was sent to you and you received it at this time, so it makes it immutable, which makes it trustworthy.
Now, if I'm still inputting that, hey, I did 50% complete of that work and it's only 5% complete, yeah, the blockchain can't manage that and nor do we want it to. That's why you have a company and project teams. The blockchain more verifies the purity of the data, right? [40:05.6]
Back to that insurance audit. The blockchain isn’t what's telling you how much that company should pay in insurance, how much they spent in payroll. The blockchain is telling you, “Hey, they gave us this. This data was input to the blockchain and it hasn't been changed. No one has manipulated it.” Now the insurance company goes, “Oh, I know that came from your payroll. It hasn't been changed. I know I can trust that data,” and there comes the benefits of less labor, direct, getting that information, things like that.
Eric: In other words, then with that insurance example, is it almost sort of a double-check on the information the insurance company already has?
Robert: Yeah, kind of, exactly, because that's what an audit is, right? You’re already telling the insurance company, “Hey, I spent $100,000 in payroll this month or this quarter,” and the insurance company goes, “Okay, we need to make sure that's true because our business is based off that,” so they come in and build trust manually with you. “Give us your books,” etc. With the blockchain, that data's immutable. They already know the data, so they just look at it and they go, “Okay.” Boom, trust is already there. Yeah, so exactly, you're right. [41:06.8]
Eric: Okay, interesting. Robert, tell us about DigiBuild.
Robert: Absolutely. In general, we make construction management software with our main tool, fixing construction’s broken supply chain and material management. We work with a variety of contractors, subs, GCs, and even owners. Some of them, we help to find material and procure it. Some of them, we help to manage their material, predict when they need to order it by. Some companies use us, like big general contractors use us, to manage their lower-tier subcontractors in that supply chain.
In general, we help companies to find, order, track, and manage material on their projects, and, really, just clean up the inefficiencies, both within their company, saving them money within the company, and then helping them to achieve, hopefully, better project outcomes on the actual projects they're working on.
At the end of the day, supply chains are volatile right now. Pricing is way up. Availability lead times are taking much longer. We help them to navigate a lot of those problems and we're happy to be the trusted material management and procurement solution for construction. [42:12.0]
Eric: You said you work with a lot of the ENR folks. How can people get in touch with you and learn more about your company?
Robert: You could check out our website, DigiBuild.com. You could also email us at info@digibuild.com. Yeah, we're fortunate to work with some of the biggest general contractors out there. Fortunate, we actually just announced a funding round, so we have some major investors, like YCombinator, Draper associates, Harvard University, Bluefield Capital, the PlanGrid co-founders, really fortunate to be given this opportunity by the industry.
Yeah, whether you're a small subcontractor who needs your entire workflow managed or whether you're a big general contractor who needs help, again, reviewing and overseeing some of these workflows, we can do all of it. We kind of manage that entire supply chain piece, so reach out to us. We'd love to talk to more of the industry, whether it's customers or just to see what the industry is saying right now. We always try to keep our pulse on that. [43:05.2]
Eric: Excellent. Now, you say you're out in Chicago, is that right?
Robert: Yeah, I actually am from Chicago, originally. We have an office in Miami now, just because the tax scene out there and, really, the construction scene, too, is really big. But, yeah, originally from Chicago and I'm in Chicago right now, visiting family and friends.
Eric: Okay, so then I have a question. I'm going to be in Chicago next month. What's the one restaurant I need to hit when I get to Chicago?
Robert: Oh, man.
Eric: I know that's a tough question. I just want you to go with what pops into your mind. Don’t worry about the cuisine, because I’ll eat anything.
Robert: Touché. Touché. Okay. I would say, obviously, Maple & Ash, you can't go wrong. Maple & Ash is a really good place. If you're looking for a secondary place or maybe if you're doing lunch or a casual dinner, there's a great restaurant called Machine: Engineered Dining & Drink. Machine: Engineered Dining & Drink. It almost sounds like a construction restaurant.
Eric: It does a little bit, huh?
Robert: But they do custom breads and food and drinks, so that's kind of a cool little creative place. You won't get a Bud Light there. You'll get a creative drink, but they make cool dishes and whatnot, so it's nice casual vibe there. Fancy, Maple & Ash. Casual, Machine: Engineered Dining & Drink. [44:11.6]
Eric: Beautiful. Robert, I really appreciate those recommendations. I'm interested in bringing you back on the show as the blockchain conversation continues, because I think it's something that people can need to continue to dive into and get educated on, so I appreciate you giving us that little introduction in our discussion here today. Thanks for joining us on Construction Genius.
Robert: Yeah, thanks so much for having me, and I just wanted to give you kudos as well. One of the things that the industry is kind of maturing to is our digital platform. The same way many of our workflows are behind, our digital mediums, like social media, are behind, too. So, to see thought leaders like you guys and some of the other podcasts and whatnot out there, I just really think it's incredible. It's something the industry needs and something that's going to help take forward tech adoption in a better construction industry, in general. Thanks for having us and kudos to you for everything you're doing as well.
Eric: My pleasure. Thank you, Robert.
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Thanks again for listening to Construction Genius here today. I hope you enjoyed my conversation with Robert Salvador. Of course, check out his company, DigiBuild, in the interwebs, if that's something that you would like to do. [45:10.4]
As always, I appreciate you listening to Construction Genius. I've mentioned it at the beginning. I'll mention it again. Please give us a rating or a review wherever you get your podcasts. That just helps to get Construction Genius blown up on the internet and we are here playing long-term games with long-term people, and this is a resource for executives and leaders in construction, and I want to make sure that as many leaders and executives as possible get to listen to Construction Genius.
Thank you again for listening, and make it a terrific week. [45:39.7]
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