Episode #201 – Simplifying Construction Through Advanced Manufacturing with Dafna Kaplan, Part 2

You're listening to the R E I Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords Nerds, a high high-tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now your host Dan Barrett.

(00:40): Hey guys, welcome back. You're listening to the second part of last week's episode. Let's jump back in. I'm curious, what do you think the future of real estate looks like? Is the future of real estate that we figure these issues out and the vast majority of real estate construction is pre-fabricated? Is it a mix of things? It seems like your vision of this future where we're sort of tapping into the skillsets of both of these really deep fields of knowledge, I think is really uplifting, right? So I'm curious if you think that's the future or do you think that's not the future and that's why you have to be doing this now? You know what I mean? You trying to turn the boat in the right direction. Where do you think real estate's going just as an industry?

(01:32): Oh my God, I love futurism. So that question, I can spend 20 minutes talking about that question, but I'll save you. I think future real estate is sort of loaded, and I'm not an expert in real estate per se, but I do think, here's another aging me comment is that I lived through the consumer electronics industry when the computer industry got together at the association level nationally and developed universal cereal bus, the standard connector. Essentially when the computer industry started, you had all of these machines and accessories that didn't talk to each other. And so everyone had a proprietary connection and that created a lot of cost and inefficiency for the consumer. It was expensive every time you switched, every time you refreshed your computer, you had to buy all new accessories. At the advent at U of U S B and in some countries and places in the world, the requirements that manufacturers start using it, there was just an enormous, it was a catalyst for growth and a catalyst for adoption in the industry.

(02:40): And I do think the future of manufactured products like cassette is I think we're seeing the early stages of what will be a 20 maybe 40 year trend toward these manufactured assemblies and components. But I think what really is the tipping point for us in modular construction is a standardization of sort of plugin, how did this plugin to the rest of the construction site? Because there is no offsite construction. Every construction is related to a site and related to a place. And so it is hybrid. It's really a hybrid of the manufacturing environment and the onsite environment. And until we can standardize this, and one big reason I'm saying, there is no construction company on the planet, even the largest ones that own more than 1% of the market. And so when you have that level of fragmentation, the only way something can really transform that industry is if it's ubiquitous.

(03:45): And that's what standardization can do for us. So that's on the product usage side. On the real estate side, I think what that will create, at least I hope, is more of a democratization of real estate. And I think you're seeing some of that at the crowdfunding asset procurement level. There's all of these startups that are allowing the common persons to invest through blockchain in a fractional share of real estate. So I think the democratization of things will start to happen when it's not just a closeted secret group of, I wanted to say good old boys, but a group of a club of elite people that sort of know how things get done when things become more transparent. You don't have the same opacity of bid environment or shell games between developers. I think costs come down, but it also becomes, in some ways more commoditized a lot of the real estate markets and not something that takes such a level of deal making to get accomplished. Hopefully. I mean, from my perspective, hopefully that also means we just have housing produced better and faster and more affordably.

(05:01): Yeah, I was going to ask you, you mentioned LA and kind of the housing crises that are happening in various places across the country, I mean, does strike me that commoditization, I think to many people has a negative connotation, but at the same time, when something is a commodity and it's easily tradable, you open that market to more people. And so you almost by its nature diversify the different people involved in that process, which the democratic optimist in me believes that that will help house more people. You know what I mean? I also have a futurist pessimistic side that's like, well, everything ends up in the matrix or whatever. But I do think that that's a powerful,

(05:44): Yeah, I mean just because you asked me what the obstacles were, I think one of the obstacles actually is greed and I think an obstacle to standardization and a reason everyone is so proprietary. I mean, in some ways the investment markets create that. So the whole venture capital world was created in many ways in Silicon Valley around this. What's defensible and proprietary technology. The thing that challenges that, or for me that challenges that is that as someone who's spent over a decade in construction, what's defensible in the construction world is actually just delivering what you say you're going to deliver. . To your point about something being 40% over budget, over a schedule earlier, if I'm a general contractor and I have a subcontractor who delivers something very complicated and it's actually on time and on budget, I'm generally not going to go and find any other subcontractor.

(06:45): Cause my entire business is built around pricing and mitigating risk. And so there is a defense ability in not commoditizing, but really making things work every time. And sure, as you get down the road, how do you actually build value on that or add value to one company over another? I think we're 20 or 30 years away from that even being an issue right now, you've just got more blood in the streets of modular companies and factories going out of business for the reasons I described earlier. We don't have enough manufacturing infrastructure to meet the modular demand that would be created if the standardization were to occur. It would take easily 20 years to build that infrastructure out.

(07:32): Yeah, that's fascinating. I mean, it strikes me almost a little bit like what's happening with chip manufacturer now. It's like the United States and China are sort of engaged in this extremely intense battle for dominance over silicon microchip manufacturer, the vast majority of which happens in China. But it's this thing where even if we want to catch up, you have to have not just like you said, the infrastructure but also the knowledge base. You have to have the people that have the experience and have the knowledge getting to your point of the company that celebrates the octogenarians, right? It's like you need that background just to use the stuff that you built. I mean, think about the amount again for your real estate audience or for those who maybe don't know this about real estate development, I would say the average real estate developer is putting at least a 10% line item on their proforma. That's just called contingency. And if you think of that on one building project that's say a hundred million, I mean the risk is priced in the millions per project. So just taking that down to a level of certainty on half of a project, you think about the value that gets created in the economy just by that.

(08:50): Yeah, I hadn't even thought of that. It strikes me as that's the corollary of the thing you were talking about when you were talking about complexity, right? Is you reduce complexity, you also reduce risk, right? Because every single increasing level of complexity adds the statistical likelihood that something unexpected is going to happen. Alright, I want to talk a little bit about, I want to back up a little bit because I'm fascinated about how you think about these problems and you clearly have thought very deeply about this was one of the things that impressed me when we first met, we were talking about cassette a little bit, is that you clearly put the timing up front to think about the problem you are trying to solve. Like you said, it wasn't like, Hey, I'm going to use a factory to make a house, and then here we go.

(09:36): You really thought about the ramifications. Curious if you find, and it can be in obviously your business life or your personal life or whatever, that mindset that is so endemic in manufacturing, which is that sort of, you know, mentioned lean, you mentioned Six Sigma, we talked about process improvement, this idea of this sort of incrementalist approach to improving processes. I'm curious if you find that you bring over some of those mindsets into your business life or just into how you think about problems. What have you taken from manufacturing in a general way that sort of helps you in what you're trying to do today? If there's

(10:18): Anything? Yeah, I mean some of that is from my early career, but I think some of it's just in my dna. I'm just a naturally curious person. It helps that one of my brothers is theoretical particle physicist. And if you have a Scientist, wow, alright. I mean I like saying that theoretical particle businesses, but it doesn't have to be that I think anyone who has a scientist in their sort of intimate orbit learns how to be just humble about the truth. The truth is the truth and the best ideas come from all over the place. And so one of my early mentors in construction was my boss at Matt Construction, Paul, Matt the Lake Paul, Matt. And he used to quote that same quote John Wooden quoted that I think was attributed to anonymous was that there's no, what is it? There's no limit to what we can achieve if nobody cares who gets the credit. I think that really stuck with me because I, I've, I've been blessed to have the experience of being on just amazing functioning teams where people's ideas rose to the top. And it wasn't about where those ideas came from.

(11:30): It was sort of that excitement of building a better mouse trap or coming up with a better process improving the world. And so, I don't know, I think I'm naturally curious. I think it also helps when you're a founder that starts out and you don't have money because I think money makes people stupid. Not that I don't want money but I do think when you're starting out, it's sort of the careful, as an early startup, especially in an industry like this where there've been a lot of people who've run things into the ground, is you tend to just want to spend that money. It's really easy to spend that money quickly in an industry like commercial construction. I mean, you can burn through capital very quickly and in capital expenses and manufacturing. And so when you don't start with that and you start your business really just leaning into an area, you spend a lot of time asking questions. And I mean a lot of credit to all of the unselfish founders out there of different modular companies or prefabricated companies around the world that I had the good fortune to visit because I learned a lot. I stand on the shoulders of a lot of people who went before.

(12:42): Yeah, it strikes me, there was a thing you said when we first met, and I forget who we were talking about exactly, but I will kind of generalize it because I think it applies then it connects to this idea that you just said of money kind of makes you stupid. Which by the way is so true in every industry. The more cash you have to just spend on solving your problems, the less you think about your problem must some law. And so Murphy's Law, the law about the law

(13:09): Of, well, I think Kaplan's law available, so money makes you thing is a wonderous law by the way, the Wikipedia, there's a Wikipedia page for eponymous laws. So just this person's law, that person's law, it is my favorite Wikipedia page. It is amazing. It's a great read. I highly recommend it. So Kaplan's law will get it added to there because I think it's really great. But you said this thing that I wrote down and I bolded and I delighted in my notes, which is that people tend to have especially ambitious people on well will broaden it to entrepreneurs. Entrepreneurs tend to have the dangerous characteristic of thinking that they know about everything because all entrepreneurial people, we get paid to solve problems. We've probably solved a lot of problems in the past, probably have a pretty good success record, otherwise we wouldn't be here. And so you tend to build this intellectual hubris where it's like, yeah, I'll figure it out. I figured out this other stuff, I can figure this out. So I wanted to ask you how you think about your own learning or knowledge management or personal growth, however you want to think about that. How do you continuously expose yourself to all, you expose yourself to all these different fields? Obviously some of it comes apart from work, but I'm wondering, are you big reader, do you think about it in a really conscious way? Is it just kind of happened? I'm curious how you think about

(14:37): That. Oh boy. It's funny when I gave you that quote, I think I was talking about the real estate development world because a lot of these people are really smart. And I guess by virtue of being a developer, you're an entrepreneur and you think that I find myself quite terrified all the time. I don't think I know everything. And so maybe that's why I ask a lot of questions. I think I'm pretty decent at figuring things out. But I think what has helped me is just in interest across spectrums and an ability to make connections between things that other people might think are completely unrelated like music and sports. Or I see things that are being done in other realms that are just interesting to me. And I allow myself to explore those. And I think if we fixate too much on the problem at hand, we get into the weeds and you'll see it with a lot of entrepreneurs and other brilliant thinkers that will take a vacation for two weeks and they come back and they have the answer to their problem.

(15:45): There was something about something they saw in the tides when they were sitting in Bermuda, you know, don't know where creativity is going to come from. And I think Steve Jobs gave an amazing address, if you haven't seen it, you should Google it on YouTube, an amazing address to Stanford graduate sort of at the end of his life. And he talked about how when he had dropped out of college, he stuck around and I don't know if he audited officially or if he just popped into classes, but he took a calligraphy, right? Because he was so interested in calligraphy and letter form, it had nothing to do with what his major had been. It had nothing to do with any sort of thought of what he wanted to do with his life. But then over a decade later, he reflects that the fonts that were created on the first Apple were a result of him taking that calligraphy class.

(16:41): And he said, you know, never can really connect the dots going forward. You can only connect them looking back. And I can really, I think I always really related to that sentiment, which is there's just things that really interest me. And I think all of us sort of have those things in us and you do well to listen to those voices and explore those things. And it, it's the same for when you meet people. Don't look at people as their title. If there's an affection or interest get to know people and what it is that drives them and you don't know where the next time in your life is that that person's going to pop into your mind and be the right person for the moment. And I think that's another sort of piece of my life that I've been blessed with, or just having met just amazing, incredible humans in all walks of life. And I've learned something from all of

(17:39): Them. Yeah, I can't tell you how much I love that mean and how much that aligns with my personal philosophy. So I think you put that in such a beautiful way. I think you are. I can't add anything to it. I keep wanting to add something to it, but you literally nailed it so perfectly that I'm going to clip that later and hang it. I'll turn into an embroidery or something and I'll hang it on my wall. Cause I think you did a really amazing job. I won. Ask you. We love A man who embroidered. Yeah.

(18:06): Oh yeah. Well, I wish I could actually embroider that. That was an i'll, I'll do my best. I'll pick that. So I have to ask you, we're sort of coming up on time and I want to wrap things up, but we are coming up as we're recording this on the official kind of kickoff party for cassette systems. Again, if you're listening to this cassette systems.com, I am curious how you are feeling because it's this, I mean it, it's sort of a coming out party. This is a project you have been working on so long in many ways, pretty much ever since your beginning career. It feels like it's all kind of been leading up to this. There's been so much research, so much thinking. Is it collaboration across industries? How does it feel? Are you excited? Are you nervous? How does it feel to be on the edge of kicking the door open and really getting things going?

(18:56): Yeah, I mean it's a combination of complete mayhem because I'm planning a party with really lean resources and it's turning out to be quite a large party and then just a real sense of being relaxed because for the first time in four years, I really want to just celebrate and it's not celebrating the kind of milestone that one might where they don't have to work anymore. In many ways, this is just the beginning right now, a lot of the real work starts, but it's important to stop and realize you would never be at this moment, but for the many interventions and people that helped you when you had nowhere to go or when you hit that sort of entrepreneurial dead end. And so what I'm excited about is that so many of those people are coming in for the event and to really just take a moment and celebrate. You're not celebrating perfection, you're not celebrating the end of the journey In many ways it's the start, but you're celebrating a really important milestone that a lot of people help make happen, and I'm just excited that it's a lot of experiences in entrepreneurship that are painful and it's nice to have moments to celebrate.

(20:11): Yeah, I mean, so I'm excited for you and I literally met you a couple weeks ago, but I could just tell how much went into this process and into this product, and I think it's got such a great vision of the future behind it. I am so excited for you guys. So I've mentioned the website already, cassette systems.com, everybody listen to this, go check it out. Like I said, I know we didn't spend a ton of time on the website, but it's great and it does a really good I job of giving you a view into what this product could do, what it can be like. Is there anywhere else that you want people to look you up or learn more about the company, do use social media, anything like that? I'm a heavy LinkedIn user, reach out, connect with and a lot of people made time for me in my career. I'll make time for anyone who has questions, so reach out and I'm old school. All right. You call me to, I don't need Sendling a phone call. You can actually just call me.

(21:15): Well, I'm not going to put your phone number on our website because, but I will link to your LinkedIn for sure. And everybody can go there and drop you a message. And of course, of course I'm going to say this again. Cassette systems.com is where you would go to check it out. Dafna Kaplan, thank you so much for this. This was really fascinating for me. I never get to talk about manufacturing, which is one of my nerdy interests that nobody I know cares about Apple. So I'm like, it was very excited for this. Thank you so much for sharing what you're doing with our audience. I had a real blast and I appreciate It. Well, thank you, Dan. You made me feel good and thanks for exposing me to this group. Look forward to meeting your listeners. That is it. That's it for our interview this week does always, you can check out the show notes for this and all our past episodes@adwordsnerds.com. Just click on the thing that says podcast up at the top and you will find it. Hey, if you like this show, could you please leave me a review wherever you got this episode? I would really appreciate it. It helps other people find the show and I read every single one. As always, I hope you're having an amazing week. I will talk to you soon. Cheers.

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