4 minute read
Within Foundamental we saw early that deep insights into construction workflows are critical for founders and co-investors. Hence, we decided to do something unusual for a VC: invest in our own on-site research. We partnered with a few like-minded individuals, and today spend 16-18 weeks per year on construction sites, in plants, and in trucks.
“The success of a production depends on the attention paid to detail.”
This year our interest in the logistics of building materials grew larger the more we looked into it. With Foundamental Fund 1 we made several investments in this space in Asia and North America - and are just getting started. That’s how much we love this space. So: this year we doubled-down on our field research around drivers for ready-mix concrete in India, USA, and European markets.
Here are my 10 slices on ready-mix truck drivers:
1/ Mixer drivers matter. A lot. The US ready-mixed industry employs 75’000 drivers across ca. 5’600 plants. Drivers make up 56% of the entire US ready-mix workforce.
2/ And: The average age of a mixer driver is 46 years. The average tenure in the job was 10 years in 2017. These numbers suggest a highly experienced workforce.
3/ For good reason: Mixer drivers might be called „drivers“, but really they are „operators“. A ready-mix plant only stores and combines the ingredients - the actual mixing and initiation of the chemical reaction happens in the truck. The truck is part of the production line. The truck extends the plant on wheels. As a result, mixer drivers have to be able to assess the current condition of the concrete in the drum, in order to understand if eg. water can or should be added - or must not. They also operate the flow from the drum in conjunction with the pump. This matters because on larger sites the flow of a concrete pour is carefully spaced - usually in tight 15 minute windows - and must not be interrupted, or else cold joints might occur and the compressive strength of the entire concrete job is at risk. An inexperienced driver significantly increases the risk of job interruption, and with it the risk of financial damages for the ready-mixed producer.
4/ The problem is: the industry is short of mixer drivers. 48% of ready-mix plants reported lost business due to shortage of drivers in 2018. This number is up from 36% in 2017.
5/ And: driver retention is increasingly becoming an issue. 29% of drivers switched their employer in 2017 (up from 25% in 2016). This means: the average tenure of switching drivers was only 3.4 years in 2017. 66% of those switches were voluntary and initiated by the drivers.
6/ 58% of the drivers who quit stated that a better financial offer was a key reason for switching employers. 42% stated that improved work scheduling was a key reason for their switching.
7/ As a result: The ready-mix industry scrambles to replace drivers. The overall average tenure in the job dropped to 9 years in 2018, from 10 years in 2017. This number means 10% of the combined operational experience was lost in one year from 2017 to 2018. This is confirmed by another stat: 69% of ready-mix producers state that lack of ready-mix-specific experience in the major challenge in hiring drivers.
8/ Ergo: like all construction, the ready-mix industry has a workforce issue. When I first heard of mixer drivers two years ago my initial reaction was: “ok so let’s bring over drivers with a commercial drivers license (also called CDL) from the long haul industry“. Little did I know how much operational responsibility lies on the shoulders of mixer drivers. Their ability to judge the concrete condition and operate seamlessly is essential to an uninterrupted concrete job. I learnt: a simple hiring of drivers from other industries is not easily beneficial without years of training on the concrete itself.
9/ At Foundamental we are strong believers in automation of tasks on site as well as off-site to address the workforce resourcing issue in construction. From automation of drywalling over bricklaying to progress monitoring, we back transformative tech leaders who automate such tasks to a high degree. One such company in our portfolio is SafeAI, whose founders built a truly transformative solution to retrofit yellow machines for full autonomy on sites and in mines. However, the problem in ready-mix trucks is: those trucks drive 95% of their way in uncontrolled environments like urban streets and urban highways. A level 4/5 autonomy of those trucks remains unrealistic in the near term. As a result, we are strong believers that ready-mix trucks will still operate with drivers for years to come. But …
10/ … there are founder opportunities for augmentation instead of automation. Augmentation can reduce the need for operational ready-mix know-how and hence allow hiring more drivers without previous experience. We would like to see more founders/companies who attack in the following ways:
- Analytics-in-the-drum: In ready-mix concrete the truck is part of the production process. But: to date there are no widely adopted sensors to measure the condition and volume of concrete in the drum and coming out of the drum during unloading. A better fact base of condition and volume will allow (a) drivers with less operational experience, (b) lower commercial risk for ready-mix producers as they can prove what has been actually unloaded has been to-specifications and ( c) enable better learning models for concrete mix design.
- Payments: Drivers today are usually not collecting payments (except cash from smaller non-regular customers). We see opportunities to collect receivables via a (stripe-like?) solution and protocol faster. This solution could be tied to data from drum analytics - pay as delivered. (Let’s stay on topic of ready-mix here, but it’s hard to NOT think of the extended opportunities of a payments protocol beyond ready-mix, isn’t it…)
- Drivers-as-a-channel: A mixer driver is often the only person that your customer will actually get to see. You better use that touchpoint. We see value in solutions that enhance mixer drivers to become more of a sales/service role. We are intrigued to see if there is value of building out drivers as a sales-partner channel for other products. Construction, due to its fragmentation, tends to have higher customer acquisition cost and cost-to-serve. Building out drivers touchpoint as sales/service channels is an unaddressed opportunity at the moment.
As always, credits for providing the data go to Mo, who leads the wizards in our Foundamental Insights group.
Foundamental field research 2018 and 2019
US National Ready Mix Concrete Association 2018