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What makes a good Contech founder? Part 2

By Joe Coleman

What makes a great Contech Founder?

Is it industry experience, is it more important to have a start-up background, or is someone who knows how to take software to market more generally the right answer? Is there even a right answer?

This is a huge topic and one that I often find myself chatting to people in the Contech space about. In the second, and final, part of a two-part series (check out the first here) I spoke with Patric Hellermann - founding partner at Foundamental - about his view on all things founders.

Is a construction background a winning formula?

JC: The post I did with Bhragan a while back touched on Katerra and the question I posed was did Katerra fail because their founders didn't come from the industry. They expected to deploy prefabricated and off-site construction without understanding the supply chain, the length of time, the cost, the impact of weather, all those sorts of things. 
Do you see this when you're speaking to founders? Is there a difference when you look at somebody who's come from the industry versus someone who's entering the industry? 
PH: To give you the very truthful answer, I haven't come up with a reliable framework in the five and a half years I've spent in the sector and I don't expect to find one! What I will say though is that if you think less about the person and more about the team, I've found a strong correlation between experience in selling into your target market and success. Your team should know what the best distribution model is and know how to sell the product before it's there - no faking it ‘til you make it.
You also still need to find logical differentiation, product differentiation. With most category creators the thing that really makes them large players in their category is distribution. So finding someone who understands this and having them in the team early on is one ingredient I wish every founder team really made sure they had on board.

JC: Yeah, construction is a niche industry too, it’s very nuanced. So I can see how having some kind of knowledge early on would help a founder. 
PH: It has a lot to do with the intrinsic ingredients rather than the background. For example, look at 011h. They're like a Spanish version of Katerra but in an asset-light way, they build cloud manufacturing networks very successfully. They have very good project execution, very good margins, but it's an insanely tough business - probably one of the most difficult businesses! The founders built Privalia and sold it for $560million and I think at the time they sold it probably had close to a billion in annual revenue across tens of thousands of customers. Yet these founders tell me 'Patric, this is the most difficult business we could ever build'. They have no construction background but are very mature minded and have a lot of the right intrinsics to figure it out. 
JC: Yeah, like I said earlier it’s so nuanced. Construction, in terms of stakeholders, who's involved and the personality types there - and this might be quite anecdotal - but they'll often call it out as it is. They'll call a spade a spade, call you out on your BS. I know from Foundamental's convictions that embracing discomfort and being able to operate in that is what you look for in a person.
PH: Very much. You know, if you're in a linear industry and you're going after a model that perhaps isn't category creation and is more cloning, you can get away with more bad habits and still build a decent business. But if you're in a highly complex and, like you say, nuanced, business you can't get away with it. You won’t be able to build a business that way. 
JC: Yes, and looking at your portfolio and some of the founders you have in it, you have Altaf from Snaptrude who is from an architecture background. You have Speckle, with Dimitrie from an architecture background. But then you have Monumental with founders who haven't come from the industry but have raised $25 million. So how much weighting do you put on a founder's background when looking at them as investors?  And do you think businesses who have a construction founder in their makeup typically achieve product market fit faster, or profitability sooner?
PH: No, I can't say I do. Anecdotally on the specifics of your question I don't know. We must've spoken to thousands of companies over the years and it's still anecdotal despite that number.
I totally couldn't find that correlation. Off the top of my head, I can think of many poor examples who never found product market fit that did have that ingredient, and successful examples who did find PMF who don't have anyone hailing from construction. 

What I'm really looking for is the ability to discover exceptionally quickly. What I look for is what I call the 'Onion Founder’, where every time you speak with them you find another layer. 

So what makes founders successful?

JC: Do you find you need to give more support to Construction founders who don't have understanding around how to raise capital? You know, some of these people are ex-Site Engineers who are used to being boots on the ground on sites, and the boardroom might not be something they typically operate in. 
PH: Perhaps, but it wouldn't be driven by expertise or backgrounds. It's much more driven by how - what I'd call - 'mature minded' you are. So I've met very mature minded 20 year old founders and I've met a s*** ton of immature minded 50 year old founders. 
It's that mature mindedness coupled with a ton of other ingredients like curiosity, the ability to communicate effectively, empathy. It's more intrinsic stuff than just experience. And this defines how much and how frequently they need help. Everyone needs help all the time because no one in this world is a success completely of their own doing, there's always a team that helps you do something. Investors are part of that team. But if you keep needing to learn about the same thing then you're probably the problem, right?

The 'Onion Founder'

PH: What I look for in a founder is what I call the 'Onion Founder.
That's a central theme. So an Onion Founder is a founder where no matter how many discussions we have - sometimes in three weeks, sometimes in three years - each time you have a discussion you peel the onion and it reveals deeper insight. It doesn't matter how deep you peel the onion, you'll always get to another layer.
JC: 'Onion Founder' is a great term.
PH: You'll meet a lot of founders who kind of take shortcuts and who don't want to discover a lot. Where you peel the onion and under the first layer there's nothing. Now, this can still translate into success because it can mean I'm just meeting you too early - perhaps you only just started exploring the sectors. So you do need to factor context in.
But if you've been doing this for, say, three years and I peel the first layer and don't get any deeper insight then that probably means you're not spending enough time discovering, right?  I don't want to oversimplify it but on the topic of what makes a founder successful I have less interest in backgrounds and more interest in the layers they have as a founder. 

It's been great getting different perspectives on this topic over the past few weeks. If you've got any thoughts on what makes a great Contech founder, then I'd love to hear your thoughts too. 

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