This Week On Practical Nerds - tl;dr
Prime Numbers and Startups: Unpredictable Paths in Business Execution
Execution Mode: The Undervalued Superpower in Construction Tech Ventures
Consistency and Prioritization: Building Blocks for AECS Industry Success
Measurement Obsession: Key to Repeatable Success (especially in Supply Chain Ventures)
Elevator Thinking: Balancing Strategy and Operations in Construction Tech Firms
Valuation Paradox: When Potential Overshadows Execution (in AECS Tech)
The rarest skill among mankind is prioritization. The second rarest skill is consistency.
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Prime Numbers and Startups: Unpredictable Paths in Business Execution
We're kicking off this episode with an unusual analogy: prime numbers and startups. It might seem like a stretch, but bear with us. We promise it'll make sense.
Think about this: it's relatively easy to train rats to recognize even numbers or multiples of three. But identifying prime numbers in order? That's a whole different ball game. It's not just hard for rats – it's challenging for humans too. Most of us would struggle to identify the next prime number in a sequence beyond a certain point.
Why does this matter for startups? Because running a successful business, especially in the construction tech space, is a lot like identifying prime numbers. The concept seems simple, but execution is incredibly complex and unpredictable.
In the venture capital world, we often hear about the importance of having a unique technology or IP as an unfair advantage. But we at Foundamental believe there's another crucial factor that's often overlooked: execution mode.
Execution mode isn't just about grinding or doing traditional things well. It's about the ability to consistently perform and improve at increasing levels of complexity. Just like identifying prime numbers gets harder as you go along, running a successful startup becomes more challenging as you scale. The founders and companies that can navigate this increasing complexity are the ones that truly stand out.
Execution Mode: The Undervalued Superpower in Construction Tech Ventures
Let's dive deeper into what we mean by "execution mode" and why it's so crucial in the construction tech space.
Execution mode is the ability to consistently deliver results, adapt to new challenges, and improve processes as your company grows. It's not just about working hard – it's about working smart and being able to replicate success at larger scales.
In the construction industry, which is notoriously complex and fragmented, this ability to execute consistently is even more critical. We've seen many startups with promising technologies struggle because they couldn't navigate the intricacies of the construction ecosystem.
On the flip side, we've seen companies with seemingly simple solutions thrive because they excelled at execution. Take InfraMarket, for example. Their success isn't just about their technology or product offerings. It's about their ability to consistently execute their strategy, expand into new categories, and adapt to the unique challenges of the construction supply chain.
This execution mode becomes a powerful differentiator. It's what allows companies to go from handling a few construction projects to managing hundreds, from serving one region to expanding nationwide or even globally. It's the difference between a company that plateaus after initial success and one that continues to grow and innovate year after year.
Consistency and Prioritization: Building Blocks for AECS Industry Success
Two key components of execution mode are consistency and prioritization. These might sound simple, but they're surprisingly rare skills – especially in the fast-paced world of startups.
Consistency is about doing the right things, day in and day out. It's showing up every day, putting in the work, and maintaining high standards even when it's not convenient. In the construction tech world, this might mean consistently following up with clients, continuously improving your product based on user feedback, or reliably delivering projects on time and on budget.
Prioritization, on the other hand, is about focusing on what matters most. In a startup, especially in a complex industry like construction, there are always a million things vying for your attention. The ability to cut through the noise and focus on what will truly move the needle is invaluable.
We've seen these skills in action with some of our portfolio companies. For instance, we have a robotics company in the construction space that excels at prioritization. The founder has built a highly componentized system, focusing on creating reusable parts that can be adapted for different workflows. This approach allows them to tackle new challenges efficiently, without reinventing the wheel each time.
Another example is a marketplace business in Europe that has developed a systematic approach to identifying and qualifying new categories to source. Their power lies not in any single category they source, but in their ability to consistently execute their process for expanding into new areas.
These skills of consistency and prioritization aren't innate – they're developed through experience and deliberate practice. As investors, we often look for founders who have honed these skills through previous experiences, whether in other startups, larger companies, or even in fields outside of business.
Measurement Obsession: Key to Repeatable Success (especially in Supply Chain Ventures)
Another crucial aspect of execution mode is a near-obsessive focus on measurement and reporting. This is particularly important in supply chain ventures, where small inefficiencies can compound into major issues at scale.
The best founders we've worked with have an insatiable appetite for data. They're constantly measuring everything they can, from high-level metrics like revenue and customer acquisition costs to granular details like the time it takes to complete specific tasks or the percentage of on-time deliveries.
This focus on measurement serves several purposes:
- It allows for consistent execution. You can't repeat what you can't measure. By tracking key metrics, founders can ensure they're consistently hitting their targets and improving over time.
- It helps identify bottlenecks. When you're measuring everything, it becomes much easier to spot where things are slowing down or going wrong. This is crucial in complex supply chains where a small hiccup in one area can cause major disruptions downstream.
- It enables data-driven decision making. With solid data at their fingertips, founders can make informed decisions about where to focus their efforts and resources.
- It facilitates accountability. When goals and progress are clearly measured and reported, it's easier to hold yourself and your team accountable for results.
We've seen this measurement obsession pay off in companies like InfraMarket. Their ability to track and optimize every aspect of their supply chain has been a key factor in their ability to scale rapidly and efficiently.
But it's not just about collecting data – it's about using that data to drive continuous improvement. The best execution-focused founders are constantly analyzing their metrics, looking for ways to optimize and improve. They're never satisfied with the status quo, always pushing to do better.
This focus on measurement and improvement is what allows companies to maintain their execution edge even as they grow. It's what enables them to replicate their success in new markets or new product categories. In the complex world of construction tech, this ability to consistently execute and improve is often the difference between success and failure.
Elevator Thinking: Balancing Strategy and Operations in Construction Tech Firms
Another crucial skill we've observed in founders with strong execution modes is what we call "elevator thinking". This is the ability to move seamlessly between high-level strategic thinking and granular operational details – like riding an elevator from the penthouse to the basement and back again.
At the "penthouse" level, founders need to be able to see the big picture. They need to understand market trends, anticipate future challenges, and set a clear vision for their company. In the construction tech space, this might involve understanding how emerging technologies like AI or IoT could impact the industry, or identifying new market opportunities as regulations or customer needs evolve.
But equally important is the ability to "ride the elevator" down to the "basement" – the nitty-gritty operational details that make a business run. This could involve understanding the specifics of how their technology works, diving into the details of a customer problem, or getting hands-on with the day-to-day challenges of running a construction site.
The best founders we've worked with can do both. They can articulate a compelling vision for the future of construction, and in the next breath, dive into the specifics of how their software integrates with a particular piece of equipment.
This elevator thinking is particularly crucial in the construction tech space because of the industry's complexity. Success often hinges on being able to navigate both high-level industry trends and very specific operational challenges.
We've seen this in action with one of our portfolio companies that's developing a new approach to underground mapping using GIS technology. The founders have a clear vision for how their technology could transform infrastructure planning and maintenance. But they're also deeply engaged with the practical challenges of deploying their technology in real-world conditions, working closely with early customers to refine their approach.
This balance of strategic vision and operational expertise is what allows companies to not just come up with innovative ideas, but to actually execute on them effectively in the complex world of construction.
Valuation Paradox: When Potential Overshadows Execution (in AECS Tech)
While we've been extolling the virtues of execution, it's important to acknowledge a paradox we often see in the tech investment world, including in AECS (Architecture, Engineering, Construction, and Supply Chain) tech: sometimes, potential seems to be valued more highly than actual execution.
A recent example that's been making waves in the tech world is the case of Bold, a company that reportedly has just $7 million in Annual Recurring Revenue (ARR) but has been valued at $11.5 billion, with a recent offer valuing it at $14 billion. These numbers might make sense in consumer tech, but they're particularly eyebrow-raising in the AECS world, where the path from product to revenue is often longer and more complex.
This situation raises some important questions: Why do we, as an investment community, sometimes place such a premium on potential rather than execution? Why are we willing to value a company with minimal revenue so highly based on what it could become, rather than what it has actually achieved?
There's no simple answer, but we think it's worth considering a few factors:
The allure of the "next big thing": In tech investing, there's always a hunt for the next transformative company. This can sometimes lead to overvaluing potential at the expense of proven execution.
The power of narrative: Companies with compelling stories about how they'll change the world can sometimes overshadow those quietly executing and growing steadily.
The fear of missing out: No investor wants to be the one who passed on the next big success story, which can lead to inflated valuations for companies perceived as high-potential.
The product is the stock: In some cases, investors may be betting more on the future value of the company's stock rather than its underlying business fundamentals.
While we understand the logic behind these factors, at Foundamental, we maintain a strong belief in the value of execution. We'd rather have a portfolio full of companies valued at $100 million that are profitable and growing steadily, than a portfolio of highly valued but unproven companies.
In the AECS tech space, where the challenges are complex and the path to scale is often long, we believe that execution capabilities are particularly crucial. A company that can consistently execute, adapt to challenges, and grow steadily is, in our view, far more valuable than one with a compelling story but little to show for it.
This isn't to say that potential isn't important – of course it is. But we believe that in AECS tech, that potential needs to be balanced with a demonstrated ability to execute. After all, in an industry as complex and challenging as construction, even the most innovative idea is only as good as a company's ability to implement it effectively.
As we wrap up this episode, we want to emphasize that execution mode isn't just about working hard or grinding through tasks. It's about developing the skills and systems that allow for consistent, repeatable success even as complexity increases. It's about being able to prioritize effectively, measure obsessively, think at both strategic and operational levels, and adapt to new challenges.
In the world of construction tech, where the challenges are significant and the potential for impact is enormous, these execution capabilities can truly be a superpower. They're what allow companies to navigate the complexities of the industry, scale effectively, and ultimately, create real value.
So, whether you're a founder in the AECS tech space or an investor looking at opportunities in this sector, we encourage you to pay close attention to execution capabilities. Look for evidence of consistent performance, a focus on measurement and improvement, and the ability to balance big-picture thinking with operational excellence.
Remember, in the unpredictable world of startups and construction tech, being able to consistently identify and tackle the next "prime number" challenge is what separates the truly exceptional companies from the rest.
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Companies Mentioned
InfraMarket: https://inframarket.com/
Bolt: https://www.bolt.com/
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