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Cover | Inventing the "Lego brick" of home building
How Cover is creatively addressing the affordable housing shortage with software and assembly lines.
The world is changing fast, industries are being disrupted and yet somehow, there are still areas that are stuck in tradition. Legacy that won't be overwritten.
The education system, the medical system... and housing.
According to habitat.org's 2022 State of the Nation’s Housing Report,
"The U.S. now has a deficit of 3.8 million homes, with the greatest supply shortages at low-income price points. The backlog remains large enough that it could take a decade of record-level homebuilding to meaningfully increase affordability."
Even if you've never had a home built before, if I asked you to list some of the problems with the traditional home building process, I'm sure you could find a few.
It's hard to estimate timelines. Home construction takes 8 months on average, but regularly taking more than a year, blowing through estimated timelines. Do you know of a single home construction project that finished on time? I didn't think so.
It's hard to price. Costs often run over on traditional construction projects and it's difficult to know exactly how much you're going to end up paying, especially with material costs such as lumber fluctuating as they do. Do you know of a single home construction project that came in under-budget? I didn't think so.
It's inflexible. Want to hang a picture? Punch a hole in the wall. Want to fix a leaky pipe? Punch a hole in the wall. Want to add another room? Punch a hole in the wall. The process of "editing" your home is tedious, messy, and destructive by nature.
The solution to some of these problems seems to be pre-fab homes. You can build them in a warehouse that's designed for maximum work efficiency, with all of the machines and tools you need easily accessible, and you don't have to worry about weather delays. Build from a list of pre-designed layouts and boom, that should solve the timeline and price issues, right?
By now, I'm sure you've already spotted the downfalls of pre-fab. You have transportation logistics to deal with and, more importantly, you're still building with traditional materials like wood framing and sheetrock siding!
That's where this company called Cover comes in. It takes a unique approach to home building that’s technically still pre-fab but, other than that, it's completely different.
Cover is attempting to tackle the efficient manufacturing of homes using assembly lines and robots instead of construction workers and power tools while solving for the very obvious problem of customizability.
Let's break it down.
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Cover’s Solution: The Innovation Stack
Jim McKelvey, co-founder of Square, wrote about this idea called The Innovation Stack which says that, rather than creating one massive innovation, a company can stack a bunch of smaller innovations to both build a moat and add differentiated value.
Square's first small innovation was this idea of the "flat-rate fee". Up until Square, transaction fees were complicated and expensive. The flat-rate fee simplified transaction fees for the merchant and made it simple to estimate their expenses.
But of course, a flat-rate fee is only profitable at scale so they had to incentivize adoption among the millions of smaller merchants they were trying to serve. These merchants couldn't afford expensive terminals but many had smart phones which were becoming more ubiquitous, so Square built a card reader that would plug into the headphone jack on the merchant’s phone. Of course, the Square reader is the innovation that they're known for today, but it was born in pursuit of a smaller innovation.
Cover's approach is similar.
Their original mission was to help solve the affordable housing crisis by making home building faster and more efficient which could be accomplished a dozen different ways.
Innovation #1: Assembly Line Manufacturing
But if we learned anything from Henry Ford, we know that the best way to improve speed and efficiency is through an assembly line. So they set out to build homes using the manufacturing process.
Innovation #2: — The Panel
Assembly lines unfortunately reward standardization and homes are incredibly personal and unique. The number of rooms, types of rooms, layout of rooms... it varies from person to person. So Cover decided to innovate smaller. Think of Legos. The atomic unit (the Lego brick) can be standardized and mass manufactured, leaving infinite room for customizability of the final product.
But what IS the atomic unit of a house? Is it as big as a room? Or as small as a screw? Cover landed on the idea of a wall panel as the atomic unit. You could manufacture a panel with support for insulation, plumbing, and electrical. You could build panel covers that easily pop on and off that make it simple to work behind it or even "paint" your house by swapping out the panel covers. Then, of course, you could arrange the panels in infinite combinations and orientations like Lego bricks providing plenty of room for customizability.
Innovation #3: Unique Materials
If you want to make the panels easy to manufacture, transport, update and snap together, you probably want to shy away from wood and sheetrock. We’re trying to avoid busting holes in our walls if we can help it. So Cover researched the perfect materials to make their panels with.
"The materials it is using are lightweight steel for the building frame and aluminum for the ceilings. The panels are made of a rubber composite because, as founder and CEO Alexis Xavier Rivas explains, 'drywall is not designed for manufacturing or transport — it’s too brittle.'"
Innovation #4 — Software Assist
Just because these panels are the atomic units doesn't mean that you want to just sell them at Home Depot and call it a day. There's still a lot of work and thought that goes into building a home with them. The site prep, the permitting, the installation... it's still quite complex. So Cover needed to offer a service to their customers that abstracted away all of that complexity and makes it simple for the homeowner to pull the trigger.
Like manufacturing, software is great at turning human labor into automated processes. So Cover built a tool that helps its customers design their homes. This had two massive advantages:
First, because software is great with data, they can use geo-spatial and zoning data based on the customer's address to capture all of the information necessary to submit the permit application to the local officials.
And second, the customer's design tells Cover exactly how many panels to produce which they know the cost of down to the bolt. So the software can give the customers an immediate and accurate price.
Cover’s Approach: The Master Plan
As I started digging into the research around Cover, I started seeing a bunch of comments around price. Which, honestly, is a fair assessment at first glance. Cover's price tag ranges from $250K to $500K for a sub-1,200 sqft home. You could hire a GC to build the same sized home for half the price with the traditional construction method, which brings up a second criticism - the size.
Cover has marketed themselves as a "backyard home" and, while you could certainly live in one, they're most often used as mother-in-law suites, guest homes, rentals or backyard offices.
So it begs the question, if Cover's mission was to disrupt traditional building practices in order to help address the affordable housing shortage, have they not failed? There's no world in which $500K backyard homes would be considered "affordable" or "housing." To answer that question, we have to look at the playbook of another pioneer in the tech space: Tesla.
Tesla's now-famous Master Plan outlines their strategy to build an electric car company in a world where electric cars were only purchased by super-nerds and car enthusiasts. Since that was the entirety of the market back then, that's who they catered to.
They designed a powerful, beautiful electric sports car called the Roadster and then used the proceeds of those sales to build out the manufacturing infrastructure necessary to produce a cheaper car. The Model S. They repeated this playbook a few more times until they could offer a reasonable, competitive price for a modern, electric car that the Average Joe might buy.
Cover ran into a similar problem: how do you scale manufacturing infrastructure without billions in the bank? They already had the answer.
Build a beautiful, high-end option for a smaller, price-insensitive audience.
That's where Cover is today, but as they've stated publicly, they're not slowing down. Their eventual goal is to bring costs and install times down, build out more manufacturing plants, and expand into multi-story and multi-family homes. As the CEO of Cover remarked, it's just a matter of using 10,000 panels instead of 100.
Since starting Cover six years ago, the team has managed to design their modular panels, set up the manufacturing infrastructure to begin production, start building homes and bring install timelines down from 120 days to 30 days.
Today, if you pit a gas car against a Tesla of the same price, you'll likely choose the Tesla because it's faster, smoother, quieter, and cleaner. In the future, if you pit a traditional home against a Cover of the same price, you'll likely choose the Cover because it's easier to price, install, maintain, extend, and redesign.
My final thought on the matter is around design. As a minimalist and designer myself, I think their homes are beautiful and sleek. But they do tend to lack a certain soul. But I think, again, even that criticism is too short-sighted. Cover's priority right now is the infrastructure for production. If they can't get that right, it doesn't matter how soulful their homes are, they're dead in the water.
I'm confident that, as they begin to scale production, they'll find ways to deviate from the standardization that makes Covers simple to produce and introduce a bit of character into their designs.
But I'm curious to hear your thoughts.
Do you think Cover’s approach will take off?
Do you like their home designs?
Who else is addressing the home shortage in a creative way?
That’s all for this one - I’ll catch ya next week.