#083 Talk to Your Customers Before Building a Product

Show Notes

Show Notes

While the construction business is massive, it’s also rather complicated. Fortunately, there are tech startups like Constrafor that are helping both general contractors and subcontractors streamline everything they do, completing projects and getting everyone paid faster. Constrafor is a construction procurement platform that handles everything from insurance to invoicing. While only started in 2019, Constrafor is already striving to become the primary end-to-end procurement platform for the biggest general contractors in the U.S.

Constrafor CEO and founder Anwar Ghauche recently sat down with startup coach Roland 

Siebelink on the Midstage Startup Momentum Podcast to discuss the journey so far. He shared some insight into how Constrafor operates, which is a little different from the average startup:

• Why it makes sense for Constrafor to use an indirect monetization method.

• The reason Constrafor spoke with potential customers before building a product.

• The importance of a sales team, even in a product-led company.

• How customer success at Constrafor is handled by everyone, not just one team.

• How Anwar handles employees who do not fit the values of Constrafor.

• Why Constrafor uses company-wide KPIs rather than team or individual KPIs.

Transcript

Roland Siebelink: Hello and welcome to the Midstage Startup Momentum Podcast. This is Roland Siebelink. I'm an ally and coach and a facilitator for many of the fastest-growing startups in the world. And today, we have with us Anwar Ghauche, who's the CEO and founder of Constrafor, dialing in from New York City. Hello, Anwar. How are you today? 

Anwar Ghauche: Hi Roland. Thanks for having me. 

Roland Siebelink: Of course. Anwar, tell us all about Constrafor. What is your product? Who do you serve? And how do you make the world a better place? 

Anwar Ghauche: Sure. Constrafor is a construction procurement platform. What we do is we help large general contractors and construction managers to onboard and pay their subcontractors. That spans the gamut from pre-qualifying the subcontractors, helping the general contractors to create and manage the contracts that they administer/exchange with their subcontractors, including any red lines that go back and forth, any edits, version control, and e-signature. Then we have the insurance compliance components, where we help collect and track all of the certificates of insurance of the subcontractors. Now what we're seeing with LLMs being all the rave, we're also able to parse through these insurance documents and actually make a recommendation about the quality of the coverage. 

The third type of documents that we handle is invoices. We help subcontractors to submit their invoice documents to the general contractors, but we also help the general contractors to collect all of the surrounding compliance documents around these invoices. We've also embedded payments directly into the platform. General contractors can receive the invoices and directly process the payments. And the last step on the Constrafor platform is the diversity tracking module, where we help general contractors to track the percentage of their project spent on minority subcontractors. And that's particularly relevant for government-funded projects where there are quotas and targets that the general contractors need to achieve. 

Roland Siebelink: Okay. Sounds like a very complete platform to basically handle procurement in the construction sector toward subcontractors. That must be the vision behind it. 

Anwar Ghauche: Yeah, absolutely. The idea is to become the end-to-end construction procurement platform for the largest general contractors in the country. 

Roland Siebelink: Okay. You have a specific target group in mind already. Does that make a big difference if you target those larger construction groups versus the whole of the construction industry?

Anwar Ghauche: Yeah, good question. We only target general contractors that do more than $75 or $100 million dollars in annual revenues. The idea is smaller general contractors, smaller companies, would probably be okay managing their procurement process off of email and Excel files whereas once you cross a certain threshold, it just becomes unwieldy to manage all of this offline. That's where we can add value in terms of centralizing all of the process, streamlining the document management, and there's actually a number of different departments that will be interfacing with Constrafor. And that's where the collaboration element comes into play.

Roland Siebelink: That's a key qualifier, right? That they are complex enough and they have many streams going on at the same time so that the investment in a platform actually starts making sense. 

Anwar Ghauche: Correct. And I should say it's not just the investment; our price point is actually quite low. We can talk a little bit about how we monetize the platform, which is a little bit of an indirect monetization method. But the value proposition of a procurement platform is only when you're managing hundreds of subcontractors. Anybody that is managing less than 100, they really don't need the platform. They can keep the lights on and keep going just on emails and text messages and Excel files. 

Roland Siebelink: Yeah. Then the overhead is too big for the benefit you would get out of it. How mature is the platform? When did you start it? What were the first things you built? And how have you been adding on new features over the years?

Anwar Ghauche: We started Constrafor in late 2019. And we've been around for a little bit more than three years. We started with the procurement platform and then in the beginning of last year, 2022, is when we launched our early-pay program. Our early-pay program is where we helped the general contractors to speed up the cash flow to their subcontractors. It was supply chain financing. The vice corollary of this is when we fund the subcontractors directly under approved invoices, but with the blessing of the general contractor. 

And what that means is now the subcontractors can get paid right when their invoices get approved, and they don't have to wait until the owners of the project pay the GCs, and then the GCs end up waiting to pay the subcontractors. That cashflow lag that exists in construction - and especially for larger projects - tends to be a big concern and a big issue for the subcontractors that are effectively having to finance the projects on their own balance sheet. And so, we're able to use our resources to speed up the cash flow on those projects.

Roland Siebelink: Okay. Is that related to a sizable debt financing that you did last year so that you have that cash to be able to advance it? 

Anwar Ghauche: Correct. That's why we have multiple rules of capital. We have the equity that we use for our own payroll. But we also have sizable credit facilities that we can use to advance the cash flow for these subcontractors.

Roland Siebelink: Okay. You already mentioned a low price point, but you have other ways of monetizing. Now I'm very curious how you bring that all together from a business model point of view. 

Anwar Ghauche: Our business model is to provide the technology to GCs and subcontractors at a low price point. And then we monetize primarily on the early-pay program. 

Roland Siebelink: I see. You get a few points out of that advance of cash as a fee for your services that you're putting cash at risk. 

Anwar Ghauche: That's correct. The way we think about it is that our early-pay program should be cheaper than what banks are able to offer in terms of funds or credit. And it should be more flexible for these subcontractors, allowing them to ramp up and down as needed without forcing them to get locked into multiple projects or multiple years. 

Roland Siebelink: Okay. You actually became a bit of a FinTech platform based on that. 

Anwar Ghauche: Absolutely. The way we would describe ourselves is we're a construction procurement platform with embedded financing. And the embedded financing is core to our mission. We actually think that's probably one of the biggest pain points for subcontractors in the construction industry. 

Roland Siebelink: I could totally see that. I'm interested to delve a little bit deeper into this for a minute if I can. How has the whole changing micro-environment impacted that business in the last year, one and a half years?

Anwar Ghauche: Yeah. When I describe the current micro-environment, it's quite challenging for subcontractors. Banks are - the non-folding ones - are actually tightening up their liquidity. Interest rates are going higher at a time where there's still a lot of construction activity coming out. And the infrastructure stimulus package that was passed in the US is a strong driver for more construction. But at the same time, material supply chains are still long, wages are still high, and that's putting a lot of liquidity pressure on these subcontractors. They're unable to get access to the funds that they would need to get the job done and the costs are going higher, and so, they need access to cheap and flexible financing to be able to take on more of these projects. It's been a pretty good market for us, but only because we've been able to lock in these very, very large pools of capital that we need for our early-pay program. 

Roland Siebelink: You decide in 2019 to start a business here. Can you walk us through the steps you took to actually make this into a business that works? What were the first steps? Where did you stumble? What were you learning as you went along? 

Anwar Ghauche: The first step for me was lining up the group of potential customers. Even before we started building, I made sure that we go and talk to as many contractors as possible, both subcontractors and general contractors. And we built an MVP of the platform, then we raised some money, and then iterated on the platform to make sure that it could scale up with those large gen-contractors.

Roland Siebelink: Many startups start with building an MVP and then go and find customers or potential customers, often even having to pivot in which kind of customers they target. Was it your background in the industry that allowed you to line up customers even before you had an MVP? How do you look at that?

Anwar Ghauche: I can certainly understand why people might want to build something and then look for customers. But I think anybody can just reach out to construction companies or potential clients. I think it's actually a good habit to try to talk to the people that you want to build something for before you go and build it.

Roland Siebelink: Can you help listeners understand a little bit how you would go about that? People often have a fear: I can't just call them and say, "I'm working on an idea." Is that what you did? 

Anwar Ghauche: Absolutely. I must have met in person or via phone call with over 270 contractors before we got started, before we built the very first design.

Roland Siebelink: Okay. You're really building a whole go-to-market motion, creating an initial target list, essentially before you even start building. 

Anwar Ghauche: I would not have considered this a proper promotion because this was not very scalable, it was not very efficient. But it allowed me to get enough feedback and enough opinions from different people, such that I wouldn't be biased by just a handful of friends or of acquaintances and actually purposefully targeted people that I did not know because then I would be getting unbiased opinions. 

Roland Siebelink: Was it during that phase that you decided to focus on those larger construction companies or was that something you knew from the outset that you'd have to do?

Anwar Ghauche: I knew that customer acquisition is a big challenge for any construction tech company. I could see how difficult it was for some of these subcontractors to adopt new tools. The whole idea was to piggyback on the network that already exists in construction. We didn't want to have to go out and create these networks. We wanted to piggyback on the network that already existed - the general contractors already have in place with their projects. That's why I wanted to make sure that we speak with the general contractors, build something for them, and have them distribute our software to their subcontractors.

Roland Siebelink: Building on that, how have you started to build up your go-to-market teams? How does it look? Is it mostly product-led? Is it a big sales team that you have? How have you decided to optimize this go-to-market motion? 

Anwar Ghauche: It's definitely product-led, but we found that product-led gets you interest. To close the deal, you still need a sales team. Today, we have a big focus on our product in terms of generating the leads, generating the conversations, getting the openers. And for the most part, our transactions are still completed via our sales teams. And we do have two sales teams. We have one sales team that goes after the subcontractors on the early-pay program and one sales team, which we call business development, that goes after the general contractors on the software platform. 

Roland Siebelink: Okay. You do have focused sales teams. And how big is your overall sales team compared to the rest of the company these days? 

Anwar Ghauche: 20%. 

Roland Siebelink: Okay. Is the rest mostly still in engineering? 

Anwar Ghauche: Engineering, marketing, customer success, and credit pre-qualification. 

Roland Siebelink: Okay. Has customer success become a big component early on or was that something you started to invest in a little bit later? 

Anwar Ghauche: It's not a huge component for us on our team. Not because we don't value customer success but because every single person on our team will jump in whenever it's needed. I found that companies that just offload customer success to a particular team lose touch with their customers way too quickly. It was only when it was mandatory for us to just have a dedicated function for this that we added it. But still to this day, everybody sees all the tickets that are coming in; everybody's able to contribute as needed. 

Roland Siebelink: Customer success, not just a team, it's also a culture is what you're saying, right? 

Anwar Ghauche: I like the way you frame it. 

Roland Siebelink: Thank you. What else is specific for the Constrafor culture? What are the kind of people you look for? When do you feel like based on this behavior, based on these values, they might be a good fit for the company?

Anwar Ghauche: We look for a couple of traits. One of them is people that have a sense of ownership. The other one is people that do not mind or even thrive on ambiguity. They actually are interested in solving non-trivial problems. And the third one is folks that have a certain sense of optimism. I found that the combination of these three tends to be incredibly powerful in that people are excited about taking on a new problem, a large problem, even if it's not very obvious at the beginning, and they still manage to feel confident enough that they can take this on without just giving up and raising their hands at the first set of issues.

Roland Siebelink: They often say that when things are true values for a company, it also means that you sometimes have to make a difficult decision to let go of someone who doesn't fit the values. Have you had that experience already? 

Anwar Ghauche: Yes. We've had a couple of people where we were hoping they would fit well within the culture, but then early on we've seen them struggle. Even though we try to make sure that they ramp up, we still felt that the gap was too large. It's never a fun exercise. Unfortunately, at an early-stage company, it does make a difference if each and every person is able to pull their weight on the team. 

Roland Siebelink: Did that take you a long time to recognize? And also, has that time to recognize it sped up over the years?

Anwar Ghauche: I think it's always hard for people to come to this decision. I think it's never easy for small teams to part with anybody on the team. Because you are really asking people to abandon their existing jobs when they're coming to join you, and I do not take that lightly. It's never an easy thing.

Yes, did I take longer than needed? Absolutely. Did I make some compromises after it was clear that we were making a compromise? Yes. Would I necessarily want to change it? I'm not sure because we are really asking people to make a big leap of faith in coming on board. It's not so easy to be so black and white with folks like you meet the bar, you didn't meet the bar. Because there's also something on us as the team to make sure that we uplevel folks, to make sure that after we've spent all of this time interviewing people upfront that we don't just admit anybody and then very quickly move on. We do take the interview process very seriously here. 

Roland Siebelink: How big is your company overall? Are these still decisions that you can primarily take yourself or do you have to start working with layers of managers that are starting to have to learn to take these decisions for you?

Anwar Ghauche: Oh, definitely, I cannot do all of this myself. Once we cross 30, 40, 50 people, it became mandatory for other people to make these decisions. Frankly, the way I approach it is I try to hire people that are better than me as managers and let them run their own functions. I don’t want to be the bottleneck. 

Roland Siebelink: Yes, exactly. Very hard to change that mindset when in the beginning you have to be in control of so many things, right? 

Anwar Ghauche: I think when things are moving quickly, you have no choice but to give up control, and I don't have a big concern about that. I'll definitely still be aware and involved as much as I can. But once things take off, it's impossible for me to be involved in a lot of the details in every department. 

Roland Siebelink: How have you handled that transition, Anwar? How do you tell yourself what to focus on and what not to focus on now that the team is so much bigger and things are running for themselves a little bit?

Anwar Ghauche: I think we did a good job setting up our data analytics and making sure that we picked the right KPIs for the company. Everybody in the company has the same KPIs. It's not that marketing has their own, sales has their own, credit has their own. Everybody understands exactly what we're trying to do and everybody has their own ways to contribute to those KPIs. But it's a company-wide KPI; it's not team-level KPIs. 

Roland Siebelink: Okay. That's actually really good. That's something we often see with clients that they automatically equate KPIs and OKRs. Well, this department must do this and that department must do that. And you build the silos that you wanna avoid.

Can you shed some light - to the degree it's not confidential, of course - what kind of KPIs have you picked that everyone can feel a sense of contribution to? 

Anwar Ghauche: Sure. For example, we look at the number of subcontractors that exhibit an interest in early pay on the platform. Not necessarily the first transaction but just show interest in early pay on the platform. And that's a shared KPI for the marketing team and the product team and the engineering team. And obviously the sales team is also looking at those as well. We all feel that we can contribute something to it, even if different teams can do different things. We do not equate KPIs and OKRs. We feel that each team can contribute differently. That's why they will have different OKRs and different tasks that they're working on. But the KPI of how many subcontractors are showing interest in the early-pay program, that's a shared KPI across the organization.

Roland Siebelink: But then it sounds like you use OKRs almost as a subsidiary goal that is divided up by teams, maybe even proposed bottom up, that says, as a product team, I can contribute to this KPI this way, as a marketing team, I can contribute that way. How does that work in your company? We get so many questions about how to run OKRs. Do you look at them primarily as more a top-down or more a bottom-up exercise? What have you learned that works the best at Constrafor? 

Anwar Ghauche: It's a combination of top-down and bottom-up where you want the teams to suggest their own OKRs. But we're still definitely pushing on these OKRs and refining them, making sure that they reflect true priorities. One of the things that I notice is - and that's typical with teams that are ambitious and excited - is that they'll have a list of five or six OKRs for each individual and each team, and I try to boil it down to one. 

Roland Siebelink: Exactly. That must be challenging. Why do you feel that people always come up with more than they can handle? 

Anwar Ghauche: Because they're excited. Because people are ambitious and they're excited, and I appreciate that. But it's still on me to make sure that if we do nothing but one thing, let's make sure that this one thing is the highest priority.

Roland Siebelink: From your perspective, it's more making sure that additional things on the list are no excuses to forget about the most important thing. 

Anwar Ghauche: Everything takes mind share, takes time, takes resources. People that are able to focus on one thing day in, day out, and for a sustained period of time will end up getting this one thing to work much more likely than they are if they were pushing five things in parallel and they only got 50% of the way on each of them. That just allows us to keep the flywheel going much faster. 

Roland Siebelink: Yeah. Do less to do more in a way. I like it. What's next for Constrafor, Anwar? When you see 3, 5, 10 years into the future, how big is it gonna be? What other metrics of success are you looking to strive for? What's coming next? 

Anwar Ghauche: Yeah I mentioned at a very high level how we measure ourselves. One is how many construction companies are we serving? How many construction companies are we touching? Share of market is one of our metrics. Today, we're a little over 10% of the construction industry in the US. That's one of the metrics. The other one is how much revenue and profits are we generating off our customer base? And the third thing to look for is what are these products that we're serving and how are we monetizing them? Whether we monetize on the SaaS side, whether we monetize on the credit side, or whether we launch an insurance product those are some of the things that we keep in mind for our next three to five years. 

In the immediate - this year, next year - we have more than enough on our plates just for the launch of our most recent insurance co-pilot and in growing our early-pay program that we are not going to launch any new products. 

Roland Siebelink: Well, for those listeners that have made it all the way to the end of the episode with us, how can they help Constrafor? What are you looking for? And where can they find out more information?

Anwar Ghauche: For anybody listening that works in the construction industry, please do not hesitate to reach out. Anybody that is tangentially working with the construction industry - whether they're working on the financing side, on the insurance side, on the safety side, equipment side - material side, we're definitely open to partnerships. That's why we think of ourselves as a platform, not as a single solution. And for anybody that is looking to enter the industry, we invite them to come and build with us. 

Roland Siebelink: Excellent. Very cool. That was a great interview. I love how thoughtful you are about everything, Anwar. Not everyone on this podcast is as thoughtful as you, so I really want to give you a compliment for that. This has been a great interview. Thank you, Anwar Ghauche, CEO and founder of Constrafor. 

Anwar Ghauche: Thank you, Roland. Thank you very much. Kind of you.