There are so many people promoting smart buildings and smart buildings technology. But do your customer's even need a smart building?
In this episode we explore whether it makes sense to have a smart building or if something else should take their place...
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Transcript
Phil Zito 0:00
This is the smart buildings Academy podcast with Phil Zito Episode 270. Hey folks, Phil Zito here, welcome to Episode 270 of the smart buildings Academy podcast. And in this episode, I'm going to take kind of a heretical approach to smart buildings. Yes, I know our business is named the smart buildings Academy. And you would think that with that kind of name, I would be a proponent for smart buildings. And I am to a point, but I will tell you, most of your customers do not need a smart building. Now I know that's gonna fly in the face of a lot of advertising that's out there. If you're like me, and you go on LinkedIn, and you look at some of the thought leaders, you will see them, promoting smart buildings, smart building rating systems, how we need smart buildings, all of these people who are doing smart buildings. And I want to let you know that beyond the mystique, beyond the kind of beauty of the smart buildings is a huge cost of sales, a huge cost of implementation, the fact that a good majority of these smart buildings after a couple years, these use cases languish, and the integrations actually start to fail. There's a lot to smart buildings, on the dark side of things that we don't see because no one's gonna go and say, Hey, I'm a major airport in Canada. And we had an integration between the flight information system, the lighting system, the building automation system, and the conveyance system, but because the API's were deprecated, and we didn't really understand, nor did we have a plan to go and maintain this integration, we just let it languish, and actually, it all now runs in hand. Now, I'm sure some of you have flown through that airport, where that happens. This is actually a real life story. And the fact of the matter is, the majority of these situations are the majority of these integrations, actually, if they are, quote, smart buildings, they actually tend to not stay smart for a long time. I know I'm gonna get a lot of flack from this podcast, I know, I'm gonna get a lot of people who are not happy with me. I know that there's a lot of you out there who your entire business is around smart buildings consulting, and is around smart buildings, rating systems, and all sorts of integrated project delivery, etc. I'm sorry, I know all of you. And I know you all mean well, and you do provide a service. But this whole smart buildings is for the masses thing that is catching on is not accurate, it's actually really bad for our business. And it's taking us off of the focal points that we should be focused on, which are going to be actually having processes and micro use cases that are focused on business outcomes. So when you are looking at a customer and you're like, man, I'd love to get a MSI project in the door with that customer. Let me ask you, why do you want to do a master Systems Integration? Why do you want to do a smart building? What is it for you as a contractor? And you may be saying, Well, we've got practices that no one else can replicate, okay, so you are looking to separate yourself from other bidders, so that you can win the job. Or you may say the customer has more share of wallet in these different business units. And we'd like to capture greater share of wallet. Okay, so you want to make some more money that these aren't necessarily bad. And I'm not saying that MSI or use cases that are aligned with business units outside of operations and facilities necessarily, are bad things, they do deliver value. But if I go and I look at where am I finding the most value from, I would argue that there are things that we can do that are much lower cost, they're not dang near as sexy, but they go and allow you to have a better lifecycle managed building, they enable you to be more self sufficient. And overall, you will have a better environmental and tenant experience. Due to these things. The first thing is building automation standards. Now, there's nothing as boring as building automation standards. It's not exciting. It's not flashy, as a contractor, you really can't sell it and as an owner operator, you really got to spend some time I don't, I was about to say money, but it's not really money, it's time to set it up. But there is nothing,
Phil Zito 4:51
nothing else out there in the market. That will go and empower your building operators in make your building more efficient than a VA s standard. And here's why. So let's think about it, we've got a campus, and this campus has 20 buildings. And if we set up a BS standard, as we start to develop this campus, maybe a building number one, we set up a standard for graphics, we set up a standard for naming, we set up a standard for sequence, we set up a standard for drawings, we set up a standard for metal, we set up a standard for install, you get the point yet we set up standards for basically everything, then, how much engineering effort? Is it to do building? Number two? How much installation effort isn't to do building? Number two? How easy is it for you to get another contractor to come in and follow that standard for building number two, or three, or building? Number Four? How easy is it for you to train your operational staff to understand a single set of graphics, a single set of sequences, a single set of troubleshooting steps, these are things that with a standard can be quite easily set up. And the nice thing about a standard in lieu of like a smart building is the standard. As long as it's adhered to both during construction as well is lifecycle and maintenance, then it's not going to drift. It's not like I have an API integration into a flight management system, or into a healthcare system, or into a work order system. And the software manufacturer for that system goes and deprecate some functionality deprecates, some API support, and all of a sudden my integration no longer works. The beauty of standards is that the standards standard, and it's gonna stay the standard, there's no saying in the military, which is there's the standard, and then there's the standard, right, you either meet the standard, or you don't meet the standard. Well, that's the thing with having standards for our buildings. Now it does take time, and in a future episode, we will go through how to set up standards. But it is the single greatest thing you can do. And just for a quick cheat on this, you can go to Google, you can google building automation standards, site, colon, Edu, and grab any of the standards that are out there that are open to the public. I like the northwestern standard, it's a pretty solid standard for Northwestern University. And it serves as a good starting point for setting up standards. So before you go and tell your customers get a smart building, help them get a standard, you know, you're probably not gonna make any money out of it, as a contractor, maybe if you've got like your services and your processes down really tight, but you're gonna help them so much. And this is gonna really help them to help the customer to implement projects cost effectively to reduce waste, to increase the efficiency of their staff, it's going to make everything so much easier. Now another thing, besides for going and implementing a smart building would be micro use cases that are business unit focused. So you need to figure out the key KPIs that drive your building? What are the key performance indicators that drive success in the business that can be implemented? And you take those micro use cases, and you rack and stack them? And you look at your return on money? Basically, how much would you make if you put the money in the market? versus how much would you make on that return on investment? And then what is the lifecycle maintenance costs. And what are the potential failure scenarios for these micro use cases, the nice thing about micro use cases, and when I say micro use case, I'm talking about a use case that has one to two systems, or sorry, two to three systems max in it. So this may be like parking management, lighting, access, control, parking management,
Phil Zito 8:44
access control, building automation, something like that. And when you have this use case, it could be tied to tenant improvement, it could be tied to energy reduction, it could be tied to where to whatever your key KPIs are, that drive the business, this is what you need to focus on. Now the nice thing about these is these can be done as addendums of construction projects during the normal plant inspect delivery model, which is a whole nother thing that we need to focus on, which is our delivery models if we ever want to do anything intelligent in a building, but the fact that we focus in on having, you know, addendums, or positive change orders to these projects, in lieu of like building a massive integrated project. One that's going to reduce the cost of sales for the contractor, which is more likely going to make more contractors pursue the opportunity, which is going to get you a better overall solution. As long as you're not going you know, focus solely on lowest cost. But also on top of that, by going and having these micro solutions. You're going to be able to rapidly prototype them, test them out, make sure they work and it they're going to be much easier to support through the lifecycle of the building, which is the biggest weakness in my opinion with smart buildings. Everyone seems to want to really get the Smiths kind of like this right. the stupidest thing when I used to work at a large company was the money they would spend on like naming rights to stadiums, and then taking stadiums at, like a loss. And and it just befuddled my mind why people would go and want to have XYZ stadium. And to me, quite honestly, it felt like it was just like an ego stroke, right? It's like, Oh, look, we got the rights to the stadium or the stadiums in our headquarters city, we can't let someone else have the stadium. And it seemed like an awful waste of money, like you could have taken those marketing dollars and done, you know, customer education, you could have engaged in the community for goodwill, so many better things, in my opinion, you could have spent the money on. But the key point here, right, is when we look at smart buildings, oftentimes, it's to have the marquee. Now they are getting closer to having intelligent use cases and being able to operate more efficiently and things like that. And there are people who do that. But still, by and large, most marquee smart buildings, if you dig into them, are actually offset with marketing dollars taken at cost or actually at negative margin. And basically all the manufacturers come together and they say, Hey, we're going to give our stuff away basically, at cost,
Phil Zito 11:27
so that we can get name brand recognition. And we can use this as kind of a marketing scheme. And that works for the OEMs. That doesn't work so well for system integrators and contractors. And that's why I say, you know, really, you should focus on micro use cases, because if you are $100 million, si, right, you're bringing in 100 million dollars a year, you do not have the budget to take that approach, nor do you have the influence on other product vendors to take the approach of building up marquee buildings that then you can use to justify going and taking these projects at basically a loss. Now, that's not to say all smart buildings, projects are taken out of loss. And there is a reduction in overall project cost. If you combined wiring, if you combine technology sets to then eliminate some technology, you definitely can offset the cost of a smart building. But a better approach, in my opinion, is to really laser focus in on two to three key performance indicators, that you're trying to drive success around with your customer, and then implement those as micro use cases, there's a much lower cost of sales, that's how much time you have to spend pursuing an opportunity. There's a much lower engineering cost. And if you don't win the deal overall, it doesn't damage your business. So that's kind of the second thing, right as these micro use cases. And then the third thing would be that as a whole. And you know, correct me if I'm wrong. If someone out there, if you've got like a brilliant strategy, tell me, I'd love to see it. But I haven't yet, as a whole, one of the biggest areas that smart buildings tend to suffer is kind of the after warranty phase. You know, it's one thing to manage all these technologies for 12 months during warranty. But once you get past that 12 months, how do you manage this, most customers do not want to pay that lifecycle cost to manage it. Nor do they want to get all the tacit knowledge to support all these various systems that are integrated. And at the same time, the typical branch structure of the system integrator or of the original equipment manufacturer is not built to maintain other people's technology. So there's the downside of these smart buildings. You get all these smart buildings, you get all these data integrations, data, lakes, all these things,
Phil Zito 13:48
all well and good, really pretty get to show it off to your friends. It's like getting a brand new car. But then you actually have to maintain it. And unless like with a brand new car, you want to become a Ferrari mechanic. The reality is there is going to be a cost and most people do not want to bear that cost. And that cost multiplies substantially as you move into like 20 3040 system integrations. So we've got to be cognizant of that life cycle cost when it comes to smart buildings. So I know this episode may seem like I've been Pooh poohing smart buildings, especially being the CEO of smart buildings Academy that probably wasn't the best marketing strategy. But I call them like I see them and I see all these folks highlighting the stuff and talking about this stuff. And it sounds well and good. And it probably applies to the use case they're using. But when you take it to that four story, commercial building, or you know that three schools school district or something like that, the reality is implementing these marquee smart buildings is not practical. You really shouldn't as executives be focusing your strategy on that. You should be focused on micro use cases. You should be focused on driving standardization within your customers. And you should be focused on enabling your customers to operate these micro use cases. And to operate against these standards as they go through. If you work those two things, I think you will find your customers are in a much better position, which ultimately will make them more receptive to you. And I think it's more sustainable as a contractor to be able to take this approach. Alright, let me know what you think you disagree. I'd love to hear about it in the comments. Tell me I'm all wet. Tell me I'm wrong. yell at me. Tell me I don't know what I'm talking about. That's all good. I'd rather have you interact, and say something than say nothing at all. These are my views. Based on my experience, having worked in the integration world, having worked on marquee integration buildings, and I will tell you, I've seen it be super successful. That being said, Unless you're like, on average hidden 10 to $20 million projects, this probably is not the world for you. And that is pretty much most of our customers out there. Right? Most of our customers are less than a million dollars for their construction projects. Alright, that being said, thanks so much for being here. As always podcasts at smart buildings. academy.com forward slash 270. Love to hear your response. I'd love to hear your thoughts. Look forward to talking to you next week. Take care
