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What REALLY Killed Entekra? Flaws in Both Concept and Execution.

By Tony Misura

What REALLY Killed Entekra? Flaws in Both Concept and Execution.
What REALLY Killed Entekra? Flaws in Both Concept and Execution It has been three months since LP announced it was dissolving Entekra, one of this decade's most ballyhooed homebuilding concepts. You would have thought another company would grab this falling flag and keep creating trusses and panels based on FIOSS, Entekra's Fully Integrated Off-Site Solution. But today—despite this being the strongest market for truss and wall panel plants that I've seen in 25 years—nobody wants it. The property lease and equipment at fire sale prices were valued higher than the company. Why? Entekra turned out to be a $75 million mistake that I believe was a failure of both concept and execution, both by Entekra leader Gerry McCaughey and by LP's leadership. Done well, offsite component manufacturing is the better way to build. Entekra's way wasn't. Showman vs. President I was at the International Builders' Show in 2018 when McCaughey stood in front of a full house and asked: "Does a car manufacturer build your car on the front lawn at your home? Then why in the world are you building your homes this way?" McCaughey's better way was based on an offsite construction company, Century Homes, that his father founded in Ireland and that he helped grow to 8,000 homes per year in 2005—impressive given the U.S. population was five times bigger than Ireland and Britain combined at the time. In late 2016, McCaughey re-assembled the Century Home leadership band and invested $10 million in plant and manual tables to bring their component expertise to a plant in Ripon, CA, near Modesto. "Entekra with a mission to change how America builds" was the message. McCaughey actively promoted Entekra in speeches and social media, often showing videos of houses being assembled in mere days on-site using Entekra components. Looking for a partner to fund their automation equipment and their full vision, Entekra landed Louisiana Pacific. In exchange for $45 million in investment capital, LP gained an 88% equity stake in Entekra. I was told LP invested an additional $20 million lifeline. LP was kind, not diluting the other shareholders. Add in the founders' $10 million and you get the $75 million total commitment. McCaughey liked bold talk—he regularly declared most lumber produced by North American mills was no better than firewood because it lacked the precision cuts his machines required. What he didn't do was measure outcomes or adapt his approach in response to local conditions. Who wants to pay for furniture grade stud walls? Entekra spent $22 million of LP's and its own dollars on equipment and software without any idea how the U.S. market would receive his product and approach. No beta testing was done before splurging on a 175,000-square-foot plant with five manufacturing lines in high-cost California. (No apparent consideration of putting the plant in low-cost Nevada, either.) And McCaughey's top advisers couldn't provide local expertise: All 11 members of Entekra's executive leadership were from Ireland and the U.K. and had no prior US experience. The Flaws of FIOSS FIOSS "removes waste by never creating it," Entekra declared. The trouble was that Entekra only focused on two pieces: walls and floor trusses of a nine-piece puzzle. To be a fully integrated builder, you must follow through with the entire process and own all 9 pieces of the installed framing shell: Architectural, Structural Engineering, Design, Roof Trusses, Floor Trusses, Walls, Hardware, Loose Lumber, and Labor. It's the math of the onsite field install where the rubber meets the road. The value proposition is not what rolls off the end of the manufacturing line. The value is owning the framing shell fully installed. In an interview with ProBuilder, McCaughey said: "The focus is not on the unit cost of our system versus stick framing. The focus is on the productivity gains that are brought to the builder and what it does to his bottom line at the end of the year. Our discussion with the builders at the moment are more about the construction cycle time and how those affect profitability." "Focus is not on the unit cost of our system?" What builder is going trust this sleight of hand? It's as if McCaughey had said, "Just trust me—by the end of the year you will make more money." Successful combined component-framing company leaders hold their bids accountable to the unit cost of their system on each project. These companies can gain 5% to 10% price advantage over on-site stick framing by providing the Home Builder with a more extraordinary value proposition. By owning all nine areas of the framing shell installation they: •Reduce risk •Handle project management •Eliminate on-site theft •Streamline invoicing from 30 to 3 invoices per project •Reduce accidents •Hit timelines The complete system solution offers accountability in the form of one ass on the line for an installed framing shell. Taking this approach delivers the collaboration and synchronizes the value chain providing clarity to calculate the math involved in each part of the framing project and realize the savings per unit per project. These leaders are doggedly grinding on every area to unlock profits in how they engineer and design, create optimal field installation, manufacture efficiently, and use materials wisely. Material usage efficiency, every scrap of lumber in a component plant gets used somewhere in the house. After searching globally for partners, they quickly learned the perfect off-the-shelf machinery or design software to provide the breakthrough innovation they need does not exist; unwavering, they have their own software engineers and machine engineers to retool and improve what is supposed to be state-of-the-art machinery. The Wrong Owner This brings up another question: If good builders know true FIOSS comes from owning the entire construction process, why didn't one of them buy Entekra and fold the company into their operations? Instead, it was LP—or rather, two LPs. The first LP's leadership made the investment decision, then failed to oversee a business model that featured an overbearing personality at the top, no U.S. experience around the leader, and nobody holding the company accountable to business 101 methods. I'm told that when Entekra was put up for sale, the company refused to tell a potential buyer how much the Irish leaders were getting paid. Then came new C- Level leadership. Neither the old nor the new leadership had component manufacturing experience. In the end Louisiana Pacific "saw Entekra as a distraction to their overall business," one LP executive told me. "The CEO was focused on their new prefinished siding program and was never really committed to the business." Some claim: “It was the rising interest rates and declining housing starts that are responsible for Entekra’s demise.” Great CEO’s create business models that welcome a good downturn and leverage it to gain share quickly. Entekra blew their cash foolishly, grossly miscalculating the variable working capital needs. As I said earlier, offsite component manufacturing done right is the better way to build. Many excellent companies prove this every day – but no one is writing about them. They prefer it that way – quiet, humble, dogged in their pursuit. This article is dedicated to those innovative driving leaders whose passion is creating an affordable housing solution. The world rests on your shoulders. Thank you! Misura Group works daily with highly successful companies in the offsite manufacturing segment. Let us help your story be one worth celebrating. Hire Smarter™ - Tony Misura
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