Innovation & the AEC Angels Part 2
Determined to drive innovative change from within the industry, Thornton Tomasetti, STO Building Group, Syska Hennessy, and SHoP Architechs formed the AEC Angels to assess, test, fund, and accelerate promising AEC technologies. Join Rob Leon, executive VP of STO Global, as he speaks with two founding members of the AEC Angels—Executive Chairman of Thornton Tomasetti, Tom Scarangello, and Executive Chairman of STO Building Group, Jim Donaghy—about what the group is testing now, and what parts of the AEC process they’re looking to disrupt next. This is PART 2 of our two-part interview with Tom and Jim.
Rob LeonExecutive VP, Global Services, STO Building Group
Jim DonaghyExecutive Chairman, STO Building Group
Tom ScarangelloExecutive Chairman, Thornton Tomasetti
Welcome to STO building conversations, a construction podcast powered by the STO building group. Today’s episode is part two of our interview with Executive Chairman of Thornton Tomasetti, Tom Scarangello, and Executive Chairman of STO Building Group, Jim Donaghy, founding members of the AEC Angels group. Last week, they discussed how the group aims to drive innovation from within the industry through collaborative, strategic investment that could truly change the game. Here’s the rest of the conversation.
Rob Leon (00:51):
So, hearing the two of you talk, there are incredible similarities in your vision and philosophies of where innovation should be and where the industry is going as a whole. From an investors point of view, I’d like to get your perspectives of what types of companies are you’re looking to invest in. And are you looking for a specific area of design and construction processes, or are you open to any types of innovative processes that catch your eye?
Tom Scarangello (01:21):
I see it as we’re looking for investments where we, and when I say we, I mean, all of the different components of our industry that are represented by our members right now in AEC Angels, or others can have an immediate and important impact, right? We’re looking really to drive solutions that are in five or 10 years out, but are five or 10 months out things that actually we can hit the ground running and where with either modest investments and or mentoring or piloting or support, we can push through the best solutions.
Tom Scarangello (01:52):
And it’s not the best solutions, the best solutions today. I always give the example, I mean, they go back to the days, I may be dating myself a beta versus VHS, and there was arguments that beta was better than VHS, but guess what one today, the platform that more people are going to use and was easier to use, but guess what that led to the world we’re in now, where everything is being streamlined. We need to not be worried about necessarily, waiting for perfection, but looking for the ones that can drive our industry forward and where we can have a meaningful role in doing that. So yeah, we’re, we’re making investments, but they’re really modest investments. They’re investments to really show that we’re willing to put our money where our support is. And also to get the attention like in the Band of Angels, from bigger investors that people in the industry who know believe in this enough to not only put their thoughts behind it and their ability to pilot behind it, but they’re also willing to put their money where their mouth is.
Tom Scarangello (02:45):
I joke with our people, none of these investments are going, we’re not, none of our, none of our people are going to be flying private jets. Our path to success is still through Thornton Tomasetti, and it’s still through the hard work we do for our clients. But this seed money that we put forward is to really change our industry. And so, we’re looking for those things that the firms in our industry can push forward, that we can see the quickest path to adoption and that we can have a meaningful role in making that happen.
Rob Leon (03:08):
Great. Thanks, and Jim, from your point of view, obviously knowing that you’re in lock step with that philosophy, and it is how the mission statement of AEC Angels was built, are there any specific, true-to-your-heart things that you like to focus on?
Jim Donaghy (03:21):
Well, you know me, I’m a little bit all over the place. I’ve got quite a few aspirational projects. I’ve got my hands on. the digitization of the supply chain is kind of a heavier lift and an involves the entire industry pulling together. So that’s a slow burn and slow-moving machine, but it’s starting to make progress. And it shows where the potentials are in our industry. Something more immediate, that’s exciting. And it’s kind of like Amazon type thing. Our industry is a project we’re working on in a company called Spackle out in Los Angeles where they’re trying to leverage our global commercial knowledge and thinking about the size of our footprint. It’s not just the STO 43 offices in four countries. It’s our Alliance partners that add another couple of dozen cities. And if we can get all of that knowledge at some point really leveraged where our platform for setting up bidding and subcontractor selection is universal across the platform.
Jim Donaghy (04:15):
However, that may work is to be seen, but we have seen glimpses of this type of a product in the residential world. Uh, one of the companies in the residential world, uh, just got a billion-dollar valuation on this exact same kind of system. I think that the commercial marketplace stands to gain a tool. That’s going to be multiples the size of that if we can leverage and kind of pull together as an industry, but first inside STO and our alliance partners is a great opportunity to organize our subcontractor selection process and identify really at a far deeper level than has ever been done before. And our industry who are the specialists in each trade, not only by region, but by type of job, the data entry and the management of that, of that selection process is by real commercial professionals, not by amateurs, but by real professionals who are doing this for a career in terms of identifying where the subcontractors are really, really strong and where they may not be as strong and bring not just craftsmanship, but the strength of the balance sheet and the strength of their diversity and inclusion and their safety programs.
Jim Donaghy (05:21):
how often do these subcontractors perform well in meeting our thresholds, which are some of the highest, if not the highest in the industry for safety, all these things have a value and understanding which subs are the best fit for every single project we work on. And our organization alone, we have roughly 3000 projects a year. So, getting the subcontractor selection piece is one of those untapped opportunities. I just get excited thinking about all the possibilities and how much better we would match up with not just the contractors, but the partners. We work with, the architects and the engineers and our clients in terms of appreciation of, wow, that’s truly the best group of subs we’ve ever had in our project. We all know there’s so many complex projects, not just that we work on today, but think about the future, all these class, a buildings, and, the stagnation we’ve experienced through COVID, there’s going to be a lot of remediation and commissioning required to bring these buildings back to full use and think there’s going to be a lot of upgrades needed. And not only just from the carbon emission reduction plans, but, um, just technologically, how efficient are these buildings? So, I think a lot of upgrades are in the pipeline and handpicking the right subs universally, and our industry is one of the huge opportunities. And I think technology is going to help get us there. So that excites me.
Tom Scarangello (06:33):
Yeah. Jimmy, you mentioned firms in California and earlier you were talking about how you tap into ideas around the world or around your industry. That isn’t necessarily just a 2d driven solution. And it made me think of a book back in, I think it was in maybe 2004, 2005 range. Thomas Friedman wrote a book, The World is Flat, and it was all about how essentially there was going to be a level playing field for industries and others, which is in many ways has come to fruition with some fits and starts. I think that’s where the AEC industry, they’re probably going to write a book pretty soon. This industry is flat, right? And what’s crazy is COVID, it’s been horrific, but if you see the ability to have these kinds of conversations and break down, barriers has even accelerated during this period and the data and the interconnectivity, it used to be, if you were in New York, you’re in Chicago, you’re in San Francisco, you’re in London, you could close the walls and say, well, we do it this way.
Tom Scarangello (07:27):
And that’s the way we do it. And I think we’re rapidly seeing that go away. We’re rapidly seeing people saying, why are you doing that? The three-day cycle, maybe you should be considered the way you’re building in New York because they’re doing it differently, whether it’s modular or something else in another city. And people are open to that. The collaboration that we’re driving with AEC Angels, I really think is being accelerated and enhanced by this kind of flatness that’s happening within our industry, where it isn’t about geography anymore. Although we’re having this geographic conversation and around AEC Angels, because the firms here are headquartered in New York. We see this as a much broader world. I think that’s ultimately going to be the driver of success. This idea that best ideas come from anywhere in the world, not just from anywhere in the five boroughs.
Jim Donaghy (08:11):
Hey Tom, I want to just put a plug in for, uh, for the AEC Angels for a moment here. Cause you said earlier, we are looking to double, if not triple and quadruple our group, we’ve got one builder and one architectural firm and one MEP engineer and one structural engineer, but love to see that turn into two and then three and then 10 and regionally, Tom, you’ve always been advocating that, this is the model here on the East coast, but it’s the beginning and replicating this, whether it’s the West coast or South or other countries is certainly where we want to take this because ultimately we got into this because we said, we want to one day look back and say, Hey, we had a real impact on the industry. And that’s ultimately where we’re going to feel like that was why we did the AEC Angels. The industry went back up the ladder of industries that are moving forward, accelerating their change. And we had a lot to do with that.
Tom Scarangello (08:56):
Yeah. Well, you talk about geographic expansion. Like I said earlier, the, the Band of Angels, that group in Silicon Valley, they went from, I don’t know, a small number 30 years ago to over 300 members. They’re still kind of Silicon Valley based in many ways, because while it expanded throughout the world, a lot of the innovation spurred and was incubated and accelerated in that geographic area in our industry, the geography is it’s everywhere in the world, right? So, we are looking at investing in pushing for technology that can touch the whole world. But I think we have to be having these conversations and they are happening, but we have to figure out how to communicate and connect the dots among all the people who are having these conversations around the world. Because while there still will always be geographic and local, whether they’re opportunities or constraints today, there’s many more opportunities for a good idea in any part of the world to take root in another part of the world. And I think that’s the exciting part of where I think AEC Angels could go is in either having franchises around the world or just having associations with other like-minded organizations that are trying to drive innovation in their part of the world where their industry.
Jim Donaghy (10:00):
Yeah. And for those who might be listening and are taking an interest in maybe reaching out to us and who knows, we might be reaching out to you. what we did was we decided we wanted to partner with firms that have not only proven themselves as innovators in the industry, but have a team and resources available to not only join us in writing, I’m going to say very moderate size checks. Uh, it’s not about the investment with us. As much as the resources we can commit to pilot and test products and participate in the development of a firm. That’s really only at its seed stage and take them to the next level with the input from some of the greatest firms in, in the AEC space. So, it’s the partnering piece that we’re most excited by and just to touch on it.
Jim Donaghy (10:43):
The Rhumbix and the OpenSpace investments, the AEC Angel group made in the past few months, the real excitement there is being able to call the CEOs of those firms and having some really down and dirty, productive discussions about, Hey, how are we doing piloting your tools out there? And you’re getting an, a feedback from us and then vice versa. I’ve given them some feedback about where we like the tool, but there’s some areas where we’d love to see improvement on the tool or changes in the tool. And then we get feedback, Hey Jim or Rob, we understand what you’re looking for, but here’s the feedback we got from some other companies and why that’s not really the direction we want to take our product. That conversation to me is how these firms are going to become much more successful, much quicker, but also, we’re benefiting by learning a lot more about these new tools and it’s such a collaborative partnering effect. And that’s what we’re, we’re hoping we can find more contractor architect, engineering firms that are interested in this same feedback system that we’re getting now, with the AEC Angels.
Tom Scarangello (11:41):
Yeah. And Jimmy, you mentioned our two investments, but I would say we have a lot of opportunities. A lot of people who are presenting to us and, obviously we have to be selective on the ones we think can have the biggest impact on and the ones that we think have the best chance of success, though. It has also given us the platform to do is exactly what you described. I won’t mention their names, but some folks came to us and presented, and they weren’t quite focused on our industry, but it was interesting technology. And we were able to open them up to why aren’t you focused on our industry? Why are, why aren’t you thinking about us, where here it’s a big industry. And if you created a module or a component that could address us, it could help with your growth.
Tom Scarangello (12:21):
And I think even those that we didn’t invest in, or didn’t pilot, they may be coming back to us in three to six months, having listened to us and said, Hey, we get it. We understand your industry now. And we’ve actually, we’ve altered our strategy going forward to impact the AEC industry. We’re going to invest in a small subset. We’re going to pilot a small subset, but just the conversations we’re having with these startups is opening up their eyes to an incredible market that, we’ve spent our careers in. And I think that that’s also going to positively impact our industry as well.
Rob Leon (12:52):
Yeah, I would agree. I would agree. So after we went through this whole really great conversation about the vision of breaking down the barriers to collaboration, the investments, all of the networking that we’re doing, tell me from your point of view, what obstacles still remain, what other barriers do we have to kind of break through and break down in order for this vision to happen?
Tom Scarangello (13:14):
So, I think there’s two, there’s the silos. And there’s also the issue of risk. We’ve been in an industry in which has been risk averse. And I would say as a structural engineer, by training, I am all in to be risk averse, right? I’m not talking existential risks. We design our buildings and our structures to make sure that they will be safe for their useful life and beyond, right? So, I’m not talking about risk with the work we do, but I’m talking business risk. We’ve been an industry that has been very reticent about taking what I would say is reasonable risks to innovate. That’s still there. We still have to convince people why they should be the first one or second one or third one to try a technology, which is, I think the other reason why these groups that we have are important, we need to be the ones who are saying, we’re willing to take that business risk.
Tom Scarangello (14:03):
We’re willing to go to one of our good clients and say, look at, try this out on the product we’re here. it may not be perfect, but if it works, whatever we learn here, we think is going to be a value to you in the future. So, I think, the two big barriers and the two opportunities are to continue to break down those silos, but also to start to help change the risk tolerance for folks. one of our values at Thornton Tomasetti is that we see opportunities where others focus on risk. And when we put that value down, the word focus was an important word because everybody sees risk, but it’s also, it’s what you focus on that is what’s going to drive your opportunity, right? We look to manage our business risk, not to run away from it because there’s always risk, right? But I think we’re seeing we have to convince our clients and each other that it’s a risk worth taking. If we’re driving innovation, it’s not an existential risk, not putting maker, making buildings and sites that are less safe, but it’s a business risk that maybe we won’t be perfect on the job we’re on, but on the next job and the job after the dividends are going to be well worth the business risks we’re taking today.
Rob Leon (15:04):
Yeah. I would agree with it wholeheartedly and finding those clients who are willing to take the risk alongside of us too. Jim, would you like to add to Tom’s thoughts?
Jim Donaghy (15:13):
Yeah. Siloed is a great word. Um, comes to top of my mind as well in terms of a challenge, but I’m excited about watching the silos start to reach out to each other and strategically connect in the ways that we’ve discussed today. Beyond that as also just the idea that the entire industry worldwide at large, so down at the factory floor and all the installers and the massive number of buildings and project sites that we have, our industry is truly spread out across the entire footprint of the world, right? So, it’s an extremely fragmented industry that happens to be built on top of high-risk and low fee and has to deal with the cyclical nature of construction and design and planning.
Jim Donaghy (15:53):
We’re very much a return on equity driven business. And we have a long-term view we’ve always had that long-term view proceeded me. I didn’t start the concept at STO. My father did, but having a long-term view is the way you get through all of that and getting more firms to think that way is a challenge. Our industry by nature is very reactionary and we’re solving today’s problems. So, getting firms to join in and feel safer about the idea that, let’s think about three years from now, where do you want your firm to be? And where do you want the industry to be? What do you want your position in the industry to be, and thinking about the three-year plans and get out of this quarter by quarter mindset that many of our industry you’re in. So, we’ve got to continue doing the outreach, talking more about our success stories. I think social media has been helping us communicate a lot more as an industry, and there’s a lot more partnering today. I don’t know if it’s unique to STO we have more JVs today and, and design build partnering going on than we’ve ever had before. And I think it’s a testament to the fact that our industry is consolidating in many ways and that consolidation is going to help this problem, but that, to me, fragmentation is probably the biggest challenge besides the silo effect.
Tom Scarangello (17:01):
I love how you say that about the fragmentation, because I’ve really come to believe that to push technology in all of its forms is kind of going to be like the Rosetta Stone of our industry, right? It’s good. It’s going to allow us all to speak a common language and I’ve seen it inside our own firm. one of our areas that we do in our firm is we call renewal and that’s essentially looking at existing building stock and wherever we work around the world and, and keeping those assets in good condition and whether that’s renovations or repairs, but it’s always been a business that was hard to link together because, terracotta in New York versus driving in Florida or something, the materiality, the, the, the environmental factors, all of those things made the renewal business really by its nature, almost siloed, uh, because the expertise and the challenges were different.
Tom Scarangello (17:45):
We recently introduced a tool called T2D2 where we’re doing AI to look at materiality and the deterioration of building envelopes, everything from roofing to siding to glass. And what’s crazy is that that tool is linked our renewal group in a way that, that our businesses were never been able to be linked before, our, our people talk, but they were dealing with different challenges because the, the, the, the materiality and the building types, and like I said, the environments were different, but this technology has brought us all together and sharing, how do we actually optimize the, the restoration and or maintenance of these kinds of facilities? And I think this is the common language that can actually drive our industry to be talking, whether you’re in London, Chicago, China, San Francisco, or wherever it is. And for years, it was like, well, that won’t work here.
Tom Scarangello (18:34):
That won’t work there. But what we’re talking about now is technology that breaks down those barriers. we always want to say, we want to be younger, but we want to be younger here because we can see the future. we, as a firm, we’ve also, we’ve always had five-year plans and that’s the way we’ve, we’ve grown as a company that we’ve always had a five-year plan. We’re actually in the first year of our current five-year plan. But, and I, and I, when I look at the progress over the five-year plans, that I’ve been a part of, they’ve been kind of incremental in the sense that you can kind of see the pieces in each five-year plan what’s going to happen in this five years in the next five years is probably more than it happened in the proceeding 40 years combined. Uh, and that’s why I think it’s exciting.
Tom Scarangello (19:13):
And that’s why we’re kind of, we want to hang in there because there’s so much change going to happen. It’s going to be dramatic. Uh, and it’s exciting, and it’s going to be positive. We’re excited that we get to join with partners like STO and SHoP and Syska Hennessy and others, uh, and, and drive that. The momentum is growing and it’s only going to keep growing.
Rob Leon (19:33):
Well, gentlemen, this has been extremely insightful and informative, and I would love to have this conversation continue, especially as the AEC Angels group grows, with both more investments or just more partners within the group. It would be great to come back and talk again and see how things are going. So, thank you very, very much for your time. It was, it was a pleasure speaking with each of you and I look forward to our next conversation.
Tom Scarangello (19:59):
Thanks for driving the conversation.
Jim Donaghy (20:01):
Cheers. Have a great day.
Thanks for listening to STO Building Conversations. For more episodes like this, you can find STO Building Conversations on Spotify, Apple Podcasts, Google Podcasts, or the Structure Tone website.