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By Natan Reddy, Investor & Adam Bridgman, General Partner
Welcome to our first edition of The Blueprint, Ironspring Ventures’ new series to share what we’re thinking about, observing, and predicting across the digital industrial innovation ecosystem. Want to learn more about The Blueprint? Check out this primer. Our first piece focuses on the potential of vertical labor marketplaces to catalyze growth across the industrial landscape. Let us know what you think – we’re eager to discuss and collaborate.
Despite a long-term trend of 2.2% annual growth in US labor productivity since 1950, not all sectors in the economy have risen equally, if at all. For example, the manufacturing, warehousing, energy, and construction sectors have seen material gaps in labor productivity growth. Between 2005 and 2019, the first three of these sectors saw 0.5%, 0.1%, and 0.1% CAGR respectively, falling well below the overall historical US average stated above. Over the same timeframe, construction experienced a decline of 0.9%, underlining a significant productivity gap. Given our current challenged macroenvironment and headwinds – workforce shortage included – now is a particularly important time to figure out how to do more and better with less. Increasing productivity growth could add $10 trillion to US GDP, presenting an incredible opportunity to seize for the benefit of many.
One major reason for this lack of progress? According to a recent report by McKinsey, there was a 70% correlation between productivity growth and digital adoption for any given industry for the period between 1989 and 2019. In short, industries whose workers leverage digital tools and solutions are more productive. But when it comes to manufacturing and the built world in particular, the dearth of modern technology platforms leveraged by the workforce significantly hinders recruiting and performance in these critical sectors of our economy. At Ironspring Ventures, where our chief focus is to support innovation across the industrial sphere, this productivity gap substantiates the need for increased investment across vertical-specific labor hiring and productivity solutions. In this inaugural piece for The Blueprint, we explore vertical labor tech solutions including marketplaces among other tools. In alignment with Ironspring Ventures’ thesis, we look at solutions across four key verticals: manufacturing, construction, alternative energy, and logistics. In this piece, we focus on US-based solutions and take a closer look at the construction market, where the labor productivity gap is most pronounced.
A major skilled labor crisis is growing across the industrial sector. In construction, there will be a need to hire more than half a million additional workers, beyond typical hiring levels, to meet demand in 2023. Similarly, in manufacturing, up to 22% of skilled workers are on track to retire by 2025, resulting in an estimated 2M to 3.5M unfilled manufacturing jobs. Across the energy sector, nearly 30% of union electricians are between ages 50 and 70 and close to retirement, up from 22% in 2005, according to the National Electrical Contractors Association. In the logistics sphere, there has been a historic shortage of US commercial truck drivers that peaked in 2021 at 80K. While this has eased to 78K in recent months, major challenges for the industry remain.
Driven by evolving cultural norms and increased alternative employment prospects, this growing skilled labor shortage is set to increase unless employers can find the right methods to attract and retain talent. While not a panacea, vertical labor tech-driven marketplaces and tools can play a meaningful role in addressing this challenge.
So, what is a vertical labor marketplace? In short, it is a marketplace, likely tech-enabled, that is focused on bringing together talent and employers that are uniquely focused on one industry, job type, skill set, or specific demographic. At Ironspring Ventures, we have seen a consistent trend of emerging vertical labor marketplace solutions across construction, manufacturing, and energy. While some of these solutions act simply as digital job boards, others take on data-driven candidate and employer qualification and assessment to provide powerful platforms that aim to improve worker placement and retention.
Above, we put a spotlight on the construction space, an industry with one of the most pronounced labor productivity gaps in the US. Beyond its 0.9% decline in productivity growth between 2005 and 2019, how else can we truly understand the scope of this slowdown? Despite significant technology advances across the economy in the last 50 years, construction workers in 2020 produced less per capita than those in 1970. This surprising statistic underlines the need for tech-enabled vertical labor solutions in the industry.
Looking closely, we see four key catalysts that are creating an optimal environment for new entrants: 1) the current construction staffing market is highly fragmented with the largest player in the market reaching only 8% of market share, 2) more than half of construction firms state they cannot find enough tradespeople, 3) 99% of construction companies still rely on manual processes, and 4) retention remains a major challenge for the industry. According to McKinsey, if construction productivity were to catch up with that of the total economy, it could add $1.6 trillion to GDP (2%).
Zooming back out to visualize vertical labor players across the industrial space, we created a robust (though not exhaustive) market map that covers US-based startups and other major incumbents across the vertical labor space within construction, manufacturing/warehousing, energy, and transportation. These include various forms of vertical labor marketplaces, as well as adjacent vertical labor tools that help industrial employers with labor management operations. Some of the companies featured include: Classet (job board for skilled trades across construction, manufacturing, energy, and more), Veryable (on-demand labor matching for manufacturing and warehousing), BuildWitt (employee marketing and onboarding platform for construction), Workrise (on-demand labor in the energy industry), and Haul (on-demand matching between qualified truck drivers and fleets). Note the categories in this map are not mutually exclusive.
Of the startups that we identified operating as vertical labor tools and marketplaces in the US, over $1.5B has been raised since 2014.
When breaking down this figure by deals and capital raised on a yearly basis, we see that despite some level of variability, there is generally an increasing number of deals and dollars flowing into the space. Nevertheless, activity remains relatively nascent compared to other areas of the venture-backed arena, providing ample opportunity for investors to back emerging teams and solutions with the proper differentiation, speed-to-market, and execution capabilities.
At Ironspring Ventures, when we evaluate startups across the vertical labor space, we pay attention to several different signals and criteria that we see as instrumental in future success. This includes understanding the level of reach a given company has into the community of talent and employers it’s looking to serve and attract, as well as capabilities to create a sense of community through bringing these cohorts together. This also includes assessing the level of technical differentiation at play when providing intelligence on candidate qualification, hiring, and retention statistics, among other services offered. Lastly, we thoughtfully evaluate a founding team’s ability to quickly scale and retain both sides of their business (in the case of a marketplace), with a close look at potential market opportunity alongside any existential or competitor-related threats.
We hope you enjoyed this brief look into one of many technology trends impacting industrial innovation. Don’t hesitate to reach out if you would like to discuss this topic more. And subscribe to our newsletter to be sure you don’t miss Ironspring Ventures’ next The Blueprint piece in Q3!
Special thanks to Sean Ryan, 2023 Ironspring Ventures MBA Fellow, for contributing to this edition.