A New Approach to Industrialism
(Transcription by RA Fisher Ink)
Kirkpatrick: [Standard Industries is] the world’s largest roofing equipment/roofing company. Many of you probably know its brand GAF—that’s the one in the U.S. that it owns. It also has other brands around the world and is a private company with six billion in revenue, 15,000 employees, 180 plants, and a very interesting set of beliefs about where the industry you’re in is going and also, how we ought to think about industrialism generally.
They’ve got an idea about conscious industrialism as a corporate strategy, which I have to say I’m super excited to hear them talk about it—very proud to have them here onstage. Let me tell you before I introduce them to you, they are co-CEOs of Standard Industries. David Winter and David Millstone—and I’m David Kirkpatrick. The industry you’re in—roofing—talk about a little bit what it is, where it’s at, what you think is possible in it.
Millstone: First, thank you David. Roofing is a business that we’ve been in for a long time and one that we love. It’s one that has not faced a tremendous amount of disruption over the last hundred years. The material sciences in our businesses are clay, concrete, asphalt—they’ve been around for a long time and as we try and talk to each other and the people around the world, we don’t think the next hundred years are going to look like the last hundred years in any way.
It’s been a very sort of traditional manufacturing business where local aesthetics, local codes, local specs have been what drives the business which has required, call it 180 plants, around the world. In the next version of the world, we can see a place where the plant of the 29th century, the supply point of the 29th century, and digitalization more broadly becomes a very big focus for us. So, this is reimagining what a roof is. Roofs started out as protection. It went on to aesthetics and we now begin to see roof as real estate more broadly. Whether it’s a garden, a roof deck, or a source of energy, we think reimagining what we do is a big deal.
Kirkpatrick: The thing that’s interesting about you guys is you are really committed to innovating within a very traditional stolid, conservative industry generally run by guys 20 or 30 years older than you, right? Talk about just the opportunity that that affords you. Talk a little bit about the business and why doing things differently might really make a difference.
Winter: Well, that’s right. One of the reasons we’re so excited about it is the landscape is wide open. I mean, we were joking before. When we show up out here in the Valley—I feel like the oldest person in the room by 20 years—when we come to meetings of the CEOs of the executives of the building material industry, I feel like the youngest person in the room by 20 years. And there is a moment our industry, as David was saying, has been deeply underpenetrated by technology. And it’s true around the world.
At the same time, it is something that is necessary to everyone in every place on earth, right? The places you live and work are not something that can be simply digitized away and whether we’re in Johannesburg, or Jordan, or San Francisco, the issues people are talking about are the same—housing affordability, housing availability—and what we tell people, and you know the reason we’re excited about it is, you don’t want to compete with Google in search. You don’t want to compete with Facebook in social.
You have a landscape where no one has, I think, really seen the ball clearly in the amount of innovation that can go on in basic industry and where we can change the landscape in our neck of the woods—in roofing, in building materials as David was saying—redefine, reimagine what the roof is. Generate power, create green roofs, make it an integrated part of a connected home and truly do in on a global basis.
Kirkpatrick: Talk about some of the things you’re doing now that are different than how roofing companies would have done them before. Give us some examples because some of this is early where you’ve got a lot of plans. What’s happening already?
Millstone: Sure. Well, if you think about a traditional roofing sale, go back five, ten, twenty years, you had somebody in the home used to use the Yellow Pages, then they went to call it Google, looked up the—
Winter: Usually the woman of the home using these things.
Millstone: —as it was often such, would go to the internet and find the best contractor in their zip code. Hopefully, that ended up being a GAF certified contractor. A contractor would come into the home with a good old-fashioned sample board—think actual physical sample board with a bunch of asphalt shingles stapled to it—and it was a very analog experience. Somebody would have to get a ladder, go on a roof, measure it. It’s a harder endeavor than you would first imagine and it was a very offline transaction.
We’ve begun to experiment with things like drones or mapping on your iPhone where you can take eight photos of a home and create a 3D rendering, which creates a much more seamless process. One day you can see a place where the entire way that we add value to the customer is through a much more digital process. So, that’s just one example, but there’s many, frankly, and many more in the works.
Winter: Solar is another a great example. You have—
Kirkpatrick: Yes, yes. Talk about your ambitions with solar because we haven’t even touched at that, really.
Winter: Yes. We see a future where people are generating energy from every roof, right? And it’s a moment where you—obviously, the logic of generating energy from roofs makes sense. You consume the power. You generate the power where it’s consumed. But so far, that’s been a space that’s been owned by solar companies that go around and put solar on existing [roofs]. We want to invert that.
The most important thing a roof can do is waterproof and it has to do that first. So, bringing that waterproofing expertise and then creating an integrated solar product that will generate power and making it part of every solar sale—because so many of these solar companies wrestle with the question of how do we acquire customers, right? They’re constantly almost always harassing customers to get new customers. We want to meet that customer at that moment where the customer needs a new roof and make the option to have an integrated solar roof just part of the transaction with the built-in financing option. It’s a “would you like fries with that?” kind of transaction.
You then have the opportunity, really to create energy from every roof. It will be part of the roofing sale and the product will evolve and that will take R&D but ultimately, something like solar should be part of every roofing sale.
Kirkpatrick: So you’re effectively competing with Tesla, among others. How do you look at what they’re doing? They merged with SolarCity. I remember I saw a video of their roofing tiles almost two years ago. I haven’t seen any shipped. But how would assess what they’re doing compared to what you think you can do?
Millstone: Listen, they clearly have a tremendous vision and I would tell you that they brought the conversation much more to the forefront of our industry. I’d echo what David said, which is we start with waterproofing. I don’t care how much energy you can generate from a shingle or a solar panel. If you have a big puddle in the middle of your living room, you probably have an issue with your kids and your spouse.
Millstone: So starting with the membrane, starting with waterproofing, and then really looking to integrate solar more broadly into the roof is something that we’re focused on.
Kirkpatrick: I want to talk a little bit about this conscious part, you know? What are some things that have already happened differently because you’re thinking of sustainability as part of the core business opportunity even and certainly identity of your company.
Millstone: Let me give you an example and maybe pivot away from roofing for a bit because roofing is a tremendous part of what Standard Industries does, but it’s not all that we do. We have a related aggregates business called SGI. It started out as traditional roofing granules, which means we turn big rock into little rock and put it on the shingles and that was where we started. We then moved into more traditional paving aggregates and we had this phenomenon that we dealt with and it was both an environmental issue but frankly an operational and cost issue for us as well, which is our waste product as we created [these] granules—
Kirkpatrick: In your mines, basically.
Millstone: In our mines.
Kirkpatrick: You have four major mines in the U.S.
Millstone: Four outdoor quarry mines created a tremendous amount of what we called fines—essentially dust—and you had to pile it up into these enormous piles, which not only caused a cost issue but it was a life of mine issue, an environmental issue.
Kirkpatrick: Because the EPA has a lot of rules about that?
Millstone: A lot of rules and trying to figure out how to dispose of that, essentially in a costless way, would have been a real win for us. But we had an ongoing R&D effort, which is still ongoing, but seems to have made some real traction in utilizing these fines in the agriculture business, in soil cultivation of arid soil. That’s something that we wouldn’t have frankly dreamed of 10 years ago when we were just dealing with the issue of waste product and how do be better stewards of the environment within our mines. But it turns out it was a little bit of a two birds with one stone. Not only do we create more life of mine by moving these fines, we’ve been able to find a way to utilize them to cultivate arid soil.
Kirkpatrick: It’s fertilizer for organic agriculture, right?
Millstone: It’s organic because it’s rock, yes.
Kirkpatrick: You think that could be a real business but it took R&D. I mean, that took an investment to find that, which is what I think is something that I would assume other quarries generally wouldn’t have been willing to do.
Millstone: It’s two parts. The first part is that the rock that we mine is not singularly focused on our quarries—other people have it—the issue is that you’re not looking for those fines unless you happen to create them by the byproduct of your normal manufacturing visits. So, we were in this sort of unique position where we were creating them not costless, but actually at a negative cost to us, because it was, as I said, taking away from our life of mine. So, if you were in the business and you weren’t creating these fines, there’d be no reason for you to go and do that.
So, this was an issue for us to deal with and we spend a tremendous amount of effort on the R&D side to figure out a way to deal with it in a conscious way—in a way that not only helped us with our life of mine, helped the local community terms of the life of mine, but the end product, the end use, was one that we thought was not just good for us and good for business, but good for everyone.
Kirkpatrick: Yes, that’s a pretty good example.
Millstone: There’s definitely a role; I think that being a private company helps.
Kirkpatrick: That was what I was going to bring up next, especially funding R&D.
Millstone: Yes, one of the things that I think has stifled, to some extent innovation in our neck of the woods is that in the startup world, generally, there tends to be a lot of capital to promote new ideas. But in the world we live in, oftentimes companies are being run just for cash flow—
Millstone: The ability and oftentimes their public companies [are] faced with the vicissitudes of the public markets—which have caused people to make increasingly short-term decisions. Now, we like to say we’re long term. We are long term. Being long term doesn’t mean you can be wrong for 19 years and right in year 20—that’s just being wrong—but what it does mean is that we can try to rise above the fray sometimes and think about what business we’re building in the medium and long term. And whether it’s investing R&D in very old school business like open quarry manufacturing or some of the things we’re doing with our channel partners.
Kirkpatrick: Or developing solar.
Millstone: Or developing solar. I think one of the interesting things, I was listening to a conversation earlier today here about the fact that in the aggregate, startups—notwithstanding the mythology around startups today—in the aggregate, startups have declined since the 1980s and because to some extent the mythology of the startup is the kids in the dorm room and fast forward and suddenly everybody is a billionaire.
But, you know many of the startups are the companies we’re working with. They’re small contractors who are coming into the business, getting a truck, two trucks. And we can use technology, we can use our services and tools that we did not have before and tools that we’re innovating and investing to put them in business and give them a leg up—whether it’s financing tools or imaging tools—and really allow them to grow and build a business. You know, those businesses are startups in the economy just as much as the classic digital startup is.
Kirkpatrick: Sure. Being private—huge asset—that does certainly, you can’t wait 20 years, but you could wait longer, you could make decisions that are hard on investing in ways that a public company simply can’t with all the over the shoulder looking that goes on with Wall Street. But as you’re making this transition to really a conscious approach to business—which I know is very multifaceted—it’s a journey, it’s not going to be easy, but you’re obviously doing a lot of things already. What have you learned that may apply to other companies—other industrial companies, other companies generally—what are some of the hardest things that you’re finding in moving toward what I like to call a more conscious type of capitalism?
Winter: I think the answer ends up being culture and people. I think, as you would imagine—and this transcends our business to essentially any business—we can have all the ideas in the world and we can invest in as much capital as you want and the plans and the processes and the R&D, but if you don’t have the team and the people to really effectuate the change, it’s just an idea and it doesn’t happen. In our business, in our industry unlike a tech business or a consumer products business or many others that have embraced change for decades if not longer, this is not an industry that has traditionally had to face change.
Injecting a culture of or a DNA of embracing change and really looking to think out of the box in new ways, that’s probably our biggest challenge. Finding the right people—not the best in roofing, not the best in building materials, not the best in North America, Europe—but just the best period, and getting them motivated because the vision is big, the ambition is big, but we really think it’s a real opportunity.
Kirkpatrick: But how do you do that? Yes, go on.
Millstone: It is a constant struggle. One of the thing that animates us is this idea that any way you measure the ability to effect change, whether it’s the amount of profit we can generate, the number of lives we can touch on various continents, the seat you sit in as a classic industrial company that has operations from Africa to Europe to the US to Asia, you can effect so much change so quickly.
As we’ve been talking about, it’s deeply underpenetrated by technology so selling people on that vision and bringing in talented individuals who would otherwise be working at a digital startup, otherwise be working at a Facebook, or a Google, or Microsoft and giving them a sense for the amount of change and effect they can have.
A good example is engineers. We’ve had very successful co-op programs and we bring in engineers and one of the things we do is we try to give them immediate problems in our factories to work on. If you’re building a plan for Boeing, you’re not getting the big problem day one. But with 190 factories, we can bring in engineers and give them really thorny issues to deal with day one. But, it’s a constant struggle. I would say it’s the issue we go to sleep worried about and wake up worried about.
Winter: If I could add one thing, when we sit with somebody and try to convince them to leave an industry or leave a business that appears sexier than roofing, we talk about ourselves as a startup at scale. There’s very few opportunities we think that exist where you get to effectuate an outcome or move the needle. And given where we are, an inflection point in our business but in the industry more broadly, you get to do that here. You get to do it on scale. With nearly one in three homes in America, it’s a real view into the homeowner.
Kirkpatrick: While if you’re the world’s largest roofing company and we are going through a massive transformation of the planet towards middle class—I’ve mentioned yesterday that the world just became half middle class this year.
Kirkpatrick: So, how big of an opportunity is it like all over the world? That would, I would think, potentially be a motivator for people—if you could really articulate that, somebody might want to come to work just to help you achieve that!
Millstone: We’re the third largest roofing company in the Africa now, but it’s very unconsolidated. We were in South Africa this summer talking to one of our customers—this was his statistic, not ours, but a very sophisticated customer—who was saying, “Look, here in Africa, we’re going to have more middle-class families than Europe in…” I don’t know, what did he say?
Millstone: By 2030. Now, probably depends on how you define middle class and other things, but the sentiment is very real. There is an enormous opportunity and there’s a deep emotional attachment. Every single person who has bought their first home who has had a kid and has had to make that decision about I’m taking my baby home, where am I taking them? There’s a deep emotional attachment to these decisions, even as our world becomes increasingly digital. And so, the opportunity to address that is something we’re very excited about and the scale is enormous.
Kirkpatrick: David, David, and David, thank you so much.
Winter: Thank you, thank you.