How Cover Is Building The House Of The Future - YouTube

What’s the best way to build a house? For years,  the answer has been to send an endless stream of  

people to a build site for basically a full  year. But now, home construction is moving  

into factories and the entire process is  about to get a whole lot more efficient.  

Prefab housing is nothing new though and  it’s actually falling in popularity. In 1958,  

10% of new homes were prefabs, but that number  has shrunk to just 2% today. Looking at the data,  

you would be crazy to think that investing in  a prefab home builder would be a good idea,  

but there’s something weird going on here. Three  of Elon Musk’s early investors, Gigafund, Valor  

Equity Partners, and Founders Fund just poured  $60 million dollars into a prefab home builder  

by the name of Cover. So what do they know about  prefab home building that the rest of us don’t?  

All three of those firms worked with Elon on  SpaceX, so it seems like something structural must  

be changing in the homebuilding market to finally  unlock some disruptive opportunities. In order  

to get to the bottom of this, I called up Alexis  Rivas, the founder and CEO of Cover and arranged  

to meet him in Silverlake to sit down for a chat.  As we talked, I realized that his entire strategy  

for disrupting the homebuilding industry can be  summed up in 3 broadly applicable ideas. Let’s  

start with what his company does: “I’m Alexis  and I started Cover to fix homebuilding. Cover  

is redesigning the entire homebuilding process  from the ground up. We design, we engineer,  

we permit, we manufacture, and we install homes.”  Even though Cover takes a full-stack approach,  

the product they sell is pretty straightforward.  It’s a small, but well designed building that  

fits right in your backyard. Although  you could live in a Cover unit full time,  

they’re most often used as guest houses, studio  spaces, or rental units. And funnily enough Alexis  

actually lives in a unit that his company recently  built, which goes to show you how much he stands  

by his product. But you’re probably thinking to  yourself, backyard homes are such a niche product,  

how is this going to revolutionize housing? That’s  a good question, and there are a few good answers.  

First, it’s always a good plan to start small when  you’re building a new startup. Before SpaceX could  

build Starship, they had to build the Falcon  1. And before Tesla could ship the Model 3,  

they had to build the Roadster. By focusing on  smaller, backyard homes, Alexis and his team  

have been able to tune their production lines  for maximum efficiency. And this is one of the  

key reasons why Alexis has been so successful with  Cover: he has a huge vision, but he started small.  

There’s another reason why this initial strategy  is working so well for Cover though. They operate  

in California, and California has a unique set of  regulations that make it incredibly easy to build  

these types of structures. “There are California  state laws that were passed that allow you to  

build a backyard home on any property. If you have  a single-family home in California, you can build  

at least an 800 square foot backyard home if  you have the physical space. As long as you  

have the physical space, you’re allowed to build  that.” Some of the biggest startups of the past  

decade have been built by taking advantage of  new regulations and underutilized assets. AirBnB  

obviously helps homeowners get more value out of  the square footage they already have, and Cover  

just helps homeowners add more square footage. And  this isn’t even an unregulated gray area like the  

ridesharing market was 10 years ago. The State of  California wants to encourage more building, and  

passed new laws to make it happen. California, and  particularly Los Angeles, has been in a massive  

housing crisis for years now. In 1960, Los Angeles  was zoned to hold up to 10 million residents,  

but by 1990, the city had capacity for just under  4 million people. High rents, congested roads,  

and homelessness can all be traced back in some  part to the difficulty of building new housing,  

but fortunately that’s changing. Now obviously  Cover isn’t going to solve everything overnight,  

but their approach is worth paying attention to,  because it’s incredibly scalable. “All these other  

products: cars, furniture, our computers, they  are all made in a factory. And because they are  

made in a factory, they are abundantly available,  high quality, low cost. And that’s where I said  

“why aren’t homes built that way”. So I actually  went to work for a pre-fab home company, thinking  

that they had the solution to the problem, and  what I learned was that, yes, they were building  

homes in a factory, but they had basically just  taken the conventional construction process and  

moved that exact same process into the factory.”  In order to understand what Cover is doing,  

and how it’s different from typical prefab  homebuilding, we need to talk about the different  

types of pre-fabs. First is what they call  “manufactured homes” and this is what Alexis was  

talking about. The house is built using completely  conventional techniques and then it’s just  

shipped to a plot of land and dropped down on a  foundation. This has a number of problems though,  

mainly actually shipping the massive home  once it’s built. Delivery requires a massive  

flat-bed truck that can only drive on designated  roads. Most residential streets in Los Angeles  

are far too narrow and windy for this to be  an option. Additionally, the main benefit  

of this construction technique is that there  are no weather delays while you’re building,  

since everyone is working in a big warehouse.  But LA only gets a few days of rain per year.  

The second type of prefab home is actually  just a mobile home, but there are a number  

of problems with this approach as well.  Because mobile homes are technically vehicles,  

they have to adhere to motor vehicle regulations  which adds an additional layer of complexity.  

Even though some mobile homes are incredibly well  built, they just can’t deliver a high level of  

quality that matches most free-standing homes.  Alexis passed on both of those strategies before  

settling on Cover’s ultimate solution. It’s called  “panelized housing” and, if I’m being honest,  

it’s basically just like legos. Individual panels  are built in the Cover factory and then easily  

assembled at the build site. This approach solves  all of the aforementioned problems. Since Cover is  

just shipping panels to the build site, they don’t  need to worry about narrow streets. Honestly, it’s  

incredible that they were able to build this unit  where they did. Just flying my drone around to  

film the place was hard enough, it would clearly  be impossible to deliver a fully-constructed  

house. Panels are clearly the only viable option.  And because Cover is focused on building these  

modular panels, they can sink tons of time and  resources into designing the perfect panel,  

which will then be used on all future projects.  They can also organize their entire factory to  

produce these panels at scale with precision  and efficiency, which drives down the cost.  

Customers can still choose different layouts for  their particular unit, but the vast majority of  

the work is already optimized before the project  even starts. “At a high level there's kind of  

two key parts, we’re building homes more like how  cars are built, right, on a production line. But  

unlike cars, every property is unique, people have  very different ways of living, right some people  

want 2 bedrooms and an office. There are just  a lot of different ways to configure a home. So  

customization plays a much bigger role in  homebuilding than in most mass produced  

products. And so we looked at that and we said,  most of the other companies that were trying to  

solve this problem they basically had a model  approach, where you had 10 layouts and you had  

to pick one. Whereas we said, no, we’re going to  develop the ability to do custom in a way that  

scales. And so there’s the production line part of  it, but there’s also the software part of it. And  

that software part of it enables the customization  at scale.” All this has let Cover cut their build  

time dramatically, especially when compared to  traditional building methods. “This structure  

was built in 33 days, 18 months ago we were  building these in 120 days. We took our install  

time from 120 days down to 30 days” But build  time actually isn’t the most compelling thing  

about Cover though, it’s the pricing transparency.  It’s pretty much common knowledge that anytime you  

try to build anything, there are going to be cost  overruns. Whether you're building something from  

scratch, or just remodeling, most contractors  will under-quote you in order to win the job  

and then slowly let the cost creep up throughout  the project. When you’re halfway through,  

you’re unlikely to stop just because the  cost went up, but the fear of cost overruns  

stops a lot of people from even trying to build  in the first place. And this is the biggest  

pain-point that Cover alleviates for customers,  they take all the guesswork out of budgeting.  

Once customers fill out a simple form on the Cover  website, data about the property is automatically  

analyzed to determine what can be built. If  things look good, the Cover team then starts  

to work with the customer to figure out exactly  what they want. And even though the Cover units  

are highly customizable, the prices they quote  are solid: “When we show you your custom designs,  

right, before you buy it, we actually know exactly  how those are going to be built down to the bolt  

and that’s because we have software that does  full 3D models, we know exactly how much each  

part costs. And so we can give you a guaranteed  up-front price. Kind of like buying clothes or  

furniture, you just know what it’s going to cost  you.” This cuts to the core of why Cover is so  

interesting to me. It’s super common for people  to think that they should absolutely maximize  

around a single feature of their business, like  creating the most customizable house possible,  

or conversely, creating the most standardized  house possible. In reality, the best strategy  

is often somewhere in the middle. Alexis focuses  on delivering just enough customizability to keep  

customers happy, while standardizing everything  that no one cares about, like how pipes and wires  

are laid out inside of walls. Shipping container  homes are the worst offender when it comes to this  

over-standardization mentality, but they still get  a ton of attention, so we need to talk about why  

they are so flawed. On paper, it sounds great:  instead of building the external structure from  

scratch, you can just buy a used shipping  container and start making modifications.  

In practice though, shipping container homes  come with a ton of terrible drawbacks and in some  

cases, can even be dangerous. The first reason  shipping containers don’t make good homes is  

the size. A standard container is 8 feet wide,  8 and a half feet tall, and 20 feet long. Now,  

standard ceiling heights are 9 feet, so losing  6 inches might not sound bad, but you can’t just  

move into a shipping container and call it a  day, you need to add flooring and insulation,  

which reduces the space significantly. You also  need to cut holes in the container for windows and  

ventilation. This reduces the structural integrity  though, so then you need to add more framing,  

and pretty soon you’re building an entire house  inside your shipping container just to create a  

structurally sound living space. And don’t forget  about insulation: metal is a terrible insulator,  

so without proper insulation you’ll be freezing  in the winter and boiling in the summer. All of  

that is manageable, even though it adds cost, but  the real problem comes from what happens in the  

shipping container before it gets converted into  a home. See, while you can usually figure out what  

ports a shipping container has visited, it’s  a lot harder to figure out what was inside the  

container. Companies usually keep that information  private in order to safeguard their operations.  

You don’t want pirates finding out how  valuable a particular shipment is after all.  

But the problem is that a lot of shipping  containers are used to transport toxic chemicals,  

like pesticides, and these can leak while on the  high seas. The risk of exposure to toxic chemicals  

left in shipping containers is such an issue that  the State of California actually made it illegal  

to build houses using shipping containers that had  been used more than once. Now, you can guarantee  

that your container is 100% safe by just buying a  new one, and that’s what a lot of people wind up  

doing. But at that point, you’re basically just  using a shipping container for the aesthetics.  

And that matches up with what people say, just  listen to this quote of someone who built a  

shipping container home: “Why did you decide  to build your house out of shipping containers.  

I really like the industrial look” It’s totally  fine to like a particular style and go out of your  

way to build a custom house that fits your taste,  but wait until you hear the price of this place:  

“The container house is up around $450k” To be  clear, Cover is not building a cheap product.  

Their smallest unit starts at $93 thousand  dollars, and larger units can be over $300k. But  

Alexis openly admits that he’s trying to build the  Tesla Roadster of housing right now. It’s going to  

be a premium product, but it will inform future  designs that will eventually be dramatically more  

affordable. “That’s exactly why we started off  really focused on backyard homes, it was in order  

to have a shorter iteration cycle, learn more with  smaller structures, and iterate quickly. So we’re  

constantly rolling in improvements to every single  one we build. And the way we kind of balance that  

short-term with long-term mindset is that  the improvements that we’re rolling in,  

are the types of improvements and learnings that  we can apply not just to backyard homes. So we’re  

focusing on the long-term technology, while doing  it in a form-factor that makes sense for the  

short-term.” And here’s our second key takeaway:  don’t chase trends. Alexis has been working on  

Cover for years now and he might have been able to  build some hype around shipping containers because  

most people still think they are a good idea. But  that would have been a dead end. Cover would never  

be able to adapt any of their learnings from  building shipping container homes into larger  

projects because the fundamental premise is so  flawed. There’s one more reason why this project  

in particular has attracted so much attention  and it comes back to that idea of iteration.  

At this point, nearly everyone has read Elon  Musk’s original “Secret Plan” blog post where he  

outlined Tesla’s long-term plan. They would build  a high-end sports car to fund the development of a  

sporty four door family car, which in turn would  fund an even cheaper third model. That post was  

written in 2006, a full decade before the roll-out  of the model 3, and it laid the foundation for a  

new wave of startups tackling big problems. And  Alexis is clearly taking a page out of Elon’s book  

for Cover’s long-term plan: “We’re starting with  a high end product, low volume, high price. Then  

investing in process and investing in engineering.  Lowering the cost and then ramping up production.  

And doing that a couple of times before being at  $100 bucks a square foot, where it’s accessible  

to everyone, and production volumes of hundred of  thousands of homes per year. So it’s going from a  

small backyard home (high end), then developing  slightly lower-cost, entire single-family homes,  

with multi-story capabilities. And then from there  going to multi-family and continuously lowering  

the cost through tooling and engineering.”  This is why those investors who backed Elon  

Musk more than a decade ago are now backing  Alexis, he’s planning for the very long term.  

Every day that Cover spends improving upon  the design and engineering of their core panel  

will directly impact their ability to deliver  affordable housing in the future. And eventually,  

they could even be building full apartment  complexes: “We’re just building panels, so  

going from a backyard home, to a full home, to an  apartment building is really just going from 10 to  

100 to 10,000 panels.” -15:50 I have one more key  takeaway from my conversation with Alexis though,  

and it’s about the value of just rolling up your  sleeves and getting started. Alexis does have a  

degree in architecture, and he’d even worked  in the industry before he founded Cover, but  

the experience that taught him more than anything  about building was during his prototyping phase.  

“The first prototype, we actually still have it in  our parking lot. It was a small, 110 square foot  

basically office. It’s just a room, it has three  windows. Big sliding door, some storage. We  

learned more building that one structure,  that our entire architecture school.” That’s  

a really important lesson, hands-on experience  is incredibly important in entrepreneurship,  

so get out there and build something. And if you  want to help Cover build the future of housing,  

they’re hiring. This video isn’t sponsored or  anything, but I like Alexis and it sounds like  

a fun place to work. After all, it’s  basically just playing with legos.