Across the globe, a growing number of offsite construction factories are closing their doors—some before their first product ever hits a jobsite. From high-profile startups with VC backing to small modular builders trying to modernize their processes, the pattern is clear: too many factories are failing, and the reasons go far beyond market timing.
all photos – Ilke Homes
The promise of offsite construction is powerful. Faster builds. Lower costs. Greater control. But if the product is so promising, why is the factory failure rate so high?
The answers aren’t always obvious—but they are consistent. After analyzing dozens of closures and speaking with factory owners, consultants, investors, and employees, a pattern of seven recurring missteps has emerged.
1. Underestimating the Complexity of Integration
Building houses in a warehouse sounds simple—until you actually try it. Many startups believe that if they move framing, plumbing, and drywall into a controlled environment, they’ve “industrialized” housing. But successful offsite construction is not just about manufacturing—it’s about integrating architecture, engineering, code compliance, procurement, logistics, software systems, and on-site installation into a seamless process.
If one link in that chain is weak, the whole system falters. A factory might produce perfect wall panels, but if the on-site install team doesn’t coordinate with the factory’s specs—or if the local code inspector has never seen a panelized home before—the project gets delayed, and the business takes a hit.
2. Misjudging Capital Needs
Most offsite startups dramatically underestimate how long it takes to become profitable. They budget for a two-year runway when what they really need is five. Startups backed by venture capital often assume rapid growth will cover their overhead, but offsite is not software—it’s capital-intensive, labor-intensive, and often slow to scale.
Cash-flow issues quickly become existential threats. When factories can’t meet payroll or cover the cost of materials due to delayed payments, projects stall, reputations suffer, and investors panic.
3. Labor Mismatch and Workforce Shortages
Even with robotics and automation, factories still rely on people. CAD technicians, machine operators, quality control inspectors, and line managers are essential to keeping production smooth. And yet, many factories struggle to find employees with the right mix of manufacturing and construction knowledge.
Traditional construction workers often feel out of place in a factory setting, while manufacturing experts may not understand the nuances of building codes or customer expectations in residential housing. The result? High turnover, long learning curves, and inconsistent product quality.
4. Over-Customization Destroys Efficiency
Flexibility sounds great in theory, but in practice, too much customization is the Achilles’ heel of many factories. Trying to serve multiple markets—custom single-family homes, multi-story apartments, ADUs, military housing, and emergency shelters—all from one production line, creates constant changeovers and inefficiencies.
Without product standardization and repeatable processes, offsite factories can’t achieve the economies of scale they need to compete with traditional construction. The more variation, the slower the line—and the lower the profit.
5. No Real Market Strategy
Some factories are launched without a clear answer to the most important question: Who’s going to buy this product?
It’s not enough to have a great panelized wall system or an award-winning tiny home design. Builders and developers need education, convincing, and often a lot of hand-holding before they’re willing to shift away from the traditional stick-built model.
A surprising number of factories fail because they build capacity without building demand. There’s no sales pipeline, no marketing plan, and no channel partners. When orders don’t come in fast enough, the factory runs out of work and shuts down.
6. Permitting and Code Compliance Slowdowns
Offsite builders often forget that even the most innovative systems still need to comply with local regulations—and those regulations vary dramatically. A prefab wall panel that flies through approvals in Oregon might be held up for months in Florida due to hurricane code requirements. A modular unit that complies with IRC code may still require local plan checks, utility hookups, and foundation inspections.
Factory-built systems also raise red flags for some inspectors and code officials, who are unfamiliar with offsite processes. If a municipality doesn’t know how to review or inspect a factory-built component, delays ensue—and that delay kills both momentum and cash flow.
7. Inexperience in Running a Factory
Many offsite construction startups are launched by developers, contractors, or real estate investors—not manufacturing veterans. They understand how to build homes on-site but struggle to implement lean manufacturing, quality control systems, supply chain management, and factory floor efficiency.
Running a factory is fundamentally different than running a construction company. It requires just-in-time delivery, repeatable processes, predictive maintenance, and metrics-driven oversight. Without that manufacturing mindset, factories fall into chaos—missed deadlines, rework, defects, and cost overruns.
So What’s the Solution?
If the challenges are so numerous, is offsite construction still worth the risk? Absolutely—if the lessons are learned.
Here’s what successful factories do differently:
- They start small and scale smart—focusing on one product or market before expanding.
- They raise more capital than they think they’ll need, with a realistic path to profitability.
- They hire hybrid talent—people who understand both manufacturing and housing.
- They invest in training, integration, and strong leadership.
- They build relationships with local governments and inspection agencies early.
- And most importantly, they keep refining the process—focusing on continuous improvement, not just flashy innovation.
Innovation Alone Isn’t Enough
The fall of so many offsite construction factories isn’t proof that the model is broken—it’s proof that innovation alone is never enough. Execution, strategy, and patience are just as critical.
There’s a growing need for smarter, faster, more affordable housing—and offsite construction can answer that call. But only if factory owners and investors remember that this isn’t just a new way to build homes. It’s a new way to run a business.
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Gary Fleisher, The Modcoach, writes about the modular and offsite construction industry at Modular Home Source.
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