The Future of Construction Finance: Neil Shah’s Secrets to AI & Strategy

Neil Shah (00:00) if you're in construction, it doesn't mean you're remodeling kitchens. You are making where people live, work, play, right? And you mentioned $22 trillion by 2040. It is a substantial industry in terms of economic growth. And in many instances, it's driving economies, whether it's locally within the United States or countries outside the United States. ⁓ Well, that's the competition, right? It's Google and Goldman Sachs. we need to attract the best and the brightest into construction and have them see that it's a career path that not only is great for them, but it has an impact on society, right? Hari Vasudevan (00:28) Yes. No, you're right. 100%. And you can make equally good money, Neil Shah (00:46) the fear has been that AI will take jobs away. I think it's more about AI making organizations more productive and that more productive capacity will create other jobs and different jobs. the role of the construction financial professional isn't just about financial planning and accounting. It's about risk management. It's about talent management. Often they have IT and HR reporting to them. you can prevent somebody's mental health from declining just by showing that you care. Being there. Hari Vasudevan (01:18) Being there, being present, right? ⁓ Being not just physically present, be mentally present. That is something I drive with my people all the time. Arch manning bust or still has hope? Neil Shah (01:31) man, the kids in what two games, three games so far. ⁓ I think the name has helped him get a lot of NIL money. His dad is funny. He's the funniest out of the Mannings and all three Manning brothers are funny, but Cooper Manning is hilarious. Hari Vasudevan (01:34) All right. Neil Shah (01:46) Jim Harbaugh is having a very successful NFL career again as a coach. Sharon Moore is doing a great job of recruiting for the Wolverines. Hari Vasudevan (02:01) Welcome to a new episode of From Boots to Boardroom. I'm your host, Hari Vasudevan, founder and CEO of KYRO AI. Previously, I was the founder and CEO of ThinkPower Solutions. Not every leader sits in a corner office. From Boots to Boardroom shares the journeys of those who power America. From the job site, to the boardroom, leading with grit, tenacity, empathy, and vision. Hope you'll find the show to be educational, entertaining, eye-opening, and most importantly, entrepreneurial. Presenting sponsor for the show is KYRO AI. Digitize work and maximize profits. For more information, visit KYRO.AI. ⁓ Maybe we have a new sponsor today, right? Neil, CFMA. Today's guest is Neil Shah. ⁓ Thank you so much for being on the show, Neil. Neil is the president and CEO of CFMA, where he oversees CFMA's strategic development and is responsible for cultivating relationship with other construction industry organizations and partners. Prior to CFMA, Neil Shah (03:05) My pleasure, Hari. Hari Vasudevan (03:23) Neil spent 13 years at Royal Institution of Shorted Surveyors and 20 years before that in aerospace real estate services in technology industries. Neil holds an MBA from Emory University, ⁓ MS ⁓ in mechanical engineering, as well as a BS in aerospace engineering and a BA in economics as well. Man, you went to school a lot of years there. ⁓ Neil Shah (03:52) You know, I tell you what, my lifelong ambition was to be a college professor and I, you know, as I approach some big numbers in my age, I still want to be a college professor someday. So that's where I started. I may end up there too. Hari Vasudevan (04:06) interesting. Neil's favorite teams are the New York Yankees, New York Giants, ⁓ Michigan Wolverines. He loves watching international soccer matches, plays golf. Rory McElroy is his favorite golfer. He's been to a lot of Grand Slam matches. Being in, I guess, New Jersey helps. Neil Shah, welcome to the show my friend. Neil Shah (04:19) Go Blue. Thank you, Hari. Thank you for having me. Hari Vasudevan (04:34) Yes sir. So let me let me start off on this ⁓ hot topic. Is the Michigan ⁓ you know the championship you won under Jim Harbaugh, is that a legitimate one? What's your take on that? Neil Shah (04:50) Yes, nobody's taking that national championship away. ⁓ know, Jim Harbaugh is having a very successful NFL career again as a coach. Sharon Moore is doing a great job of recruiting for the Wolverines. I mean, look, the Big Ten and the SEC are powerhouse football conferences. And I have to be honest, maybe 10, 12 years ago, I was all NFL, but my daughter went to Michigan and the first... Parents weekend I went to a football game and I've never looked back. So win or lose, win or lose, I'm all in on Go Blue. Hari Vasudevan (05:21) Interesting. I'll tell you what, ⁓ I actually like Jim Harbaugh. I liked him when he was at the Niners. I liked him when he was in Stanford. I liked him when he was in ⁓ Michigan. I rooted for you guys. I like him when he's now in the LA Chargers. So that's, he's one of the best coaches in football. Neil Shah (05:44) My friends at Root for Kansas City, think should look out because the Chargers look like they're going to win the AFC West this year. Hari Vasudevan (05:52) I actually do think they have a legend matchup. They have a great quarterback in Justin Herbert. Right. So ⁓ let's see. Let's see how it all pans out. But let's get started here. Right. ⁓ You're the CEO of CFMA. For the listeners here, could you give us an ⁓ insight into your experiences that shaped your leadership style? Right. A of us bring our personal experiences, professional experiences into what we do every day. Right. kind of guides us, helps us make decisions and be who we are. Give us an insight into what makes you who you are today, Neil Shah (06:32) Wow, that's a deep question. Deep question. You know, personally, it's all about the family, right? I mean, I was fortunate enough to have a very strong-rooted family ⁓ environment growing up, and my wife and I have tried to do that with our own kids as they've grown into adults. So personally, that's kind of what drives me, is the family aspect of what life is about. Professionally, I've been fortunate to have ⁓ quite a few great leaders to have worked with. didn't want to, construction wasn't where I thought I'd end up. I talked about being a college professor. I began life wanting to fly jets for the United States Air Force. I was in the Air Force ROTC as an aerospace engineer and once I got commissioned, I went into reserves instead of active duty and I went to work for Pratt & Whitney and I thought that aviation was the only business known to man. Working in engine shops and on the flight line, ⁓ working at Pan Am, had a great leader ⁓ working for Pratt & Whitney based at Pan Am. I had a great leader who taught me some... ⁓ really good lessons about work-life balance, about ensuring you work the job, not the hours. I learned a lot from the mechanics that worked on these dirty engines. I never saw a dirty engine at Pratt & Whitney coming out of the manufacturing ⁓ facility, but when you get out into the real world and the magicians that made these airplanes work were incredible. had great, cutting my... That's right, that's right. Hari Vasudevan (08:06) the hidden heroes, hidden heroes of the world, right? Honestly, you don't realize that? Neil Shah (08:10) those Hari Vasudevan (08:10) Exactly. Neil Shah (08:11) hidden heroes are what make airlines operate day in and day out. that's where I cut my teeth for the first 10 years of my professional life was working in the engine shops, on the flight lines, with airlines, with those mechanics that make these airlines actually go every day. from there, I was fortunate enough ⁓ to be part of an intrapreneurship at a large established insurance company that was in equipment breakdown insurance. and we started a facility management outsource platform. Hari Vasudevan (08:43) for listeners who may not know, ⁓ explain what intrapreneurship is and then we'll continue with your story. Neil Shah (08:49) That's a great question. So entrepreneurship is when you just have a startup and you Bootstrap it and friends and family and maybe maybe get some financing and then go go go out on the road But intrapreneurship is when an organization that's established and this was a fortune 500 insurance company Had an ancillary business that they wanted to invest in but they wanted it to cultivate it as if it were a startup So we we operated this this organization and the facility management PropTech space as if it were a startup although we were part of a hundred plus old year year old insurance company ⁓ And we grew that business to manage distributed facilities retailers. So we had about 20,000 locations Blockbuster Exxon Limited ⁓ really be able to to identify when something broke how it was fixed who fixed it well we created an HM O for buildings if you will with two thousand different service providers ⁓ Hari Vasudevan (09:49) Yeah, yeah. It's actually interesting you say that because you know ⁓ what I've noticed over my career is you know ⁓ companies kind of get bloated as they grow into mature companies, stop taking risks, stop taking calculated risk, very bureaucratic. And the good ones, those companies who want to maintain that entrepreneurial spirit, they do create this ⁓ entrepreneurship programs and give the ⁓ entity or the division or whatever of the freedom to operate entrepreneurially, that creates in some cases, ⁓ it actually creates more value. The intrapreneurial piece of it becomes more valuable than the actual mothership, if you will. There are many examples. Neil Shah (10:38) You're absolutely right and it's what drives innovation especially for a company that you may think is stale and not taking risk. I mean you're in the insurance business for a hundred years. You're mitigating as much risk as you can. But the company was Hartford Steamboiler and they were basically insuring facilities and they got handed a blank check when something catastrophic happened. So the theory was that if we start to instill more reliability with high frequency low severity of and did predictive preventative maintenance. You don't have all the break fix stuff down the road. Which is what we did with airplanes by the way. So translating a fleet of aircraft to a portfolio of buildings made a lot of sense. But that's how I got into the real estate services and the built environment to begin with. And like I said, I never thought I'd leave aviation, but I got this sense of, you know, Hari Vasudevan (11:26) to see. Neil Shah (11:34) We grew the business, we sold it to Enron of all places, a lot of smart people at Enron. But my MBA was nothing compared to the life lessons and the business lessons I learned with the bankruptcy. But we were able to sell that company out of the estate and put it into a place where it continues to thrive. And I never left the real estate services business from there. I was always in outsourced services at that point. Hari Vasudevan (11:38) Interesting. Yes. That is really really interesting to know your story because I did not know that. I learned something about you today. So obviously you're now at CFMA that entrepreneurial spirit is guiding ⁓ CFMA. So for listeners who may not know what CFMA does, explain what CFMA does and why is it so important for the members of this construction industry. Neil Shah (12:27) Yeah, thank you for that. You know, you mentioned I worked for RICS, the Royal Institution of Chartered Surveyors. By the way, four words that don't mean anything to us in the United States, but globally it's recognized as a professional body for the built environment. So we had a lot of construction, you know, stakeholders and members at RICS. And I've worked all over the world in the construction industry as a result, but CFMA is the only organization which is at the intersection of construction and financial management. I've not seen any anything like it. And since 1981, we've been building community and creating education for construction financial professionals. And we've got 11,000 plus members in the United States alone. they're either CFOs, controllers, or accounting professionals at construction firms, or all of the others that make up the construction ecosystem, CPA firms, software companies, insurance, banking, equipment. And so we've been delivering education. and building community for the last 44 years, I think the big opportunity for us is to really drive recognition for what a CFO at a contractor does and the impact that they have on construction. So while we're here to provide them with valuable content, thought leadership, and a body of knowledge to make them successful, we know that their impact on construction is what makes construction successful. Hari Vasudevan (13:52) It is very important. Actually, it's an important point you're making out there because many entrepreneurs, me included until five, six years back, in many, many large companies, I would say small companies, maybe not large companies, even sometimes large companies, they don't recognize the value of finance and accounting, the ability ⁓ to have clean books, right? Audited financial statements, GAAP financial statements, and where the CFO good high quality CFOs and controllers come into play. They didn't recognize it. Let me give you my failure on that front, right? That'll help you understand why I appreciate CFMA that much more. But five years back, ThinkPower was growing. The first company I founded and ran and sold was growing very rapidly. you know, we had this fundamental issue where the customer ⁓ would give my employees in the field. a ⁓ unique 16-digit ID, right? I think it's some unique ID and that is required to send them invoices, right? To get paid properly. Well, instead of going to the finance team, it went to the field team and the field team, you know, created projects with one incorrect digit, zero instead of an O for example, right? And then time is tracked inaccurately, the invoice gets sent Neil Shah (15:06) Mm-hmm. Hari Vasudevan (15:21) don't get paid. And it went on. Believe me, a well-run company like ThinkPower, we were about to lose 10 million bucks, Nuts, right? Then we recognized the importance of the field to office connectivity and we bridged that gap, we solved the problem and candidly, that's one of the reasons why KYRO was actually born because I realized that many companies have the same issue. So that issue, I wanted to solve that myself. Neil Shah (15:31) Ouch. Hari Vasudevan (15:51) And then ⁓ we went on to hire, honestly, a best-in-class CFO who co-authored an article with me for CFMA, Larry LeBlanc. And since then, our working capital has improved by 100%. Let's just think about it. 100 % increase in working capital despite the business growing by 57%. Neil Shah (16:18) Hmm. Hari Vasudevan (16:20) know that means our invoices are more accurate, time was tracked more accurately, which means our invoices are accurate, which means we got paid on time and things like that. The reason I'm giving this big story, it is so important for the construction industry because we operate on thin margins, right? Neil Shah (16:39) thin margins and you know the old adage is that a contractor doesn't run out of work they run out of cash right so you're working you're working capital story is is really true across the board and so what we think that our members and and especially individuals that that aspire to that body of knowledge may have our certification the CCIFP they instill trust and confidence not only in in in their partners within the firm but but also you know all their partners that are external Hari Vasudevan (16:45) CASH! Neil Shah (17:09) to their construction company. And that bridge between operations and finance is so critical. Hari Vasudevan (17:15) So critical. You're right. Neil Shah (17:16) and enables the construction firm to have the working capital, as you described, to take on more work, to get additional bonding capacity, to be trusted by the developers that are driving these projects. And the role of the CFO, the controller, the accounting professional is so critical in that management of the growth of the business, but managing the risk associated with such a thin margin business as well. Hari Vasudevan (17:42) 100 percent, 100 percent. So let's kind of continue on the topic because construction, as you know, ⁓ has been on a pretty ⁓ good growth spurt over the last 10 years. ⁓ It's going to continue to grow. I think one of the McKinsey reports says construction is going to be a $22 trillion industry by 2040, which is secondly to finance, by the way. Neil Shah (18:08) Mm-hmm. Hari Vasudevan (18:11) Does AI have a role to play in the evolution of construction finance, the evolution of construction industry itself, to make it more efficient, ⁓ to help improve margins and things like that? What's your take on Neil Shah (18:27) It's already having a role, It's not the future, it is now. ⁓ So construction has been a slow adopter in general, not just construction finance, but construction has been a slow adopter of technology. We're starting to see more with modular construction, robotics, the way sites are managed. All of those pieces are coming to fruition. But in the back office, the use of AI to improve WIP reporting as we talked about, improve data analytics and AP and AR, I think it's having a step change improvement in the productivity and the impact that construction financial professionals can have on their businesses. And the fear has been that AI will take jobs away. I think it's more about AI making organizations more productive and that more productive capacity will create other jobs and different jobs. But that role of being the trusted advisor, instilling confidence in your firm, the things that our CFO controller members do will continue to thrive in the advent of AI and how they implement it. ⁓ The other aspect of that, Hari, allow me is many of our members work for firms that are middle market. $50 million subcontractor, $500 to $750 million general contractor, and everything in between, right? So the role of the construction financial professional isn't just about financial planning and accounting. It's about risk management. It's about talent management. Often they have IT and HR reporting to them. having that holistic infrastructure approach is something that our members are able to do, our professionals. Hari Vasudevan (20:06) That's true. Neil Shah (20:14) that are in construction are able to do and using AI to better analyze data, using AI to streamline processes, especially when your plate is already full, is the path of where things are going. Hari Vasudevan (20:29) Yeah, yeah, no, it's actually, it's actually interesting because you're right. ⁓ When small middle market companies like what you just mentioned, some 50 million bucks, you know, goes all the way up sometimes, is like the role of a CFO is actually much more than just finance. They actually take on very many hats ⁓ and some of them are good at Neil Shah (20:47) Mm-hmm. Hari Vasudevan (20:53) many things, some of them are really good at just a few things, but you know, they can definitely use some help if you will, right? so ⁓ that's good. So, you know, let's get into the HR side, which you talked about, right? HR safety kind of related piece. ⁓ Suicide rates, which I believe, you know, we're in the midst of the OSHA suicide prevention week, if I remember right, right? Which the first company I ran, we were big into that. ⁓ It's very high in the construction industry, if not the highest of any industry, right? Many reasons for that, ⁓ Neil. I mean long hours of work, right? ⁓ Plenty of days away from home. I just had a podcast with a veteran safety professional. ⁓ a Vietnam War veteran, he was saying one of the reasons for high suicide rates is also because of all those two mentioned I mentioned which is long work hours, long days away from home, ⁓ divorce rates are apparently very high in the construction industry. Neil Shah (22:00) mental health that comes with that, potentially, know, injuries that lead to opioid addiction. I mean, there are a whole host of reasons for that. You know, interesting fact, about a thousand, you mentioned a safety professional, about a thousand people die on construction sites every year due to safety issues. You know, we pay a lot of attention to safety and making sure that those physical things are taken care of. Well, 5,000 construction workers die from suicide. every year. Five times as many ⁓ individuals in the construction industry die from suicide than they do from safety at the job site. taking care of them. Hari Vasudevan (22:38) Wow. I did not know that, by the way. I knew it was fine. Neil Shah (22:40) taking care of the mental issues and the mental health is as important as taking care of the physical issues around safety. And when an industry has talent and labor, skilled labor shortages, you've got to find ways of not only bringing people in, but taking care of them once they join the org. ⁓ the industry. that's in large part one of the things that we're committed to do, along with lots of other organizations that support construction through the Construction Industry Alliance for Suicide Prevention. know, one of the things that I know my predecessor and some of the team members that were involved in the formation of it are really proud of is that we've had such an impact. in raising awareness over suicide and mental health issues in construction, and CFMAs play the leading role in helping drive that awareness. In fact, one of the members of my team will be the chair of CISP next year, Kristi Domboski. So we're very committed, not only to attracting the next generation, welcoming ⁓ a diverse group of people into the industry, but taking care of all those individuals when they're here. Hari Vasudevan (23:51) Yeah, you know that leads me to two follow up questions. Let me just jot down notes here, right? One is ⁓ what is the role of a CFO CCIFP or a controller in bridging the gap between the field and the office helping solve not solve. wouldn't use that word, but helping you know create a better environment for those in the field because it's a highly stressful environment in the field. ⁓ What is the role of a CFO to create a more human organization, a humanized construction, I call it as. And then the second question, which hold your thoughts on this for just a second, is going to be about attracting talent, right? But first let's ⁓ tackle the first question on the humanizing construction piece, if you will. Neil Shah (24:41) You know, the... ⁓ Connectivity is important for humans, so not just technical connectivity, but human connectivity. One of the things that I really enjoy about working with CFMA members, know, CFOs that go out in the field and try to put themselves in the shoes of the project manager or the superintendent and really understanding what's happening at the job site. So to your point, helping solve that problem of not having an effective bridge and being able to put themselves in the shoes of the folks out in the field that they're asking for hours and material information so that that whip is robust, right? So bridging the gap between what happens in the back office and what happens in the field, the CFO and the controller typically play a leading role, especially if they're part of the CFMA community where we're encouraging that bridge to happen. ⁓ You mentioned the CCIFP, which is our certification program ⁓ for construction industry financial. professionals, yes there's a body of knowledge, yes there's a code of conduct and ethics, but really it substantiates an individual that really has deep knowledge of what happens in construction financial management. And part of that is understanding what happens out in the field as well. So they've got a role to play in that connectivity from a human perspective. Hari Vasudevan (26:01) Yeah, yeah. know, empathizing with the guy or girl in the field, right, which is, yeah. Neil Shah (26:08) Absolutely, absolutely. And that empathy is not only about getting data to make your WIP robust, but it's understanding what do you need to instill safety on the job site? What do you need in terms of mental health issues? And how do you as a leader in the organization help create those solutions? How do you attract women into construction? Are there things that need to happen out in the field that will incur investment that they authorize that will help drive some of that diversity that we're looking for as well? Thank Hari Vasudevan (26:38) No, that's a really good point, right? Because a lot of times what I've seen at least is, you know, I have an engineering background, but I've seen this across the board. Engineers, finance professionals, IT professionals, I don't think they ⁓ understand and empathize enough with the difficulties of the job on the field. And they kind of manage up really well, but... you know, the guys who actually make us money, I always have this saying, hey, who's, you know, who's the most important guy for this company? The guy in the field, or the girl in the field, the other ones who making us money. Neil Shah (27:12) Yeah. And as an engineer myself, I've had to learn that the hard way. And I go back to my Pratt and Whitney example, I cut my teeth in engine shops with those individuals that are out in the field and learning from them and empathizing with kind of their situation helps make you a better engineer in terms of the design aspect or understanding their situation helps you as a CFO put better processes in place for them. Hari Vasudevan (27:40) got it. You know the second follow-up question that I had was you know that all these issues are out there right you you have slow adoption of tech, you have high suicide rates, ⁓ a generally historically you know ⁓ slow industry and construction right not in terms of growth but you know generally the pace at which it moves ⁓ and we don't have enough talent coming in. There's the shortage of talent coming in, both, you know, skilled labor as well as everything else, right? ⁓ How do we attract talent, fresh talent to the industry? So if you, if you were to go back to your alma mater and say, or you know, your daughter's school, Michigan, right? And say, hey, listen, kid, guy or girl, a 20 years old, construction is really a sexy place for you to make a career, right? How can we do it, you know, in a way that we believe in that ourselves, we believe in the mission ourselves? Neil Shah (28:46) You know, unless you were born in a real estate or construction family, you don't intentionally end up there in many cases. You, like myself, know, wanted to fly jets and ended up in real estate services and now construction. ⁓ I think we need to figure out how to. communicate better with the next generation in terms of the career paths. So if you're in real estate, it doesn't mean that you're selling homes. And if you're in construction, it doesn't mean you're remodeling kitchens. You are making where people live, work, play, right? And you mentioned $22 trillion by 2040. It is a substantial industry in terms of economic growth. And in many instances, it's driving economies, whether it's locally within the United States or countries outside the United States. ⁓ I think we have an identity crisis in the built environment ⁓ where people don't necessarily understand what we do. But if you think about how skyscrapers are built, how they're invested in in terms of the capital stack and the global capital flows that go with that, the technology that goes into managing those buildings, all of those are future focused and really global enterprises. Being able to convey that to the next generation is important. We also belong to a group of peer organizations that are coming together. They're looking at ⁓ ways of encouraging the next generation. So we'll work one-on-one with the surety bond producers. We'll work one-on-one with the Construction Management Association of America to understand what they do in next gen. But we also, in careers building communities, have brought together 40 different built environment organizations. organizations that are trying to define what a career in the built environment, real estate or construction, field or back office really means and how do you aspire to that and what credentials are available to them to do that and why that's a meaningful career path as opposed to an accidental career path. Hari Vasudevan (30:56) Yeah, and actually, you know, I've always felt this and this is my own lived experience is like in industries like this construction, ⁓ you know, it also gives you an opportunity to actually ⁓ carve out a path that can. be unique and make a name for yourself, right? Because if it's an industry that is hard to attract talent, which means that less talented people are gonna be here as opposed to Silicon Valley, for example, and it's like, hey, you're one in, I'm making a number up, one in 100,000 as opposed to one in 10 million, right? So the odds of success, achieving success is also higher. That's something I'm gonna try, see what happens from that standpoint. Neil Shah (31:42) Well, that's the competition, right? It's Google and Goldman Sachs. we need to attract the best and the brightest into construction and have them see that it's a career path that not only is great for them, but it has an impact on society, right? ⁓ Really great living, yeah. Hari Vasudevan (31:47) Yes. No, you're right. 100%. And you can make equally good money, right? And, you know, I interviewed a gentleman named Darrell Hallmark, a good friend of mine, for 15, 20 years now. you know, he, Darrell just finished GED, right? And he's made. phenomenal living. I'm talking about millions of dollars, right? Because he's in the construction industry, contractor, successful one. It gives everybody an opportunity. That's the beauty of construction. It's like it doesn't matter if you went to an Ivy League or not. It's about what you can do for me right now. There's no preconceived notions from those angles and things like that, right? So that's great. So let's get into ⁓ some economic stuff, right? Neil Shah (32:49) Let Hari Vasudevan (32:53) So, we have some economic headwinds right now, right? You got inflation, interest rates, you got some supply chain issues. All those things are clearly impacting construction, right? If you look at it, interest rates, high interest rate increases the cost of borrowing, which is a critical source of cash, finance for the industry. ⁓ Inflation obviously also impacts the labor rates, which is going up tremendously. Supply chain disruption, steel, aluminum, lumber coming from concrete, coming from foreign countries subject to tariffs. Today's data is September 19th. ⁓ Things may change, but all these have an impact. ⁓ How do you see financial leaders adapting to this change? Neil Shah (33:26) concrete. Hari Vasudevan (33:44) from a CFMA perspective, what's your take on that? How can we deal with this, ⁓ you know, difficult, unpredictable economic ⁓ environment right now? What's your take on that? Neil Shah (33:57) Yeah, I mean, you touched on every aspect, every parameter that's driving the uncertainty right now, right? And we don't know where we'll end up with tariffs, but let alone globally, let alone from Mexico and Canada, where we do get lumber and concrete from, what happens with imported steel. I mean, those are all critical factors for construction input. What we're seeing from a, we do a confidence index quarterly and we saw a significant drop in the second quarter and we saw a little bit of an uptick in the, significant statistically in the third quarter. However, the uncertainty is what's driving what the future looks like. Backlog has been there and construction is not. Hari Vasudevan (34:49) Backlog is there because like I said, $22 trillion industry by 2040 is what the McKinsey prediction is. Neil Shah (34:54) And it's not as if you start and stop construction projects on a dime. So what's already there is already, you know. recognize revenue for a lot of the firms that are out there. So they're continuing to have work. But it's a matter of whether that uncertainty drives developers and investors to slow down the pace of new projects starting. So what happens in 26 as a result of the the ups and downs with ⁓ supply chains, ups and downs of tariffs really will have an impact. Now, what the Fed did this week in 25 basis points is a good sign, right? It's a step towards maybe moving towards parity in terms of ⁓ interest rates, but that in and of itself may not directly translate into new projects happening right away. The developers have to feel comfortable with the yield that they're going to get from those projects. Where I think we go back to is the trust and confidence that the firm has in its ability to project its cash and project its working capital going forward. And I go back to it, I'm biased, but I go back to having a construction financial professional that can help navigate their way through that. The supply chain issues are going to be there, whether or not it's the tariffs or, God forbid, the pandemic. But it's ensuring that we've got the vendor management capabilities, we've got the relationships on the supply side that enable projects to continue. ⁓ Look, we're somewhat bullish with the movement in the interest rates going down and knowing that the backlog is there and the 22 trillion that you talked about. So construction, think, is going to be a buoyant industry going forward. It's a matter of navigating through some of the uncertainty right now and whether or not that helps us drive the outcomes we're looking for. I have an economics degree, but I'm not an economist. So I'm not in the business predicting recessions or whatnot. We work with Anurban Basu, who's our chief economic policy advisor from SAGE Policy Group. he's fairly bullish on the fact that we've got a huge tax bill that's gone through this year that will take effect next year, interest rates coming down, assuming tariffs work their way through and they work their way through the material side of things. have more predictable outlook on what 26 looks like. So he's pretty positive on avoiding a recession even if it's a slowdown, but then construction will remain buoyant. Hari Vasudevan (37:35) interesting. That's interesting despite all the labor potential labor issues, inflation, ⁓ tariffs. There's bullishness out there. Wow! Neil Shah (37:49) I wouldn't say bullish, I would say cautious optimism. ⁓ It's not bullish. It is certainly not the heyday, but it's cautious optimism. It's not doom and gloom per se because of the strength of the backlog. The need for infrastructure globally, the need for water, waste, and other projects, whether they're road, tunnel, bridges, airports, housing. Right now, think housing isn't in a little bit of a stall, but interest rates may help affect that. If you look, there are pockets of bright spots with data centers and certain geographies. ⁓ Hari Vasudevan (38:29) data centers, Microsoft investing what I mean, a multi billion dollars Oracle OpenAI has a $300 billion deal, nuts, right? Neil Shah (38:38) to. So we're approaching trillions of dollars of data center investment globally. that requires not only the facility itself, but the electricity. You're in the power business. The transmission and distribution capabilities, the water capability. So all the infrastructure that has to go with that, I think is significant. So there are some bright spots in terms of where construction. So having a firm that has the capacity and the capability and the Hari Vasudevan (38:49) I love that. Neil Shah (39:08) working capital to be able to do those things and the balance sheet with their surety company to do those things I think is going to be successful. Absolutely. Hari Vasudevan (39:15) know, manufacturing plants for chip semiconductors and all these kinds of things, right? So some of the reshoring of the manufacturing that's happening in the Midwest and Arizona and all these places. I these are all huge things at the end of the day, right? Neil Shah (39:28) We may not see the office building construction that we saw a decade ago. You and I are sitting in our home offices for this conversation, but you will see it in other ways. Hari Vasudevan (39:38) Yeah, no, I think that's a really good way to look at it. It also helps our listeners and viewers contextualize why there's a cautious optimism on the part of CFMA for the industry, despite all these potential economic headwinds we face, right? Because there's a lot of investments that's happening in the US on the construction side or infrastructure side, and hopefully the pros outweigh the headwinds we'll go from there. So ⁓ that's a good segue into ⁓ the CFMA piece. What does the non-financial risk that you think keeps you up at night, keeps other CFMA members ⁓ and their leaders at night, ⁓ what are they not paying enough attention to? How can we get them to pay attention to those items? Because everybody pays attention to everybody. Most people pay attention to finance, right? What you take on that? Neil Shah (40:43) I think talent, number one. The skilled labor shortage is persistent and it's been here even, you know. for the greater part of the last 10 years plus. I think we need to pay more attention to what we talked about before, ⁓ careers in building communities and careers in construction, making it attractive. With the cost of higher education, with the challenges in payback from the investment you make in college, maybe that's not a path for everybody. And I think we need to start promoting and maybe going back to promoting the trades early. Hari Vasudevan (41:14) 100 percent. Neil Shah (41:23) in individuals education so that they recognize when I come out of high school, I can become an apprentice for a mechanical electrical plumbing company. I can become a carpenter and have a viable career because if we don't fill that gap of talent, there's no need for an accountant in the back office, right? The CFO is not necessary if the construction industry is not growing. So we need to be part of that solution. ⁓ And it's, We'd say it's a non-financial risk, but it translates into capacity to grow. Hari Vasudevan (41:57) 100 % it's a capacity building and know candidly some of those jobs are probably going to be not affected by AI as much. Every job is going to be affected right? Finance, accounting, ⁓ legal, know medicine, you name it, you know it's all going to be impacted. To what extent? I really don't think anybody knows right? But some of those hard skilled jobs that you mentioned, plumbers, electricians, Neil Shah (42:09) Mm-hmm. Hari Vasudevan (42:28) Carpenters, linemen, know, supported by IBW. All these professions are really have a much better chance of withstanding the AI assault, if I may call it as, right, than most other profession. I think it's a good way to put it. let me ask you, you know, since we're talking so much about talent, right, How would you paint the construction industry in 2030 to attract talent? Or even 2040, right? It's a long term thing, 2030 to 2040, construction finance, construction industry in general, how would you paint that as? And what would you hope to be different? Neil Shah (43:03) Mm-hmm. You know, it's interesting you said 2030 because that's only five years away. And before you know it, change is happening. Hari Vasudevan (43:16) I know it's coming up. 2040, let's call this 2040, how about that? Neil Shah (43:23) So let's look at 2040. We think data is the future, right? I mean, yes, we deal with debits and credits. Our members are dealing with APAR and treasury functions, but ultimately understanding the analytics behind that. In a business that's low margin, where you don't run out of work and you run out of working capital and cash, having the analytics to be able to do that. So for us, we want to drive more and more of that kind of capability. into the profession. ⁓ Obviously you're going to need to do the blocking and tackling and many CFOs have HR and IT and risk management responsibilities. But looking at all of that in a way that allows you to make decisions about the future of your firm, whether that's, I grow in this market? Should I extend into this asset class? Should I take on this project? Could be driven by data. And we have an offering that we put out there called a financial benchmarker. And we've got something called a heavy equipment comparator. We think the combination of those two plus some things around staffing and technology will help us create a standard that will be best class for people to look at and aspire to. And I think that's the kind of world that the construction financial professional will in is they'll be helping instill trust and confidence based on what they know is best in class for the infrastructure of their firm. And by driving that, they'll help their companies grow. Hari Vasudevan (44:50) Yeah, no, that's a good point. Yeah, keep going, say it. It's good point. So essentially what you're saying is, data is important for data has to be reliable, collecting the right kind of data, be it financial, be it from the field, law office, whatever, it's important to drive business decisions down the road. Since we talked a lot about humanizing construction, earlier on, we talked about safety, suicide prevention, can suicides and things like that. What's your take on this, right? Because, ⁓ One of the things I think where AI is gonna play a significant role, since we're talking about 2040 here, is health and safety. here's my theory, and I would love for you to chip in here, chime in here. So one of the issues in the construction industry is long hours, like we talked about, long days away from home. But there are also perverse incentives at play for the project manager. It's like, hey, you get the job built. So you really don't care as much about the mental health of a fellow worker in the field. You think, hey, just one more day or one more week, get the job done, right? And you have safety professionals who may not get access to data. ⁓ What do you think, my theory of, hey, you have AI nudging different stakeholders in a project like safety professionals, the CFO. the project manager saying, this guy has been away from home for the last four weeks, ⁓ or this guy has been driving a lot of miles, or this ⁓ girl has been ⁓ working a lot of hours, right? ⁓ That means there is a potential for ⁓ safety related ⁓ accidents to happen, right? You get jaded if you work too long hours for a long period of time away from home, mental health. ⁓ Neil Shah (46:44) Mm-hmm. Hari Vasudevan (46:49) potential for suicides and things like that. So I feel like AI can actually be used to nudge different stakeholders and help them send the person back home for a week or force them to call somebody back home and say, hey, how you doing? Or take a coffee break and things like that. What's your take on that? Neil Shah (47:01) Yeah. It's a more proactive way of actually recognizing. mean, it's funny, know, lot of cars today tell the driver if they've been driving too long or their attention to the road is waiting to take a coffee break. I think it's similar to, you know, being proactive about somebody on the job site. So for me, again, it gets back to data. It's not just financial data, but it's payroll data, it's hourly data, it's safety data that comes together in this Hari Vasudevan (47:21) Take a coffee break, you're right. Neil Shah (47:39) industry standard, if you will, that says, you know what, when certain parameters get here for this individual, I think you drive them to take time away from the job site, or you drive them to take time off from work. Those are things that are going to be critically important. I don't think that just by using the AI and analytics to do that takes away from the need to have human connection, because you got to ask the question as well, or you will In large part, you can prevent somebody's mental health from declining just by showing that you care. Being there. Hari Vasudevan (48:09) Yes, you're right. Being there, being present, right? ⁓ Being not just physically present, be mentally present. That is something I drive with my people all the time. It's like, hey, you're physically here. Are you mentally there? Are you mentally there for your employees? Emotionally there, right? Because the emotional piece of it is something people miss. So at the end of the day, ⁓ your focus is on data, not just finance. It could be ⁓ holistic data that will drive business decision making in many ways. If you have a good way to collect the data, it's in a form that can actually be ⁓ helped to make decisions. That's where you see the value coming in in 2040 timeframe, right? So that's great. I want to get to rapid fire questions here. Neil Shah (49:03) Absolutely. Hari Vasudevan (49:10) Before that, let me ask you, is there anything else you would love to tell the listeners about CFMA, about the construction industry, how they can join CFMA, how they can take part in CFMA? There's so many committees you guys have, so many local chapters, so many regional conferences. It is not like some of the industry conferences I have to fly to one conference a year, wherever they may be held. You guys have so many regional connections. Do you want to talk a little bit about that? Neil Shah (49:10) Okay. Yeah, we have 90 plus chapters across the United States. Chapters of the lifeblood of the organization. It's where people join. It's where people stay. It's where people are engaged. Those chapters come together every fall to have anywhere from 12 to 14 regional conferences. We do an annual conference. Next year will be in Phoenix. We also do a larger conference in partnership with the American Association of General Contractors, and we've been doing it for 29 years running. it's, you we've got lots of ways of actually joining the community, being part of the community, getting thought leadership and education. If you went to CFMA.org slash join, it'll give you an idea of how to join. But part of the success of CFMA, I love to say we have the most engaged membership on the planet. every time I interact with groups of members, I come away more, ⁓ Hari Vasudevan (50:09) AGC. Neil Shah (50:39) energized, but it's getting involved. Whether you're volunteering, whether you're providing thought leadership, like yourself writing articles for our award winning Building Profits magazine, all of those are things that bring people into the community and keep people in the community. I said it before, I think we're the only organization of its kind globally that brings the intersection of construction and financial management together. My aspirations is that the role of the CFO, controller, accounting professional gets recognized for the impact they have on construction, not only in the United States, but someday globally. Hari Vasudevan (51:19) Yeah, no, it's great stuff there. I can tell you this, ⁓ in terms of engaged members, obviously I live in the DFW Metroplex, I always get an email, say happy hour here, or do you want to be part of this golf tour here, or a lunch here, or this ⁓ PDH, professional development hours, ⁓ presentation by so and so. It's very, very engaging and it's not just to... Neil Shah (51:45) DFW is very active and a fairly engaged chapter for us for sure. Hari Vasudevan (51:50) Yeah, yeah, no, That's great. So let's get into rapid fire questions here, right? so you know, we started off the show by asking about Michigan. So you're, you're obviously you think it's a legitimate championship. It's great. ⁓ Jim Harbaugh, obviously love Jim Harbaugh. So that's good. ⁓ You know, let's go to Giants 2007 or 2011 Super Bowl. I mean, I know you guys have more. ⁓ two more in the, ⁓ eighties, right? But, ⁓ what's your take on it? What's your, which one of those are your favorite? Neil Shah (52:25) What? Well, both of those should put Eli Manning in the Hall of Fame. He beat the greatest of all time, Tom Brady both times. He beat Bill Belichick both times. growing up a giant fan, I was a Phil Simms fan from day one. And ⁓ he won the Super Bowl in 1986 against the ⁓ Denver Broncos. And for me, that's going to be the most memorable because it was kind of the first level of excitement for us. ⁓ We were terrible. the 70s and early 80s. We were awful until Phil and Lawrence Taylor came around and those are the teams that I remember the most. That's right, you got it. He is the legend. Hari Vasudevan (53:05) Bill Parcells, man. He's the man, right? So he's the guy who did it. Yeah, know, Phil Simms, you know, there's an interesting ⁓ nugget about Phil Simms. He's the first guy, apparently, after the Super Bowl MVP. said that Disney World, right? yeah, he started it off. I'll tell you what. Neil Shah (53:20) to go to Disney World. That's right. That's right. He started it all. But let's talk about the 2025 Giants, Owen too. Soon to be Owen Moore. But I'll tell you what, if they can play like they did against Dallas last week, they might be in some games this year. Hari Vasudevan (53:31) You might be in some games. Listen, no matter, I mean you guys haven't won anything since 2011 but you know just uh the franchise valuation is 10 billion bucks you just sold 10 know 10 percent of it for a billion bucks so the owners are doing all right so Neil Shah (53:54) They're doing well. They're doing well. And season ticket holders pay for season tickets year in and year out. Hari Vasudevan (54:01) Yeah. Now I also see that you're a golf fan, right? So live golf or PGA. Neil Shah (54:07) No. No, PGA. PGA all the way. You noticed that you said before, today's modern golfer, I love Rory McElroy. I just love the way he approaches the game. It akin to how Tiger Woods approached the game. ⁓ It's hard not to like Scotty Schaeffler. mean, the man is a machine in terms of how he's been winning probably more so than anybody since Tiger Woods. But I just love watching the game and it's kind of odd. know, people don't like watching golf. I love watching the pros. I love going to golf tournaments because you can hear the explosion off the ball. I love playing, but I am not very good. You know, I'm a hacker and I don't get out as often as I'd like. Hari Vasudevan (54:45) Yeah, interesting. Interesting. Tom Cawson, Hall of Famer now. Neil Shah (54:53) Absolutely, absolutely. He's he's taken the Jacksonville Jaguars to the AFC Championship game. He is. Yeah, yeah, that's right. And and and he's responsible, I think, for the Giants reemergence in this past ⁓ latter half. He and Eli, you need a head coach and a quarterback combination in order to have that success. He's got to take some of that credit. He's got to get some of that credit for it, so. Hari Vasudevan (55:00) First season, in the first season, expansion team first season. interesting interesting Jim Harbaugh, John Harbaugh. Neil Shah (55:24) Jim, I mean, ⁓ the Ravens are great, don't get me wrong. I can't wait till the two of meet again, maybe in the AFC Championship game. Jim lost to John in the Super Bowl when the 49ers lost to the Ravens, but know, Harbaugh's a Michigan man, so we're gonna root for him. Hari Vasudevan (55:43) Yeah, he almost came back. Remember that? That is the Super Bowl in New Orleans where power went off and it is a close, close Super Bowl, right? So final sports question to you. Arch manning bust or still has hope? Neil Shah (55:48) Yeah. man, the kids in what two games, three games so far. ⁓ I think the name has helped him get a lot of NIL money. His dad is funny. He's the funniest out of the Mannings and all three Manning brothers are funny, but Cooper Manning is hilarious. So he does commercials with his son. I think that's too much pressure to put on a 20 year old, 21 year old. I think he's going to be a good quarterback for the Longhorns. I think he's going to get Hari Vasudevan (56:00) All right. Neil Shah (56:27) drafted well, I don't know if he's going be number one or the Heisman winner. And he's got the pedigree and probably the work ethic to be a successful NFL quarterback. Ask me in like 15 years whether he's a boom or a bust, right? Hari Vasudevan (56:41) there I know maybe he'll come to the New York Giants and be your savior again. Neil Shah (56:46) Jackson dart, think can be. It just needs a little maturation. Hari Vasudevan (56:50) Interesting. Alright, so let's... You live in New Jersey, right? that right? So you know what? I'm gonna... You know, you've just been elected governor of New Jersey, Neil. Governor Shah. What are you gonna do to the people of New Jersey? Neil Shah (56:55) Yes. So I know we have, I joke that. You need to be from here in order to love it here. The taxes are high, the roads are crowded, and infrastructure is not great, and sometimes we get irritable and angry, so we're rude. I think making New Jersey, New Jersey is the Garden State. It's got the beaches, it's got the farmland, it's got the mountains, it's got access to the greatest city in the world in New York, and yes, a really good city in Philadelphia. But at the same time, I think making it an attractive place for businesses to want to be like your Texas has done, like other markets of Tennessee's doing a good job. I think we need to figure out how to do that because that's the nucleus of how we're going to continue to thrive as a state. So what I would do is make for a business environment that's more attractive for people to want to be here because we've got access to the best talent in the world. We've got New York City right here. Hari Vasudevan (58:07) Yeah, no, 100%. That's good. You know, that's a really good approach on that. Let me go back to sports before we wrap it up. know, Jalen Brunson, I don't support New York teams too often for obvious reasons, But I'm thinking to myself as I'm talking to you, I've supported you guys thrice. The 18-1 Giants, my brother, who I hope will listen to this show, he's a big Patriots fan. 2007 when they, when the Giants upset the Patriots, I sent an email back in the day, it still email, right? I sent an email to him, 18 and 1, how does it feel? Neil Shah (58:49) Well, if it's any consolation, my brother lives in West Roxbury, Mass. And he's allowed my nephew to be a Red Sox and a Patriots fan. that we're even. Hari Vasudevan (59:00) Jaylen Brunson, I like him. You the Mavericks, we're so good in the front office. We let Jaylen Brunson walk, we trade away Luka Dancic, right? We're really good at drafting players and letting them go. That's what we're good at. Neil Shah (59:14) Brunson's at home though. I mean, he went to Villanova, not far from here. He's got Villanova teammates on the team. They've made the Knicks an exciting team for sure. Hari Vasudevan (59:21) The Villanova Five, right? I agree. agree. So, Neil Shah, thank you so much for your time. I really, really deeply appreciate you coming on the show and being so ⁓ candid, so open ⁓ and look forward to our long relationship with you, CFMA, with other members. And you have something great going and I wish you my very best. And if there's anything I can do to help you and your members. ⁓ here always ⁓ email or phone to way. Neil Shah (59:57) Hari, thank you so much. It's so kind of you to have me on this and all the best to your emerging growth firm ⁓ after ThinkPower Solutions. I know KYRO is going to do great. So thank you so much. Hari Vasudevan (1:00:11) Thank you so much. Stephen Day (1:00:15) I'd say that probably the number one reason that successful small businesses go out of business is because of the networking capital problem. They're growing too fast and they don't have enough capital to handle that But let me just say we were on the river within 24 hours and I personally and my team were involved in search and rescue and we came across people who had been deceased or victims, you know, of the flood. And it's very upsetting and very disturbing. And the amount of ⁓ property loss was just unbelievable on top of that. And to be standing on side paths where homes previously