Caterpillar buys into construction rental start-up Yard Club

Owners of heavy equipment can rent to other contractors through Yard Club.
Source: Yard Club
Owners of heavy equipment can rent to other contractors through Yard Club.

In the construction business, heavy machinery such as excavators and bulldozers can often sit idle between projects. Contractor McGuire & Hester, based in Oakland, California, got tired of staring at unused gear and decided to lend its equipment and raked in $100,000 in rentals in a little more than a year.

The online rental platform it used was Yard Club. Founded in 2013, the San Francisco start-up allows contractors to easily rent machinery to one another for weeks at a time. The rentals in turn allow businesses to boost revenue in between jobs.

Construction equipment rental already is a nearly $40 billion industry annually. But start-up Yard Club is trying to one up more established networks by showcasing its easy-to-use, online community. Members are prescreened and construction fleet inventory is detailed virtually so posting equipment to rent and accessing specific gear are easy tasks.

The rental process was "seamless," said Mike Haley, equipment manager at McGuire & Hester.

The platform is catching on. Yard Club—which raised $1.6 million from firms including Andreessen Horowitz in 2013—got more validation this month when construction giant Caterpillar contributed an undisclosed amount to a new round of funding as part of a partnership.

"This is about making the process easier and expanding the contractors renters can connect with," said Yard Club's founder and CEO, Colin Evran.

He declined to disclose revenue or membership numbers. But Evran did say Yard Club deals with about 700 pieces of equipment in the San Francisco area, with plans for growth. The start-up intends to expand further into California and nearby states with the Caterpillar partnership.

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Avoiding construction 'pain points'

Yard Club also illustrates how quickly the sharing economy is evolving. Early examples of the model—that essentially connects individuals with consumer-facing services and businesses—include lodging rental app Airbnb and ride-hailing apps Uber and Lyft.

Now the sharing economy is enticing established companies to jump in—before they're potentially disrupted by upstarts.

Yard Club is a peer-to-peer business play that maximizes the use of equipment that can cost hundreds of thousands of dollars or more. For construction companies that can afford such big expenditures, there's no guarantee the investments will pay off. And small- to medium-size guys can't afford such expensive gear.

Big construction outfits have been renting large equipment for years, while other businesses loaned gear through handshake agreements that were honored but not always the most efficient route.

After witnessing such "pain points" with his father who worked in construction, Evran said he knew he could invent a better model. "Idle time is hard to swallow," said Evran. "If you ask anyone in the industry this is probably the No. 1 issue on their mind."

Caterpillar, in turn, is hoping for an ever broader reach of customers. "The Cat dealer will use this tool as another avenue to strengthen customer relationships by increasing the utilization rates of heavy equipment and lowering the total cost of equipment ownership," said Phil Kelliher, Caterpillar's vice president for Americas distribution services, in a release.

Analysts say more established companies beyond Caterpillar likely face similar strategy decisions about start-up models in their respective industries.

Caterpillar's partnership with Yard Club shows that Caterpillar wants to embrace—and potentially benefit from—new technology before it potentially disrupts existing business like heavy machinery sales, said Scott Strawn, an analyst at market research firm IDC.

"If it's disrupting their core business, they can at least invest in what is disrupting it," Strawn said. "It's better to embrace those changes than try to repel them because if they don't embrace them, they'll likely find themselves left behind."

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Here's how Yard Club works.

Vetted members can lend or rent machines to other contractors through Yard Club's online platform. The company takes about 20 percent of each transaction, depending on the equipment.

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As part of its expansion plan, Yard Club will become available in regions including Arizona, Georgia and western Canada later this year in conjunction with Caterpillar dealers. The company's distributors will be able to use Yard Club's platform to rent equipment.

The future

Looking ahead, sharing economy watchers anticipate more established companies buying into emerging platforms as a safeguard against future potential competition, says Don Scheibenreif, vice president and distinguished analyst at research firm Gartner. Buying into new technology ensures a level of protection against disruption, he added.

"If they [established companies] are smart, they'll be thinking about the way these models can play into their businesses," Scheibenreif said.

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Scheibenreif pointed to Roadie. The Atlanta-based start-up allows travelers, already heading to a destination, to deliver packages for other consumers. Delivery giant UPS contributed to a Roadie funding round earlier this year.

Scheibenreif believes the sharing economy will only affect more sectors moving forward, and more large companies will likely start "experimenting" to gauge how it will affect existing company models.

Meanwhile, Yard Club and other new business models are likely to shake out the construction sector further. Evran added, "The sharing economy has a huge place to moderate the ebbs and flows of this industry."