The Sleeping Giant Awakes
By Cary F. McGovern
Who is the “Sleeping Giant” of records management? Is it a large company like Iron Mountain, Recall or Crown? Not at all. It may be the most unlikely competitor: a new breed of investor who understands the nature of the industry. This column discusses why the Sleeping Giant may be the biggest assault ever on traditional records storage.
A Tale of Two Industries
First, let’s take a moment to look at the differences between selfstorage and commercial records management:
Commercial Records Management
- Real estate may be leased with little or no investment
- Location means very little other than to access highways and routes
- 25- to 75-mile market area
- Advertising has little effect
- Customer rarely comes to the commercial records center
- Bootstrap entrepreneur
- Active storage—labor required
- Permanent contract
- Sometimes undercapitalized
- Owners enter the industry from moving and storage, document destruction, courier services as well as self-storage
- Owners are from a blue-collar background with a hard work ethic
- Owners come from a “do it yourself, learn while doing” background and have little experience with experts
- Hands-on manager
- Owners may be both operators and salespeople, with little or no formal selling method
These industries could not have more different perspectives. Little has been written regarding how their disparities affect the current onslaught of new investors to the records-management community. Until a few years ago, records storage was considered “under the radar.” That is not the case anymore. Since the fall of the dot-coms, safer investments with recurring revenue streams have moved up the corporate ladder.
For example, Iron Mountain’s stock enjoys a highly recommended status by brokers and investor analysts. Many of the major brokerage and investment banks have identified commercial records management as a growth industry worthy of investment. Private equity has placed its mark on commercial records as well. Today, there are at least a half dozen well-funded companies buying records centers and increasing their market share and penetration through acquisition. These companies are strengthened by investments from large private-equity funds or owners with significant personal wealth.
Why all the interest? Self-storage owners and investors with millions of dollars at stake in their facilities are faced with more competition and are looking to other services and product differentiation to separate themselves from competitors. Additionally, when packaging a selfstorage facility for sale, the numbers do not always work as desired; but when records storage is added to the pro forma, the numbers change significantly in a positive direction.
A Tale of Distinction
The comparisons between self-storage and commercial records management speak volumes. Those entering the commercial records industry today are much more sophisticated than in the past. They tend to have more capital and business acumen and are steeped in planning and resources. On the other hand, the existing industry is filled with “bootstrap entrepreneurs” who have worked very hard to develop their businesses. They run their operations the same way they have for decades.
Since commercial records-storage initially emerged from the moving and storage industry, it has been considered a storage business. Today, it is a service business, driven by client needs. These needs seldom are as simple as storage. Storage is a commodity. The issues involved in records-keeping have more to do with locating items than simply storing them.
Modern-day businesses are required to produce records with “integrity” from the bowels of their archives to protect them from liability and ensure regulator compliance. Therefore, records-storage services are as basic as retrieval and delivery. But as these services are labor- and resource-intensive, they are relatively low-margin. The new commercial-records business model employs dozens of services that bring high value to the client and add margin dollars to the records center—the higher the level of service, the greater the margin.
Bringing the Two Worlds Together
There is a new business model bringing these two worlds together. The new market leader—the Sleeping Giant—is the records-management operation with a self-storage base, a focus on services, and a marketing strategy aligned with resources and capital. The model works best when the following exist:
- Multiple storefronts
- A marketing strategy
- A thoughtful service strategy
- A selling process supported by well-trained and motivated salespeople
- A selling method with measurement tools
- Sales management _An operating plan
- Effective business processes
- Internal controls
So, why is this business model the Sleeping Giant? We are witnessing the emergence of a new breed of operators. These owners and investors are building businesses that work simultaneously in both markets—selfstorage and commercial records management. This has never successfully been done to this extent. It can be executed now because of recurring revenue stream, technology, outsourced resources and availability of capital. When these two businesses are joined, they take on a totally new dimension. In this case, one plus one equals 10.
Regular columnist Cary McGovern, CRM, is the principal of FileMan Records Management, which offers full-service records-management assistance for commercial records storage startups, marketing assistance, and sales training in commercial records-management operations. For assistance in feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail firstname.lastname@example.org; www.fileman.com.