June 1, 2004
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, lets take a moment to look at the differencesbetween selfstorage and commercial records management:
Self-Storage
Facilitiesrequire a significant real estate investment
Ahigh level of location visibility required
3-to 5-mile market area
Advertisingis important
Customer comesto self-storage
Financiallysophisticated investor
Passivestoragelittle labor required
30-daycontract
Access to capitalmarkets
Investors enter theindustry from real estate development or other investment interests
Ownersare from a white-collar background with a finance degree or MBA
Ownersunderstand the need to acquire or hire expertise
Management-teamorientation
Owners generallyhave marketing savvy but little direct sales experience
Commercial RecordsManagement
Real estatemay be leased with little or no investment
Locationmeans very little other than to access highways and routes
25-to 75-mile market area
Advertisinghas little effect
Customerrarely comes to the commercial records center
Bootstrapentrepreneur
Active storagelaborrequired
Permanent contract
Sometimesundercapitalized
Ownersenter the industry from moving and storage, document destruction, courierservices as well as self-storage
Ownersare from a blue-collar background with a hard work ethic
Ownerscome from a do it yourself, learn while doing background and have little experience with experts
Hands-onmanager
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 underthe radar. That is not the case anymore. Since the fall of the dot-coms,safer investments with recurring revenue streams have moved up the corporateladder.
For example, Iron Mountains stock enjoys a highlyrecommended status by brokers and investor analysts. Many of the major brokerageand investment banks have identified commercial records management as a growthindustry worthy of investment. Private equity has placed its mark on commercialrecords as well. Today, there are at least a half dozen well-funded companiesbuying records centers and increasing their market share and penetration throughacquisition. These companies are strengthened by investments from largeprivate-equity funds or owners with significant personal wealth.
Why all the interest? Self-storage owners and investors withmillions of dollars at stake in their facilities are faced with more competitionand are looking to other services and product differentiation to separatethemselves from competitors. Additionally, when packaging a selfstorage facilityfor sale, the numbers do not always work as desired; but when records storage is added to the pro forma, thenumbers change significantly in a positive direction.
A Tale of Distinction
The comparisons between self-storage and commercial recordsmanagement speak volumes. Those entering the commercial records industry todayare much more sophisticated than in the past. They tend to have more capital andbusiness acumen and are steeped in planning and resources. On the other hand,the existing industry is filled with bootstrap entrepreneurs who haveworked very hard to develop their businesses. They run their operations the sameway they have for decades.
Since commercial records-storage initially emerged from themoving and storage industry, it has been considered a storage business. Today, it is a service business, driven by client needs. Theseneeds seldom are as simple as storage. Storage is a commodity. The issuesinvolved in records-keeping have more to do with locating items than simplystoring them.
Modern-day businesses are required to produce records with integrityfrom the bowels of their archives to protect them from liability and ensureregulator compliance. Therefore, records-storage services are as basic asretrieval and delivery. But as these services are labor- and resource-intensive,they are relatively low-margin. The new commercial-records business modelemploys dozens of services that bring high value to the client and add margindollars to the records centerthe higher the level of service, the greater themargin.
Bringing the Two Worlds Together
There is a new business model bringing these two worldstogether. The new market leaderthe Sleeping Giantis the records-managementoperation with a self-storage base, a focus on services, and a marketingstrategy aligned with resources and capital. The model works best when thefollowing exist:
Multiple storefronts
Amarketing strategy
Athoughtful service strategy
Aselling process supported by well-trained and motivated salespeople
Aselling method with measurement tools
Salesmanagement _An operating plan
Effective business processes
Internal controls
So, why isthis business model the Sleeping Giant? We are witnessing the emergence of a newbreed of operators. These owners and investors are building businesses that worksimultaneously in both marketsselfstorage and commercial records management.This has never successfully been done to this extent. It can be executed nowbecause of recurring revenue stream, technology, outsourced resources andavailability of capital. When these two businesses are joined, they take on atotally new dimension. In this case, one plus one equals 10.
Regular columnist Cary McGovern, CRM, is the principal of FileMan RecordsManagement, which offers full-service records-management assistance forcommercial records storage startups, marketing assistance, and sales training incommercial records-management operations. For assistance in feasibilitydetermination, operational implementation or marketing support, call877.FILEMAN; e-mail [email protected]; www.fileman.com.
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