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Now Is the Time for Records Management

January 1, 2000

6 Min Read
Now Is the Time for Records Management

Now Is the Time for Records Management

By Cary McGovern

There has neverbeen a more opportune time to go into the records-management business. The year 2000 marksthe merger of the two industry giants Iron Mountain and Pierce Leahy. This merger willopen the door for local entrepreneurs to establish themselves in important niche markets.

Iron Mountain Inc. Buys Pierce Leahy Corp.

KING OF PRUSSIA, Pa. (Reuters)--Iron Mountain Inc. plans to buy Pierce Leahy Corp. in a$1.2 billion stock deal, Pierce Leahy said Oct. 21, combining the two largestrecords-management companies in North America. (To see the full story, accessabcnews.go.com/wire/Business/ reuters19991021_1552.html.)

Why is this announcement so important? The records-management market has been inconsolidation for the last several years. Both Pierce Leahy and Iron Mountain have boughtthe market leaders in each major market. Although the giants have a stranglehold on thehigh end of the market, industry observers believe that this consolidation has opened newmarket access for the local entrepreneur.

Three Market Perspectives

Major Markets. The major records-management markets around North America are generallycities larger than 1 million to 1.5 million people. The newly combined company, IronMountain Records Management, will have locations in more than 70 markets of this size,mostly in the United States and Canada. Although Iron Mountain has the size and capabilityto perform virtually any records-management function, its focus continues to be on thevery largest accounts in each market.

It has been our experience that local and regional companies prefer to deal with localcompanies. The local entrepreneur has the advantage over the large company in customerservice and flexibility. The key for successfully competing with Iron Mountain in thesemajor markets is service. Many of my customers who go head-to-head in competition are verysuccessful; their most important components are accessibility to management and personalservice. If the customer wants something special, he can speak with the owner. Try thatwith Iron Mountain.

If you are a new start-up or entrepreneurial operator in one of the major markets, thismay be the catalyst that you need to build your business. Although the buyout of PierceLeahy will take place in early 2000, it will likely require two to three years for IronMountain to fully integrate the two operations. Based on the many mergers that have takenplace over the last few years, you can count on there being operating difficulties and amanagement shuffle from the top down in each location. If you want to build your business,the time is definitely now.

Growth markets. Markets smaller than 1 million in population are considered the bestmarkets for the development of new commercial records businesses. Generally, communitiesfrom 200,000 to 1 million have not yet attracted the major competitors. However, thesecities seem to have the highest percentage of potential new records-storage business. Itis likely that less than 50 percent of the existing marketshare has already been capturedby all of the local competitors. In addition, existing records-storage companies in growthmarkets typically do not offer a full line of records- management services. It is likelythat communities of this size have two or three competitors that grew up out of generalwarehousing, moving-and-storage or the self-storage industry.

If you are in a growth market of less than 1 million, you are in the hottest area forgrowth in records management. This market will surely be the next wave for acquisition.The market leader will be the most sought after by Iron Mountain or any acquirer. It lookslike you will have three to five years to build up your business and become themarketshare leader. Remember, the more professional your operation and the more servicesthat you provide, the more valuable you will be.

Micro Markets. Markets of less than 200,000 are developing the largest number of newstart-ups. I get calls and e-mails on a weekly basis from entrepreneurs in smallcommunities all across America. They want to know if it is possible to start up and beprofitable in a small community. Recently, I have worked with start-ups in communities assmall as 50,000 in population. The population size and the number of businesses in yourcommunity always drive your volume. If you are in a micro market, you can be successfuland make a significant return on your investment. One advantage that you will have is theprices and margins are generally higher in a smaller community.

Market-Size Formula

Several months ago, I described in another article the formula for determining marketsize. It is worth repeating. Although this formula is not perfect, you can use it withsome confidence as a benchmark for your community.

First, draw a circle around your market area, usually 25 to 50 miles for commercialrecords centers. Then calculate the total population in that market area. Multiply thepopulation by five. That calculation yields the number of boxes in your community. Boxesare an average of 1.5 cubic feet (letter/legal are 1.2 cubic feet, letter transfer casesare 1.6 cubic feet and the legal transfer case is 2.4 cubic feet). Multiply the number ofboxes by 1.5 to calculate the number of cubic feet available. Generally, the amount ofboxes captured by commercial records centers is less than 50 percent of the total (smallercommunities may be as high as 60 percent or more).

Example:

80,000 people in a 50-mile radius
x5 boxes per person
---------
400,000 boxes in that community
x1.5 cubic feet per box
----------
600,000 cubic feet total
÷2
-----------
300,000 cubic feet available

Determining Gross Revenue Potential

In a community of 80,000 to 100,000 people, it is likely that you can acquire 50,000cubic feet of storage in two years and 100,000 cubic feet in the first five years ofoperation with an aggressive marketing plan. Let's use 100,000 cubic feet as a benchmarkfor determining the potential revenue:

100,000 cubic feet
x.25 average cubic foot storage rate per month
-------------
$ 25,000 monthly storage revenue
x1.65 service revenue is a minimum of sixty-five cents per storage dollar
-------------
$ 41,250 monthly storage and retrieval revenue

These estimates are general in nature, but are formulated from actual industryinformation. It is important to remember that the more services you provide, the more yourservice revenue will expand. Each 100,000 cubic feet of stored records can generate$500,000 in gross revenue.

Consider Records Management Now

If you haven't considered records management as a business, now is a great time todo so. You can access more than 25 articles and other information concerning tools andresources for records center start-up on the FileMan Records Management Website at www.fileman.com. 

Regularcolumnist Cary F. McGovern is a certified records manager and owner of File Managers Inc.,a records-management consulting firm that also provides outsourcing services, file-roommanagement and litigation support services for the legal industry. For more informationabout records management, contact Mr. McGovern at File Managers Inc., P.O. Box 1178, AbitaSprings, LA 70420; phone (504) 871-0092; fax (504) 893-1751; e-mail: [email protected]; www.fileman.com.

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