November 1, 2001

5 Min Read
Up in a Down Economy

Records management is an anomaly in the world of business. The industry is good in an up economy but even better in a down economy. Why is this so, and what makes records management a can't-miss business for the next decade or more?

Merriam-Webster defines the word "anomaly" as a "deviation from the common rule or an irregularity." It is widely accepted that business and the economy run in cycles. There is a time for a "bull" market and time for a "bear" market. They are the yin and yang of the ever-changing business climate in our economy. But every so often, an anomaly occurs. The records-management business is one.

Those of us who invested in the dot-coms have flocked back to the more stable investments that are real and tangible. Since the fall of the dot-coms, the presence of Iron Mountain, the world's largest commercial-records organization, as a stable, old-economy leader has grown. On July 31, the company published this statement in a press release:

Storage revenues increased for the second quarter of 2001. This marks the 50th consecutive quarter for which Iron Mountain has reported increased storage revenues. Storage revenues, which are considered a key performance indicator for the records and information-management services industry, are largely recurring since customers typically retain their records for many years ... Our annuity-like revenue stream remained strong, as expected ... We are particularly heartened by our performance in light of the current economic climate and continue to see strong primary demand for our core services as we help our customers save money through outsourcing.

Richard Reese, the CEO of Iron Mountain, gave the keynote address at this year's PRISM International conference in Bal Harbour, Fla. PRISM is the trade association for the commercial records-management industry (www. Reese's speech was part of a panel discussion on the state of the industry and predictions for the future of commercial records management. Following are some of his comments:

According to Reese, "The U.S. [records-management] market is a $5 billion market and in the rest of the world it's a $5 billion to $6 billion market." He said Iron Mountain research shows the records-management market is only 40 percent captured in the United States and only about 10 percent captured in the rest of the world. At this point in his presentation, Reese drew a standard S-curve for the audience, which illustrated the industry from the beginning--in roughly 1950--to today. Records management, he said, has grown to be about 40 percent outsourced from businesses, while the rest of the volume is "in the hands of our biggest competition--the customers."

"There is more business out there than in our collective hands," said Reese, who projects the industry is in a period of "high-opportunity," moving toward an inevitable period of saturation. Although he admitted he does not know when saturation will occur, he said, "It is a slow curve--probably 20 or even 30 years." Reese went on to say, "The future is bright. Paper is not going away." In an era of computers, this seems to be at odds with logic.

Many experts and industry observers have discussed and written about the "paper phenomenon" and determined the movement to digital records is more a sociological issue than a technological one. Next to every computer are a printer, fax machine and copier. Our tendency is to print things out and read them. At the same time, in the United States and much of the developed world, we are focused on short-term profits, the mentality of which ensures the bottom line is attended to each quarter. Movement to digital systems in corporations requires three things: huge capital investments, great attention to detail and commitment. This translates into a strategic plan. In a world filled with tactical solutions, strategy is rarely found.

The outsourcing of administrative, noncore services from businesses began in the 1980s. Companies such as Xerox, IBM, EDS and many others focused on providing noncore activities for companies that had little expertise in administrative chores. Around the world, the outsourcing of nonessential services has become the norm. Most businesses would never consider cutting their own grass or running a cafeteria for their employees. The same has become true for copy centers, mailrooms and file rooms. Outsourcing off-site records management is rarely ever more expensive and is generally more efficient then running it in-house. It is literally one of the easiest services to sell.

In his presentation, Reese made it clear commercial records centers that move into the future, offering services businesses demand, will survive and prosper. Iron Mountain is investing many millions in its future. Make no mistake though--storage is the basis of the business, but storage alone cannot withstand competition in a saturated market without services based in technology. Internet access is a must and provides an edge in marketing. Scan-on-demand and online document repositories will become commonplace.

I estimate our commercial records clients who develop new records centers in this fast-growing, high-opportunity market can achieve 100,000 billable units of storage in two to two-and-a-half years. There are three requirements, however, for this to happen: a full-time sales effort, a formal consultative selling process and a managed sales cycle. These are essential. In addition, you have a real commitment to this business. It will bring you an annuity-based business--one that grows from a combination of existing and new customers for years to come.

Regular columnist Cary McGovern, CRM, is the principal of FileMan and FIRMS (FileMan Internet Records Management Services), which offer full-service records-management assistance for commercial records-storage start-ups in self-storage operations. For assistance in feasibility determination, operational implementation or marketing support, or for questions on the FIRMS Sales Manager, call 877.FILEMAN, e-mail [email protected];

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