The famed artist, sculptor and engineer Michelangelo is credited with this quote: “The greater the danger for most of us lies not in setting our aim too high and falling short, but in setting our aim too low and achieving our mark.”
If your self-storage business is experiencing a crunch from the economy, if new competitors have moved in on top of you, or if your site is the oldest in your marketplace, you have a problem. But you also have a big opportunity to revitalize your business, grow your personal wealth and sharpen your competitive edge. It may require a repositioning of your business. It will require you to cut out the cancer of complacency among your staff and advisors.
In many markets, a strange phenomenon is apparent. The stores with the lowest rates often have the lowest occupancy, which ultimately translates into the weakest asset. Here are some ideas on how to make your operation better—no matter where you are in the business life cycle.
Two Case Studies
First, here is a tale of two self-storage businesses that are just minutes apart in the same market. Operator No. 1 is a true visionary. He built his stores 30 years ago when self-storage was a new concept. The business is operated as a family venture. Resident managers occupy four stores on major thoroughfares in an urban market. Worth noting is their prices are 20 percent to 30 percent lower than their competitors’. The stores offer limited security features, and the gate is always up during business hours.
The owners and managing staff believe the market is overbuilt, because occupancy is showing a steady trend of decline over the past several years. This company has frozen all spending on capital improvements and facility promotion. At one location, the resident-manager team, a senior couple, is unaware of the rates at competitors’ stores and truly believes the market is terrible for everyone. They plainly read from a price and availability script when answering the phone, and sometimes greet customers in their bathrobes or pajamas. The office carries the odor of the managers’ apartment and last night’s dinner.
Operator No. 2, with two stores within 2 miles of Operator No. 1, is a fully modern operation. The management team wears uniforms and greets customers as soon as they walk through the door. They are quick to offer tours of the facility, which they are upgrading. Security features are evident in the office and around the site. The managers take turns operating the front desk one day and, on alternate days, contact customers, prospects and referral sources, either by phone and e-mail or in person.
The store’s well-designed website generates many leads, and one of the stores has rented 160 units in the past two months. Unit rates lead the market for standard and climate control. One of the managers, well-trained in sales and customer service, has partnered with other local businesses—a car wash, nail salon and moving companies—to create synergy. Occupancy hovers around 90 percent year-round, even in this tough economy.
These stores compete every day for the same customer. Which store are you?
Complacency Is the Great Evil
It’s the “Ah” moment. When you finally move your business from the lease-up phase into the realm of profitability, it feels like it’s the top of the mountain. No more red ink. No more deficiencies.
Don’t rest long, though! Otherwise, you begin the ride back down into the red zone. If you’ve been successful, be assured that other entrepreneurs have taken note. A new competitor is eyeing your market. Existing competitors may be sharpening their approach and upgrading their services. In business, you cannot afford to fold your hands and enjoy success for too long; you must continually look for ways to improve. If you relish the “Ah” moment for long, your business will suffer.
You must measure and monitor everything you present to your market. As you analyze your business, ask yourself these questions:
- Where do you rank among competitors in rates, service, management and site quality?
- Are your short- and long-term goals clearly defined at the ownership and management levels?
- How effective is your manager? How do you measure this effectiveness?
- How are you monitoring success and failure rates of existing operational, marketing and sales strategies?
- Are you considering additional investments and their expected returns in your business and manager?
- What internal threats are you facing? Employee theft? Declining revenue? Outdated features and benefits?
- Are you prepared for the external threats your business may face in the next 12 months, including an economic downturn, overbuilding, price wars, debt markets, unemployment, change in management and delinquency?
- How effective is your overall presence in your marketplace?
- What are the best ways to incrementally increase revenue and the value of your business?
- Are you willing to learn and implement better methods if it means more profit?
Asking the tough questions, and designing a program to capitalize on opportunities and manage risks, will enable you to create more profit, wealth and opportunities for yourself and, more important, your family.
Common Challenges for the Self-Storage Owner
When you ask these questions, you’ll be able to identify some key challenges about yourself, your business, and the vitality of your self-storage property or portfolio. There are common challenges you’ll face as you consider re-positioning your business, increasing your income, and enhancing the value of your assets.
As you read through some of these challenges, keep in mind that eliminating all complacency will enhance your profit now, and a future buyer will only pay premium prices for premium businesses.
Challenge No. 1: Your store manager has been with you for a long time. You like him and don’t want to let him go.
Train your existing manager, add an experienced salesperson, or sell now at a reduced price and let someone else do the work. This is a competitive business. You must either accept that or suffer the consequences of lost revenue, reduced profit and declining value of your assets.
This industry offers many training opportunities, often at the state and local level. Your managers should read industry trade magazines every month, and attend tradeshows and seminars. Your management team should be focused on getting new tenants in the door, maximizing revenue and beating the competition. As an owner, you must focus their activities to enhance your bottom line.
Challenge No. 2: Your manager is not great, but he is cheap.
That manager is the lifeblood of your operation. If he’s not strong, neither is your business. A cheap manager could care less how much money you make or lose. Invest in your managers! Audit their records. Give them goals. They are the one link between your customers and your bank account.
Challenge No. 3: I’m very profitable and don’t have the debt load those new guys have. So I can keep my rates low and occupancy high.
You’re losing value if you don’t keep your rates up. A good operator should always be looking for ways to give better service and enhance profitability. Being 100 percent occupied—in any unit size—is the tell-tale sign that your rates are too low. If you have no units to rent, someone else will build some and charge the next guy looking for that unit size to use it.
There’s only one good reason for competing stores to be 30 percent or 40 percent different on rates: one operator is that much better. If you don’t manage your rates regularly, you’re probably not making what you could. Manage for profit, not occupancy.
Moving the income bubble just a little bit can make a big difference in the value of your property or portfolio. If you improve the net operating income of your store by $10,000 annually, it will increase the value of your property, using an 8.5 percent cap rate, by around $100,000. For a store with 400 tenants, that is $2 per tenant, per month. Pay attention and build value into your business.
I am not encouraging greed. I am encouraging focused stewardship of the assets with which you create wealth for your family—a noble cause. Will you sell your property? Will it pass to your children? You owe it to yourself and your family to get as much out of your assets as possible. If you’ve worked hard to build your assets and streams of income, make sure you are fine-tuning your business for today and the future.
Challenge No. 4: Everyone else is losing occupancy. We’re already competitive. It’s just that the market is so tight.
Be sure your “sense” of the market is accurate. If you don’t regularly track your competitors, you should. Your manager should, too. It’s imperative that you know when the store across town raises prices or offers concessions. Know if it is offering a move-in special on certain sizes.
You cannot compete if you don’t keep track of the market. A trend in your bank statements—up or down—doesn’t necessarily represent a market trend. Be sure you know the difference between internal and external influences on your income. Would you be surprised if you saw a detailed competitive market study in your area?
Challenge No. 5: My site is older, and the investment in remodeling is too high. I’d just rather keep my rates low and keep going like I am.
The asset you’ve built, the business for which you sacrificed and the time you spent away from your family will lose value if you are complacent. The value of your self-storage asset is not in past performance but reliable future income. If your site is dated, the capital improvements you need are probably not that expensive when you measure expected return. And when you provide better service to your customers, you’ll be able to charge stronger rents and generate more income in the long run. If you simply let your business die, be assured, it will.
We’re all in business for pretty much the same reason: We want to provide for our families. We want our kids to have more than we have. We want our grandchildren to be secure. We want to retire and have an income we can depend on. We want to travel, make other investments, build new things, live a certain lifestyle. As self-storage owners, we owe it to ourselves, our families, and our legacies to do business the right way—not waste our opportunities.
Someday, your facility will be sold, either by you or by your heirs. Now is the time to invest in your managers and facility and improve the value of your business. If the benefit is not fully realized by you, it will certainly become part of your legacy to the next generation.
Whether yours is a young business or an established one, set your standards of management and competitiveness high to perpetuate the value you have created for your family.
Ben Burkhart is owner of BKB Properties and StorageStudy.com. Located in central Virginia, he assists self-storage owners, developers and managers in analyzing site and market feasibility, measuring and improving sales and enhancing profitability. To reach him, call 804.598.8742; e-mail [email protected].