Looking Ahead

CO: It depends on the owner’s expertise. There is a lot to do with records storage, a lot to do with recycling, a lot do with media destruction. If somebody wants to come in with something different—the electronic media storage—there are all kinds of parallel or complimentary services to offer. I don’t know that it has to be a specific one. It can be whatever fits your demeanor or motivations.

TT: I think if you’re talking to the same person in most cases for all those services, you have to be able to present it as sort of a one-stop shop. You can work with a customer and the more value you are to him as far as providing different services, I think that helps you. But you really can’t get away from your core competency, either.

JB: We are a little bit of a horse of a different color in that we largely grew from product destruction back into document destruction and then added records storage. But I think, in the future, electronics is becoming bigger and bigger. We keep talking about identity theft, and the hits that they can make on electronic media vs. paper media are tremendous as far as the amounts of information.

I think there are certainly add-ons that we as a company see as trying to be a total provider in the information management process. I think Recall and Iron Mountain, represented here, recognize that and have those as different business units.

That’s the other side of it. Does it have to be the same company doing it all? Possibly, but they recognize that they are different units of business for them and they keep those separate for a reason, I am sure.

VV: I think it’s important to remember we’re in the information destruction industry, not the paper shredding business. You look at the companies that are industry clients and, even if they became paperless, we’re going to be evolving along that chain and providing information destruction in whatever form their information is stored. If you are a recycling company, which was there to follow the paper upstream, and now you’re in the shredding business, suddenly information changes from paper-based to electronic, then you see those people fading out again. Somebody else might come in.

And, so, to me, I would say there are a bunch of opportunities. If you are there to offer a suite of services to your customers, then you’ll keep evolving.

If your customers change from one form of medium or storage of information to another, then you’re there to evolve with them and you’re there to provide those services. To me that’s what really differentiates the key kind of core companies in this business from the ones that are in it for other reasons.

NC: I’m not, and Recall’s not, too concerned with the paperless office right now. We don’t see that being in the near term. Obviously, we’re taking steps to be there for the future digitization. But at the end of the day, we don’t see paper going away any time soon. Otherwise, we wouldn’t have invested so heavily in the consolidation and acquisition companies. It’s going to occur and there’s going to be some evolution, but in the near term, we don’t see it as being an issue. There is going to be plenty of paper for us to shred in the near term.

JB: I think it’s increased in volume, particularly in the medical sector. We do business with lots of hospitals in our area. Even through medical records, for example, one hospital is scanning everything, holding it for 90 days and then disposing of it. That helps my shredding business. It doesn’t necessarily help my storage business, but then it helps the media vault side, because they end up creating more media. I think overall, the increase in the last five years has been huge. People still like paper and like to hold it.

CO: Take this scenario. One memo 10 or 15 years ago used to be put up on the employee bulletin board where everyone could see it. Now, in the computer age, everything gets sent out as e-mail. Everybody prints it. After it is printed, it gets read, put in a file, then it gets stored, then it gets destroyed: 25 copies instead of one, now. So the computer hasn’t really hurt the business at all.

VV: No, as long as HP keeps selling cheaper and cheaper desk printers, we’re all going to have plenty to do.

JB: I think we’re very well positioned. I think from an equipment standpoint, the manufacturers have certainly grabbed hold of it. Fortunately, a lot of the shredding equipment is diverse enough that you can run different materials through the same piece of equipment and get a common result.

The upside potential of it, I think, is that there is a lot of revenue to be made on the front end and the back end as far as electronic recycling is concerned. I think, as probably happened with paper, the front-end revenue will probably come down as competition heats up. But I think we’re very well positioned.

NC: I think you’re seeing office recycling programs evolve into more of a management of life cycle data program. Whether it be paper or a computer, we’re not just recycling stuff, you’re seeing them actually look at a secure destruction program. I think the NAID members that are on the more progressive front are certainly positioned to capture that consumer marketplace. I don’t see it as rocket science; I think we’re all thinking about it.

FACTA does talk about computer destruction. It’s looking at what the business does—the office. The office isn’t just looking at recycling anymore. The office is actually looking at securely handling their critical documents, whether they are personal information for a bank or their computers that have all their critical data or code. They are taking a much harder stance. And that only supports us, and I think as a result, we all have to adapt to that kind of change.

TT: With electronics, I think the guys getting into it are kind of like where some [document] shredders were five or 10 years ago. I think one of the things we need to be concerned about is that there is a lot more cowboy-type activity and that they’re looking at doing things cheap. They’re not going to go out and [intentionally] re-sell that information, but they’re going to re-sell the product and there is going to be information getting out from that.

I think that we as an industry, as shredders, need to be concerned whether we’re going to be painted with the same brush when that kind of stuff gets out, and it is going to get out.

CO: That would be one of the biggest issues NAID is [debating internally] right now: what to certify for e-destruction and what not to right now. We’re pretty much only going to look at physical destruction. It’s the only way you know that the information is gone.

Software wiping to where the hard drive can be really used again, that’s going to be a tough bullet. People are worried about, "There are third world countries that can use this." But, no, we’re in the information protection business, and the only way to ensure it’s gone is through physical destruction.

VV: I think it’s right. Didn’t really ponder this issue until the last year or two. To me, I see a very strong parallel to the way the recycling industry kind of evolved within the shredding industry. But at that point it was driven by fiber value. Most of the people out there claimed to be providing a wonderful service, it’s all driven by, "What can I get for the material on the back end?" It’s not driven by, "I want to kill this first, now what do I do with it?" That’s what this industry is about: I want to kill the information, now what do I need to do? I need to follow EPA regulations, I need to process it, I need to do something with it.

These people are all about, "We want this material, and, oh in the process we’ll shred it, so there’s your solution." You’re looking out the back door, not the front door. I think that’s not where this industry is; that’s not the environment that our people are used to. But I think it will evolve and I think you will get people doing it for the true reason, which is the destruction or the termination of information, but I don’t think we’re there yet. I think that there is a long way to go.

VV: I think it will be forced either by legislation or by stuff not being destroyed the way it is supposed to be destroyed—stuff getting out there—then someone is going to get sued and suddenly people are going to pay a lot more attention.

JB: FACTA spells out the fact that the sheer transfer of goods, simply some people taking their computer to a non-profit, for example, that transfer to a third party in and of itself does not constitute proper disposal. So, they’ve set the table for that.

NC: In my opinion one of the third levels of maturation of where we’re at is, we started with legislation, then you let people adapt to the legislation. And the third level is enforcement. And I think Tom kind of touched on that. Once you start to enforce this thing, I think that’s going to happen in the next three to five years…and that’s going to change things. That’s when you’ll actually see change occur. Right now it’ still kind of back of mind, but it will come very top of mind once it starts to get enforced.

NC: We’re running around with these little discs that hold a gigabyte of information. Do you realize what’s on those and how hard it is for a company to control the data that is transferring from their own business right now? There is no control; there is a lot that can happen, and once you see enforcement occur, which I think is the final process, you’re going to see drastic change.

CO: No, not at all. I think people are hitting on it here or there. I’m sure everyone who’s been in the business for over five years has had a tendency to see security guard uniforms or CDs or something non-traditional, but they haven’t really put together a marketing focus on it. As soon as the lawyers get involved, you’ll really see the escalation.

VV: There’s probably too much action in the paper market for people to really have to get creative and think, "Where else can I offer my services?"

You’ll probably see it on the back end of the curve if demand ever falls off for document destruction. People will then have equipment capacity that can be used for something else.

CO: I would say it’s going to continue to grow, as you start getting down to doctors’ offices with one or two doctors, everyone is going to need a shredding service.

NC: That bigger market is still there, and I think it’s just a matter of who is going to capture it. So, I think there will be some good growth in the industry as a whole. I don’t think you’ll see consolidation knocking it down. I think you’ll continue to see a lot of competition in every market.

JB: The (March/April) cover story you guys had is whether regional firms can thrive amidst consolidators. In my opinion, the answer to the question is, yes. I think you are going to see, as mentioned earlier, more of a regional effect and that companies are going to have to have a larger footprint that they service. But does it have to be national? I don’t think so. I think there will always be plenty of business for a regional or even a state-level company. When I look at our book of business, we’ve had a lot of local business.

TT: We’ve been growing at a phenomenal pace, but I do think somewhere along the line NAID is going to have to somehow get more education out there and get to these operators who are not going to do this the right way and play by the rules. There has to be some accountability, but I don’t really want to see government make that accountability come true.

VV: In terms of price pressure, I forgot to mention that we have customers and service suppliers, but there are also equipment manufacturers, and we’re using their equipment to do the job. And what I see coming out of this as price pressures increase is us pushing back on the equipment manufacturer saying, "Hey, I want a smaller shred; I want to shred more or as much as I did before in a smaller size and I want this to be cheaper. I think we’re going to see a lot more pressure back on the vendors to provide better service: give us nationwide coverage and nationwide service, give us a better piece of equipment, gives us better output, and, by the way, you can still make it cheaper. So, I think that’s something that we should make a note of. Because it’s not just between us and the customer; there are three parties to this.

As far as the overall view, I think the industry is going to keep growing without a doubt. But is it going to be a free ride? Absolutely not. It’s going to get a lot more serious in terms of more legislation, there’s going to be more responsibility, more liability. The serious players, be they large or small, I think are going to do well. But people who think they’re in for a free ride, I think, might find it a little bit harder.