Street Smarts

People generally don't come to North 12th Street in Brooklyn to look for the new economy, but if they did, they'd find plenty of evidence of its impact. Here on the banks of the East River, we have two giant warehouses with 50-foot-high ceilings; each one is the size of a football field, and an even bigger one is under construction. What's inside? Paper, billions of pieces of paper, sorted into files and packed into boxes for safekeeping.

You probably don't think of paper as a major by-product of the new economy. It was only a few years ago, after all, that people were talking about computers' eliminating the need for paper altogether. By now we were all supposed to be working in paperless offices, storing our records on magnetic tapes or CD-ROMs.

In fact, computers have had the opposite effect. For one thing, they've made everybody more productive. As a result, there's been a huge increase in the volume of documents being cranked out, much of which winds up on paper. A lot of those paper documents have to be saved for one reason or another, but -- with the price of real estate so high, particularly in business centers like Manhattan -- it's too expensive for law firms, accounting firms, banks, and the like to store records on their premises. So, thanks largely to the computer revolution, the records-storage business has exploded in the past decade.

That's typical. Listen, change always creates opportunities, but they aren't necessarily the ones you expect. Right now, we're going through a period of tremendous change because of the Internet, which is affecting every business for better or for worse. Some businesses it has unquestionably hurt. I'd think twice, for example, about opening up almost any kind of retail store these days.

On the other hand, the Internet has given businesses like mine a tremendous boost -- and not because we book a lot of orders online. What's happening is that our customers are becoming more conscious of security. Every time a hacker breaks into a company's database and destroys, alters, or steals confidential information -- or, for that matter, every time a powerful new computer virus appears -- people are reminded of how vulnerable their electronic records are in the digital age.

How do companies respond? They save more paper copies of their records. During the past five years, I've seen steady growth in the volume of new documents being sent to us by the same customers from month to month. Part of the increase may be due to rising productivity, but security concerns also play a role. Our customers feel better knowing that their vital documents are safely tucked away in a secure location off the company's premises.

By the same token, starting a business online isn't the only way -- or even necessarily the best way -- to take advantage of the opportunities being created by the Internet. In fact, one of the best new business opportunities I've come across recently doesn't even require that you have a computer. I first heard about the business from my friend Jim, a salesman for the company that provides us with our software. "You're always interested in new businesses," he said. "I've got a great one for you."

He'd discovered it while visiting another customer, a records-storage company in Philadelphia that had branched out in response to customer requests. The customers had been looking for a place they could send boxes of confidential records to be destroyed with absolute assurance that no one would see the contents. The owner of the storage company had decided to set up what he called a "secure" document-shredding business to provide such a service. After five years his shredding business was bigger than his records-storage business and was growing like gangbusters.

Jim's story piqued my curiosity. We, too, get requests to dispose of documents for customers. There's one customer who every week sends us 100 boxes taped shut, with the words Destroy Immediately written on top. We send them to a paper recycler.

I'd never thought of starting a company to handle the problem. Frankly, I didn't know that secure document shredding was even a type of business. After listening to Jim, however, I was interested in finding out all I could about it.

So I began to investigate, working closely with my friends Bob and Tracy, whom I've been advising in their search for a new business venture. (See " The Road Not Taken," March 2000.) We visited the company in Philadelphia. We checked out the Web site of the trade group, the National Association for Information Destruction Inc. ( www.naidonline.org). We contacted a franchisor in the business and met with one of its franchisees. We went to see another secure document shredder in New York City.

What we discovered was an industry in its infancy. Although document shredding has been around for a long time, this particular approach to the business is relatively new -- less than 10 years old. What's more, it's growing as a direct result of the heightened security consciousness that is part of the new economy.

Companies are increasingly worried about what happens to the documents they want to get rid of, and with good reason. Consider the recent case of the word-processing temp who rummaged through the garbage (among other things) at Goldman Sachs & Co. and Credit Suisse First Boston Corp. and came up with insider information that he then spread by means of the Internet, earning himself and his accomplices more than $8 million in illicit gains over two and a half years.

Goldman Sachs and CS First Boston are hardly alone. Brokerage houses, banks, law firms, big consulting businesses -- they're all churning out mountains of paper documents that could spell trouble if they fall into the wrong hands. What do you do, for example, with 100 extra copies of a 50-page draft of a merger agreement?

That's where the secure document shredders come in. Some of them have specially equipped trucks that pull up to an office and shred the documents on the spot. Other shredding companies send in uniformed service people who collect the documents from locked receptacles and transport them to a central location, where they're shredded en masse. Either way, the shredders are providing their customers with something that's as scarce as typewriters these days: peace of mind.

And customers are willing to pay for it. After three months of research, I'm convinced we've found a business that's about to take off. How do I know? I can see the gross margins that some of the shredding companies are getting -- 70% or more. Those are the kinds of margins you generally see only when an industry is very young and its product is in great demand. With few suppliers around, companies can get away with charging extremely high prices. It's a bad idea to do it, in my opinion, because you leave yourself wide open to competitors, but a lot of people can't resist the temptation to charge as much as the market will bear.

In any case, I think the opportunity is so great that I've teamed up with Bob and Tracy to start our own secure-document-shredding business. How will we do? Stay tuned. Over the long term, however, I'll take our chances against those of almost any dot-com.

Norm Brodsky is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts.


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