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Challenges and Opportunities for Shredding Companies

By David R. Powelson
challenges and opportunities

There is no denying that there are giants roaming in the shredding industry. How we choose to compete against these giants could mean choosing between success or failure.

This article explains some of the challenges that are being presented to independent shredding companies, and some opportunities on how to come out on top.


CHALLENGES
:

Reduced Paper Usage: Moody’s 2016 Paper Industry Outlook indicted “paper demand in mature North American markets is expected to continue to fall by approximately 5% per year for the next several years. This decline is driven by individuals and businesses increasingly turning to digital alternatives, such as tablets and e-readers.”

If correct, five consecutive years of 5 percent decreases is a one-third reduction in paper demand.  This will negatively impact long term purge business and the daily accumulation of paper in offices.

Consolidation of the Shredding Industry:

Market Analysis (includes estimates)

CompanySales ($ millions)Percentage
Stericycle/Shred-it$79046%
Iron Mountain (IM)23814%
Recall (to be acquired by IM)965%
Subtotal$1,12465%
Up to 1,500 Shredders60035%
Total$1,724100%

The market size of vended shredding companies is not authoritatively known. The table assumes 1,500 smaller shredding companies average $400,000 in annual sales.  Most local shredding companies operate only 1 to 2 trucks.

It’s very unusual for the top two companies of an industry to have a 65% market share- especially in a low capital-entry business.   The reason for this is grounded in economics.  As market dominant firms add their last groups of customers, operating costs grow exponentially.   For this reason and to satisfy their Wall Street and investor stakeholders, prices must be high.

This is precisely where local shredders make inroads and an equilibrium point is established – often this equilibrium is at 50% market share.  If smaller companies keep their operating costs down and their prices for shredding services low, it may become economically impractical for the top companies to maintain their current market share.

OPPORTUNITIES FOR INDEPENDENT SHREDDING COMPANIES

Untapped Markets 

Nationwide there are more than 5 million companies with fewer than 100 employees that employ over 40 million people – about 40% of the total U.S. work force.   There are also more than 9 million home businesses.

None of these markets are in the direct path of the two dominant companies.  It will require highly efficient routes to earn profits in this growing segment of the market. In this setting the term “local service area” has real economic importance for the smaller operator.

Competing with Dominant Shredding Companies

It seems that the bigger a company gets, the less trust it places on its sales people.  Almost no one in a dominant company will be given authority to deviate from a price list.  Also, it becomes harder to get special services for a good customer.

When a small company empowers its salespeople to be flexible and make decisions, it’s easy to out-perform a dominant company in both price and service.

Why Disneyland is known as “the magic kingdom” is that it’s a big company that actually delivers great personalized service.  Most big companies lose their magic in a bureaucracy of operating procedures and rules.  The “magic trick” is make sure your company never stops enthusiastically delighting its customers.

A Zero-Sum Contest

Zero Sum Game

A Zero-sum contest is a situation in game theory in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero.  For example, if one company wins a customer, the second company loses the opportunity to service that same customer. No increased benefit results – it simply changes hands.

In practice neither a small or dominant company can afford losses, but a small company can achieve lower operating costs and in many cases “win” business with a bid that is lower than a big company is willing to go.

People do business with people, and business also can be won or lost based on personalities and sales skills.  Following-up and being “local” often counts but often not as much as a “competitive price.”

In summary the big opportunities are:

  • New Markets – focusing on businesses with fewer than 100 employees.
  • Focusing on route efficiency
  • Preparing for rapid growth
  • Offering competitive pricing and service where it makes sense.

To learn more about shredding opportunities or how to get a steady stream of vetted customers, call our Membership Hotline today at (303) 962-5572, or click here to fill out our form

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Growing with Relative Ease

How to Grow Your Shredding Business with Relative Ease

By David R. Powelson

Re-thinking how your shredding business can grow in our current industry climate can be one of the most profitable uses of your time.  Because there are essentially two schools of thought, you can:

Growing with Relative Ease
  • Make it easy for customers to buy from you – This method is in alignment with what customers prefer.  They prefer to be “in control.”  It’s also in perfect alignment with what small companies can afford.
  • Develop a comprehensive market and selling program – This includes various methods focused on convincing prospects to buy from your company when their timing compels them to make a purchase decision.

This method “fights the current” and is unnatural because customers are typically suspicious of sellers. They fear being manipulated and making a wrong decision- thus “buyer’s remorse” is something they dread.   Proponents of this school of thought are quick to point out that a great sales program overcomes these objections.  It’s an uphill battle, hugely expensive and, in fact, the outcome is uncertain. In addition, tracking your costs vs. rewards can be challenging.

The bottom line for small companies is that successful expenditures must provide an immediate return.  It’s why being easy to buy from makes sense.  In contrast, big companies who can afford extremely large advertising budgets (blimp advertising) and other image producing methods can afford to “roll the dice” and wait to see what method works best.

Big companies advertise and conduct public relations programs to develop their brand.   Eventually a customer wants their product or service and makes a connection to the “blimp” and heads to their “branded” store to make a purchase.    Big companies also are eager to finance “face-to face” prospecting with highly paid salespeople.   Their investment in building a relationship is easily measured in the thousands of dollars.   There are no guaranteed results.   Why? Because a paradigm shift has occurred.

  • Today, 90% of buyers turn to the internet first.   When it’s time to buy, buyers prefer the internet since it gives them unbiased information and a level playing field. Customers want to be in control of their decisions.  They perceive sales techniques as “manipulative.”   The role of conventional marketing, advertising and direct selling are, by design, a way to change perceptions.

Buying versus Marketing & Sales – an Economist’s View

In the buying method, an economist views the cost for information for an “immediate buyer” as a finder’s fee. We here at Shred Nations like this method because the majority of our partners are local, independently owned document destruction providers. Because 80% closing rates are common with Shred Nations, the actual financing source of the finder’s fee is the buyer – not from the cash flow reserves of the business itself.    If accountants and economists could agree they would classify the finder’s fee as a “cost of sales.”   Both do agree the cash flow advantage from using the buying method is superior.

The timing of when an operating expense is taken is the major distinction between a “finder’s fee” and marketing and sales costs.   Finder’s fees are incurred concurrent with the sales transaction.  Marketing and sales costs are front-end loaded, more expensive and slower in producing quantifiable results.  For example, the costs of the “blimp” or prospecting with high-priced sales people occurs months or even years before any economic benefit is received.  The cash flow drain is normally huge for an extended “sales process” of this nature. If you are a big enough organization, these costs are expected and planned for annually.

Hence, this way of advertising suits a big business – but it is potentially disastrous to a small business’s cash flow.  The reason is simple: the playing field is not level when it comes to available resources.  It also explains why big businesses are fond of starting out a contractual relationship with a customer with extremely attractive terms, essentially losing money in the early months – to create the illusion of a lower overall price. Direct marketing and inexpensive referral services can drastically alter the playing field for the smaller business. Shred Nations can be a great resource for this.

About Shred NationsShrednations_icon

Shred Nations is, hands-down, the best continuing source of real-time information about immediate buyers for shredding services.  Shred Nations does not provide sales leads.  We supply something far better.   We supply “sales-ready” referrals which include the name, contact information, and type of shredding service needed by a buyer with an immediate need for a shredding service in your specific company’s service area.

Prices start at $10.99 for sales-ready referrals. Average shredding service providers invest about $200 per month. The average return on investment is 4 to 1.  Referrals can be focused around your base of operations, along transportation corridors or in clusters to help augment profit by creating route density.  After becoming a network member you may drop our service without cost at any time, and you are entitled to a free replacement of any defective “sales-ready” referral.    Your key to business success is your willingness and ability to be “extremely responsive” to the needs of every immediate buyer. There is no better time to join this network.

If you would like more information, give us a call on our Membership Hotline today at (303) 962-5572, or click here to fill out our form