Indianapolis-based Global Shred Inc. plans to use a new federal rule that forces companies to destroy more documents as a springboard to expand into other states.
The document-destruction provision of The Fair and Accurate Credit Transaction Act of 2003 went into effect June 1, requiring all businesses to shred, burn or pulverize credit and consumer reports. While many mom-and-pop shredding shops in the highly fragmented industry look to fortify their local position, Global Shred founder and owner David Kantor thinks it's the perfect time to grow beyond Indiana.
"We're looking for markets with a [population] of a million plus," Kantor said. "I'm a bottom-line type of guy, so any market we go into, I'd have to be confident we'll be profitable."
Global Shred, which Kantor started in 1998, is still a large mom-and-pop itself, with six full-time and 19 part-time employees. Kantor said one of the first orders of business is to add to his sales force.
"I'm looking for people with businessto-business sales experience right now," he said.
Global Shred's expansion won't come without some challenges unique to the document destruction business.
"[Out-of-state] growth in this industry is seen as pretty ambitious," said Bob Johnson, executive director for the National Association for Information Destruction, an Arizona-based papershredding industry trade group. "There are a few national firms out there, so it can be done, but there are some challenges."
Johnson said transportation of shredded materials over a wide area can become expensive, and satellite operations increase costs exponentially. Shredding companies need space to unload trucks and bundle shredded paper to be shipped to paper recycling brokers.
Johnson added that it takes time to build trust among businesses in a new market because sensitive documents are handled.
Kantor, who has an MBA and a commercial driver's license, has always taken his own path. In the early days, Kantor drove his company's trucks. When Global Shred began to grow, he employed offduty firefighters to maintain the security necessary in dealing with sensitive documents.
"People trust firefighters, and security became even more important after 9/11," Kantor said.
Where some of his industry competitors cower from the logistical and competitive difficulties of taking a mobile shredding company national, Kantor sees endless possibilities.
"We see the challenges of moving into new markets as just normal startup challenges," said Kantor, 36, who earned his undergraduate degree in communications from Indiana State University. "But this industry is still in its infancy and we see this as an opportune time to expand."
Kantor, who worked as a sales representative for Indianapolis-based Brightpoint Inc. before starting Global Shred, is buoyed by the enactment of the FACTA document-destruction rule, which broadly covers "any record about an individual ... that is a consumer report or is derived from a consumer report."
FACTA carries a $2,500 penalty per infraction and also makes a company liable for damages to any victims of identity theft the company contributed to due to improper disposal of information.
An infraction can come from an inspection by federal authorities, but is more likely to surface when a case of identity theft is traced back to the company that did not dispose of documents correctly.
The mobile shredding industry was already being fueled by increased fears of identity theft and existing federal document-destruction laws, including the Health Insurance Portability and Accountability Act and the Financial Modernization Act.
"The difference with FACTA is, it's much broader," said Michael Brinkman, chairman of Ice Miller law firm's employment section. "It's safe to say that FACTA will affect any and all businesses in the state of Indiana."
NAID officials expect even broader document destruction legislation to be passed in the next six months.
Johnson said Congress is considering legislation that would encompass any document containing a Social Security number or other financial and personal data such as check stubs, marketing lists and health information.
"Identity theft has become a real problem, and destroying these documents with personal information is the only real protection," Johnson said.
With 10 million cases of identity theft reported by the Federal Trade Commission in 2003, awareness is starting to ramp up, Brinkman said. There are about 2,000 shredding companies nationwide, according to NAID, including a handful of national consolidators.
Patricia Bond, who founded Indy Shred, the state's first mobile shredding company, in 1994, said it's an industry that relies heavily on personal service. She thinks taking a firm national could compromise service and, ultimately, clients' security.
Indy Shred, which has four trucks and seven full-time employees, would need many more trucks and satellite offices to expand beyond central Indiana, Bond said.
"We don't charge for miles driven, so if we're not shredding, we're not making money," she said.
Bond noted that her company has grown each year since opening and now serves an area from Lafayette to Bloomington and Terre Haute to Richmond.
While NAID said the industry is growing near a 20-percent clip, Kantor said Global Shred is growing 25 percent annually. Global Shred grew from 400 clients in 2001 to 1,800 clients this year. Though Kantor no longer divulges annual revenue, Global Shred reported revenue of $500,000 in 2001, and industry observers estimate the company's 2005 revenue will be about $1.2 million. Global Shred, Kantor said, has "been profitable from day one."
Global Shred has a core of regular clients, he said. For them, the company provides a locked container where documents to be shredded can be stored. The box can be opened only by a Global Shred employee.
Many clients request monthly shredding, while others need only quarterly pickups. A few customers seek annual pickups or are one-time jobs, Kantor said.
Each job is quoted separately, but Kantor said Global Shred can usually handle shredding 25 percent cheaper than a company can shred its own documents and with fewer opportunities for security breaches.
"You don't want a low-level employee with access to sensitive documents and you don't want your executives standing at a shredder all day," Kantor said.
Global Shred has five trucks with hydraulically powered shredders capable of shredding 5,000 pounds, or 7,500 banker boxes of paper, an hour. Global Shred shreds 300 tons of paper each month-staples, paper clips and all. The shreddings are sold, at a small profit, to mills that make paper towels, napkins and facial tissue.
Kantor refuses to harness his ambitions.
"We're definitely looking to accelerate our growth and to continually maximize our footprint," Kantor said. "We want to grow organically and make strategic acquisitions."
Kantor said he's looking at expansion possibilities in Midwest and East Coast markets, including such Midwest targets as Chicago, St. Louis, Cincinnati, Cleveland, Louisville and Nashville, Tenn. While a bulked-up sales force is key to expansion, Kantor said he doesn't have a set number of salespeople as a goal.
"When we find qualified people who are the right match, we'll add them," he said.
Though Kantor said he'd consider venture capital if the deal were right, he added that Global Shred has resources to expand on its own.
Industry sources admit there are challenges to luring venture capitalists to a perceived low-tech venture.
"This is not just another form of refuse pickup," NAID's Johnson said. "It's more involved than that and there's more at stake."
Kantor is not dissuaded by talk that businesses are moving toward a paperless existence.
In fact, a recent University of Illinois study predicted a 16-percent increase in office paper use by 2010.
"Paper isn't going away," Kantor said. "There are still a lot of people who want a hard copy. They feel more secure with that. But at some point, those documents need to be disposed of, and we'll be there for that."