Shred-It Canada Corporation

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Shred-It Canada Corporation

2794 South Sheridan Way
Oakville, Ontario L6J7T4
Canada
Telephone: (905) 829-2794
Toll Free: (800) 69-SHRED
Fax: (905) 829-1999
Web site: http://www.shredit.com

Private Company
Incorporated: 1988
Employees: 1,200
Sales: $130 million (2000 est.)
NAIC: 562119 Other Waste Collection

Shred-It Canada Corporation provides mobile document shredding services to over 120,000 companies and organizations around the world through 120 franchised operations and company-owned branches. Shred-It operates some 700 shredding trucks and employs more than 1,200 people. The company uses industrial-grade shredders that are far more powerful and faster than those found in the average office and are capable of destroying clothing, software, and on one occasion spare Academy Awards. Shred-It’s main selling point is that it saves customers money. Clients contract Shred-It to provide shredding at a fraction of the salaries that would be paid to staff to do the work less efficiently. The demand for shredding has increased dramatically over the years, with the emphasis shifting away from the destruction of outdated documents to the shredding of more current materials as a way to protect business secrets, combating the recent phenomenon of “dumpster diving,” in which industrial spies comb through the trash of rival companies in order to gain a competitive edge. To ensure security, Shred-It is circumspect in hiring and performs its work on-site, allowing customers to observe the shredders in operation. In between visits from the shredding trucks, customers store material slated for destruction in secure bins provided by Shred-It. In addition to Canada and the United States, Shred-It operates in Argentina, Belgium, Dubair, Hong Kong, Singapore, South Africa, South Korea, and the United Kingdom.

Origins in the Late 1980s

Shred-It’s founder, Gregory Brophy, was the son of Irish immigrants who moved to Canada in 1957. His father was a butcher with business ambitions but a decided lack of focus, drifting from one idea to the next, from cocktail mixes to liquid fertilizers, nine failed startups all told. Gregory inherited his father’s enthusiasm for business, especially salesmanship, but proved to be far more disciplined. When he was only 15 years old, he and his brother went into the driveway-sealing business after fixing up a used truck they bought for $250. They were able to do a dozen driveways a day at $50 each, the business drummed up at night when they made door-to-door cold calls. Brophy bought out his brother and stuck with the summertime job for six years before selling it. He also helped to fund his college education by running a small lawn care business. While attending school at McMaster University, he then used his savings to buy a three-bedroom house, which he converted into a seven-bedroom student residence, providing himself with a place to stay as well as earning spending money. Brophy was then able to use the equity in the property to buy ten more houses, so that by the time he finished his schooling with an MBA in 1988 at the age of 26 he had sold $1.25 million in real estate, earning a $300,000 profit.

Ready to launch a company of his own, Brophy considered a number of businesses, including a chemical manufacturing company, but his bid was turned down. He thought about buying a franchise in a new chain of chicken restaurants but dropped the idea after doing some personal research that convinced him the restaurants were not as popular as he had been led to believe. He also considered becoming a franchise for a furniture store chain. It was at this point that Brophy heard from a friend about someone in Ottawa who had mounted a 2,000-pound, refrigerator-sized industrial-grade shredder on a truck and was driving around the Canadian capítol destroying government and company documents on contract. Brophy was intrigued by the concept on a number of levels. His research indicated that some 70 percent of companies employed small, inefficient machines to shred their paperwork. Moreover, an increasing number of businesses were looking to outsource routine tasks in order to save money. Brophy recognized that the time saved by fully utilizing a high-powered shredder instead of relying on small office units would translate into cost savings for customers and a profit for an independent shredding operation. He also envisioned the possibility of a shredding business that could grow from market to market. In addition, the idea that the shredded material would be recycled appealed to him personally and would be a selling point to many customers as well.

Before Brophy was ready to invest in expensive equipment, he sought to sign up customers in advance. He visited major Toronto companies, hospitals, and government offices and made his pitch. The first to sign on was a General Electric plant located in a Toronto suburb, and within a month Brophy had lined up a dozen customers, enough business to keep a shredding truck busy at least on a half-time basis.

Bankers were not receptive to Brophy’s business plan, but he was finally able to convince his bank manager to lend him $160,000. He cobbled together another $125,000 in seed money: $20,000 from savings, $70,000 on a second mortgage on a house he had acquired during his college real estate days, and a $35,000 Canadian government small-business loan. He acquired a truck and $70,000 shredder, able to destroy 1,200 pounds of paper per hour, then incorporated his company, naming it Shred-It. For the company’s services Brophy established an hourly rate of $140, plus the cost of the operator. The first employee was a recent college graduate, whom Brophy paid $24,000 a year.

Shredding operations began on February 1, 1989, while Brophy continued to drum up new business, his office nothing more than a desk at an area electric company which he rented for $86 a month. To save money he even bartered shredding services for office supplies. His sales pitch was so persuasive, in fact, that within the month he had set up enough new business to justify the purchase of another truck. His banker, however, cautioned against moving too fast and turned down Brophy’s loan request. Nevertheless, Brophy went ahead and bought the truck on his own, relying on credit cards and loans from family and friends, then convinced a leasing company to purchase the truck and lease it back to Shred-It.

In the company’s first year in operation, some eight months long since its fiscal year ended September 30, Shred-It generated sales of $130,000, losing $30,000, although Brophy was able to pay himself $24,000 and the business was already starting to prove profitable. During the first full year in business, Shred-It posted sales of $470,000 and a $33,000 profit.

Despite initial success, the company was still not generating enough cash flow to fund the growth that Brophy felt was necessary in order to secure market share before better financed competitors entered the nascent industry, and bankers were still not willing to finance his ambitions. According to a Forbes profile, “His father’s example steeled Brophy’s resolve to focus on Shred-It’s problem and solve it. ‘My dad’s experience,’ he explains, ‘taught me not to jump from business to business.’ “It was one of Brophy’s truck drivers who made a key contribution towards making Shred-It a more profitable business by reorganizing the truck routes to make the operation more efficient, allowing the mobile units to accommodate more customers each week. (The company also added weekend shredding to more fully utilize equipment.) As a result, trucks that had realized $3,500 in weekly business increased that amount to $5,200. In fiscal 1991, the company improved revenues to $753,000 and generated net earnings of $114,000. Brophy was also able to pay off the loan on his first truck. Now the bankers were approaching him to do business, and he was in a position to ask five major banks to put together a financial package and make a presentation at his office.

In 1992, Shred-It’s revenues topped $1 million and Brophy prepared to take the business south into the United States. American banks, however, demanded U.S. credit references. One even refused to review the company’s financial statements, which had been audited by a multinational accounting firm. According to Brophy, when he approached California banks in order to set up a Los Angeles branch of Shred-It, the best offer he received was a $50,000 credit line, contingent upon the deposit of $50,000 in a bank account. In the end, Brophy came up with $800,000 on his own to launch the Los Angeles office. It was clear, however, that lacking access to capital would prevent him from establishing the Shred-It name in the United States before others moved into the industry, achieved a major market share, and became difficult to dislodge. Moreover, Brophy lacked the personnel needed to launch widespread Shred-It operations. His solution to these problems was to augment Shred-It with franchise operations, selling rights to entire metropolitan areas for $45,000 and a 5 percent royalty on gross sales. Brophy placed ads in trade publications and attended trade shows, gradually selling franchises. By early 1997, Shred-It had 32 franchisees, mostly located in the United States. While Brophy provided franchisees with the Shred-It name, trucks, and canisters, as well as making available the company’s expertise through a support center, he granted them the latitude to run their businesses as they saw fit.

Company Perspectives:

Shred-It is dedicated to being the World’s Leading Mobile Shredding and Recycling company. We will achieve this goal on the strengths of our people. Shred-It will consistently deliver the greatest security, cost effectiveness, convenience and environmentally-friendly service available. We will earn a fair return on the investment in our systems, equipment and people. Above all, we will earn the confidence of our clients through a continued commitment to total customer satisfaction.

Brophy’s accomplishments were recognized in 1994 when he was named Emerging Entrepreneur of the Year for Ontario by the accounting firm of Ernst & Young, received the Young Entrepreneur of the Year award from the Federal Business Development Bank, and made the Ontario Business Report list of Ontario’s Top 100 Entrepreneurs. Much of his success he credited to an advisory board of four retired executives he had assembled to help him chart the course of his business, including his father-in-law David Williams, a 36-year veteran of Sears Canada. Brophy met with the board every six weeks. Each adviser offered his expertise in a particular area: general management, operations, finances, and human resources. By the end of fiscal 1994, Shred-It was generating annual revenues in the $5 million range.

Moving Outside of North America: 1995 and Beyond

Shred-It also began to expand beyond the borders of North America. In 1995, an Asian franchise branch was established, followed the next year by a franchise operation in Buenos Aries, Argentina. Now with ten company-owned branches and 30 franchises, Shred-It posted company-wide sales of $21 million in fiscal 1996. That number would double in fiscal 1997, totaling some $42 million, then reach $81 million in fiscal 1998. Shred-It entered the European market in 1998, opening an office in Birmingham, England, as the company continued to post impressive gains.

Not only was the company expanding its operations, the demand for shredding was also growing at a fast pace. Despite years of hype about the paperless office, the consumption of paper tripled from 1980 to 1990, according to a study conducted by the University of Illinois. The use of paper was expected to grow at a 15 percent clip each year until 2010. Those numbers alone indicated that the demand for shredding services was certain to grow, providing a great deal of opportunity for Shred-It. Moreover, with the rise of “dumpster diving,” security of documents was becoming an increasing concern for businesses (as well as individuals wary of identity fraud). To help solve a growing fraud problem, governments around the world began to enact legislation that mandated certain types of information be destroyed in a highly secure manner. Although the act of shredding took on negative connotations during the corporate scandals, such as the Enron affair, that shook the corporate world in the early years of the new century, the demand for shredding services only increased further. With a dominant position in the North American market and a toehold in four other continents, Shred-It was well positioned to fully take advantage of these favorable business conditions.

Shred-It opened a branch in South Africa in 2000. By the end of the year, the company had 82 branches located around the world, operating 260 shredding trucks. In 2002, Shred-It became the largest document destruction company in the United Kingdom following its acquisition of Shreddit PLC. As a result of this transaction and continued internal growth, Shred-It entered 2003 with 120 branches and 700 shredding trucks on the road. The company continued to enter new markets, the network growing ever larger, with North American branches set to open in South Carolina; Fresno, California; and Austin, Texas. Shred-It operations were also ready to start in France and Germany.