Sometimes overkilling is a good business strategy. In this Self - Storage University podcast we’re going to explore how to take a lesson from World War I and use it as a success roadmap.
Episode 140: Lessons From Hill 60 Transcript
Back in World War I, we had trench warfare. The enemy was in these trenches, firing off artillery, shooting out across these big, barren fields. And to gain the advantage, you had to have a high point, an observation spot, and better yet, a place you could put your artillery to shoot down at the enemy. But there weren't a lot of high spots in World War I. Most of it was just flat, level ground, and it was a bloodbath. People shooting each other, advancing, retreating. It was terrible. But out there in that big, wide, open space, there was one hill on one battlefield, and it was called Hill Number 60.
Now, Hill Number 60 was prime property. Everyone wanted it so they could have visualization down upon the enemy, and they could also aim their things down at the enemy. And so it was a really good idea to capture Hill 60. And everyone kept battling to get it. The British would battle to get it. Germans would overtake it. And then someone in the British command had an idea. After they had lost it for the third or fourth time, they thought, you know what? Rather than just keep fighting for that thing and losing it, let's just eradicate it.
So they sent word that they were looking for anybody over in their lines that was a miner. And they got a bunch of guys together who were professional miners back in England. Coal miners, probably. And they said, here's the deal. We want you to build a mine shaft under Hill Number 60. We'll just start digging from right here in our trenches, and we'll give you all the tools, and you, just as fast as you can, you dig a mine under Hill Number 60. Well, the miners liked this job because they couldn't shoot at them while they were in the mine underground. So they happily went in there and just started mining away. And over time, they got the mine right under Hill Number 60, which is where all the Germans were positioned. But then came the invariable problem. How much dynamite do we need in the shaft to blow up Hill Number 60? And no one actually knew, because miners were not used to blowing up mines. They were just used to using dynamite to break loose the coal that they could then take out of the mine. So they were always going for a little bit, going for the least amount of explosive that they could use.
But now we're flipping around, and it was what was the most expensive... The largest quantity, which is also the most expensive, of dynamite that we can use on this endeavor. So every time they had it all packed in the mine, someone would say, wait, I don't think that's enough. You better add some more. So they go get more dynamite sticks and they put that in there. And then the next person would say, I'm still not convinced. We better put some more in there. Well, by the time they all agreed we have enough dynamite in the shaft, they had put 1 million pounds of dynamite underneath Hill 60. And when they detonated that thing, it was the largest explosion in world history before Hiroshima. It was almost as big an explosion as a nuclear bomb. Hill 60 was completely evaporated. There was nothing left. In fact, it ended up being just a kind of a big hole, no longer a very good offensive positioning. But it brought into play the concept that sometimes you can't go too far. Overkill is not a bad thing, because there's no reason to hold back and there's more danger in not getting the job done than there is in doing too much to it.
So what times do you face these Hill 60 concepts with your self storage facility? Well, the first one I would say would be paper trail. You can never have too much paper trail. Now, paper trail on a self storage facility doesn't come into play often until the very end of the movie, if the customer doesn't pay you and then you have your methodology, which ultimately will lead to auction. But there has been litigation in the past from people who did not have all of that papered properly. So make sure that you've got a lease and make sure that you've done all proper notifications and have everything on file to the utmost degree, because you can never have too much paper trail. That's what protects you from litigation. That's what can make sure that the tenant is in full understanding and agreement of all the terms and conditions.
Also, you can never have too much relationship with your banker. Now, we are in troubled times right now with self storage in the banking industry because people overbuilt storage, particularly in the urban core. We got way too much storage. People built way too much stuff.
Billions of square feet of additions in markets where there's no demand for it, and as a result, occupancy and rents have dropped nationwide. So the self storage industry, which appeared to be so stable and safe to many bankers not that long ago, suddenly appears very risky. And if you've got a loan that's going to be coming up for renewal, you need to make sure that that banker still likes you and understands what you do. Many people, after they get their initial loan, they never talk to their banker ever again, doesn't hear from them year after year after year, no contact whatsoever. The borrower keeps sending in the required profit and loss statements, financial statements, and obviously their monthly mortgage payment. But that's all that they do. And when that loan comes due five years later, they reach out to their banker only to find the banker's not there anymore. They're starting from scratch with a new banker who knows absolutely nothing about their business whatsoever. Not a smart situation. It costs you nothing to stay in contact with your banker. Absolutely nothing. So as a result, you need to be reaching out to your banker at least monthly. At an absolute minimum, quarterly, to A, make sure they're still the banker and B, to let them know that you're still the borrower and you care.
And reach out on that refi well ahead of time to make sure you have plenty of time. But you've got to forge a strong and lasting relationship with your bank. Banks are not transactional. It's not like just going to the movies and paying the ticket taker to buy the movie and the popcorn. You need that person on your team because down the road your relationship with that banker may tell the entire tale on what happens with your loan renewal.
Finally, you've got to have a plan B. You can never have too many plan Bs. In fact, you need a plan B and a plan C and a plan D and a plan E. Every possible problem that can happen with your storage facility, you need to have the corresponding solution already written in a file ready to go. Let's assume that a storm comes through and there's extensive roof damage to your facility from that storm. Let's say it's a tornado. That is not the moment to ponder what do I do in the event of a tornado? You need to already have thought through completely with a file, these are the steps if there is a tornado, and then take action on those steps.
You can't just wait till the final minute. If you think back on your storage property and what could happen the worst case scenario in every regard, you need to make a complete list of those and then start forging your plan B on all of them to be ready in the event of a terrible, terrible problem. That will also give you greater reassurance if a problem ever does arise. Oh, don't worry, I already have it figured out. I know precisely what to do. And going back to your lender, who needs to be an ally in the event of a crisis, they're going to feel a whole lot better about you if you already have a plan in the event of what you thought never could happen did. And that simply begins with you thinking up what all of those action things are that could happen to you and then how to solve those. The bottom line is, like Hill 60, some things in life you can't have too much of. There's an old saying, you can never be too rich or too thin. Well, in the storage business, I think probably the answer would be you can never be too prepared.
This is Frank Rolfe with the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.