What makes a great business strategy?

How does one create a winning self storage business strategy?

This will be a different type of post from my usual format.

I am frequently asked how to write a business strategy. I created a worksheet for my online courses that walks students through the questions that need to be answered before you can start building a successful business strategy. Today I’m going to share that with you as well as a step-by-step guide to building the perfect self storage business plan for your personal goals. 

You can download the worksheet HERE.

Fill out that form. Once you have answered all the questions on the worksheet, go through these ten steps to create a powerful business strategy for your self storage business.

Step One:  Why do you want to be the self storage business?

You need to be really clear on what being in the business can mean for you. Hint: It isn’t money.  If that is your first response, go deeper.  What does the money offer you?  Picture yourself in five years.  What is your life like? Dwell here for a while and the answer to the above question will reveal itself.

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Step Two:   What strengths do you bring to the business?

Everyone has strengths and weaknesses. Get clear on what your strengths are. It could be working with people. It could be figuring out how to make a deal work.  It could be working with numbers, marketing, and so on. Be honest and assess your strengths. Would others agree with you?

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For every business, no matter what it is, there are three main components. Your self storage facility, even Apple or Google, all have these in common. (1) Operations, (2) Finances (collection, spending, and reporting), and (3) sales.

All are important, but of the three, the one that can make or break any business is sales. There is almost no problem more sales (i.e. income) will not cure.

Self Storage operations has its own unique processes. It’s not hard, but a process and skill that needs to be learned. There are a lot of great resources on the Self Storage Association (SSA) and Inside Self Storage (ISS) websites to support you.  The Self Storage QuickStart Academy will soon have a course on operations – What To Do In Your First 90 Days of Business. (coming 4^th quarter 2016).

Finances include collecting money, paying bills, and perhaps most importantly, reporting – or keeping accurate books. Your operation procedures will spill over here, but it’s really this accountability that should guide your operations towards best practices in handling money. Remember, self storage, unlike most businesses today,  still has anywhere from 20% to 50% of  income coming in the door in the form of cash. You need to have some real clear safeguards and reporting procedures in place to deal with this.

And lastly sales. This is a broad topic in self storage, but it’s basically:

1. How do you get prospects in the door?
2. How do you turn those prospects into customers?

If that doesn’t happen, and happen fast and effectively, you won’t be in business long.

Now with this in mind, review your answer to Step 2. Rewrite if necessary.

Step Three:  What weaknesses do you have?

It is critical that we as owners be honest with ourselves and know what our weakness are. Everyone has weaknesses. Part of the excitement of being a business owner, and living the lifestyle of a business owner (more accurately stated here a business creator), is to constantly be in self-assessment mode. Always be taking yourself apart, then putting yourself back together. If you can accurately assess your weaknesses, you can then compensate for them with vendors, team members or partners.

Step Four:      In what areas of acquisition, building, or running a self storage business do you need help from other people?

Do not try to figure out how or who at this point. Just determine what aspect of buying or building (however you think you are going to do your first/next self storage deal) that you need to compensate for your weakness with support from others.  In what areas of running the business do you need additional support?  Operations or running the facility or facilities? Bookkeeping or financial reporting? Sales? Lease up? Again, don’t try to figure out how or who, just what areas need support.

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Step Five:  Given your answer in Step One, how big is your next facilitiy? Or how many facilities do you need in your self storage portfolio and what size are they?

How big do you see your facility (or facilities) being? Do you want “institutional grade facilities” (i.e. a facility a REIT would be interested in when you want to sell is over 50,000 square feet). Or do you want to own a facility that you lease up yourself and then run with a kiosk and two to three walk through lock inspections per week? These facilities run from 15,000 square feet to 35,000 square feet.

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Step Six:   How much money do you have to invest?

Critical. If you are working with your own funds, how much do you have? If you are working with a partner or group, what is the collective amount being invested? If you don’t have a lot of funds, are you going to be raising capital from investors? These answers will indicate you how many facilities, and what size, you can realistically purchase. It will also contribute to your understanding of the best way to organize as an entity to own the facilities (work with a competent lawyer and accountant to advise you here).

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 Step Seven:  What returns, or how much income do you need to fulfill your emerging strategy?

For example, if your goal is to buy a facility, earn $80,000 per year and create a free & clear legacy to pass down or sell at retirement, you’re looking at a $2.5 to $3 million size facility. If your needs are $40,000, then about half that size. We, for example, look for properties over $2.5 million that can be expanded so we can generate above 11% cash on cash return, refinance before end of year 5 in order to give investors all the down payment back plus any deferred unpaid returns, and have a 65% loan-to-value loan on the property. We will calculate out what the offering price is to execute that strategy. But first you HAVE TO FIGURE OUT HOW MUCH INCOME OR WHAT RETURNS YOU ARE SEEKING PER FACILITY.

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Step Eight:   Given your answers to Step Seven, what is the best type of loan to get?

If you re working with your own capital (no partners) you want to purchase one facility.  Depending on your income goals for the facility, you may want as high of a loan-to-value loan as possible. SBA financing may be the best solution for you then.

If you’re working with investors and other people’s money, a 65% to 80% loan-to-value loan may be a better fit for you. Determine what the best loan package is that’s available. HINT: Bank money is most likely the lowest cost capital you will use in the deal.  If seeking returns, leverage it to get needed return, but be careful not to over leverage.

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The above question helps you begin to figure out the details of how much, how big, and how you will use financing to start or grow your self storage business. Now looking at all of this together, see where you are missing needed resourses. Do you have enough cash to get the size loan you need? If not, you may need partners or investors with cash.

Do you need a loan bigger than what you can qualify for? If so you need a guarantor. That is most likely accomplished by seeking a partner with financial strength.

Do you think you can get the loan and have the necessary money, but you’re not sure where or how to proceed? That can be fixed with more education or training.

The goal here is to see what areas are missing for you to fulfill your goals.  Now finish building your strategy by filling in with partners, vendors or other means to fulfill what is lacking.

For example, I knew how to find, analyze, and negotiate deals but I didn’t have much money or borrowing power when I started. I brought in partners to help guarantee the loans, and investors to supply cash. I organized my strategy around what I would need to do to get partners and investors.

See what is missing for you and how you can fill in where you are weak or need assistance.

Step Nine:  How will you be organized as a legal entity?

Will you be a single person LLC or S Corporation? Will you have partners? What are the percentages? You should seek legal assistance here and/or coaching from your accountant.

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NOW, PUT EVERYTHING TOGETHER IN A NARATIVE.

Write out your business strategy as a narrative. Put all the pieces together. Where will you own self storage facilities? How many will you own? Will you have partners? What will your business look like in five years having executed this strategy? Put it together and write a concise, but comprehensive, strategy. Understand that this will evolve as you begin to execute and find out more about how partners, investors, bankers, and the market react and change, but start here.

Without this strategy to guide you in the market, it’s hard to know what to look for or what you can pay for it. Without a strategy, you are just trying to “feel” for a “good” deal. Now you will know exactly what you need and what you can pay to fulfill on the strategy you have created. This process makes being in the market much easier and gives you real guidance as you analyze deal by deal. The deal is either a yes or a no. You can either fulfill on this strategy, or you can not.

That gives you power, direction, and guidance.

Step Ten:   Create your Business Strategy using the information in Steps 1-9.

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