‘We want to go bigger and faster – it’s never enough’
From its accidental beginnings to a multimillion-dollar turnover, Terracycle is an unorthodox model of a company that took a multi-tracked road, including recyclable pouches and a reality TV series. Its co-founder, Tom Szaky, tells Erik Jaques how making deals along the way opened up further opportunities to grow
Tom Szkay’s business success is down to pot luck in more ways than one. Terracycle, the company he founded as a 19-year-old Princeton dropout, claims to be the fastest growing eco-friendly manufacturer in the world, with exclusive deals to “upcycle” the irritant non-recyclable waste streams of the consumer packaged goods overlords (Kraft Foods, Frito Lay (Pepsi), Mars Wrigley and the like).
A Doritos packet becomes a speaker, a Capri Sun pouch is magicked into bags, Oreo wrappers take flight as kites, Brooks Brothers scraps and Warner Brothers film will become whatever Terracycle wants them to be – over 200 products for home, garden, school, office, pets and beyond are up for grabs at all the usual major retail suspects.
Terracycle’s raw materials are better than free – as it is paid to deal with burdensome waste streams products that can be priced way below the usual, frequently off-putting green premium. It also enables the funding of armies, or “brigades” – 9.4M-strong – of people to gather the garbage, who are then rewarded with a donation to a charity of their choice for each submitted item.
Now 27, Hungarian-born Szkay is buzzing with kinetic energy and grand schemes.
Spiky-haired, handsome and charmingly ebullient, he talks up the concepts of “eco-capitalism”, “sustainable business 2.0” and about becoming “as big as, or bigger than, the idea of recycling”.
Soon, Terracycle will be a verb like Google, he says, or the company could be the “Wal-Mart of garbage”.
Terracycle is headquartered in Trenton, a deprived area of New Jersey that wouldn’t seem out of place in a David Simon script, with gun violence rife and drug-busts the norm. While initially moving into the 20,000- square-foot local for price reasons, Szaky has decided to stick around, generating jobs where previously there were none, and cultivating a unique environment for his youthful company – the average age is 30 – to creatively blossom.
Everything from the building itself to the office equipment is recycled, music blares all round, and local graffiti artists are commissioned to decorate the walls on a weekly basis. “That’s typical Terracycle,” Szaky smiles.
Despite a mere workforce of 74, the company last year expanded from the mean streets of Trenton to Brazil, Canada, Mexico and the UK. This year Szaky has set up shop in Turkey, and has designs on Argentina, Venezuela, Chile, Columbia and a clutch of countries across Europe.
“We want to go bigger and faster,” he says emphatically, “it’s never enough!
“We would like to become, basically, the ultimate solution for all waste. That’s our ultimate goal and we hope to get there if possible.”
Last year, turnover stood at $7.6M and is projected to rise to $15M this year. And although Szkay’s ambition often hurtles beyond reality (he was quoted as saying 2010 would yield $50M), he is at the helm of a profitable, one-of-a-kind company.
To think it all started with worm poop and, yes, pot.
In the twilight of their high school years, Szaky and some friends were trying to grow their own stash but meeting with consistent failure.
The horticultural experiment was still dead in the water when they all parted ways to attend university, but when Szaky dropped by during the fall of his freshman year, a revelatory breakthrough had taken place: feeding worms with compost and fertilising the plants with their excrement produced the bud mother lode.
While sampling the harvest, Szaky had a Eureka moment. What if somebody bottled this fertilizer and sold it? Not only could waste be recycled for utilitarian use, but chemical fertilizers could also be trumped by a price-competitive alternative. People with even the slightest environmental inclinations would lap it up.
That summer Szaky maxed out two credit cards, borrowed bar mitzvah money from a friend and convinced his reluctant parents to chip in for a $22,000 machine that could rapidly supply garbage to millions of worms.
Working from a garage, he and the company’s co-founder Jon Beyer spent the summer wading through tonnes of olfactory-abusing Princeton cafeteria waste to salvage their precious feedstock. Yet at the end of it all they were still no closer to alighting on a commercial route to market.
But while the fledgling venture teetered on the precipice of failure, word had gotten out about the quirky worm poop entrepreneurs, and Szaky and Beyer were invited by a local radio station to tell their story live on air. Luckily, their brio and audacity caught the imagination of a local businessman who called a meeting and stumped up $2,000 as an angel investor.
It wasn’t much, but the pecuniary vote of confidence resuscitated Terracycle to fight another day. And fight it had to, with Szaky barely keeping it alive by entering and winning a succession of business competitions. Then, in 2003, he entered the Carrot Capital business plan contest, which offered $1M in seed capital to the winning team.
Stunningly, against the odds, Terracycle triumphed. But Carrot Capital had a different vision for the company; Szaky would have to tone down the environmental rhetoric and step up as the “poster child” of organic fertilizers.
Despite having just $500 in the bank, Szaky rejected the offer to go his own way. He had a big problem, though; the fertilizer was good to go, but Terracycle couldn’t afford to bottle it.
This potential showstopper was elegantly sidestepped when Szaky noticed that for all the galaxies of drinks on the market, there were only four bottles sizes by volume, all of which took the same caps. What’s more, within each of the four size categories the bottles had the same height and the same diameter. This meant they could be run through a high-speed bottling machine. Problem solved.
Full of confidence, Szaky embarked on a fundraising mission, netting $1.2M within five months. By late 2004, Terracycle’s fertilizer was jostling for shelf space at major retail stores, standing out for its highly distinctive, wonky appearance (replete with a logo doodled by Szaky during a tedious Princeton lecture) and cheeky sloganeering proclaiming the merits of “worm poop” while dissing its chemical rivals.
“What we find is that in our greatest desperation we find our best innovation,” Szaky explains.
“I’m really OK with the company taking a risk and seeing what happens. I’m a big fan of experimenting, pushing the envelope, going for scale and not being conservative.”
After setting up in its Trenton HQ, Terracycle stepped up its game, to turn over $220,000 in 2004, $560,000 in 2005 and $1.2M in 2006.
By 2007, even Miracle Gro, the leading fertilizer brand, was sufficiently rattled and slapped a lawsuit on Terracycle for similarities in design and advertising statements.
Knowing that he was outgunned in the lawyer stakes, Szaky used his formidable PR powers to cast the contest as a David versus Goliath affair, launching SuedByScotts.com to take pops at his adversaries (including CEO James Hagedorn, who was lambasted for, among other things, his private jet use).
The case is now settled, though Szaky can’t discuss the details. “We’ve happy with the outcome,” he concedes. “We’re very happy.”
Terracycle’s business model radically changed in 2007 when he was approached by Honest Tea CEO Seth Goldman, who had launched a new line of organic juice packaged in non-recyclable, landfill-bound pouches. “You guys are the trash people,” he reportedly told Szaky. “Can you help me?”
The Terracycle brainstorms resulted in some rudimentary tote bags and pencil cases, cobbled together on the fly with a sewing machine.
Goldman loved them, and agreed to fund “juice pouch brigades” to scale up the solution. Szaky immediately knew that he was onto something, and had soon convinced Safeway, Target and Walgreens to place huge orders for the products.
In doing so, he had committed the company and the brigades to an impossible workload, but when their backs were against the wall, serendipity and creative brinkmanship came through once again.
Terracycle discovered that retailers in British Columbia had to pay consumers to return used drinks pouches, and over 20M pressed into insalubrious, sticky blocks were festering in storage. Canadian officials were stunned when Szaky asked to relieve them of their burden and run bounty down to the US with a fleet of rented trucks.
Noting that the pouches were the popular Capri Sun brand, Szaky met its maker, Kraft Foods, and explained what he intended to do with them. A major waste stream would be taken off their hands to their reputational benefit and transformed into products with Capri Sun logo clearly visible. It was a no-brainer, and it wasn’t long before other Kraft divisions were hooking Szaky up with raw materials.
Other consumer goods companies duly converted to the upcycling revolution, and Terracycle’s product arsenal went into overdrive. “There are a lot of winners in [the virtuous] cycle we create, and I really don’t think you have any losers,” says Szaky.
“No one likes to throw things out, it’s not something anyone feels good about. So [our] solution to that is something people typically love to get around and get very excited about – it becomes contagious.”
But despite its burgeoning reputation and an increasingly star-studded roster of collaborators, Terracyle struggled to make money, and in 2008, the company lost $3.5M. True to form, Szkay refused to buckle, adroitly shifting the game plan to implement a unique licensing scheme.
Under the supervision of a head of licensing formerly of Disney, Terracycle now partners with manufacturers that produce the products and pay Terracycle a royalty to use its brand.
Szaky is constantly looking to push the company forward; in addition to the ongoing international expansion, Terracycle is making moves into retail, recently establishing a temporary store in New York to sell its wares.
Meanwhile, Szaky’s knack of convincing investors to join him for the ride is as strong as ever ($18M has been ploughed into the company to date), and there are canny PR aplenty: last year he churned out a highly readable and critically acclaimed memoir, Revolution in a Bottle, and Garbage Moguls, a reality series about Terracycle’s waste alchemy, is currently airing on the National Geographic channel.
Opportunities, Szkay observes, exist everywhere and are inexhaustible. “My market is really easy – everything that ends up in the trash can is something we want to work with,” he laughs.
“In many ways, our competition is the trash can. I’d rather people give it to us than to the garbage.”