Everything is recyclable – the TerraCycle story

Nobody would have believed TerraCycle founder Tom Szaky when he said everything could be recovered at a profit – until he proved it.

TerraCycle founder Tom Szaky

TerraCycle CEO Tom Szaky at his office in New Jersey.

Credit: Christopher Crane

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Alex Serpo from ResourceRecovery.biz talks about the TerraCycle origins as a vermiculture business, to a multi-award winning upcycling and recycling company.

TerraCycle founder Tom Szaky recently visited Sydney and Melbourne to launch an Australian branch, and to make an announcement on recycling cigarette waste on Clean Up Australia Day.

As remarkable as it is crazy, Szaky has tackled complex and formerly valueless materials - such as chip packets, drink pouches and cigarette butts - and turned them into bestselling products stocked at major retailers like Walmart. Now he has brought his remarkable business model to Australia - but the TerraCycle story starts on the other side of the world.

From worms to Walmart
In what has become almost a mandatory requirement for great American entrepreneurs, the TerraCycle story starts with a promising student dropping out of an Ivy League University to pursue a questionable and unfunded business venture.

In Szaky's case, the university was Princeton and the business venture was vermiculture. "Everybody at the time said I should do a tech start-up," he said, "That was what young entrepreneurs did in 2001." Instead, he invested US$20,000 to build a rotating compost machine that treated food seconds from the Princeton cafeteria.

A true social entrepreneur, Szaky started with the problem and sought a business model to solve it. He quickly learnt that composting is a high volume, low margin business. "At the roughly $50 per tonne we were paid to cart the waste, we couldn’t come close to making money, or getting a date," he wrote about his business.

It was at this point that Szaky's remarkable ability to change the recycling game first began to manifest. In a business replicated all over the world, composters typically make money from a gate fee and then give their compost away for little or nothing. Instead, TerraCycle opted to "upcycle" their compost into a high value retail product.

In this case, the product was "TerraCycle Plant Food". This was more than simply bottled worm castings (what Szaky describes as "crap in a bottle"), it also had to fit with TerraCycle's philosophy that everything they used and sold would be made of garbage (including its offices, and everything in it).

So Szaky and his team decided to package TerraCycle Plant Food in second hand PET bottles, in this case former Coke and Pepsi bottles. TerraCycle made their first samples by raiding local recycling bins, which landed Szaky a night in jail - ("they fed me and it was all fine", he said at his recent Sydney appearance).

Typically, manufacturers looking to launch a new product start at the bottom of the retail chain, with smaller stores, and work their way up. TerraCycle were determined to break the mould (or in this case, make without a mould), so they went right to the behemoth of US retail - Walmart.

After several weeks of harassment, Walmart agreed to meet TerraCycle, and in a surprising move ordered 100,000 units. "Of course, we were bluffing the whole time," Szaky recalls, "we didn't have a manufacturing line". However, where there is a will there is a way. By partnering with a local recycler to source PET bottles, while powering up their vermiculture machines, TerraCycle met the order and had its first major cash injection.

Garbage is patented
It wasn't long before TerraCycle learnt a hard lesson about reuse - major products are patented. In the case of Coke and Pepsi, the patent TerraCycle smashed into was bottle shape. While TerraCycle was removing and relabelling the used Coke and Pepsi bottles, the shape of the bottles themselves was a patent they were infringing upon. "All Coke bottles are shaped like rocket ships and all Pepsi bottles are shaped like dumbbells," Szaky explained. TerraCycle was threatened with closure.

Conversely, both Coke and Pepsi both faced the same problem, their products were associated with litter, so banning a recovered product made from their bottles was a very bad public relations move. It was on these grounds that TerraCycle managed to convince both Coke and Pepsi to come to the party. "TerraCycle is the only company in the world licenced to resell the distinctive Coke and Pepsi bottle shapes," Szaky said.

Yet, TerraCycle's legal problems were only just beginning. Their fertilizer product was so successful that its chief competitor, Scott's Miracle-Grow Company, then sued TerraCycle for making a product too "similar" to its own. Szaky knew TerraCycle had little chance in US courts against this giant, so once again he created a remarkable escape manoeuvre.

"Rather than face them in court, we opted for trial by media," Szaky said. TerraCycle started a website, "sued by Scotts", and began publishing court documents verbatim. Before long, media outlets throughout the US, including the Wall Street Journal and the New York Times, picked up the story. Scotts agreed to settle outside court, but only if TerraCycle took down the website.

From sponsored waste to mail order materials
It was at this point that TerraCycle's profits began to grow exponentially. "We went from US$500,000 to $3.5 million in profits in four years," Szaky recalls, "… we were off to the races." TerraCycle now had a successful and profitable business.

Given its success in the fertilizer market, Szaky was keen to see TerraCycle began expanding its product range. After all, if it could upcycle PET bottles and food waste into a popular retail product - what else could it upcycle?

Internally, there was considerable resistance. "Almost everyone - from my board to my management team - advised me to keep TerraCycle focused on its core business," Szaky recalls, which at the time was organic fertilizer in reused bottles. Yet he was determined to expand the company's product reach. "While companies didn’t want to pay us to collect waste produced by other companies, they were very eager to pay us to collect waste from their own products."

TerraCycle dubbed this concept "sponsored waste" - essentially they were getting major manufacturers, such as Mars or Unilever, to pay them to recycle their products into something which could be sold on shelves. When talking to recyclers, Szaky often describes this model as voluntary, corporate sponsored extended producer responsibility. However, there were two major hurdles to making this business work.

The first was collection. Companies were willing to pay to have their own products recycled, but not the products of other companies. So TerraCycle needed a low cost model for hyper source separation, on a scale never achieved before. Once again, the company came up with a novel approach.

The company formed a program called "Brigades", where organisation such as schools would sign up and send in segregated streams for products including drink pouches, pens, binders and shoes. While the program began slowly, over time it became a phenomenal success.

"People say this may be dinky and small, but one example is drink pouches. We launched the drink pouches brigade in 2007, and collected 22,000 drink pouches in our first year … [in 2013] we collected 500,000." That's 2200% growth in five years, with three out of 100 US drink pouches now flowing into TerraCycle.

Further, when organisations like schools signed up to the Brigades Program, TerraCycle also paid a small donation to a charity of their choice. This gave these groups a small, measurable reward for their source separation efforts. In the case of juice pouches, TerraCycle gives two US cents per pouch to charity. This may seem small, but so far TerraCycle has donated almost US$4 million just off its juice pouch brigade.

With the proliferation of TerraCycle's successful collection model, it ran into its second major hurdle - manufacturing costs. "As we broadened what we manufactured, our margins decreased, often well into the negatives," Szaky wrote in 2007. "It had taken us four years to bottle worm [castings] profitably, and adding sewing lines and other manufacturing lines to our factory only compounded the margin issues."

"We hardly had any in-house experience with these new manufacturing supply chains, and the products we were making had put us into competition with very strong, typically China-based, manufacturing firms. As a result, we had to drop many of our prices below our costs to get the business."

The old saying goes, if you can't beat them, then join them. That's exactly what TerraCycle did. Rather than try to become a competitive manufacturer, the company sought to partner with strong local and international manufacturers, then licence their designs to these partners.

This brought TerraCycle to its current manifestation - a global licencing and supply chain business which partners with major manufacturers to "solve" their "waste" - upcycling it into profitable retail products through creative design. This seek and solve mentality is why TerraCycle is often described as the "Google of garbage".

Going global
"Garbage is a global problem, but luckily, it's also the same everywhere," Szaky explains. For TerraCycle, global expansion was natural given that companies they were working with, such as Nestle or Unilever, were global. If TerraCycle could "solve" Unilever's waste in the US, then it could solve it in Germany, Israel, Turkey or Japan.

And that's exactly what TerraCycle did. Replicating its business model around the world, by 2012 TerraCycle had grown to $15 million in sales with operations in 22 countries. In late 2013, TerraCycle began expanding into its 23rd market - Australia.

"TerraCycle is basically operated the same way in every country where we have operations, from Brazil to Turkey," Szaky explains. "We do adjust for each location, but we try as much as possible to avoid making adjustments in order to maintain coherence in a small organization of just more than 110 employees."

In Australia, TerraCycle currently has four Brigade programs: the Cleaner Packaging Brigade, the Oral Care Brigade, the Nespresso Coffee Capsule Brigade and most famous of all, the Cigarette Butt Brigade.

Locally, TerraCycle has partnered with the Australian arms of British American Tobacco, Philip Morris and Imperial Tobacco to sponsor what has come to be known colloquially as "butt sacks". Smokers can order a free "butt sack" from TerraCycle, a special mail order sack in which they can place cigarette butts, which is then sent postage paid back for recovery.

Szaky recently gave a lecture at Sydney University on the TerraCycle story. Here I caught up with both Szaky and TerraCycle Australia's new CEO Anna Minns. Minns explained that TerraCycle was setting up a facility in Sydney's St Marys, while also seeking local partners in order to expand its Brigades program.

Irrespective of how TerraCycle fares in Australia - it is clear that an enormous global market remains for TerraCycle's corporate sponsored product stewardship business. With TerraCycle in town, it is no longer fair to describe any product as "recyclable" or "non-recyclable". TerraCycle has turned the industry on its head, and everything is now fair game.

This piece was originally published on ResourceRecovery.biz here.