Podcasts

How TerraCycle Grew a Purpose-Driven Business to Operate on an International Scale

During his last year in college, Tom Szaky began to question why garbage exists and why some products are recyclable and others aren’t. What he found was economics and the value of materials determined what could be reused. He founded TerraCycle in an effort to recycle the unrecyclable. He now operates in 21 countries and continues to grow without competition. By partnering with others to reuse materials such as cigarette butts and ocean plastics, he’s built an entire business that not only helps a company’s bottom line but makes a real difference as well.

 

TRANSCRIPT

Greg Corombos: Our guest this week is Tom Szaky. He is the founder and CEO of TerraCycle, a business that recycles the unrecyclable. We want to get Tom’s input on where he got this idea from, how it works, and the business model that goes along with it. Tom, thanks so much for being with us.

Tom Szaky: Thanks for having me.

GC: Recycling the unrecyclable. Where did this idea come from, and how did you pursue it?

TS: This whole concept came to me in my freshman year of college, and I was thinking about--as people do in college--these expansive ideas. Why does garbage exist? And if you really think about it, garbage came about right around the 1950s when two things occurred--complex materials like plastic became commercially available and people got really into the idea of consumerism. And that creates this epidemic of waste.

And then the question is, why are certain things like aluminum cans and paper recyclable, but most other things not? It turns out that it has everything to do with economics. What makes aluminum cans recyclable is that aluminum is very valuable. What makes a toothbrush, lipstick, sunglasses, chip bags not recyclable is that it costs more to collect and process them than they’re worth. To me, it screams that if economics were the issue, a business model can solve it. And that’s how TerraCycle was born.

GC: How did you pursue it from a business model?

TS: The way TerraCycle works--and we operate in 21 countries around the world--is we have three questions we ask, and each of those is our three business units. The first question we ask is, is your product or your package recyclable. If the answer is no--like it is on chewing gum, diapers, cigarette butts, and pens and so on--we physically figure out a way to collect it, typically nationally, and then turn it into new objects through recycling, upcycling, and reuse, different circular solutions. To make all this work economically, we get funding from major retailers, major brands, factories, cities and so on, and we show them that by funding these platforms they can boost their business and win, compared to their competition. It works really well and has been growing ever since now for fifteen years. The second question that we ask is how do we integrate recycled materials back into products--really completing that circle. And there we focus on unique materials that were never integrated before. A great example this year is that we now manage and run the world’s largest supply chain to ocean plastic, and we collect plastic from oceans, lakes, rivers, and beaches, and that gets integrated into massive global products--the Head and Shoulders bottle, the Dawn dish soap bottle, and many many examples as well.

The last question we ask, which is a platform we’re launching in about a year from now, is how do you move away from disposability altogether to not have waste. And that is all about moving these products, these same famous products into hyper-durable packaging containers that can keep going around and around.

GC: When you say that, does that mean you refill them, or they can be used for other things? How does that work?

TS: That platform, which we’ll launch in 2019, is all about giving consumers a really simple experience, as simple as disposability. But instead of us collecting them back, and melting them down, we collect them back, clean them, and get them refilled and send them out again. It’s just a significantly better approach to the environment because there is no waste at all in the process.

GC: Talk a bit now about the issue now about corporate social responsibility. Obviously, yours is directly related to that, but even a lot of businesses that don’t deal with trash and recyclables and non-recyclables and that sort of thing, there’s clearly a greater conscience of this sort of thing. How does that fit into your business model?

TS: Absolutely. In the past ten, fifteen years, this idea of CSR or corporate social responsibility, these functions have emerged in all these major businesses. And everyone cares, everyone wants to do the right thing. What’s really fascinating is--because CSR departments don’t actually typically have budgets--they’re influencing departments. What they have been able to do is influence the marketing operations and so on departments of all these corporations to look at CSR as a factor. Our job is to take that momentum--which is really real--and show these organizations how they can win, how they can beat their competition by recycling things that were never recyclable before or by integrating amazing recycled materials. And that has been the magic sauce, if you will, of TerraCycle’s straight growth. Every year we’ve only grown, and that’s a really big part of it. But you have to show them how it’s going to make them money, and how it’s going to give them value.

GC: Talk about expanding from domestically to internationally. How long of a process was that, and were there any particular hurdles doing this in a lot of different countries with a lot of different regulations, laws, and all sorts of things.

TS: Absolutely. Our first five years we were a U.S.-only company. Then we opened our first foreign market, which was Brazil. And fast track to today, we’re fifteen years running in 21 countries, from China, New Zealand, Mexico, and many other markets. What’s interesting is that it’s way simpler than it seems, partly because all the waste in the world is exactly the same. Take Colgate, they make the toothbrushes in America, but they also make them everywhere else in the world, and they’re the same toothbrush everywhere. And the same goes for almost every product example. Because of that, the same solution can be applied to all the same markets. In fact, even people’s behavior around garbage, whether you look at Japan, Brazil or the U.S.--as three very different cultural countries--the behavior around waste is very similar. So even the ways we collect and so on can be replicated very very simply. It turns out that garbage is this standard sauce, if you will, that’s in all cultures. It’s all the same, made by the same people, and disposed of very very similarly. And that makes it a very exciting business to be able to replicate it globally and do that in a very coherent way.

GC: Tom, I don’t know if you measure this sort of thing, but if you do, love to have you talk about it a little bit because I think it would help people understand the scope of your efforts here--how much trash do you deal with domestically, internationally? What kind of numbers are we talking about?

TS: The number I’m referring to is only the things that could not be recycled before--cigarette butts to toothbrushes and so on. We do to somewhere between two to maybe four million pounds a week of this type of material that, again, could only have gone to landfill and is now something TerraCycle is collecting and turning into something new. About half of that is U.S., and the other half is spread across the world. And that number keeps growing. It’s one of the factors of how we measure the impact we have. Because we really view ourselves as a social business, even though we are for-profit. We have investors. In fact, we are going to be opening up a new financing round very very soon. We recently filed with the SEC for a Regulation A-Plus financing. Long story short is sort of like crowdfunding if you will. So if you’re an investor who wants to own a part of the business, you can do that with a minimum investment of 700 dollars. By the way, if anyone wants to know more about this just go to OwnTerraCycle.com.

This is the overall approach to how we think about it. We view our impact as how much waste we collect and recycle, but we want to do that not as an NGO, but as something that is a for-profit business that creates value for businesses along the way because that’s how you can really grow.

GC: You mentioned that you can invest in this, you mentioned that this is for profit. How do you make money?

TS: The way we make money is that we first partner with organizations--like retailers, consumer product companies, cities, factories, and even small businesses--those are our five main client types, and they pay for the service of creating solutions for recyclable, non-recyclable waste. A consumer product company, like a Colgate, may create a national program which consumers can use for free, but they’re covering the cost and that allows them to beat their competition. They retail there...let’s say Target funds...for example, national car seat recycling where consumers can take their car seats, baby car seats, back to any Target store, put it in a TerraCycle bin, and we recycle it. That’s funded by Target in a way to help them drive foot traffic--that’s one of the key values, and this exists throughout. We make money in that way. And then in our second division, we take all this waste that we collect, convert it into really amazing things, and then sell that to organizations, who then buy it to make their product from it.

GC: That’s so interesting. Obviously the corporations, businesses, would need to pay for removal of non-recyclable trash, so obviously, it’s beneficial to them economically to hire you to just keep doing that. So, you must be giving them a pretty good deal while still also getting a pretty good return.

TS: That’s exactly right. We’re luckily able to make money on both ends, both inbound and outbound. And what’s really neat, all in all, is that we do it in a way no one else does. There’s no direct competition to TerraCycle after 15 years of running our business. There’s never been one direct competitor to ever emerge. We’ve luckily enjoyed sustained growth. I think a great part of that is waste is not all that sexy. Imagine if your child came up to you and said, they want to be a garbage person when they grow up. Would you encourage that or discourage that? I think that speaks to why innovation and waste is very very low, which means that if you can innovate, you can really change the game and win in the process.

GC: You talked about vision a little bit, you talked about the program you’re starting in 2019. What other ideas our on the board for TerraCycle?

TS: One of the big strategies we have now, especially since we’ve matured into a larger business, is we’re out there doing some m&a. We just purchased our first company, which is a large light bulb recycling company organization in the United States, and we think having them coming in-house [with] the TerraCycle group will help them grow and bring really exciting innovation to their clients. And we’re looking to do more of that. We think that if we absorb great, small waste management companies that do unique things in the world of recycling, we can really boost their business and get a fantastic partnership. So we’re thinking a lot about that with the first one literally just happening now.

GC: Last question for you, Tom, and that would be what advice over these 15 years would you pass along to entrepreneurs? And it could be anything we talked about here, setting a vision (as you just pointed out that nobody has followed despite your great success), attracting investors and obviously providing a return on that investment. Whether it’s lessons you learned the hard way, or brilliant decisions, or things that went your way in the moment, what would you point out as some of the key moments for you?

TS: For me, I think there are a number of key takeaways. I think the idea of infusing purpose to a business, making a business not just about making money, but about making money while doing good, and ideally the greatest good you can, I think, is incredibly powerful and is something that...especially young people, but all sorts of stakeholders, potential employees, potential customers, and investors are all seeking more and more, much more than they used to 20 or 30 years ago. I think if you can do that, do it in a for-profit context versus a nonprofit context because in a for-profit context you can really manage your business cleanly, grow really well, raise capital, do all of these really fantastic things, and if you do it with purpose, you’re making the world a better place every step of the way.

GC: Tom, give the websites again for those who want to learn more about you as well as those who want to get more involved with you.

TS: Sure. To learn more about investing in TerraCycle, you would go to OwnTerraCycle.com. And if you just want to learn about TerraCycle altogether, go to TerraCycle.com.

GC: Tom, fantastic. Absolutely fantastic to hear your story and to see the success that you have found through a result of hard work and a passion for what you do. Thank you so much for your time today.

TS: My pleasure, thank you.

GC: Tom Szaky is the founder and CEO of TerraCycle. I’m Greg Corombos reporting.

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