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Garbagemogul:TerraCycle'splantomakemillionsfromtrashMar.25,2009

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Garbagemogulmakesmillionsfromtrash

Withabrilliantbusinessmodelbuiltaroundrecycling,TerraCyclewilleithergobigorgo
broke.
ByLorenFeldman
LastUpdated:March25,2009:12:32PMET

TRENTON,N.J.(FortuneSmallBusiness)InasprawlingformersuitcasefactoryinNewJersey,
acameracrewisfilmingentrepreneurTomSzakyandhiscompany,TerraCycle,foranewreality
TVshow.Tenoftherecyclingfirm's46employeessitaroundatableawaitingSzaky'snext
challenge."So,guys,"saysSzaky,reachingintothepocketofhiscorduroyjacketandtossinga
usedtoothbrushontothetable."Whatarewegoingtodowiththis?"
Youcouldaskthesamequestionabouteverypieceoftrashinthis250,000squarefoot
warehouse.ThoseboxesofCapriSunjuicepoucheswillbecomepencilcases.Circuitboardswill
bereincarnatedaspictureframesandclocks.Oreowrapperswillmorphintokites.
"WewanttobetheWalMartofgarbage,"saysSzaky,26.Today'sorderofbusiness:Toothbrush
manufacturerColgatePalmolive(CL,Fortune500)ispreparedtoinkarecyclingdealifSzaky's
teamcandreamuptherightproduct.Theirideasincludebendingthetoothbrushesinto
bracelets,pursehandlesandtoothbrushholders.
CreativerecyclinglikethishashelpeddoubleTerraCycle'srevenueeveryyearsince2004.Sales
arelikelytohit$15millionthisyear.Meanwhile,GarbageMoguls,therealityshowpilot,willairon
theNationalGeographicChannelonEarthDay,April22,andmaybeturnedintoaseries.
Szaky'sTerraCyclememoir,RevolutioninaBottle,waspublishedbyPenguininFebruary.And
hecanboastnewagreementstomaketotebagsoutofclothscrapsfromBrooksBrothers,coffee
sacksfromStarbucks(SBUX,Fortune500)andfilmfromWarnerBros.
Yetallisnotwellinthelandofgarbage.Despiteitsbrilliantbusinessmodelshippingfreejunkin
bythetruckload,thenspinningitintogoldTerraCycleislowoncash.In2008thecompanylost
$3.5million.TerraCycle'scapitallevelsarealwaystrailingbehindSzaky'srestlessambition,and
thecompany'sshorthistoryisfilledwithcrises.
Asthecamerasroll,Szakystrikesadirenote."Wearenotstable,"hetellshisteam."We'reon
theedgeofbankruptcyandofbeingahugesuccessatthesametime."Rightnow,heestimates,
thecompanyhassixweeksbeforeitrunsoutofcash.

Amanobsessed
BothSzakyandTerraCyclereachedthispointviacircuitousroutes.BorninHungaryunderthe
Communistregime,SzakyfledwithhisparentstoTorontoin1986.Theywerebothdoctors,but
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Szakyhadentrepreneurshipinhisblood.Attheageof14,hestartedabusinessdesigningWeb
sites.Oneofhisclients,serialentrepreneurRobinTator,wouldlatercofoundTerraCycle.
In2002SzakywasafreshmanatPrincetonwhenheheardaboutafriend'sdiscovery:Ifyoufed
organicwastetoearthworms,theyproducedfertilizerthatcannabisplantsseemedtolove.
Szakysmelledastrongbusinessmodel.First,ifitworkedforpot,itwouldworkforotherplants.
Second,hecouldcreateasalableconsumerproductoutofgarbage.TerraCyclewasborn.
Fromthatpointon,Szakywasamanobsessed.HepaidaFloridainventor$20,000fora
contraptionthathousedmillionsofwormsandfedwastetothemonconveyorbelts.Hewon
businessplancompetitions,foundinvestors,droppedoutofschoolandrampedupproduction.
OnlythendidSzakyrealizehehadnomoneylefttodesignandmakepackagingforhisprecious
wormpoop.
Thatledtohissecondbreakthrough.OutofdesperationandnotknowingitwasillegalSzaky
startedraidingrecyclingbinsforsodabottles.Thebottlescameinfourstandardsizes,which
meanthecouldrunthemthroughabottlingmachine.Tobuildupasurplusofbottles,he
persuadedchurchandschoolgroupstoform"bottlebrigades,"whichwouldcollectbottlesintheir
neighborhoodslegallyinreturnforsmalldonations.
TheunusualrecycledpackagingwormpoopinCoke(KO,Fortune500)bottles!helped
TerraCycle'sfertilizerstandoutfromthecrowd.By2007itwasbeingsoldatHomeDepot(HD,
Fortune500),Target(TGT,Fortune500)andWholeFoods(WFMI,Fortune500).ButSzakyhad
decidedthatwormfertilizerwasanicheproductthatwouldnevergrowfasterthan20%ayear
notbad,butnottheexplosivegrowthforwhichhehaddroppedoutofPrinceton.
That'swhenSethGoldman,thefounderandCEOofHonestTea,camealong.Goldmanhad
recentlylaunchedHonestKids,anewlineoforganicjuiceinpouches,butfearedthatthe
nonrecyclablepackagingwouldendupinlandfills."Youguysarethetrashpeople,"hetoldSzaky.
"Canyouhelpme?"
Szakyboughtsomepouchesandasewingmachineandgottoworkdesigningtotebagsand
pencilcases.Goldmanlovedthemandagreedtofund"juicepouchbrigades"atapennyper
pouch.SzakyconvincedSafeway(SWY,Fortune500),TargetandWalgreens(WAG,Fortune
500)toplaceordersforthebagsandcases.Theonlyproblem:Hehadcommittedto
manufacturingsomanyofthemthathewouldneed10millionusedpouches.Thebrigadeswere
thendeliveringjust1,000pouchesaday.
Afterafewweeksofpanic,cofounderTatordiscoveredthesolutioninBritishColumbia.The
province,whichrequiredretailerstopayconsumerswhoreturnedusedjuicepouches,was
storing20millionofthem,pressedintosticky,smellyblocks.TatorpersuadedtheCanadian
officialstolethimtakeeverylastonetotheU.S.inafleetofrentedtrucks."Theylookedatme
likeIwasoncrack,"herecalls.

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Therewasonlyoneproblem.ThepouchesTatorhadprocuredwereCapriSunjuicebags.A
nervousSzakybookedameetingwithfoodgiantKraft(KFT,Fortune500),ownerofCapriSun.
Thebrandmanagerwascharmedbyhisproductideas.SoonSzakywasfieldingcallsfromthe
managersofotherKraftbrands,suchasOreoandChipsAhoy,whowantedtogetridoftheir
wastepackagingandbaskinTerraCycle'sgreenhalo.
"Theguyisfullofgreatideas,"saysJeffChahley,Kraft'sseniordirectorofsustainability."How
couldyounotlikethis?"
TerraCycledoesn'thavethetrashdesignmarketentirelytoitself.Preserve,basedinWaltham,
Mass.,hasbeenmakingtoothbrushesandrazorhandlesoutofStonyfieldFarmyogurtcups
since1996.Ecoist,whichhasitsheadquartersinMiami,startedturningcandywrappersinto
handbagsin2004.Butbothremainverysmallplays.
"We'renotthefirstpeopletothinkofthis,"admitsRichardPerl,anexecutivecoachwho
specializesingreencompaniesandadvisesSzaky."Wearethefirsttoscaleit."
TwoyearsafterthatfirstcallfromHonestTea,TerraCyclesells50differentproductsandis
bringingmoreoutattherateofoneaweek.Szakyhasagreementswithnearlyallofthe50
corporationsthatproducemostoftheworld'snonrecyclabletrash.(Noothercompanyholdsthe
rightstoreuseCokeandPepsi(PEP,Fortune500)bottles,forexample.)Thecontractsare
nonexclusive,andtheoriginalmanufacturersreservetherighttonixproducts,especiallywhen
theirbrandingisvisible.ButTerraCycledoesn'thavetogivethemanykindofshareinsales.
Meanwhile,thecompany'sinventoryisexploding.Szakynowgetshelpfrom17,000trash
brigadeswithatotalmembershipof2.6million,allworkingexclusivelywithhiscompany.
TerraCycleissettoinstallrecyclingsystemsinfrontof10,000bigboxstores.Itssuppliersare
payingtohavetheirbrandnamesonthebins.
Fromtheoutside,itlooksasifTerraCyclecandonowrong."Ithinkthisisoneofthoserare
instanceswherewhatseemstoogoodtobetrueisactuallythatgood,"saysJoelMakower,a
greenbusinessconsultantinOakland.
ButinsidersknowfromexperiencethatSzaky'sfreneticdealmakingcanleadtocostlygambles.In
2008SzakyreachedanagreementwithTargettocollectitsplasticbagsandfusethemintoa
superstrongcarryingbag,theReTote,whichTargetisnowsellingfor$5.99.
TheReTotewasTerraCycle'shighestgrossingproductlastyear,butall142,000unitsweresold
ataloss.SzakydecidedthattheonlywaytoproducetheReToteintimewastooutsourceittoa
domesticmanufacturerthatchargedhim$20abag.Thataccountedformuchofthecompany's
$3.5milliondeficitin2008.SzakyhassinceshiftedReToteproductiontoMexico,andheprojects
a$1millionprofitfor2009assumingthatTerraCyclecansurviveuntiltheendoftheyear.
OnebriskJanuaryevening,soonaftertherealityshowwrapped,thecashstrappedSzakymade
apresentationtoagroupofangelinvestorsatanexclusiveManhattanclub.Hewaslookingto
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raise$3million,whichinturnwouldtriggerthereleaseof$2millionfromotherinvestors.
"Ifthismeetinggoessouth,"hefrettedbeforehand,"I'minaboatloadoftrouble."
SzakyscreenedaroughcutofGarbageMogulsanddeliveredatreatiseontheeconomicsof
garbage.FormerTargusPresidentBrettJohnson,thegroup'sheadandanewTerraCycleboard
member,toldthegroupSzakywas"themostuniqueentrepreneurI'veeverknown."
Afterward,Szakyslumpedagainstawall,drained."Let'sseeiftheyanteup,"hesaidquietly.
Itwouldbealmostaweekbeforethecallcame:Thegroupwouldkickinupto$4million.For
now,theTomSzakyrealityshowwillgoon.
FirstPublished:March25,2009:6:04AMET

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http://money.cnn.com/2009/03/24/smallbusiness/trash_talker_terracycle.fsb

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