When most people envision entrepreneurial success, they think of Mark Zuckerberg conjuring a global network the world can’t imagine living without, or Steve Jobs putting a sleek iPhone into the hands of millions of people.
Stinky piles of worm-infested garbage rarely come to mind.
Yet TerraCycle founder and CEO Tom Szaky has a lot of big thoughts about garbage. “Garbage is such an interesting idea,” he muses. “Everything we possess in the world will one day be owned by a garbage company, with no exception. That in itself is a massive statement. But for how big that is, isn’t it incredible how un-innovative the industry is? I think it is because garbage is literally smelly, and nasty. We don’t want to deal with it.”
Despite the product’s yuck factor, Szaky found a way to make it profitable. He launched TerraCycle in 2001 as a freshman at Princeton, producing rich plant food by feeding red worms with the garbage from the university’s cafeterias. Before long, TerraCycle was a $5 million brand on the shelves of The Home Depot and Walmart across North America.
The goal was to “eliminate the idea of waste,” not only by serving it up to worms so they could poop out the company’s product, but also by packaging it in soda bottles and spray tops plucked from the waste stream. It was this second part of the equation that led Szaky to the idea that would propel TerraCycle into a global enterprise. The growing company needed more and more packaging to meet its needs, so it established “Bottle Brigades,” essentially campaigns to get consumers to round up the bottles and tops needed to fill the supply chain.
That lit a lightbulb in Szaky’s head, and hence his musings about the garbage industry. “You have an opportunity to do things that may be much harder in other industries where everyone is innovating,” he says. “When we were a consumer product company the hero was the product. That means that you’re going to do your darndest job to make the very best product. And even if the rules are that the product must be made from waste—in this case, used soda bottles, used trigger sprayers, and then organic waste fed to worms to make liquid worm poop—you’re going to pick the very best of the garbage. It’s technically garbage, but it’s the very best of it.
“That created a problem philosophically,” he continues. “We would never deal with many other types of garbage: cigarette butts, dirty diapers, all sorts of things that are undesirable to make products from. So we switched the business hero from being the product to the garbage.”
Or to put it somewhat less philosophically, the company pivoted from being a packaged consumer goods (CPG) manufacturer to a B2B service provider by monetizing the “bottle brigade” side of the business—its supply chain. “What we realized is that what makes a material recyclable or not has nothing to do with the material itself. It’s whether a garbage company can make money doing it.”
Szaky transformed idealism into a strategic approach that widened his total addressable market (TAM) by orders of magnitude. “I didn’t want to build a fertilizer company,” he explains. “I wanted to build a company that stood for the concept of eliminating the idea of waste. So, we decided to do this great pivot. It was challenging because people were telling us that it was working. So, why pivot? And the answer was that it is not fulfilling the mission. If we fulfilled the mission, we could become much bigger and much more purposeful.”
Today, TerraCyle’s worm-poop business is dwarfed by a far more sustainable and scalable business model: sponsored recycling and packaging reuse. Essentially, Szaky has filled in the missing component in the recycling equation: profit. In this model, CPG brands, retail chains and even municipalities engage the company to recycle “non-recyclable” products and packaging into playground equipment, park benches and other tangible products of community value. Instead of spending money on waste disposal, they’re investing in improved brand reputation.
So what’s the takeaway here? Well, that’s the really exciting part. As unique as TerraCycle’s path has been from dorm-room business to global enterprise, Tom Szaky followed a map I’ve seen over and over among successful companies and one that any entrepreneur could easily replicate. Unlike the myth of entrepreneurship, It doesn’t start with some genius coming up with a solution to a problem we never knew existed. It doesn’t create demand out of thin air. And it doesn’t require pumping millions of VC dollars into building “critical mass” before even hoping to make a profit.
It starts small, with a smart, solid idea for a money-making business that can grow on its own. But it doesn’t end there. A smart business has an opportunity to transform from a moneymaker to a moonshot that can give Silicon Valley unicorns a run for their money. Here’s how:
Create a business that solves a problem for another (bigger) business. Although it started out as a consumer business, TerraCycle pivoted to a B2B model that helped solve a big problem: the reputational damage caused by waste generation.
Save your customer money on payroll. Smart companies are specialists that don’t just solve a problem. They solve it efficiently enough to save their customers from hiring people to do it internally while making a profit themselves. TerraCycle has built expertise in a process (recycling) that has stumped its customers for decades. It can do what they can’t, and do it profitably.
Save your customer from technology headaches. Big companies don’t love big technology. It’s a risky, expensive investment that ties up resources. And backing the wrong technology horse can cost them big. TerraCycle can invest in specialized technology because it can then amortize its cost over multiple customers. It takes on the risk of developing these technologies so its customers don’t have to.
Save your customer’s cash flow. If a big company has to build an in-house solution to a problem like recycling it has to pay for it before reaping the benefits, first with a sizable up-front investment, then through ongoing operational costs. TerraCycle’s customers get the benefit first, then the bill.
Let your moneymaker fuel your moonshot. After years of patiently building your money-making company, you’re ready for your moonshot—the big, paradigm-shifting idea that can boost revenue and profits exponentially. Instead of solving your customers’ problems with expertise, technology and cash flow, you use them to solve your own. For TerraCycle, that moonshot is Loop, a division that helps companies develop durable packaging that TerraCycle collects and cleans for reuse. “Loop couldn’t have happened without TerraCycle,” Szaky says. “It provided the know-how, the infrastructure and the funding.”
With each Birthing of Giants Fellowship Week I conduct, I meet more entrepreneurs who have built money-making enterprises in industries that less visionary business people have overlooked. Along with experts like the legendary Norm Brodsky, author best-selling author Bo Burlingham and eight-time Inc. 5000 honoree Bob Eisiminger, I help them craft strategies to transform those money makers into moonshots.
To learn more about our work and submit an application for the next Birthing of Giants Fellowship Week, visit birthingofgiants.com/fellowship-program.
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