September 23, 2021

You’re the Boss: Should Green Companies Work With Giant Companies?

TerraCycle products at Wal-Mart:Christopher CraneTerraCycle products at Wal-Mart:
Staying Alive

When I started TerraCycle, we quickly came to a defining crossroads: Did we want to sell our made-from-waste products to independent retailers or to big-box retailers? Basically, we were told that if we sold to the big-box chains we would be black-balled by the independents.

At the time, going independent seemed the more tempting path, and that was also what our advisers suggested. We would have a broader range of small distributors who care about green issues and who would help us build our brand. A broad range of clients would also offer security against the risk of being dropped by a big-box client. Perhaps an even more important factor attempting to avoid potential damage to the brand. If you go big box, you may face backlash from consumers who will accuse you of making a deal with “the man.” Still, we decided to go big box from the beginning for a simple reason: scale.

Big-box retailers are significantly more desirable to most shoppers because of the prices they offer and the range of products they carry. Small, independent retailers, have to charge more and carry fewer products, but they try to make up for it in many other ways, often by offering nicer ambiance, great customer service and hard-to-find products. And that’s why it makes sense that independent retailers want the brands they carry to be available only in other independent retailers. As an example, there was a big to-do last year when Seventh Generation started selling its products to Wal-Mart.

From my perspective, I believe that green companies should work with mega corporations because even a small change in a mega system can have a very large impact. When we introduced our drink-pouch brigade, we partnered with Honest Tea and collected 22,000 pouches in the first year. Then Kraft’s Capri Sun joined (Honest Tea is still a sponsor) and helped scale the program, and just a few years later, we’re collecting that many pouches every five minutes. Kraft has spent millions of dollars every year not only sponsoring the program (well beyond Honest Tea’s capabilities) but also advertising and promoting it (something we couldn’t afford to do on our own).

Most important, big companies have massive volume potentials. If they are global conglomerates, they can take your business global incredibly fast. Our global partners, including Pepsico and Kraft, have made it possible for us to introduce subsidiaries in more than 14 countries in just two years.

For me, the challenge isn’t whether to partner with mega companies; it’s how to find a way to partner with smaller companies, too. In this regard, TerraCycle has been partially successful. Our business model has two principal streams: getting garbage in and moving garbage out.

On the getting-garbage-in side, our main partners are all mega corporations that are able to absorb the costs of shipping and a two-cent donation per unit of waste collected (which results in program costs that are six to seven figures a year). Small brands would have a hard time meeting that burden. But because we’d like to work with them, too, we have created pricing options that, for example, let small brands sponsor a brigade and cover the recycling costs directly related to research and development but not the shipping. While these programs effectively ask the consumer to subsidize the program, they have proven to be successful and allow smaller brands to play. So far so good.

On the getting-garbage-out side (making products from waste), we are stumped so far — other than making different products for big-box stores and independents. Other brands have done this for years, creating one product for the big boxes and then changing the size a little or adding the words “premium” or “select” and introducing it with independents. I don’t yet see a more interesting pathway. Any suggestions?

Of course, there are some downsides to our approach, namely that we have turned off some of our consumers. Some people feel that our programs promote the consumption of the brands that sponsor their waste collection. Some people don’t buy TerraCycle products because they believe that the work we do with big retailers helps them grow and strengthen their business — which these people believe is a bad thing. On the other hand, if we tried to please all consumers, we would be a much smaller company and we would collect and transform a fraction of the waste we do today.

Do you have any suggestions on how we could better handle this dilemma?

Tom Szaky is the chief executive of TerraCycle, which is based in Trenton, N.J.

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You’re the Boss: Turning Waste Into Profit

Green Money

My company, TerraCycle, has a very unusual business model. We turn the world’s waste into new products. We collect non-recyclable waste, some straight from manufacturers and some from schools, charities and other community groups, and we partner with other manufacturers to recycle or “upcycle” that material into new products — like plastic lumber from juice pouches and shower curtains from sewn-together granola wrappers. Green Money, my channel on this blog, will be a diary of our experiences and decisions, our lessons learned and opportunities missed.

Here’s how our model works: eventually all products become waste. Some, like soda bottles, are recyclable but most are not. Major corporations ranging from Kraft Foods to Colgate-Palmolive work with TerraCycle to create solutions for waste that is currently not recyclable — things like toothpaste tubes and cookie wrappers. These companies pay TerraCycle to run collection programs, covering the costs of shipping and typically making a donation of 2 cents for every item collected to the charity or school of the collector’s choice. We also collect post-industrial waste — like excess packaging, misprints, etc. — directly from these corporations

The waste ends up in one of our warehouses, the biggest being right next door to our headquarters in Trenton. Then TerraCycle works with major manufacturing companies to produce products from the collected waste. To accomplish this, TerraCycle’s science team develops a range of materials from each type of waste and then our products team works with the manufacturer to turn the material into something that can be sold. The idea is to lessen the need for virgin materials and render previously non-recyclable items recyclable. The resulting products are then sold at major retailers like Wal-Mart and Target.

This is not exactly what I had in mind when I dropped out of Princeton to start TerraCycle, but the idea behind the company has always been to turn waste into products. My friend and I started in 2003 by feeding organic waste to worms and then selling the resulting worm waste in reused plastic bottles as TerraCycle Plant Food. From that start, we have grown to a 85-person company that is operating in 14 countries on four continents. Last year we topped $13.5 million in revenue and posted our first profit. Ultimately, our goals are to make a lot of money, establish a global movement of waste collection, and change the way the world thinks about waste. We see ourselves as the national recycling system for all things non-recyclable.

As we pursue those goals, I  hope use these blog posts to describe the company’s experiences and open up a discussion that we can all learn from. Here are some of the topics I will cover in coming posts:

o Going global: I always wanted to take TerraCycle overseas; my executive team and board members felt differently. But one phone call changed everything. We learned out that if we didn’t take our business model global, someone else would. Now, for better or worse, TerraCycle is expanding rapidly overseas. Are we seizing an opportunity? Or are we risking everything?

o Raising capital: For entrepreneurs, it is the ultimate Catch-22: You need money to make your dream come true, but will the price of acquiring that money be the dream itself? TerraCycle evolved from being a consumer products company that sold worm waste to Wal-Mart and other retailers to being a company that runs waste collection programs and oversees more than 1,500 unique products that are made from the collected material. This dramatic shift in our business model didn’t go down well with many of the institutional investors who had invested in our original concept.

o Selling to major retailers: It is a never-ending challenge. You think getting your foot in the door of a big-box retailer is the hardest thing in the world — until you get inside and realize that the challenges keep coming. We have found success with strategies like creating huge co-merchandising programs at Wal-Mart and bringing waste collection vehicles to retailers like ASDA.

o Partnering with corporate giants: Over the years, TerraCycle has taken a lot of criticism for being willing to work with corporations that some in the green community consider evil. Our position is that if we had only worked with small, independent retailers, we would be a much smaller company — and we would have kept a lot less waste out of landfills. But the politics can be tricky.

o Identity issues: They aren’t just for teenagers. TerraCycle’s business model and focus have changed many times. It can be dangerous to shift too often, but it can also be dangerous to wait too long. How do you decide when to make the move?

My goal is for Green Money to be less of a soapbox and more of a conversation. I will raise the issues and challenges we face, discuss our thoughts and processes, and ask for you opinion. I’m hoping that we’ll all learn from one another — or at least commiserate with one another!

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