Immigrant Business Statistics: Name: Tom Szaky | Country of Origin: Hungary | Business name: Terracycle | Location: Trenton, NJ | Annual Revenue: $13 Million | Jobs Created: 75
“Where there’s muck, there’s brass.”
An old Yorkshire saying, it means there’s money in garbage. A young immigrant is making millions from “muck” and saving the environment at the same time.
About nine years ago, Tom Szaky came to the United States by way of Hungary and Canada, as a freshman enrolled at Princeton University. In short order, he came up with an ingenious business idea: use worm castings—poop—to create a high-quality fertilizer and package it in recycled bottles.
Eventually, that turned into a bigger-concept, to turn all manner of unrecyclable waste products into new wares—everything from kites made from biscuit packets to backpacks created from juice pouches.
Now, at the age of 29, Szaky heads a $13 million company with 75 employees and garbage-collecting and recycling operations in eight countries.
Here’s his story.
Szaky grew up in Toronto, where his family moved after fleeing from Hungary when he was five. According to Szaky, his parents, both doctors, took advantage of the chaos that followed the Chernobyl disaster and escaped to Holland in 1986. Three years later, they moved to Toronto.
The Genesis of Terracycle—Worm-Poop
The beginnings of Terracycle started when Szaky was in high school and he and some friends tried to grow marijuana on their own—with little luck. But, after starting at college in 2001 and returning home for fall break, Szaky discovered his friends had had more success by fertilizing the plants with worm poop. His friends had set up a composting bin in their kitchen, fed table scraps to red wriggler worms which in turn produced super fertilizer.
As it happened, Szaky was looking for a business idea to enter into an upcoming Princeton Business Plan Contest the following year. Why not start a eco-friendly waste management company? The concept was simple. Municipalities would pay him to haul off their waste. He’d use worms to eat the stuff and the resulting poop could be sold as fertilizer at cost to consumers. “The company,” says Szaky, “was born as a worm-poop business.”
“The company,” says Szaky, “was born as a worm-poop business.”
When Szaky got back to school, he teamed up with his friend Jon Beyer to create a plan. Although they only placed fourth in the contest, they decided to keep tweaking the project. They would change the business model to focus on selling ecologically friendly fertilizer made from worm castings.
Early Days
But to set up a business Szaky knew he needed equipment that could allow millions of worms to eat through tons of waste. To that end, he contacted an inventor in Gainesville, Fla., to create a compact and portable “worm gin” that could do the job. Food leftovers were shoveled onto a conveyor belt; worms would eat the food and produce worm casts, which would then be turned into liquefied fertilizer. Szaky emptied out his savings accounts and maxed out his credit cards to pay the $20,000 the machine cost. He also persuaded the university to let him collect garbage from the dining halls and use space outside.
He persuaded the university to let him collect garbage from the dining halls.
An Angel in the Nick of Time
The equipment worked. But what Szaky didn’t bargain for was just how revolting the experience would be. Shoveling rotting food crawling with maggots into the contraption was exhausting, nauseating—and not producing any money. Just when they were ready to call it quits, the partners were interviewed on a radio show—and Suman Sinha, a local venture capitalist, contacted them about getting together for dinner. He gave them $2,000 on the spot, in return for 1% of the stock. With that, the partners were reinvigorated, and Szaky rented office space in Princeton.
Raising Funds—Business Plan Competitions
After spending more time developing the company than going to class, Szaky decided to take a leave of absence from Princeton and focus on setting up his business. He hired Tom Pyle, a veteran of project finance and a Princeton alumnus, as CEO. Pyle helped recruit a board of directors able to give the young partners the advice they needed. Getting the infrastructure together was fine and good, but the more pressing need was to generate some cash.
“We survived by winning business plan competitions.”
Szaky discovered a novel way of raising money for his startup. He discovered that many universities and companies in the US hold business plan competitions. More interesting, they actually gave prize money to the winners! Szaky got his small team together and started entering every business plan competition they could find. And they won, garnering anywhere from $2,000 to $10,000 each time. “We survived by winning business plan competitions,” Szaky says.
Watch Szaky tips on how to raise funding:
Then, in April 2003, Szaky won the $1 million grand prize at a major business plan competition. Only, to claim the money, he would have to abandon his eco-friendly mission. Despite having only $500 in the company bank account, Szaky reluctantly refused the prize.
Free Packaging from Old Soda Bottles
With practically no money, Szaky realized he needed to find a cheaper way to package fertilizer. Why not put the product in old soda bottles, collected from recycling bins? It would be a new kind of company, one that sold a product that was made entirely from recycled waste. With that, over a few months, Szaky raised about $1.2 million from angel investors who liked his ecological emphasis. He and a small group of student volunteers started packing bottles with fertilizer by hand—and got ready to launch a sales campaign.
Why not put the product in old soda bottles, collected from recycling bins?
Sales Strategy—Rapid Growth
Szaky decided to go straight to the “big box” stores – Home Depot, Wal-Mart and Lowe’s. They had the store traffic, infrastructure and buying power to sell a lot of his fertilizer quickly which would enable Terracycle to grow rapidly.
Problem was, how was a tiny, unknown fertilizer business even going to get on the radar screen of some of the world’s largest retailers?
Cracking the Big Boxes
Szaky and his team put together a sales strategy to identify, get appointments with and sell to the decision makers at the Canadian divisions of Wal-Mart and Home Depot. It worked.
To see how he did it, click on this video.
After seeing the results in Canada, about six months later Home Depot decided to try the product out in the US market. Wal-Mart USA followed shortly after.
Bottle Brigades
And that presented a challenge: getting enough bottles to fulfill the orders. Szaky’s solution? Create groups, called bottle brigades, that would pick up trash and send Terracycle the bottles that they had collected. Schools would sign up to participate, receive a box with prepaid shipping labels that they would fill with 20 bottles at a time. In return, they would be credited five cents for every bottle they collected.
The program got so popular that over 5,000 schools got involved. However, the cost of the program quickly became untenable. Terracycle began to look for a corporate sponsor to offset some of the expense. The obvious choice would be a beverage company, but none agreed to sponsor the program.
The next thought was to approach other sustainability-focused companies such as, Stonyfield Farm, Honest Tea and Clif Bar to become sponsors. While these companies didn’t want to sponsor the Bottle Brigade, they would sponsor collecting brigades for their own waste products—yogurt cups, drink pouches, energy bar wrappers. Terracycle would then up-cycle the waste into new products and sell them through major retailers like Target.
In 2008 Szaky approached Target about selling a prototype product made from Capri Sun juice pouches, which made up the lion’s share of pouches that were collected. Target agreed, but only if Szaky had a licensing arrangement with Kraft, which sold the brand. To his surprise, when he met with Kraft, the company asked to become a corporate sponsor of the new program. With that, Szaky parlayed the deal into features in the Wall Street Journal and the New York Times—and a bevy of other corporations approached the company about getting involved.
Changing the Business Model
But, as more and more corporations started knocking on Szaky’s door, asking to participate, he found his manufacturing costs skyrocketing. In 2008, the company lost $4.5 million. Szaky knew that he had to get his manufacturing costs under control or risk going out of business.
The answer was to license the manufacture of its products.
Watch the video to see how Terracycle evolved from a worm fertilizer business to an international licensing company.
Szaky struck deals with manufacturers in about six locations, from New York to China. The products would sport the Terracycle logo and Terracycle would get a 5% to 15% cut of sales.
Over the next 12 months, Szaky plans to expand operations to 10 more countries. And for 2011, he estimates sales will be $13 million to $15 million. “We’re now more of a licensing company than a product company,” says Szaky. “But we’re focusing on what we do—and doing it really well.”
Lessons you can use from Terracycle’s story
by FP
1. Startup Funding
One of the biggest challenges for Immpreneurs is getting funding to start a business.
Tom Szaky came up with an innovative way to get some start up cash—he competed in business plan competitions. As Tom states in the article, Terracycle survived in the early years by the cash from winning these competitions.
Competitions are held by a number of diverse organizations, from colleges and universities to major companies. You can search online for individual listings or check out aggregator websites such as Bizplancompettition.com.
For more creative ideas on how to raise money for your business, check out our guide to financing.
2. Feedback
Business Plan Competitions can provide start up funding, but they also provide another great benefit. They give you feedback. Each time you enter a competition your business idea will be evaluated by a panel of experts—entrepreneurs, business leaders and academics. They’ll give you great feedback, advice, and insights, point you to resources—all for free.
Want to see how this works in a real business situation? Read this.
3. Raising Angel Investor Funding
If you haven’t seen this video already take a moment to watch it. Szaky explains how to pitch to Angel Investors and the pitfalls to avoid.
Video – How Terracycle Raised $18 million.
4. Generate Revenue Quickly by Going BIG
Terracycle’s sales strategy was to generate revenue quickly by selling to several huge retailers as opposed to slowly building a diverse base of small customers. There are inherent risks, of course, but in my opinion it’s just as easy to make a sale to a large customer as a small one. Think about it, irrespective of whether a prospect is a big company or a small one, you still have to get the economic decision maker’s attention, prove your product is going to solve a problem or create an opportunity, price competitively and be able to deliver. The sales cycle may be longer, there may be more gatekeepers to go through and more influencers to convince, but the rewards are far greater.
I know the above is an oversimplification of the sales process. But I’m using it to make a point. Too many small businesses and the sales people who are employed by them, seem to be overawed or even scared of making sales calls on Fortune 100 companies. Don’t be. If you can solve a problem for them or bring them customers, they want to hear from you.
5. Evolve
Don’t be held hostage by your original business plan or idea. You need to develop the mindset and freedom to evolve and grow your business as LOGICAL opportunities present themselves. Don’t be blinkered to these opportunities and beware of investors that curtail your freedom to evolve.
Watch the video to see Szaky explain how Terracycle evolved from a tiny worm-fertilizer business to a $13 million—and growing—international licensing company.
