Alan Robbins is betting everything he owns that the world will pay more for picnic tables, mailbox posts, and speed bumps if they're made from recycled plastics
Yes, he's heard the career advice line from The Graduate. ("I just want to say one word to you: plastics.")
And yes, he's gotten used to the jokes about his business's name (The Plastic Lumber Co.?).
And no, he doesn't mind them at all.
You see, if you're Alan E. Robbins, 43, a sense of humor comes in handy.
You need one, given what he wants to do with the rest of his life. Robbins, a charming father of five, wants to make wood obsolete. Maybe concrete, too.
It's not quite as silly as it sounds.
Robbins is president of the Akron company, which takes recycled plastics -- milk jugs are a primary source of raw material -- and turns them into everything from mailbox posts, picnic tables, and speed bumps to retaining walls at Sea World.
And no doubt there's a desperate need for someone to do something with what the industry calls postconsumer (used) plastics.
With Americans producing 160 million tons of solid waste a year -- that's better than three pounds per person per day -- landfills are beginning to overflow. And while plastics account for only 7% of those garbage heaps by weight, they make up 13% of their volume. Anything, even a mailbox post, that can reduce that amount of trash is something to be wished for.
The problem is that a lot of people have been rubbing on the genie's lamp for a long time. The first reported use of recycled plastics dates back to the 1930s -- a Du Pont chemist with a sense of humor used some postindustrial plastics to make a length of fence -- so the idea is not exactly new.
And Robbins is not exactly without competition. The notepad holders, in-and-out-trays, and trash cans produced by Rubbermaid Inc. are made in large part of recycled plastics. Plus, companies such as Du Pont, Dow, Amoco, Mobil, and Occidental have all begun joint-venture projects aimed at making recycled plastics widely available.
But despite the growing interest, there are two major reasons why the idea of recycled plastics has not caught on -- and Robbins must deal with both.
First, there's no consistent source of raw materials. Recycling is still not mandatory nationally, and even those states or towns with recycling programs don't always require that plastics be left by the curb, believing -- mistakenly -- plastics can't be recycled. (They can. But since traditional recycling methods can't guarantee the purity of recycled resins, recycled plastics are not used in packaging that comes in direct contact with food.)
Cost is the second reason that everything from marina docks to highway dividers is not yet made from recycled plastic. If you use recycled plastics as a substitute for virgin ones, as the carpet industry is doing, you'll save money.
But if you use recycled plastics to replace materials such as wood and concrete, the economics change. Robbins's picnic tables and parking stops cost up to twice as much as those made from traditional materials.
While that's a problem, it's not a insurmountable one, says Robbins, who has worked as everything from a restaurant manager to a stockbroker (see "The Founder," page 4). His sales pitch stresses that since plastic lumber and plastic concrete last longer than their traditional counterparts, they're actually cheaper over the long haul.
Besides, as Robbins points out, the potential market is huge. In 1989, only 250 million pounds of plastics were recycled, yet the demand for materials that plastics could replace was thousands of times greater, according to Robert A. Bennett, associate dean of the college of engineering at the University of Toledo. For example, last year Americans used some 3 billion pounds of treated lumber, and roughly 7.4 billion board feet of wood just to build pallets.
Robbins is not looking to replace all that wood -- just a splinter of it.
And he's convinced his timing is right. Some 20 years after the first Earth Day, taking care of the environment is suddenly fashionable again. Everyone from McDonald's to Dayton Hudson department stores is using seedlings as a sales promotion tool. Time magazine made "Endangered Earth" its planet of the year, and George Bush will tell anyone willing to read his lips that he is "the environmental President."
Even the plastics industry has gotten into the act, creating impressive-sounding task forces (The Council for Solid Waste Solutions) and running commercials during the Sunday morning news shows explaining that it, too, wants a cleaner environment. When you have politicians and Fortune 500 CEOs tripping over themselves to be ecologically correct, it's relatively easy to get people to listen -- for a little while, anyway -- when you tell them you're selling products made out of recycled plastics.
Robbins is making the most of the opportunity. Early on he hired a public-relations firm that has made his company better known than his sales would justify, and the attention is beginning to pay off. "We're getting inquiries from businesses and governmental units we never knew existed."
When he returns those calls and letters, Robbins is quick to stress the advantages his goods offer. Products made from plastic weigh less than concrete (that means fewer injuries and workers' compensation claims), require less maintenance (unlike wood or concrete, they don't need to be repeatedly stained or painted), and are virtually impervious to the weather.
Plus, plastic lumber can be sawed, nailed, drilled, glued, and bolted, just like its wood counterpart.
In 1989, convinced he was onto something, Robbins hired Ken Boersma, who had worked at another plastics company on recycling, to create a proprietary extruding machine, and The Plastic Lumber Co. was born.* * *
Marketing: Robbins started with a great idea: he'd let his market tell him what his sales, positioning, and pricing strategy should be. Unfortunately, the market is speaking with about as much clarity as was heard from the tower of Babel.
And the message that is getting through is certainly not the one Robbins expected.
Before opening his doors last September, Robbins knew his potential market was huge. For example, anyone with a parking lot might need The Plastic Lumber Co.'s car stops (the rectangular bar that keeps a car from taking up two spaces) and speed bumps. So Robbins tried to narrow the field to places where he'd have the easiest time making the sale.
"I figured we should go after universities and municipalities," says Robbins. "With landfills being close to capacity, government seemed a natural. The universities also seemed a good fit, given the environmental appeal of the product.
"I thought there might be a consumer market as well. I could see selling our picnic tables through hardware stores. And I knew there'd also be a commercial application -- things like pallets -- but I wasn't really going to chase that hard at first."
What happened? Commercial sales now account for virtually all of his revenues.
Why? Because the huge marketing advantage Robbins thought he had -- that he's using only recycled plastics -- produces nothing but yawns when he explains it to schools and government.
Yes, they quickly acknowledge, using recycled components is a good idea. Now, let's talk price.
The moment that happens, Robbins is on the defensive. His parking stops cost about $22.50, or about 50% more before installation, than those made out of concrete. His picnic tables are easily twice the price of their wood counterparts.
But, Robbins argues, those prices are misleading. You must look at the long-term costs of using plastic versus concrete or wood. "Somewhere around 5 to 10 years out, we actually become cheaper, and we get more so every year after that, because there are no maintenance costs."
That may be, but his product is still more expensive initially. Cost savings over a product's lifetime can be a very difficult idea for schools and especially municipalities -- which are used to awarding contracts to the lowest bidder -- to understand.
Robbins's marketing thrust isn't misguided. The biggest company in this tiny field is getting a very large part of its revenues from a municipality. But at $3.5 million in sales, Hammer's Plastic Recycling Corp., in Iowa Falls, Iowa, can afford to have a marketing staff. Hammer's people met continually with city of Chicago park department officials, for instance, to answer their questions, eventually working out a deal for landscape ties for playgrounds and plastic slats for park benches.
But Plastic Lumber Co. is woefully undercapitalized. There's no money for a marketing staff. In fact, there's not much of a staff at all. Robbins and Boersma had a falling out, so the entire company consists of Robbins, his administrative assistant, and the four plant workers who actually turn out his product.
If you're running the plant and front office, and also chasing every sales lead that comes in, you don't have a whole lot of time to spend educating some civil servant about the long-term advantages of plastic lumber. While there are growing signs that states and municipalities may be willing to exempt recycled products from the traditional bidding process, that hasn't happened yet.
Fortunately for Robbins, businesses get the concept right away. Some 80% of The Plastic Lumber Co.'s revenues come from a placement in a building-supply catalog.
But that's not the kind of sales mix Robbins was looking for. For one thing, he's now overly dependent on that one distributor, and for another, selling to businesses just about locks him into commodity status.
When Robbins was punching numbers into his Lotus spreadsheet, trying to forecast potential profit margins, he assumed he would average 20% pretax profits. In part, he'd do that by keeping his costs low -- while Robbins budgeted raw materials cost at 44% of sales, labor was expected to be just 9%. But he also expected he'd fetch a premium price for his products.
First off, he thought he'd get a bit more for shaping that recycled plastic into picnic tables and the like. "After all, every time you punch a hole or screw in a bolt, you're adding value, and people are willing to pay for that," he says. And given the unique nature of his goods, plus the lack of competition in the field -- financing for recycling companies has proven hard to come by -- Robbins figured people would be willing to pay a little extra for something that was environmentally on the side of the angels.
Well, some consumers might. And so might some universities. But businesses tend not to be that altruistic. "Purchasing agents are trained killers" is the way Robbins puts it. So far, pretax margins on the speed bumps and car stops he has sold to commercial accounts -- businesses tend not to buy Robbins's value-added products -- have been lower.
Bothersome as this is, at least Robbins knows there's a market for his paving products. With plastic lumber . . . well, let's quote the business plan: "The plastic lumber market can only be considered in its infancy."
To be honest, no one knows what kind of recycled plastic products -- if any -- the market wants, and that's an important point, because when it comes to recycling, there is plastic and then there is plastic.
Some companies, such as Wellman Inc., headquartered in Shrewsbury, N.J., have chosen to specialize. Wellman deals almost exclusively with polyethylene terephthalate, which is used to make soda bottles. Empty soda bottles are traditionally recycled into things like carpet fibers and the linings of parkas and sleeping bags.
The problem is that the equipment needed both to recycle polyethylene terephthalate and to convert it into usable products is expensive. The Plastic Lumber Co. avoids most of that cost by being less fussy about the plastics it uses. It either buys raw materials or cleaned and sorted scrap, which is then melted down and extruded.
However, since the resulting plastic is a blend -- a catsup bottle, for example, which might be part of the company's raw materials mix, is made up of five to seven different plastics -- it's impossible to predict the quality or strength of the resulting products.
That's why the company focuses on making simple products in which the specific properties of the plastic are not important.
Robbins started by selling mailbox posts and picnic tables because they are relatively easy to make. "We're not all that skilled as craftsmen," he says with a shrug. He'll be more than happy to add to the line -- within the limits of his plastic's quality, of course; making a plastic four-by-four to support a swing set would be out of the question, for example, because its strength would not be up to code. But first he needs the market to tell him what it wants.
Ironically, Robbins is finding himself with more time to listen than he expected. His products turned out to be very difficult to sell during cold weather. Nobody is going to go and put a speed bump on the ground when it is 20 below zero, and very few people go looking for picnic tables when they have to shovel their way out the front door. "I didn't realize the extent to which we would be affected by the weather," he says. "Next winter we will concentrate our marketing efforts on the southern part of the country, and on building inventory."
That assumes that (1) he'll have a better handle by then on who his customers are and what they need and (2) his money will hold out.* * *
Capital: If Plastic Lumber doesn't make it, it won't be because Robbins overspent on decorating.
As you walk into Robbins's fifth-floor offices in downtown Akron, you have to hurdle the tires strewn about and duck under stunning pictures of elaborate food displays. Robbins sublets from his brother-in-law, a commercial photographer who does a lot of work for area food and tire companies. Says Robbins: "By sharing space with him, I didn't have to worry about going out and buying fax machines and copiers."
The same sense of frugality exists throughout the company. Robbins drives a 1982 Oldsmobile diesel that had been in mothballs. He pays $2 per square foot -- about half the going rate -- for his production facility in an old tire plant that Ohio is trying to turn over to small businesses. And by marrying interest from a CD to a term loan in a linked-deposit program, Robbins has borrowed $154,000 at about prime.
But the money is going quickly, thanks to a combination of lower-than-budgeted sales and cost increases primarily caused by problems with the extruder. "We've had to rebuild the chilling system and the molds a few times," says Robbins. "What has happened, given the cost overruns, is that we've gotten one machine for the price of two."
The upshot: the company lost $55,000 during its first three months. And when sales failed to come close to forecasts this past January and February, Robbins reduced salaries and eliminated his public-relations program and most of his advertising. The Plastic Lumber Co. is still losing money.
With Robbins having contributed about his entire savings, and the banks reluctant to loan any more, what is needed -- and soon -- are additional equity investors. (When the company was formed, Robbins sold stock and options totaling 24% of it to a friend for $50,000.) "We've been putting off looking for outside funding," says Robbins. "The better shape we can get the company in before offering stock, the higher the valuation will be. But we are now starting to hold serious meetings with venture capitalists."
The question is, of course, whether the money will come in time -- and in sufficient amounts. Even if it does, there are other problems. Is it reasonable to expect university administrators and civil servants to be farsighted? Will they pay higher prices today for savings tomorrow?
And what about Robbins's embryonic marketing program? There's little doubt that someday there will be a huge market for products made from recycled plastics, but which products?
And even if Robbins does figure out which products the market wants, can he muster the technical expertise to make them? Good questions all, says Robbins, who remains sanguine nonetheless. "We'll be OK."
-- Research assistance was provided by Leslie Brokaw.
The Plastic Lumber Co., Akron
Concept: Recycle plastics into products such as picnic tables, mailbox posts, and speed bumps
Projections: Profits of about $6,000 in 1990, almost $500,000 in 1991; pretax profits of 40% and 44%
Hurdles: Defining market; convincing customers that paying more now for products made with recycled materials will save them money in the long run; overcoming lack of technical expertise
"I've been preparing for this my whole life," says Alan E. Robbins, referring to the company he started last year. Given that he's constantly discussing and/or handling such materials as polypropylene and high-density polyethylene, you'd think he was talking about years of toil in the chemistry lab. He's not.
Robbins, a former industrial-technology major who "finished in the upper 98% of my class; thank heaven for that other 2%" at Miami University in Oxford, Ohio, is talking about how the past 20 years have equipped him to run his own business.
He began work in Oxford running restaurants (good for learning how to manage people) and went on to run a mom-and-pop supermarket (people skills again, inventory control, marketing). From there Robbins worked as a headhunter (telemarketing, selling) and eventually a stockbroker ("great financial training"). Before starting The Plastic Lumber Co., Robbins was director of merchant sales for Rondy & Co., an Ohio-based reprocessor of scrap rubber and plastic.
"Everything I've ever done has led me to running The Plastic Lumber Co.," says Robbins, who is putting his money where his mouth is. In budgeting his salary for the start-up, he took about a 50% pay cut -- to $55,000 a year. Since November, given the company's slower-than-expected start, he's been working for free.
Plastic Lumber Co. Operating Statement
Sales $495,000 $2,075,000
Cost of Sales
Raw materials 222,000 913,000
Direct labor 44,500 186,750
Rent 21,132 23,000
Electricity 11,535 48,349
Total Cost of Sales 299,167 1,171,099
Gross Profit 195,833 903,901
Gross profit % 40% 44%
Expenses 1990 1991
Production 53,120 150,568
Marketing 42,000 72,000
General & administrative 55,000 114,684
Finance costs 15,000 14,737
Depreciation 10,529 41,736
Other 13,400 24,000
Total Expenses 189,049 417,725
Net Income 6,784 486,176
WHAT THE EXPERTS SAY
General partner, Hambrecht & Quist, a San Francisco venture capital firm; co-manager of its $17-million Environmental Technology Fund, which has a position in a recycling company
I think Robbins was correct in perceiving there's a tremendous market opportunity here. The concept of the business, broadly defined, is sound; there will be exponential growth in the waste minimization segment of the market.
But I think Robbins has made things difficult for himself by focusing on the lower end of the business. By taking mixed plastics and making something that can't be used for much because of the tensile strength, he's artificially narrowed his business opportunities to the commmodity level. Recycled products with the characteristics of virgin materials -- that's where money will be made. If I were Robbins I would upgrade the technology and therefore the end product.
How do you do that? He needs to get some help where he doesn't have the background or the inclination. He's got marketing contacts and distribution experience; he should weave that into some kind of relationship with a plastics recycler with a little more know-how. He does have a little business there that could feed into the activities of another firm. There are all kinds of options: a co-marketing arrangement, or a subcontractor or OEM relationship. He's certainly got a lot of energy and enthusiasm, which could be put to better use.
One of the common mistakes is to think people are going to buy products just because they're environmentally correct. You can't rely on that kind of altruism. It certainly can help. But people are very dollars-and-cents oriented. Recycled plastics products do not have to be more expensive than what they're replacing, and in the long run they can't be. In the long run they have to be cheaper.
If Robbins is lucky, maybe he can bring in the top line, but I think his costs are going to increase. The company is very thin, and he can't run a business effectively and wear all the hats at the same time. But he does have the option of finding someone who will work with him. He's developed a market and has some customers, which is an asset that should be valuable to someone.
THOMAS J. PENRICE
Director, Plastic Consulting for Strategic Analysis Inc., a Reading, Pa., firm
I'm very bullish on Robbins's idea and his chances for success. I think his sales forecast is actually quite modest. And there may even come a time when his raw materials cost -- which is relatively high now -- could be negative. As communities collect all this plastic, they're going to need somebody to take it off their hands.
However, there is a major problem. He has seriously underestimated his marketing costs. If he uses the $72,000 he has budgeted (on $2 million of projected sales) to hire a marketing person -- and he'll pay at least that to get someone qualified -- there won't be any budget for mailings and travel. You have to go to the trade shows and network.
Eventually there'll be many viable consumer and industrial applications for recycled plastic products. However, Robbins's company must first survive the next several months. Instead of letting his customers dictate his marketing approach, I would begin by working directly with major producers of plastic resins -- the Dows and Du Ponts -- and work out a deal where they would give him the plastics they can't use in their recycling programs, the co-mingled plastics, and see if they would be willing to buy the picnic tables and the like from him. These companies all have active recycling programs and are eager to promote recycling. Once the applications are demonstrated to be practical and cost effective, however, Robbins has got to reach a broader market.
Technical director, Hammer's Plastic Recycling Corp., Iowa Falls, Iowa, The Plastic Lumber Co.'s largest competitor
They're going to be struggling to stay alive unless they do something clever, and there doesn't seem to be anything clever on the horizon.
First, the company is grossly undercapitalized. And it's not spending the little money it does have on the right things. It's marketing that drives companies that make plastic lumber, yet Robbins has scaled back his marketing efforts to save money. He needs large orders to survive, and without a marketing budget, he's going to be hard pressed to get them.
Even with a marketing budget, he would seem to be in trouble because he doesn't have a marketing strategy. He's going with the flow, and that's a big mistake. There is no inherent market for plastic lumber; you have to create one. I think Robbins believes -- as a lot of companies that are no longer in business once believed -- that his product is so good that people will fight to buy it. That's wrong. It's always been wrong.
But in addition to overestimating sales and underestimating marketing expenses, he has another problem. There is no depth of technology. Ken Boersma has left. Who's going to replace him?
If I were running their company, I'd go out and recruit a good marketing man and a good technology person, but I don't see how Robbins will be able to attract the money he'd need to do it. When potential investors visit the company's offices and see the lack of staff, they're going to conclude the company is close to broke. The venture capitalists won't trust the company with their money, and customers won't trust it with their orders.
Plastic Lumber is where we were four years ago, but we had marketing and we had technology people who allowed us to create new products. They have neither.
President, National Association of County Park & Recreation Officials; Park & Recreation Director for Clark County (Las Vegas), Nev.
New products have to do something above and beyond what old ones do. There are a hundred manufacturers of picnic tables and speed bumps out there already. If Plastic Lumber came out with, say, a vandal-proof bench you could wipe spray paint off of, now we're dealing with something. But customers already have long-term relationships with manufacturers, and they're not going to set them aside just because somebody says, "Hey, I've got a newer product." I'm approached at least once a month by picnic-table manufacturers; it's an incredibly competitive field.
Robbins will have to prove his claim of extended life expectancy -- he can't just come out and say it costs more but is going to last twice as long. The documentation seems absent at this point.
If the company isn't competing on price it's going to have to convince customers to raise the standards of what they spec -- for instance, to require that benches last six years -- and then the company will have to prove that its product meets those standards. Convincing buyers and architects to stop specifying one product and specify something more stringent, on the basis that it's better for them, is an uphill battle. But that's how the game works.