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."
We'll see.
-- Research assistance was provided by Leslie Brokaw.
EXECUTIVE SUMMARY
The Company:
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
THE FOUNDER
"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.
FINANCIALS
Plastic Lumber Co. Operating Statement
1990 1991
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
(continued)
WHAT THE EXPERTS SAY
FINANCIER
NANCY PFUND
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.
