The Coolest Little Start-Up in America

The first time Eric Smith laid eyes on Tom Szaky, in April 2005, he felt a shiver of panic. Oh, my God, Smith thought. What have I gotten myself into?

There they were, about to meet with Home Depot's global product merchant, John Fuller, a guy who could make or break a young company with a simple yes or no, and Szaky, the founder and CEO of TerraCycle, all of 23 years old at the time, shows up looking as if he's just rolled out of bed after a night of heavy partying--rumpled, unshaven, and dressed in jeans, a sports jacket, a shirt with no collar, and a John Deere baseball cap. This was not what Smith had bargained on. The director of sales for Philips Lighting, he had set up the meeting as a favor to his former boss and mentor at SC Johnson. Granted, on the telephone Szaky had sounded young, but never did Smith imagine that he'd be walking into the meeting with Ferris Bueller on his day off.

"Look," Smith said. "Don't say a word. Let me handle it. I know how Home Depot works. I just need a little more information. Where's the presentation?"

"I didn't print out a copy," Szaky said.

"Tom, you always have to have a copy of the presentation to leave with the buyer, especially John Fuller," said Smith. They spent the next hour at Kinko's.

Smith had reason to be concerned. You did not waste John Fuller's time. It was one thing to go to him with Raid insecticides, as Smith had done when he was at SC Johnson, and quite another to bring him the new, unknown plant fertilizer that Szaky was peddling. Not just any plant fertilizer, either: one made from worm waste. By a company that had been in business barely three years. Run by people who had very little experience supplying a mass merchandiser like Home Depot. Yes, the product was already available on HomeDepot.com, and Home Depot Canada had ordered some, too, but Smith did not expect those deals to carry much weight with Fuller. Smith's initial impulse was to make the pitch--and then leave as quickly as possible. But as he talked to Szaky, something happened. "We call it the MOC, or moment of clarity," he says. "That's when you go from seeing a product and a business and a 23-year-old kid and you begin to realize that what he's talking about is much bigger. That's what allowed me to go from being scared to thinking, This could be very interesting."

And indeed it was. "John Fuller started asking his tough questions," says Smith, "and Tom never stopped for a moment, never stuttered during an answer. He had put together a multimedia presentation, and he delivered the whole thing off his computer. It was very, very effective." The meeting lasted an hour, which was about 45 minutes longer than Smith had expected. Somewhere in the middle of it, an odd notion popped into his head. "I thought, You know, it wouldn't surprise me if I wound up working for this kid someday." Less than four months later, Smith left Philips and took a position as TerraCycle's new vice president of sales.

If you've browsed in the garden section of your local Home Depot or Wal-Mart recently, you may have seen a new plant food somewhere north of the begonias and south of the perlite. It comes in a yellow and green shrink-wrapped bottle with a familiar shape and the kind of spray top you might find on, say, Windex. It may well be the world's first commercial product made entirely from garbage. The plant food itself is a so-called vermicompost tea, a brew made from the castings (that is, the poop) of red worms that have feasted on various types of organic waste. The containers are reused soda bottles. The spray tops are the unwanted extras that have been dumped by manufacturers of other spray-on products. Even the boxes that the plant food is shipped in are garbage: They're the misprinted rejects of major companies.

But the most striking fact about TerraCycle is the age of its co-founder and CEO, Tom Szaky (pronounced zack-y). He is now 24. A Hungarian by birth and a Canadian by upbringing, he was 19 years old and in his freshman year at Princeton University when he launched the company with one of his classmates, Jon Beyer. At the time, they were simply trying to win a business plan competition. They came in fourth--out of the money--but they couldn't shake the idea that you could build a business selling garbage. And now, five years later, they have done just that. In 2005, TerraCycle had $461,000 in sales, mostly in Canada, where the product was carried by Home Depot and Wal-Mart as well as other chains. With the decision by both retailers to roll it out in their U.S. stores this year, the company's 2006 sales are expected to top $2.5 million.

It is unusual, to say the least, for mass merchandisers to take a chance on a young, unproven company, especially one with a 24-year-old CEO. "Tom is a unique individual," says Wes Neece, who took over as Home Depot's buyer of gardening supplies when Fuller left for a job at another company. At Fuller's suggestion, Neece met again with Szaky and decided to move forward with TerraCycle. "I have a lot of faith in him. He has surrounded himself with very strong talent to get his ideas to fruition."

Indeed, except for Szaky and Beyer, who is TerraCycle's chief technology officer, every one of the 12 people in key positions is a seasoned business veteran with more than a decade of experience in his or her line of work. Most of them, moreover, appear to enjoy having a boss who is barely half their age. "Tom, I believe, is one of the best managers that I've ever worked for," says Eric Smith. "He's highly motivational. He works as hard as I've ever seen anybody work, and he totally empowers you to do what you feel needs to be done. And he is great in front of a customer because he knows his product so well."

It also helps that Szaky has a product on which retailers can earn gross margins two or three times those they get on competitive products. TerraCycle can offer retailers such margins because its own margins are so high. Worms, after all, do not charge for their labor, never take a day off, produce their body weight in waste every 24 hours, and--since they copulate while they eat--double their numbers every three months. They are also content to dine on stuff that might otherwise go into landfills. Szaky likes to point out that, in theory, TerraCycle could get paid to haul away the garbage the worms eat, thereby raising the possibility of having a negative cost of materials. That hasn't happened yet--right now TerraCycle is buying the worm poop from which it brews its tea--but the observation highlights the lovely economics of selling garbage, assuming you can come up with a product that people want to buy.