The Coolest Little Start-Up in America
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.
"If you buy an organic banana, you're going to pay twice as much for it. We have an organic product that's both better and cheaper than the conventional product."
And the indications are that TerraCycle does have such a product. Its flagship plant food was the top seller in its category after it debuted on HomeDepot.com in 2004, and last year it ran strong against Scotts Miracle-Gro, the behemoth of plant food, both in Canada and in New Jersey, where Home Depot put it in stores throughout the state. Although Miracle-Gro does have a line of organic garden soils, it is best known for its plant food, which is formulated from a variety of nutrients to create a product rich in nitrogen, phosphate, and potassium. It is undeniably effective, but it isn't organic. Moreover, in a series of independent tests conducted at the Rutgers Eco-Complex in Bordentown, New Jersey, TerraCycle was found to perform as well as or better than Miracle-Gro. And, whereas Miracle-Gro can cause plant burn when applied improperly, TerraCycle claims that its products never do: The more you use, the healthier the plants become. It all adds up to a strong sales pitch: "If you go to a supermarket and buy an organic banana instead of a conventional banana, you're going to pay twice as much for it," notes Szaky. "We have an organic product that's both better and cheaper than the conventional product. What are people going to buy?"
Of course, they'll buy it only if they know about it, but Szaky has that base covered. He has been extraordinarily adept at generating PR, landing articles in The New York Times and, yes, Inc. (see "Talking Trash," November 2002) even before he had a product to sell. Since then, pieces about TerraCycle have appeared in dozens of newspapers, on several U.S. and Canadian television networks, and in magazines ranging from Time to BusinessWeek to Real Simple. Along the way, Szaky has managed to imbue the entire operation with the aura of an environmental crusade. Through TerraCycle's Bottle Brigade, for example, he has enlisted elementary schoolchildren (among others) in a campaign to collect used soda bottles for the company, which then contributes five cents per bottle to the school--twice as much as TerraCycle pays recyclers. Thus solid waste is recycled; worthy organizations receive money; environmental consciousness is raised; and the company gets the bottles it needs while sending a potent marketing message, namely, that TerraCycle is not just good for your plants--it's also good for your planet.
The happy confluence of social purpose and financial opportunity has proved to be an extremely effective recruiting tool. All the TerraCycle managers say that they came as much because of the environmental mission as for the financial rewards awaiting them if the company does well. They certainly didn't come for the salary and perks. Until recently no one in the company made more than $30,000 a year. Some people took pay cuts of as much as 85 percent to join TerraCycle. They'll come out ahead only if their stock options turn out to be valuable.
