Pyle was furious. He sensed an attempt to hijack the company. "So there I was, back in the gravelly little hole underneath 20 Nassau Street," he says. "I said, 'Tom, what we need to do is get you stabilized. You need a board of directors. You need to get a few tribal elders around here to give you some ballast."
Pyle took over as CEO, giving Szaky the title of chairman--they would switch titles later that year--and he began recruiting board members. One was a former Princeton athletic director. Another was an emeritus professor of engineering. He, in turn, recruited an engineer and environmental consultant named Bill Gillum--a 23-year veteran of Western Electric, Bell Labs, and Lucent--to work full-time for TerraCycle on product development. Together the gray hairs undertook what Pyle describes as "the laborious process of taking an amusing, energetic, youthful garage shop and trying to put some corporate process around it."
Hardly had they begun, however, when another extraordinary event intervened. All that winter, Szaky had been keeping the company alive by entering and winning business plan contests. He had effectively, though not officially, dropped out of school by then, while Beyer continued his studies. (Beyer graduated and joined the company full-time in 2005.) The two of them had reentered the Princeton competition and this time walked off with the first place prize of $5,000. In addition, Szaky had won five other competitions, earning between $2,000 and $10,000 a shot.
So Pyle wasn't particularly surprised when Szaky said he was off to another contest in late April 2003. The next evening, he gave Pyle a call. "I have a surprise for you," Szaky said.
"What's that, Tom?" Pyle asked.
"We won another business plan contest," he said.
"Very good, Tom," Pyle replied. "How much was it this time?"
"A million dollars," said Szaky.
"A million dollars!"
It was called the Carrot Capital Business Plan Challenge, and it was extremely competitive. Of 750 entries, 25 had been chosen to advance to the final stage, a shootout at a New York City hotel where they would be going for $3 million in venture funding to be split among the top 10 contestants, including up to $1 million for the winner. On Saturday, April 26, Szaky and Robin Tator headed up to the city. Once there, they found themselves adrift in a sea of white shirts, rep ties, and power suits. Each team had 20 minutes to make its case before a panel of three judges, and each presentation was videotaped for the other judges to watch later. At the end of the day, everybody was taken to a cocktail party at the Forbes building on Fifth Avenue, where the judges and sponsors mingled with the crowd and talked with the contestants--all of them, that is, except for Szaky and Tator, who felt they were being ignored. At one point, Tator motioned to Szaky, and they went outside. "There's no point in staying here," Tator said. "We're out of it. They're not even looking at us. We've got better things to do. Let's go run a company." But mostly because of the free meal involved, they decided to stay for the awards dinner. There they learned, much to their surprise, that they had won.
On April 29, 2003, a contingent from the company joined Szaky in New York City, where he rang the opening bell at NASDAQ and was interviewed on CNBC about his victory and the $1 million he had won. There was a catch, however. To receive the funding, the winning entry had to agree to Carrot Capital's terms. Szaky got his first inkling that there might be a problem when David Geliebter, Carrot Capital's managing partner, took him aside and suggested that he tone down his statements about the environmental aspects of the product. Later when Geliebter (who declined to be interviewed for this article) and his lieutenants came to see the Princeton operation, they separated Szaky from his colleagues and talked to him about their plans for TerraCycle. They said they would make him "the poster child" for organic fertilizers. The following week, he went into Manhattan at Geliebter's request to meet with the Carrot Capital people alone. There were five of them in the room, and they got straight to the point. They didn't want Tom Pyle or Bill Gillum or Robin Tator. They wanted Szaky. They would make him a star. He could become very wealthy just by telling his story. They would do the rest. "Well," said Szaky, "if that's what you want, we don't have a deal." Leaving his million-dollar prize on the table, he picked himself up and went back to Princeton.
Once again, TerraCycle was at a crossroads. It had $500 in the bank. Szaky needed a new source of income right away, and there were no more business plan contests in the offing. By then, he and his colleagues had realized that there was more money to be made in a vermicompost tea than in worm poop itself or in solid-waste disposal. The challenge was to brew a tea with a significant shelf life--at least two years. Gillum had made progress on that score, but what would they put the tea in? They couldn't afford to buy new bottles. They would have to settle for used ones. Szaky recruited a team of students and led them into the streets on a night when Princeton citizens put out their bottles for collection. Unfortunately, Szaky was not aware that it is illegal to take bottles from recycling bins in Princeton. Fortunately, they were able to collect all the bottles they needed by the time they were stopped.
But it was not until they returned to the office on Nassau Street and began examining their booty that Szaky fully took in what they'd found. He noticed that, although there were many different brands and types of beverage, there were only four bottle sizes by volume, and they all took caps of the same size. Within each of the four size categories, moreover, the bottles had the same height and the same diameter. "That was the big discovery," says Szaky. "It meant that they could be run through a high-speed bottling machine. That was the moment when it all came together, when we crystallized what we could do in a powerful way. We realized we could make a product entirely from recycled waste. I thought, This is it. This is what we have to do. Within five months, we had raised $1.2 million from private investors."
Bo Burlingham: Burlingham joined Inc. in 1983. An editor at large, he is the author of Small Giants. Burlingham is also the co-author with Norm Brodsky of The Knack; and the co-author with Jack Stack of The Great Game of Business. @boburlingham