Inside the TerraCycle factory in Trenton, a radio is blasting "Le Freak, c'est chic, freak OUT!" and a couple of the guys on the filling line can't resist trying out some dance moves. There's a skeleton crew in today, working on a special order for Wal-Mart Canada. Nearby, someone is putting together display racks for Home Depot stores in the United States. Szaky notes that the permanent work force in the factory numbers just 12 people, though the company hires up to 40 temporary employees during periods of peak production. Finding them is never a problem. When TerraCycle placed an ad to fill eight jobs, 150 people showed up.
Of course, abundant labor was one reason TerraCycle decided to locate in Trenton. The other was cheap real estate. The company bought the building, all 20,000 square feet of it, for just $275,000 in 2004. While Szaky insists that he and his colleagues made the decision strictly for business reasons, it is not lost on anybody that TerraCycle was thereby creating jobs in a community desperately in need of them. As if to emphasize the company's inner city identity, Szaky arranged to have the factory painted inside and out by local graffiti artists. The only condition was that the most visible outside wall had to promote TerraCycle.
At the moment, the Trenton facility is where all the production is done. The tea brewing occurs in nine blue 500-gallon tubs that were once horse-feeding troughs. They cost $200 each. There are also two yellow 1,000-gallon tubs that used to be storage tanks. They were free. Szaky and his crew found them in a landfill, cut the tops off, and used them to brew the tea needed to fill the opening orders for Wal-Mart Canada and Home Depot Canada.
But it's the bottles, not the brewing tubs, that dominate the scene. Everywhere you look there are bottles. Outside is a trailer brimming with them. Inside are huge plastic bags filled with them. There are bottles with soda labels, bottles with no labels, and bottles with TerraCycle labels. Indeed, most of the space in the factory is given over to the receiving, delabeling, cleaning, shrink-wrapping, filling, capping, boxing, and shipping of reused bottles. They are critical to the entire operation, not to mention an essential part of the company's marketing. TerraCycle misses no opportunity to remind people about the source of its packaging, even going out of its way to make sure every rack contains bottles with different shapes. So important are reused bottles to the company's identity that it is attempting to patent the practice of using them for packaging. That may, in fact, prove to be the only part of the product that competitors won't eventually be able to copy.
Then again, the bottles are also the only part of the product that is potentially in short supply. The new vice president of operations and logistics, Larry Palermo, expects to fill 1.5 million or 2 million bottles in 2006 and perhaps twice that many in 2007, but Szaky is doing all he can to render those estimates obsolete. He and Smith are courting Kmart, Target, and Lowe's and lobbying for expanded programs at Wal-Mart and Home Depot. Focusing on large accounts is the right strategy, Szaky believes, although many people told him otherwise. "They said, 'Go to small nurseries; develop a name.' I didn't like that. It was too slow. Each sale was so hard and took so long. We decided to go to the biggest retailers instead." With their help, Szaky thinks TerraCycle's sales can reach $5 million next year, beyond which it should be able to pay everyone a full salary--and turn a profit.
In the meantime, he has other things to think about--like selling the house in Trenton. He decided it was time to get out when he came home one day to find bullet holes in his bedroom window. There's also the financing he's been working on. The $1.2 million he raised following the Carrot Capital episode carried the company through the middle of 2005. He raised an additional $1.5 million last year. This year, his goal was to raise another $1.6 million, and he already has commitments for that amount from angel investors.
That brings the total that TerraCycle has raised from angels to more than $4.3 million, for which Szaky is grateful. They have been relatively hands-off, leaving the company free to find its own way and develop its own character. But he's beginning to think it may be time to bring in venture capitalists, who will demand financial discipline and bring credibility to the company's valuation. That's important because Szaky is already looking ahead to the day when TerraCycle will go public or get acquired. He expects that to happen within five years.
And then what? He says he hasn't had time to give it much thought and doesn't want to take his eye off the ball. He might go back to school. He might write a book. He might move to New York City with his girlfriend, Soyeon Lee, a Korean concert pianist. He'll certainly have options. After all, he still owns 11 percent of the equity. If his timetable is right and all goes according to plan, he'll have plenty of money to do whatever he wants.
Come to think of it, he could even retire--at the age of 29.
Editor-at-large Bo Burlingham is the author of Small Giants: Companies That Choose to Be Great Instead of Big (Portfolio, 2006).
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