Magleby's Fresh, a Provo, Utah, restaurant, is famous among students at Brigham Young University for its all-you-can-eat breakfast buffet. It was there in 2009 that Dan Blake first took notice of the staggering amount of food that ended up in the restaurant's garbage cans. Then a junior studying English and business at BYU, Blake began pondering the business opportunities. If your cost of raw materials was nothing, he thought, that would make for fantastic margins.

And so it was that EcoScraps was born. Founded in 2010, the company collects roughly 20 tons of food waste a day from more than 70 grocers, produce wholesalers, and Costco stores across Utah and Arizona. Then, it composts the waste into potting soil, which retails for up to $8.50 a bag in nurseries and garden stores throughout the western United States. The company has eight full-time employees and 14 part-time employees. Sales are expected to hit more than $1.5 million in 2011.

Shortly after his buffet-table epiphany, Blake hit the library and did some research. The U.S., he learned, generates 30 million tons of food waste each year. In addition to representing 17 percent of the total waste stream, food decomposing in landfills produces methane, a greenhouse gas 21 times more harmful than carbon dioxide. Composting is helpful, because it eliminates methane production and extends the life of landfill space.

Along with two BYU classmates, Brandon Sargent and Craig Martineau, Blake began raiding restaurant and grocery store Dumpsters after dark, scavenging for food waste. In their dorm parking lot, they created a makeshift research lab, testing composting techniques on 24 garbage cans full of spoiled food. Through trial and error, they discovered that some foods produced healthy compost, while others didn't. "The compost we made from Chinese restaurant Dumpsters was terrible," says Blake. "It killed plants within 12 hours."

With some help from professors in BYU's agriculture department, the trio developed a technique to transform discarded fruits and vegetables into nutrient-rich compost in less than three weeks—a good deal faster than traditional composting, which can take up to three months or more. They also added sawdust shavings and coffee grounds and aerated their piles once every three days, to provide the correct carbon-to-nitrogen ratio. In tests the team conducted, the EcoScraps soil grew plants as large as or larger than plants grown in soils using chemical fertilizers.

EcoScraps's business plan took second prize in BYU's Social Venture Competition and won a grant from Sparkseed, a nonprofit fund that provides seed money and mentoring services to social entrepreneurs. Blake added his $18,000 in life savings to the $20,000 in prize money, and the trio dropped out of BYU to pursue EcoScraps full time. "We sensed that we had a great opportunity, and if we didn't take it, somebody else would," says Sargent.

The true beauty of the business lies in its simplicity. "Essentially, they just sell dirt," says Sparkseed CEO Mike Del Ponte. "But I can see them being around a long time and having a big environmental impact, because they've got a darn good business model." Garbage haulers can dump food waste at an EcoScraps facility for free, saving them the dumping fees traditional landfills usually charge. As a result, haulers can then offer their services at a discount to the stores whose garbage they are collecting. Likewise, EcoScraps will pick up a store's garbage in its own trucks at a discounted rate. It's a rare business model that provides an economic incentive to everyone involved to choose the green option.

"There's really no downside to this," says Bret Gallacher, marketing director for Fresh Market, a Salt Lake City–based chain of grocery stores owned by Associated Foods that is working with EcoScraps on both ends of the spectrum—providing expired produce for composting as well as selling the finished product. "It's a great concept. I wish I had thought of it."

As of now, the only drawback is that there just isn't enough compost to go around. The two EcoScraps facilities in Utah and Arizona produce 35 to 40 cubic yards of compost per day—enough to supply local nurseries and grocery stores but not enough to allow EcoScraps to approach Home Depot or Walmart. At least, not yet. Blake says the company will open two composting facilities in Colorado and Oregon by year's end and is looking to expand operations to California and the East Coast by 2012. As for those profit margins Blake dreamed of over breakfast? They stand at about 30 percent.

Blake is quick to point out that he considers himself an entrepreneur before an environmentalist. From the outset, all the co-founders wanted to structure the company as a for-profit. "The trouble with nonprofits is that they can only do as much good as they can until their funds run out," says Sargent. Says Blake: "For us, sustainability means having a balance between financial viability, environmental responsibility, and being meaningful for everyone involved. The more money we're making, the greater an impact we're making for the environment."