The original idea for Terra- Cycle came to Tom Szaky when, as a 19-year-old Princeton student, he and his roommates went to Montreal to indulge in a bit of underage drinking. A friend there was growing plants in his basement and hadn’t had much success with chemical fertilizers, but did amazingly well when worm food was used. As Szaky recalls, “The light bulb went on for me. The plants were thriving because the garbage fed to the worms generated worm poop that served as this fantastic fertilizer.”
Upon returning to Princeton, the behavioral economics major wrote a business plan using a business model “where you get paid at both ends”— to take the waste away and again for the end product. During the summer of his freshman year, he took all his savings, maxed out his credit cards and invested $20,000 into scaling a system of converting garbage into “lots of worm poop.”
While his fellow students were interning at Goldman Sachs, Szaky shoveled rotting food waste and slept on the floor of a friend’s dorm room. Just as the venture seemed poised to end in frustration, a local radio program picked up the story. “Someone heard the show and called to say he wanted to give us $2,000—not a lot of money but it saved the company,” he says.
Since their worm poop company lacked the charm of a dot-com start-up,Szaky and his pals entered business plan contests, collecting amounts ranging from $5,000 to $20,000 to keep their idea alive. The piecemeal financing method saw them through their sophomore year, during which Szaky dropped out of Princeton to pursue the venture full time. (His parents did not learn this at the time—and were not amused when they did.) During this time, he figured out how to liquefy the worm poop—a big turning point in the enterprise’s fortune. A business plan contest that earned them a $1 million prize in May of 2003 might have been another big step, but the founders had to turn away the funding because of the terms. “They wanted us to change our management,” the spiky-haired Canadian now remembers, “but even worse, they also wanted us to move away from garbage, which was the essence of our company.”
Just as bank funds were dwindling to slightly over $500, a badly needed breakthrough came when the company hit upon the idea of using discarded 20-ounce soda bottles for its “tea,” as the brew became known. With this epiphany, the idea of a product not only made from waste, but packaged in waste, crystallized. Meanwhile, media coverage of the $1 million contest won the interest of angel investors and funding of more than $1 million in just six months. Another $4.5 million soon followed, along with the promise of another $2 million on the way.
The reaction from Big Soda was mixed. Coca-Cola’s initial reaction was cool to the fledgling Trenton, N.J.-based outfit but the company has since come on board. PepsiCo, on the other hand, embraced TerraCycle more readily.
“Within 10 days of Pepsi first hearing about us, we had a meeting with every one of their vice presidents in the marketing division talking about ways we can further this,” says Szaky.
Like many entrepreneurs, Szaky, now 24, is evangelical about his product; but unlike many green entrepreneurs he doesn’t position it as a vehicle to save the world from itself. Whole Foods sells TerraCycle fertilizers, but Szaky shrewdly sought relationships with big box retailers, which are now his biggest customers. Consumers, he contends, may support politically correct products, but their purchase behavior demonstrates that they are value-conscious. It’s nice if a product is eco-friendly, but it’s nicer if it works better than the alternative and doesn’t cost more.
(Excerpted from CEO Magazine)
