Andrew: Hey, there freedom fighters. My name is Andrew Warner. I’m the founder of “Mixergy” where I interview entrepreneurs about how they built their businesses. I do it for an audience of real entrepreneurs who are listening to these interviews as they are building their companies. And obviously, not technically sitting there listening while building their companies at the same time. Sometimes they’re running, sometimes they’re at the gym, sometimes they’re commuting, but they are building their companies, and these interviews are helping them do it.
And today’s guest is a guy who, some of you have been listening for a while, a long time might recognize, because he was on Mixergy back in the early days of Mixergy Interviews. I read his book, I freaking loved it, I remember exactly what, I don’t know, Tom, do you ever get this sense where you listen to music, or you read a book, or you listen to an audiobook, and the place in time where you were, where you experienced that is now connected to the material?
Tom: Absolutely, yeah. Couldn’t agree with you more. I mean, it’s for the really special moments I think.
Andrew: I remember I had this idea for my wife, we were living in Southern California, I said, “Let’s rent a tent from REI and go sit on the beach.” And she goes, “On the beach in the middle of winter is going to be too cold. I don’t want to do it.” I said, “Please, baby, let’s try. Let’s try this thing.” And she tried it, and we loved it, because no one was on the beach, the tent was blocking the wind, and I was reading your freaking book and loving it. So now you’re connected to that.
The other thing that you’re connected with, I learned so much from you in that interview and frankly from that book. One of the best lessons that I took away from you was, you said, “Everybody says, you work your way up to the big guys.” And you basically said, “Screw that. I want to go after Walmart, because once you get the big guy, everyone else wants to work with you. So you punch the highest guy, and then everyone else falls into line, so to speak.
I also learned from you there’s so much. And one of the thing that I learned that I took away from myself was, I took our interview at the time. Don’t worry I won’t talk this fast or this much the whole interview. I took our interview and I used to chop up like sections or do descriptive sections of the interview, and I made it into like this 30-second or three minute video. And I didn’t realize that somehow your image was covering my face, and that was like such bad editing, and right then I decided, I can’t do this well. I’m not going to do it. I have to focus on what I could do really well, which is the interviews and researching. And then, I’ll let the rest disappear and maybe come back when we have the strength for it.
So, anyway, that’s to say, I learned a lot from you. I’m looking forward to learning even more from you. Tom who you heard on the mic a moment ago is Tom Szaky. I’m very proud that I still remember how to pronounce his name from that first interview. He is the founder of TerraCycle. They are a company who has a mission to eliminate even the idea of waste by recycling the non-recyclable. And boy, if we look around the world today, especially frankly, if you look at that thing in your pocket, that phone, you start to see this more and more stuff that’s non-recyclable. He says, “No. we’ve got to solve it, menu or man on a mission. It’s appropriate that you grew out your hair like that, because you’ve got this very Jesus-like connection with this mission.
All right. This whole interview is sponsored by two companies. The first will help you do marketing automation right. It’s called ActiveCampaign. The second will help you hire your next great developer or designer etc. It’s called Toptal. But, Tom, I’m going to shut up for a moment and just say welcome.
Tom: Thank you for having me. Really great to be back and really looking forward to our conversation.
Andrew: So I need a concrete example of what you do today. I remembered back then you said we’re up cycle, and everyone wants to recycle we’re going to recycle. We’re going to get people to collect garbage. We’re going to turn that garbage into things like beautiful purses that we sell in stores. I know you do lots of different things. Give me one concrete example of what you do with waste today, and then we’ll get into the other stuff later.
Tom: Absolutely. So what we focus on is where there are big challenges today. So we’re not doing at TerraCycle is collecting your soda bottle, your paper, things you can put into your normal cycling bin. What’s interesting as you look around the world, every single thing will become garbage one day. It’s one of the things I love about the garbage industry. It’s the only industry that will legally own all your possessions one day. It’s just the question of when, not really if.
And so, let’s take a concrete example. Let’s take cigarette butts. So today, we’re operational in 21 countries, but in 10 of those, we nationally run cigarette recycling. And so, each waste stream, is like a different animal, and it requires actually a different system. It’s one of the reasons landfilling and incineration aren’t so good because you can’t have super organisms that eat everything, which is what those are.
So in cigarette butts, we first figure out how to collect it. So, one example is in that waste stream we work with about 200 cities, where we set up every 10 meters or so, the cigarette recycling bins. So these little metal bins that are attached to light poles. And then people put their cigarettes in there instead of littering them, and we send a truck around that picks them up every two, three weeks. Then from there goes one of our warehouses, and there we look at how do we circularly process it. We look at reuse, that’s really tough in cigarette butts, or up-cycling also very hard, but you can recycle them by shredding them, separating the organic bit, which are like the ash tobacco paper composted, then take that filter which is made from a plastic called cellulose acetate, just a type of polymer, and make it into things like ashtrays, park benches, and so on.
The final thing in all this is what makes cigarette butts not municipally recyclable, is it costs a lot to do what I just described. [inaudible 00:04:58]
Andrew: So, I lost you there for a moment. You’re saying that . . .
Tom: . . . companies or . . .
Andrew: Sorry. The connection broke off for a second. I know you’re in Geneva today in a hotel, so the connection is a little bit iffy. But you’re saying that it costs a lot, and yeah, please take it from there. Yes it does.
Tom: Yeah it does. So in most waste streams, whether it’s a dirty diaper or a piece chewing gum, or whatever, it costs more to collect and process and the results are worse. So, we need to find someone who’s going to pay for it, funding sources. So that could be cities paying for it. It could be big consumer product companies. It could be retailers. And our job is not just to go in and say, “You should pay for this, because you have some theoretical responsibility.” Much more, it’s you should pay for this, because this is how you’re going to drive value. If you’re a retailer, say foot traffic. Or if you’re a consumer product company, market share. Or if you’re that city, lowering your litter rates and increasing tourism, or whatever it may be.
Andrew: You know what? And that’s the other thing that I learned from you, and I’ve been repeating this, dude, to so many people using your name. You made this great point in your book which was, everyone who’s in the do-gooder space believes that because you’re in do-gooders space, people should buy their stuff, because it’s a good thing to do. That’s not going to work. You have to compete on having the better product, and this is a nice bonus for people, and that’s what you’re thinking here too. You’re saying, I want it to make sense for people. They’re not just funding it because it’s good to recycle.
Tom: Yes. I just really want to highlight that and build on, because I advise a lot of social entrepreneurs. And I can’t echo enough what you said here, which is that so many of them come up with a really tremendously meaningful solution for whether, it’s say workers’ rights, or equality, you know. Or say ocean plastic. You pick the topic. And they think that solving that is enough and all that you really should need to do.
The difference is that these things get you in the door. It gets you the beating with a Procter and Gamble, or a Walmart, or a city, or whatever you may want. But you have to fulfill what I call the primary motivator. So, if you’re a retailer, the primary motivator is sell more stuff. Now, you may agree or disagree with that, but it just is what it is. Sustainability, any sort of, do-gooder function, the people will prefer to use that tactic to sell more stuff if you’re a retailer, than another tactic like traditional advertising. But it needs to fulfill that to win.
And it much more importantly, not just doesn’t need to fulfill to win, but fulfill to grow. You know, if you have a good idea, you may find a great stakeholder at a company who can swing 25,000 or 50,000 your way for one year, but when that person moves on to a different role, the next person coming in may only care about the P&L or what it does for their organization. And if you can’t win there in a very clear way, then your program goes away and it definitely doesn’t scale globally or have really impact you’d hoped.
Andrew: So you’re saying, cigarette butts, if we’re going to sell it to the city, they’re the ones who are paying for this, we have to show them that it increases tourism. Whoever it is that we’re working with, we have to think about their big motive and how it fits in.
Now, this sounds really nice and neat and an interesting transition from what you were doing before. But as I understand it from your conversation with our producer, you nearly got kicked out of your company several times on your butt for coming up with the ideas to get us from where you were to here. So let’s go back in time fully and understand how you got to where you were before, and how you built to this.
And to me, I keep going back to why does this guy care so freaking much about garbage? You get more excited about garbage, and I get excited about anything except for maybe my wife and my new Apple products, and it goes back from what I understand to you growing up in Hungary. How does growing up in Hungary sensitize you to this?
Tom: It’s interesting you say that. Yes, so I’m 36 now. I was born in 1982 in Budapest, and back then, Hungary was still under the Iron Curtain. So effectively communist, right. So, you couldn’t be an entrepreneur whatsoever, and it was also, it still is today, but especially then an incredibly poor country. I mean, and I didn’t see my first television set till I was eight years. You had to apply to own a really crappy car, and so on.
And so, what happened in 1986, Chernobyl occurred and basically destabilized the borders, and this is more my parents’ story because I was four at the time, we left. We just escaped and then moved as refugees to Germany, and then from Germany to Holland, these are all countries are very favorable, at least back then they were to immigrants, and then landed in Canada. And then I went to, basically a school, a high school in Canada, and then ended up in university in the U.S. That was sort of the journey.
And if you think about each step along the way, I moved from communism effectively to the epicenter of capitalism being the U.S. And throughout that journey, two things opened my eyes. One is the amazing power of capitalism. I think I’ve never seen a vehicle so strong and able, such a strong ability to change the world as business. I think it’s more powerful than war, more powerful than politics, more powerful than disease. It can really have huge impact. I mean, look at what Google has done in a short period, or Facebook, any of these big organizations, even Uber, or you name it.
But the question, and this is the part I was really challenged with in my core, was it could be good, or it could be bad. And business is the way business is taught at universities in many cases, that the purpose of business is profit to shareholders. But business affects a huge amount of people. And most people, the customers, the vendors, the employees, don’t support that business, because of profit to shareholders. In fact, only very few people care about that profit to shareholders. And as such, the real purpose is what does it do?
And I had a big problem with just focusing on profit to shareholders, because then you don’t think about is what you do good or bad. So through that journey, I wanted to try to create a for-profit business that does something that is really important and meaningful. And why the topic of waste, because I think waste is such a fascinating academic topic. For example, it’s the only industry that will own everything one day without any exception. It’s the only industry that works in the material space, where there are negative raw material costs.
You know, we were in the Econ 101 back in college, we would draw all the supply and demand curves, right? And talk about supply goes up, then price goes down. Or if demand goes up, price goes up and so on and so forth. But it only ever intercepts in the positive quadrant. Prices always positive. But garbage is interesting. It has phenomenal supply, but negative demand. In other words, people are willing to pay to get rid of it.
And so, all these unique academic principles, sort of mesh together for me to say let’s make the topic waste. And the final bit is that it’s ridiculously un-innovative, because it’s not a sexy industry. It’s not like high tech. It’s not like pharmaceutical or really amazing fun things where all the brains go. It’s the inverse of that. You know, if you’re a parent and your kid comes to you and say they want to be a garbage person when I grow up. You’d probably say to your son or daughter, “Maybe consider something else.” And actually, that is a phenomenal opportunity, because it’s really easy to be innovative in a space where no one’s innovative.
Andrew: You know, so I went to school with the opposite experience that you had. I went to NYU to study business. And there they talk about the triple bottom line, and all that stuff all the time. And I have to say, I was repulsed by that, because I said, “Look, as a business owner there’s so much you have to keep track of. Your employees’ wellbeing, how good your product is, your competitors, the regulations in the space, and on top of that you’re telling me to also be aware of how good I am for the environment?” And to me, that felt like too much. It’s like saying, “Andrew, you have to raise your kids but also be aware of how that affects the . . . how the neighbor’s kids are going to be raised based on what your kids are saying. And I was like, “Dude, let me just raise kids, and then if we have a society that’s organized, right? Then me having smart kids will benefit society as a whole.” That’s a bad analogy, but you get my point. It’s too much already. Why in your mind do you feel like it’s not too much for businesses to think beyond the bottom line?
Tom: It’s a really good question. And so, first, it goes to a couple pieces, but I think the most important piece is the value of purpose. You know, you could see, and in the way you run analogy is focusing on purpose or hindrance, right. Does it sort of put you in too many areas, and then you’re going to get deluded and maybe not create something that focuses on profit, and then end up with an unprofitable idea. But purpose is actually tremendously powerful. Let’s forget the idea of doing good. Just focus on purpose. If you have strong purpose, you’re going to attract an incredible quality of team members or employees at below what you pay if you didn’t have purpose.
Andrew: So then, doesn’t the bottom line cover this? If a business focuses on just the bottom line, screw . . . not screw the environment, but don’t pay attention to the environment any more than you pay attention to what’s happening above the clouds in the sky, and where there’s life on Mars. You focus on the bottom line, and through the bottom line you have to care about values, you have to care about the mission, because that’s what your team is going to count on, and the bottom line takes that into account, so you don’t have to think beyond that.
Tom: You’re precisely right in the long term. But it’s challenging sometimes in the short term, right. So in the long-term situation where you’re looking a few years out, you are precisely right. By looking at the bottom line, a smart decision is to inject a huge amount of purpose into it. But sometimes you can make short-term decisions that are incredibly profitable, but are very un-purposeful. That will be really good in the short term, but hurt your long term. So I think as long as your view is on the wrong horizon, then you can absolutely function like that.
Now, but here’s the problem, many entrepreneurs when they go out in raise capital, and this is why I had trouble even when I was trying to pivot the business and so on, look to funds who have five year horizons. Or investors that want to get out in a relatively short period of time, and they’re your decisions make focus you more to the short term, and then do sacrifice these very important pieces. It’s actually one of the underlying points of why, for an entrepreneur, I think control is so critically important.
I think in doing a financing, we were in the middle of doing another one at the moment [inaudible 00:15:05] always control over any other aspect whatsoever.
Andrew: You’re saying? We lost you for a moment. You’re saying? We lost you for a moment. You’re saying, while you’re raising financing, you always want control beyond everything else? Because it allows you to think long term.
Tom: That’s exactly right.
Andrew: By the way, if you saw me typing on the screen, it’s not texting. I was looking up to see how long is this guy been looking at this issue? I interviewed you or published it April 22nd 2009 to give everyone a sense of the distance, right. And so, what you’re saying is, “Look, if you do think long term you have no choice, but to think about every aspect of society. In fact, the longer term you go the more you have to take into account. The problem with a lot of entrepreneurs and businesses is they don’t think that far you wanted to.” You work, by the way, in an environment where there was no future, really, or seemed like there wasn’t. I didn’t realize this, you were in the dotcom bubble as what? As an intern? You were still in school at the time. Weren’t you?
Tom: I was, yeah. You know, and when I was 14 years old, I had my first, sort of, start up, and it wasn’t anything big we were like an agency basically, doing a web design and so on when the Internet was just really getting going. And then that pivoted me to be involved in about three different dotcoms at different levels, never as the founder or as the leader, but in different levels right around that sort of first major dotcom bubble, right around 2000, 2001. And it was tremendous learning and learn how to raise capital, structure deals. See, actually the progression of one of these businesses go from idea to huge growth, to then falling apart.
And this is one of the most amazing things I’ve learned in over the 15 years of running TerraCycle is that, it’s the failures that actually really make the business. Now, not necessarily seeking failure, but being able to learn from failure, accept it, and being able to pivot and grow from that. And also, I think being very loose around how you accomplish your mission by being incredibly tight about your mission. So, our mission has always been how do we eliminate the concept of waste?
Andrew: You know, if you don’t mind, I want to get to that in a moment, but if you can go back to the time when you were at those companies, why didn’t the pain and the challenges at the time make those companies stronger? Because most of them went away. Tell me more about what you learned from working from them as you saw it when you were inside. And then, we’ll keep building up over this interview.
Tom: For me, most similar things in those early dotcoms was the addiction to raise in capital. It felt to me like the businesses were more in the business of raising capital than doing the business itself. And the challenge of that what I saw was that, it takes money and time to raise capital, and then you, sort of, just get into this ever-ending hamster wheel of raising the next round, and basically warming up to raise the next round after that. Not really building any asset, or any value or anything you can hang your hat on, and just being in the ever, sort of, grind of capital raising. And at some point that hits the ceiling and you’re done. And then there’s no more place to go, because then there’s nothing you’ve actually created.
Andrew: I’m going to take a moment to talk about my first sponsor, but this is not just a nonprofit, TerraCycle is a for-profit business. What’s was your revenue in 2017?
Tom: So 2017 we did about 24 million. This year we’re going to do about minimum 30, maybe 32 million, somewhere in that range.
Andrew: Wow. And profit?
Tom: The profit, this year we’ll do, I’m thinking a little bit over 1.5, last year about 700,000 or so. Noting, this is very important. We reinvest the vast majority of it back into developing new ideas and systems and so on.
Andrew: You know, I look at people’s faces when I ask that question to get a sense of how an appropriate it is for me to have asked it. There was no hesitation in your face. Why were you so comfortable saying those numbers?
Tom: You know, because people, and, as you said, you have to clarify earlier we’re not a nonprofit. And to me, I’m incredibly proud that we are a for-profit organization that in the misunderstood to be a nonprofit. That actually gives me tremendous amount of pride, because it says we’re doing purpose. Usually people associate purpose for nonprofit, and profit with for-profits. We want to, sort of, mash the two together and show that you can be ridiculously purposeful. Everything we do oozes this idea of eliminating waste, but do that in a for-profit context and the only way to really highlight the for-profit context, it’s not to just say we’re for-profit, but to really be proud of numbers and make sure those numbers stand up.
Andrew: Okay. So the sponsor is a company called Active Campaign. And I’m looking on my screen over here from an email that I got from Nar Eyal. Do you know his work? He’s the guy who wrote the book “Hooked.”
Tom: Just vaguely though. Not in deeper.
Andrew: For some reason he’s so bothered that people are upset that he showed how technology could be addictive, and how to create technology that’s addictive. In my mind, he’s just talking about the ideas that are already bubbling around Silicon Valley and he documented them in a book. There’s no reason to be upset at him. I don’t know. I like ideas. I don’t want to punish the people who identify the ideas. I want us to just understand them and disagree with the ideas, or come up with something better, but not disagree with the person and be so argumentative, especially in the startup space. We’re all trying to learn how to create better products. Anyway, he’s bothered by that.
But he’s an interesting person, because he sent out this email recently saying, “Here are the things that I’m working on. If you’re interested, click here to learn more.” And one of them is this topic of indistractible. He wants to help people become less distractible. I had dinner with him recently. He’s obsessed with this freaking thing, and the science behind it, and all that.
I clicked on it, and then a few days later, actually, specifically, one day later I got another message from him related to that, and two days later I got another message related to that and I realized something, he didn’t just say, “Hey, if you’re interested, click here to learn more.” He tagged me as being interested in that topic of being indistractable, and now he’s following up by helping me learn more. In other words, what he’s doing is smart email marketing. Email marketing in the old days was, let’s just, we got a subscriber pump out as much as we can until they subscribe. So we make as much money, get as many clicks, get as much traffic. He is thinking, “No. I want with every click to learn more about my audience so that I can target what they want.
I’m not creating an app that is designed to get people hooked. I am always curious about how to stay more focused. He got me perfectly through that. And that’s the idea behind ActiveCampaign. If you, Tom, or anyone else is listening to me and saying, “I want to do this,” I want you to understand this is very basic. But I’m talking to you here is like the kindergarten of targeting. Once you sign up for ActiveCampaign, you could do that in a heartbeat, but you can also say, “Andrew is spending more time watching videos about being indistractable. Let’s use that to help us understand that he needs more messaging about videos for indistractible, because he is a video consumer as opposed to an audio. Or Andrew clicked over to the podcast lets tell him about the next podcast episode, or remind him he could listen to this on his Echo device.”
That kind of marketing intelligence used to be maintained by the biggest, most expensive piece of software in companies. Today it’s available to anyone listening to me. I promise you ActiveCampaign don’t listen to me. Go talk to your friends in this space, is now on the rise because they are so simple at giving you and making all those stuff accessible.
Frankly, really, don’t talk to me. I talked to [Pop 00:21:58] OptinMonster, I said, “ActiveCampaign, is their sponsor, are they any good?” He looked up his data and he said, “Not only are they good, here’s how they’re on the rise by people who use my software.” Because he has insight.
All right. I’m ready to sign them up as a sponsor. So, if you’re listening to me, you want to sign up, you can go to activecampaign.com. You’re smart enough to go, Google them. If you use this special URL, you’ll be giving me credit as an entrepreneur who’s putting this podcast together. But, like Tom will point out, nobody cares about that that much. That’s not enough.
So here’s why you should go to this special URL and you will happen to be giving me credit. Number one, they’re going to let you try the software for free. Number two, your second month after you pay will be completely free. Number three, they’re going to give you two personal consultations with their experts, so that you’re not just saying, “Andrew taught me this stuff but I never used it.” They’re going to show you how to use it in your business and follow up with you to make sure you do and adjust what they teach you if you can’t implement it.
And then finally, if you’re with one of these other cheaper, less-effective, not so much cheaper in like price, but cheaper in result, not as good, they’re going to migrate you for free. So here’s a URL, you’ll do me a solid, but more importantly you’ll do your business solid if you go to activecampaign.com/mixergy. activecampaign . . . oh, I get the name right because it’s actively, understanding the user, activecampaign.com/mixergy.
right Tom, usually, I like to talk to my guest doing these spots, but I was watching you, and I think you were, kind of, entertained by this the way that I’m entertained by infomercials. That was good, right?
Tom: No. You know what? I was really thinking about, it’s a really interesting new world I believe of communication. And the sort of what you did there was a brilliant example, you know. At TerraCycle, for example, we’ve looked a lot and tested the traditional advertising. And every time we’ve tested it, it’s been a glorious failure. Never getting the dollars back that we put in. And we completely shifted our approach to the type of tools that you’re looking at, but also really focusing much more on how do we create content than necessarily on how do we create advertising.
Actually, I’m working on my fifth book and that is going to be, when it comes out next year is going to be called “Negative Cost Marketing” which is why pay to be the advertising when you can get paid to be the content. And I think a lot of folks these days who are starting companies are thinking necessarily, and so, that old school world of marketing and communication, which is the basic advertising MO is create amazing content, and then try to spend airtime dollars as best as you can to get the best results. And I think it’s incredibly dated. If you look today at the landscape of media, there is a phenomenal amount of [native 00:24:25] content, and generally it’s way more credible, it’s much more interesting.
But also, there is less volume of it to fill all these need. You know, so we’ve really focused in the way we do it on, how do we first create a lot of earned media? And I think when people are out there pitching your story, if you’re not entrepreneur, you’re trying to get press. What doesn’t work at all is the press release. But what works really well is trying to do the journalist jobs for them.
Andrew: Yeah, I’ve noticed that.
Tom: Right. You know, local journalists who are trying to get stories, but don’t have the time to get out there, and instead of writing them the press release, that then forces them to do interviews and get photos, and just do all those [inaudible 00:25:06] photos, provide everything, get it all together, and you’ll get a significantly higher chance of publicity. And then if you get publicity, it’s an amazing pivot to write books where you get paid to put out your content. It’s a great pivot to do lectures where again you get paid to put out your message.
And we even had a four seasons of a TV show. That was on the U.S. on a channel called Pivot, where, you get paid 20, 30 grand an episode, and it’s a huge TV commercial on your business that then airs all over the place. And, I think, in this day and age, it’s actually very possible to do that when maybe 20, 30 years ago having a TV show is, sort of, unheard of, or you’d have to be super lucky to get there. You got to challenge everything I think, and especially marketing and communications.
Andrew: You know what’s amazing to me is it’s easy for me to dismiss when someone says that, because I say, they are in a sexy business, because everyone wants to talk to them. But you’re not. You’re freaking selling garbage. And I had no idea you had four books that you already published. One of them is called, “Make Garbage Great Again.” You came out with that before . . . Before Trump came up with the Make America Great, so it’s not a reference to that. And it’s really interesting how you’re doing that.
You know, the other thing that people talk to me about with you is the worm poop. Every time I bring up your name, worm poop just comes out of people’s mouths. Can you tell the story, because this is what got you started in this path that you’ve been on for the last what? Fifteen years?
Tom: That’s right, yeah. So it’s like I’ve had these very humble beginnings. And the honest story was, I got into Princeton, and so, came down to school, was already in love with entrepreneurship and wanted to do something purposeful, and my friends and I . . . look, we started growing pot plants in our basement, this is my friends in Montreal . . .
Andrew: Pot plants in your basement?
Tom: That’s right. That’s right.
Andrew: I had no idea. I don’t know why that didn’t register with me. Maybe you weren’t public about it, or maybe I just didn’t pick up on that. Okay.
Tom: Something hid it, I’m not necessarily like pushing it aggressively, but it wasn’t necessarily a secret either. And we couldn’t really make them work, and finally my friend says, “I got them working.” And he was feeding organic waste to worms, and feeding the resulting worm poop too to his plants, and they were doing phenomenally well. And that was the genesis.
And for me, it sort of lift this light bulb off garbage, which is it’s something that you can turn into something of tremendous value. And, in fact, in nature, there is no such thing as garbage, because every output is the input of something else. And that’s how TerraCycle began. We were basically a worm poop company, taking organic waste, feeding into worms, and packaging it in used soda bottles, and we grew over a four years I think it was like 70 grand in sales, and half million, and three million, and six million, this nice growth on basically worm poop in soda bottles.
And we had this huge reflection right around year four or five of our business, actually almost got me fired in the process was are we fulfilling our missing? And if our mission is to eliminate waste, is worm poop in a soda bottle a good vehicle to do so, even though it’s a growing business and working? And we realized that no, because we’re picking the very best garbage. We would pick the best coffee grounds, or the best banana peels, but we wouldn’t take every type of waste. And so, we did this massive pivot, where we said, “Look, instead of making the product the hero, let’s make the garbage the hero and figure out, ‘Okay, whatever the type of garbage is, how do we collect it? How do we process it? And how do we make a business model work?'” And it required a completely foundational 180 degree change. We had a factory of 200 people bottling worm poop and we shut it down. And we really changed everything . . .
Andrew: Why shut it down? Why not say, “You know what? We’ve got this new idea. We’re going to go on a different direction. Let’s keep this thing going. It’s going to produce cash for us, or at least continue to help these people have jobs, and we’ll do this other thing on the side and build it up”?
Tom: You know, so when I say shut it down, I mean, the way we did it, is we ended up finding a company who would run it for us and licensing it up. But it’s a lot to be able to it’s a focus question. We would end up . . . if we were going to run a manufacturing facility, we couldn’t really focus on bringing out this new business model. And it wasn’t necessarily black and white doing it the exact same day, but as the new business model started gaining steam, we basically tried to do this overall pivot. It took 6 to 12 months to . . .
Andrew: I’m with you. You’re saying we decided we’re shifting away. It wasn’t close up shop to force us. It’s not burning the ships, it’s saying, “Let’s find someone to transition, and let’s really start marching in that . . . I see. You know what? The other thing is my producers over and over said the same thing to me that you said earlier and I didn’t get it, which was, “not the product the hero, make the garbage hero.” And I go, “Okay, that sounds interesting.” I don’t understand what it meant, and then you and I talked before and you said, “Look, if the product is the hero, it means you need the perfect bottle to contain the worm poop in so people can buy it. If the garbage is the hero, then we need to find any garbage, and then we’ll figure out the product later, but it’s about taking the garbage it stinks. And that’s our focus. And now I get it. Now I get it.
Tom: And this is very important when you think about in the business model where you put the hero. The hero is really where everything emanates from, right? So, if we want to solve dirty diapers, which are actually launching in our Dutch division in a few months from now Amsterdam-wide dirty diaper recycling, you got to start with the diaper not what it becomes. And what it becomes is effectively a byproduct of the recycling process, but not the main focus. And that is critically important I think, when you think about these, sort of, purposeful business models is where you put the hero equation? Where do you really focus and then from there, everything can emanate.
Andrew: You know what? Mm-hmm.
Tom: No. Go ahead.
Andrew: You know, I always took away, you went after Walmart not a little mom and pop stores forever and built up to Walmart. You started with Walmart and then you got to the others. I didn’t ask you at the time, but Walmart had such a bad reputation for everything. This is back before they decided they were going to go into organic food, before they decided they were going to put solar panels. And even to this today, they’re not looked at as a champion of green environmentalism. Why go after them if you have this whole mission to save the world?
Tom: It’s the best reason to. Highlight, so today at TerraCycle, we work with every major tobacco company. I mean, let’s talk about worse actors, you know, every major tobacco company without exception. Big oil, big pharma, big food, you name it.
Andrew: I would think you’d go after the Whole Foods and after the organic people. So no, why? Tell me.
Tom: This now the mega problem I think of purposeful business is they try to focus on an insular community. You know, the extreme example is, “Oh, I’m going to start a cool organic soap company, and I’m going to only sell it in farmers’ markets and only to cool people. And then basically, I’m making it a tiny market, which is a very small opportunity, and only people who already care. And what am I going to do to . . . like, I’m not going to change anyone who already cares. I want to change the people who don’t care at all, ideally without them even knowing it.
And so, it’s a thing about scale. If I can go in and effect Walmart, or if I can go in and effect Procter and Gamble, or if I can go and effect Philip Morris, or L’Oréal, or any of these large organizations, the change is much bigger, the total net effect changes much bigger, and the volume becomes bigger.
So let me give you a concrete example. Today we run the world’s largest supply chain for ocean plastic.
Andrew: For ocean what?
Tom: For ocean plastic like plastic sorting in the oceans. I’m sure you’ve seen the garbage in the ocean is a massive crisis, 25% of all of our plastic ends up in the ocean, and it’s horrendous, really, really bad. Now, the people who played in it before, we weren’t the ones who invented any sort of solution, were more insular, you know. It was companies like Method, working with small NGOs to create incredibly exciting solutions, but these are relatively small companies to bet someone like Proctor and Gamble.
Two years ago, we met actually here in Geneva where I am today with P&G and said, let’s try to think about how you P&G can benefit from oceans plastic. The challenge in ocean plastic is that it’s a very expensive process. We have to collect it today all over the world in beaches, with fishing vessels, that’s a very cumbersome collection process, and produces a plastic that is lower grade than normal brand new virgin plastic. So why would a Procter and Gamble pay more for a plastic that’s less good?
And we were able to buy focusing not on do it because it’s the right thing to do, that sort of intuitive, but do it because it’s going to capture the imagination of the consumer and really help your product sell better, and be able to market your product without having to spend advertising on it and so on. They put it against the number one shampoo brand in the world, Head and Shoulders, and we launched the shampoo bottle and made 25% from ocean plastic, and right at launch, it became one of the largest solutions to ocean plastic in the world, just because of that innate scale.
And because we were able to make it work and fulfill again that primary motivator, helped them win compared to other competitive products, that product now is all over the world. It’s in Turkey, it’s in Brazil, it’s in Canada, it’s in all over the planet, China launching, and now they’re expanding it to all sorts of other divisions. And then this goes to your Walmart point, because P&G did it, the amount of other major organizations calling us is unbelievable other major companies saying, “I saw that, I want to emulate it.” Had I focused it on a little company, I probably won’t get those phone calls, and I definitely wouldn’t have gotten the scale.
Andrew: You know what? I’m seeing now an article about you, about this specific thing in “The Guardian” So you said to them, “We’re going to sell . . . it’s going to cost you more money for this, but people are more likely to buy it. And so just like they might create a different shape for Head and Shoulders and spend more money on that if it means people are going to buy, they’re going to create a more expensive bottle by sourcing more expensive material if it means more people buy. That’s the message, right?
Tom: That’s the key, right? Framing it in a way that makes sense, and then, if it’s framed in this idea of how do you fulfill the motivator, which is they want to win and be the number one shampoo in the world, then they would, of course, prefer to do it through sustainability than something that isn’t purposeful. Because everyone . . . and I believe that every human being out there is a good person. And when given the ability to make money and the only difference is make money in a way that is good, or make money in a way that is neutral or bad, people will choose the [inaudible 00:35:08]. And so, that is a critical thing to highlight. And we have to go in and frame it that way.
If I just went in and said, “Look guys a lot of your product ends up in the ocean, and you should feel responsible for that. And let’s do something to solve that.” They would have said, “Well, interesting, but we can’t really proceed.” But if we frame it in this completely different light, then it unlocks and becomes massive. And that, I think is critical for anyone trying to do purposeful business to really center on.
Andrew: Why do you think that Starbucks is having such a hard time with their cups? I read that they were trying to get to one 100% recycled material in there, or recyclable material and they can’t. And one of their issues is that when people drink a Frappuccino with a straw, the straws are hard to replace, and so on. You understand the space better. I don’t remember even the article that I read.
Tom: Absolutely. So if you think about a product like a coffee cup for Starbucks, there’s two independent questions. One is how is it made? And there the goal is integrating more recycled content, but there are limits to that. To make the cup clear, you can only put so much recycled content, or make the, you know, it’s a plastic cup. If it’s a paper cup, to make a bright white. You can only do so much recycled content. So there are some technical limits, and the only way to break those technical limits is redesign the cup, and the challenge is that may make it more expensive, and that’s the critical issue, right? That’s sort of where profit starts conflicting with purpose.
On the other side, it’s to make them recyclable, which are completely different questions, and that is, “Can I take the coffee cup and put in the recycling bin? The reason you can’t today, is that there was a thin layer of plastic on the inside of the cup, which holds the water and that makes it very difficult for local recyclers to recycle. Now, Starbucks made a pledge. I think in around 2008 to make all the cups recyclable by two 2015, and they haven’t been able to do that. And the reason is, they try to go to recyclers and say, “Here’s how you technically recycle the cup, and we’ll show you how you can technically do it.” But that’s not the really important aspect. The important aspect is not technically can you, it’s can you do it profitably?
And the recyclers can’t do it profitably after collecting the cup and recycling it, the results don’t have enough revenue on it to cover the cost of collection and processing. And so, the only way Starbucks can make its cup recyclable, is if it injects money into the system. And this goes to this whole idea of purposeful business. If they just think about it as an extra cost, it becomes very hard to deal with it, especially on the scale Starbucks operates. But they need to do it to be able to be excited to inject the cost, is reframe the whole equation of how will making their cup recyclable allow them to beat Dunkin Donuts or allow them to beat the other coffee competitors they’re faced with.
And I think if it’s framed that way, they can actually get to an output. But because it’s been framed only in sustainability, we’re today in a world where Starbucks coffee cups are not recyclable.
Andrew: And they keep trying, and they don’t . . . I see, so you’re saying to them, “You know what? You see all these, maybe something like you see all these competitors like Philz who are popping up, they can’t at this point afford to spend more money on a coffee cup and lose a little bit, and as a result they won’t match you. If you switch to this you’ll get more people coming to you, because they want the feeling of having a recyclable cup. And this is your way of beating back some of these new Silicon Valley upstarts who are coming into the coffee space who can’t yet afford to do this.”
Tom: This is exactly right. And so, I would move the question inside Starbucks from a sustainability-driven question, to say a marketing-driven question. And frame it as such while still focusing on how do I make a cup recyclable, but not making the end goal, just make my cup recyclable, but saying, “How do I gain more market share by making my cup recyclable?” And that may seem like cynical “Why am I putting business ahead of the purpose?” But if you put business as driving purpose, there’s a higher chance of that purpose being adopted and scaling.
Andrew: All right. We’re going to talk about my second sponsor, then I want to come back and understand why, considering how much progress you made, why were you nearly pushed out of your company? Who wanted to push out of your company? And how did you resurrect yourself?
The second sponsor is a company called Toptal. I’ve talked about them, Tom, for years about as the company where you can hire developers. But they recently bought a company that has MBAs on board. And these MBAs give people like me financial advice based on what’s going on in our business, help us think things through, if we’re raising money, they’ll even put spreadsheets together. I hired a guy named Jack Baker from them, and frankly over the last three months I basically did not speak to him, I ignored him, because there’s so much going on.
But he’s not ignoring me. I’m looking at these reports that he’s putting in. Number one, he talked to Sachit, who runs our ads and he said, “Look, I want to understand why you guys aren’t charging more for your advertising.” And he talked to him and he understood, and he realized that the issue was not that advertisers would not pay more, the issue wasn’t that we couldn’t put three ads in an ad, or whatever, in a podcast, the issue was me.
And so, to get to me, to get me to understand it, it’s not enough to say, “Andrew, you should do this thing or do that other thing.” He had to, because of the way my mind works, present it with numbers, and he freaking loves numbers. So he put together the spreadsheet. He then went over all of our finances for last year, and line by line, and he said, “Andrew, here’s something that you didn’t pick up on. This expense,” and I won’t reveal it because I don’t want to embarrass the people who are behind it, “is just too high.” And he’s been saying this now for frankly, for months. And because he has the understanding that this is high, the experience to say that sometimes people in charge are bullheaded, and the self-confidence to keep coming back, he got me to rethink this big expense, and now we’re reducing it, and it’s our, maybe our biggest expense for the year.
So the reason I’m bringing this up, is I talk about the developers Toptal is known for having the best developers on the planet in their network, some of, I won’t say all of them obviously. I don’t talk enough about this finance piece because hard to express, and frankly, every time that Toptal pays me for another round of ads, they spend an hour on the phone with me explaining to me how this whole thing with the MBAs works, how you could hire them. And what they say is Andrew’s try, anyone who’s trying to raise money should be hiring our MBAs. They could put together a better business plan, better spreadsheet.
And I think, “I don’t want to promote it that way.” I don’t want a guy in his garage who barely has any money and trying to raise money to go to Toptal where frankly, it’s not cheap to hire a guy like Jack. It’s not super expensive, but it’s what? A couple hundred bucks an hour? I don’t want them to go and throw their money at Toptal and then expect that then they’re going to raise millions of dollars in return for that. It might work that way, but that’s not the promise I’m looking to deliver to my audience.
I want them to know if you have a business, and you’re looking at the numbers by yourself or with your accountants over and over, or you’re a CFO over and over, you should get a second opinion on it. When you get another person with outside experience, they could help make it better. Bigger businesses do this all the time. They hire companies like McKinsey. What Toptal does is they basically get the guys who used to work at McKinsey, to come work for them and then we can hire them on an hourly basis, full-time, part-time basis. You’re nodding, and I sense you have something to add about that.
Tom: Totally. I’m saying that because I think this idea of a second opinion and a critical one, where you’re going to get challenge, is so important. I think many times entrepreneurs like yourself or myself, are really charismatic, really excited about the business, and it engulfs people. We’re really good convincers, you know. We can get people excited in our idea, and when those people believe, they may believe what sort of blinders off. And then you don’t get challenged.
And the reason I thought is we just bought a company. We did our first acquisition of a company called Air Cycle, seven and a half million dollar light bulb recycling company out of Chicago, wonderful organization, about 25 people. We bought them in November. And they were doing about 600,000 in profit or so. You know, so we’ll call it 10%, which is really respectable.
When we dug in we asked them out at the gate, “Do you feel like you’re as efficient as you can be? You know, not financially terminating people, but just looking at your systems. You know, similar example is what you were given when the MBA looked in and then challenged you on a key line. They said, “Yes. Everything is efficient, we’ve been looking at it over and over and over.”
And when we dug in easily, just because we came with a different perspective, we were able to get close to doubling their profit without terminating a single person. And just re-assessing where do they spend money on IT? Where do they spend money on advertising? How do they do, sort of, baseline features? And incredibly quickly the company became twice as profitable without having to grow a dollar of revenue. And I think, this is really important is this idea of getting someone else to look at, especially someone who’s going to be critical in a little bit in your face on it, so that you really take a hard look is incredibly valuable.
You know, I have one person in my company, we call him our chief administrative officer. And he and I clash all the time. I mean, it’s epic the type of not fights per se, but philosophical clashes we have. And the company is better for it every time, because he forces me to challenge baseline assumptions that I’m not necessarily ready to challenge, because I just want to move on and move on, and I sort of believe my ideas are right. And usually, not always, but usually, the company is much better for it, because you take this sort of critical step back and say, “Can my, that baseline assumption I’ve been hanging my head on, is that actually accurate?”
Andrew: Yeah. And it’s really hard to get somebody to disagree with the CEO, because you’re the guy who created the business. You’re the guy who has the charisma to get everyone in line behind it. You’re the guy who made it happen. But, boy, I love it when people disagree with me. I think even emailers who email and say, “Andrew, I hate to disagree. I love you this.” And they go to like paragraphs about how they like me, and then they disagree and go, “I love you for disagreeing and tell me where I didn’t do something right.”
All right. I should say the URL, and they’ll give you guys a bunch of Toptal developer credit, and they give you no-risk trial period. And I’ll let you guys read it. Here’s the URL. Go to toptal.com/mixergy. Since I tend to, kind of, eat my words, I talk too fast, it’s top as in top of your head, tal as in talent, T-O-P-T-A-L.com/mixergy. Tom, what’s one of the big arguments you had with this guy, where you were wrong? Let’s go that way. It’s easier to talk about.
Tom: Oh geez, [inaudible 00:45:02] many, many of them. You know, I’ll give you an interesting example. We are right now in the middle of this new type of financing. We’ll just call the regulator [inaudible 00:45:12]
Andrew: What is it called? Regulation A financing?
Tom: To be able to . . .
Andrew: Sorry. We lost you there for a second. Regulation A, what is that?
Tom: Yeah, it’s a very cool new form of financing that startups should look at. So it’s basically crowdfunding for equity. So, if you think about crowdfunding, well you think Kickstarter, right? And those sort of platforms. But Kickstarter is basically a way to get pre-orders on a prop. So if you have a widget you can build up pre-orders and then use that capital all at once to be able to build your production line and make your product, but it’s not for equity. Under Obama, there was the Jobs Act, but it has nothing to do with jobs. It’s just JOBS, an acronym.
Andrew: Because it’s going to create more jobs if we help these entrepreneurs raise money, right?
Tom: Exactly right. Exactly right. And so, they created this new type of financing called Regulation A-plus, which is basically allowing entrepreneurs to accept capital from non-accredited investors. So basically, you don’t have to only go after rich people or family offices or funds, and can do minimum investments at any level. So, for us we set it up, or where we’re taking minimal investments of $700 dollars and anyone can invest. If anyone wants to learn about it, it’s ownterracycle.com is a website we set up for it.
Andrew: Ownterracycle.com. I’m going to look it up.
Tom: Yeah, actually. You know, it’s like a platform there isn’t a Kickstarter central engine in Regulation A-plus yet. You know, there’s not like sort of a holding mechanism that has lots of these offerings. You have to create your own platform, and that’s what Own TerraCycle does. And this was a key argument I had, because it takes some money to set up these systems, you know. So you have to file with the SEC, which is a huge process, much more than just having a term sheet and running around meeting with wealthy people seeing if anyone wants to fund it. And you also have to approach it in a completely different way.
And I was, honestly, very skeptical I was like, “Wait, a minute, we’re going to put out capital and not even know if we’re going to be raising money. And in this case he fought passionately, over and over and over and said there’s something really new here. TerraCycle already has over 100 million people collecting garbage for it in the U.S., 200 million globally. Let’s tap those people and let them own a part of the business.
And I begrudgingly, truly said, “Okay. Let’s do it.” And it turned out to be one of the best decisions we made. Now, that’s not to say that they’ve always goes in the right direction, you know. I think it’s not about knowing crystal ball, what’s the right direction or what’s the wrong direction. It’s about being open to experiment, and then pivoting quickly by learning what doesn’t work. And to that earlier point you said, I think if you’re an entrepreneur, whether you’re out there selling a product, selling an investment, whatever it maybe. The bad feedback, the critical feedback, the feedback that really pisses you off, is the best feedback. Because the tap on the back in the way or the pat on the back doesn’t do anything to boost the ego. It doesn’t let you learn anything. But when someone is really challenging you, that’s really a gift. And . . .
Andrew: How do you encourage them to challenge you? Because, you’re right. Even if I end up agreeing, even if I end up in the same position, having thought it through to explain it to you, I understand my rationale better, and then can use it in the future, or be aware that this is how I think in the future. How do you encourage people to do that?
Tom: It is incredibly tough, because . . . especially when you’re a leader, you get lost and you’re always in the mode of convincing people around you to believe in your idea. And that’s important. You never want to lose that. You want to be the chief, sort of, evangelist of what you’re all about, and it’s really tough. If you are new into that organization, and you’re challenging someone in a position of power, it’s very, very tough. And so, when you’re in that position, you want to encourage this idea of critical feedback as much as humanly possible, and put out as many different, the key, different tools to accomplish that.
So, just some examples. We do at the company every year a blind 360 survey of the company. Is the company doing what it needs to do? And a blind 360 survey of the leadership, where people are asked to really rip it apart and be as brutal as humanly possible, and we let them do that in a completely anonymous setting, so that they can feel like they’re not risking their job by trying to say that.
We do lots of town halls, where we say, “Hey, please ask all the critical questions you possibly can.” Every time I’m in one of our foreign office, I mean, we’re now all over the world in 21 countries, I go in and I try to tell everyone what’s going on, do a little town hall, but then really focus on, now criticize. What’s irks you the most? What keeps you up at night? Where do you think we’re failing? Whether it has to do with your department, your country or not. And the more you can stimulate that, the more people suddenly feel comfortable that, “Wait a minute, I can criticize.”
And then, you need to reward the people who do criticize publicly, so that people are shown that by criticizing you are not going to be terminated. You’re not going to . . . it’s not like I say, “Yeah, please criticize in the moment there’s a criticism, I fire the person who criticizes.” You need to do exact opposite of that. And in a way, by having what this particular person as I mentioned he’s our chief administrative officer, by having our battles public, it shows people that it’s okay and it’s totally fine. If I kept all those battles private and I said every time we’re going to an argument let’s go to a quiet office and do it there, then it doesn’t breed that culture.
And I think in today’s world 50 years ago, it was way slower, but today, any business can emerge incredibly fast, can go global quickly, can, I hate the word disrupt, but can really the system really, really fast. If we don’t do it to ourselves, someone else is going to do it to us, because it’s so freaking easy right now. And this is the big lesson big companies need to learn. If they don’t try to mess with their own business model and create the outcomes that will hurt their business model, someone else will do it. There’s no exception to that.
Andrew:I heard that you guys got close to bankruptcy multiple times. I have to say when I talked to you back then, in our first interview, I had the sense that you already accomplished everything, that you guys were now at untouchable spot, and the question was how big were you going to get? When did you get close to bankruptcy? When were you on the verge of collapse?
Tom: You know, so we early on, TerraCycle started back in 2002, and in the first five years, which is basically going from dorm room until being profitable business, was where we hit that almost bankrupt moment, maybe four or five times. And that was . . . I look at that now romantically, because it was incredibly raw, it’s when the company was really being formed, but it was also the toughest time. And I think this is why you know, [inaudible 00:51:42] don’t succeed, because that’s the really hard part to get through.
And it’s hard for a number of reasons. One, is you have very little financial resources, so you hit that zero point multiple times where you’re worried, can I pay the rent? Can I pay my staff? I haven’t had that fear in almost a decade now. It just doesn’t . . . now I’m thinking can I add staff or do I have to reduce or whatever it may be, but I don’t think about, “Am I going to make payroll?” That hasn’t come across my desk but it does early on.
Another factor is, I’m young and naive early. You know, today I have 15 years of experience. Back then being twenty something, you can’t rely on experience and wisdom. And also, the business model is still being proven. And all those things come together to make it a really raw, exciting, but phenomenally challenging environment. And that’s the times, when you’re asking about being pushed out. I think there’s about five times where I felt my job was at risk. Multiple times from more of the bigger investors who wanted out in a short period of time, like the funds, and a few times from management, where my team, my senior leadership team didn’t believe in the vision that I had.
And the biggest lessons I learned from that, first on funds is the most important thing by far, just as we talked about it earlier but to re-emphasize it is stay in control. Everything is more important. Valuation is secondary to that. Investment terms are secondary to that. Who is investing is secondary to that, how strategic they are. None of that matters as much as staying in control in the worst possible setting, where potentially everything goes wrong you’re still in control. Hopefully it never happens, but that’s one very, very critical learning, because then that negative doesn’t manifest.
The other is always focused on making sure that your team is empowered, and believes in the direction you’re going. Don’t leave the team behind. And I did that early on. I would just run ahead, and then later try to bring my team on board with whatever idea I was focusing on, and that doesn’t lead to a good environment, and then people rebel.
Andrew: What do you mean by leave them behind?
Tom: You know, so when we first tried to pivot . . . you know, we first tried to pivot from worm poop, into instead of making the product the hero, making the garbage the hero, I really crystal-clear saw it in my head and I just started racing towards it. But I didn’t really focus on making sure my management team understood that. And I didn’t focus on making sure they believe in that. And then a lot of folks said, “Wait a minute, we have a good worm poop business. Why the hell are we dealing with this other thing?
Today, and we still invent new business models. We’re about to launch in 2019 in January, a huge new business model around focusing on moving people from disposable products into durable products. It’s a massive new risk we’re taking on, it’s incredibly exciting. And, now, I have my entire management team incredibly pumped about it, and really cheer-leading whether they’re in that business unit or not. And the way I did that was all along the way, as it’s ideating, as it’s sort of calculating, as we’re starting to really build the foundation of it, bringing them along, making sure they know what’s going on, whether they’re directly involved or not.
I think one thing I’ve learned deeply is, especially with your management team, today, we’re about 220, 230 employees really focus on transparency, and fierce transparency, where whether you think that person should know, or not isn’t relevant, make sure they know. So when we do that, as I mentioned, we’re on all these countries.
Every month, every country leader has to send another report. Every department [inaudible 00:55:15] no matter if you’re an entry level customer service agent, all the way to a VP of a global function. You get every report I get. The only reports that don’t go publicly are legal reports that there may be too much confidential information, it’s challenging to share and HR, because it’s important there may be things we just can’t . . .
Andrew: What’s in the report?
Tom: It’s incredibly long. I was just reading before chatting with you. Our report from our team in Japan, and it’s like 15 pages, every month of everything that happened, and not just the positive, which is important to celebrate, but especially where they’re struggling. And this is so important, because it teaches our team two things. It teaches that it’s okay to struggle, that struggle you should embrace it and not hide it. But it also lets cross collaboration happen. I saw that in an email later where someone in our team in Brazil emailed our team in Japan and said, “I read this in your report really interesting. We had the same problem a year ago, here’s how we solved it,” and I didn’t even have to facilitate that. You need the sharing, because what I see in larger organizations occur is siloing. It’s so funny where like we work with a company like Nestle or Unilever and I have people at Nestle ask me what, “Can you tell me what my team in this other country is doing because I don’t.” And I think sharing is so important.
Now, I’ll give you one last example on this. When we bought that company Air Cycle in Chicago, we made the budget. As we do today the budget for TerraCycle is a transparent document internally. Not just high level, like what’s revenue, what’s cost, what is profit, but ridiculously granular. And this company had never seen their budget before, and it is phenomenally empowering when they see it. Now, people may say, “Oh, but that’s a risky.” And it really isn’t. It’s the entire inverse, and I think when you let go a little bit, you get a lot back. It’s not just in people’s feeling like they know how they belong to the organization, but also that they feel like they have a say, that they are trusted and that goes a long way.
Andrew: All right. So, earlier you were starting to say the three business units. I think now is a good time for us to close out with that, with examples of each one. So, one of them is waste stream. What does that mean? And can you give me a concrete example like you did before?
Tom: So, the best way to think about how to break out our business units, you mentioned coffee cups. Let’s focus on a coffee cup. Imagine I’m holding one on my hand. Our first business unit asked the question, “Is this coffee cup today recyclable?” And, unfortunately, like we already talked about, the answer is, “No, it’s not.” So, there we figure out, how do we collect it? How do we process it? And how do we build a business model where an actor, could be Starbucks as the brand? Could be the maker of the coffee cup, could be the city the coffee cup was sold, and could be the end consumer of the coffee cup. But some actors are willing to pay for us to collect and process the coffee cup. And that business unit the factory renders the non-recyclable recyclable. So that’s our first unit.
Let’s stay with the coffee cup. Let’s say now that coffee cup is being collected and recycled. The second question, the second business unit asks, “What is the coffee cup made from and how do we make it from waste instead of new materials?” which is a completely unrelated question. And so there we focus on how do we bring unique waste streams into products? We call this storied materials, because then you also get a lot of other value with that.
Storied materials could be close loop, like a coffee cup and coffee cups. You know, we invented the world’s first pans from used pans, toothbrush from used toothbrushes and so on. It could be purposeful, like ocean plastic. We talked earlier. We run this huge mega supply chain on ocean plastic that injects purpose and unique material into your product. It also be just interesting, like we make ashtrays from cigarette butts or toilet seats from dirty diapers. So that’s all about how do you take unique materials and put them into products. And I really highlight unique as we focus on what no one else does. It makes it easier to innovate.
Then the third business unit is all about saying, “Wait a minute. Why is this coffee cup property of the end consumer after purchase and a disposable idea? Why not make it always property of say, Starbucks in this particular example, and fully durable. So it never has to become waste whatsoever, and that new business unit which is called the loop is starting and we’re actually launching at the World Economic Forum in January. And we’re going to be viewing it in Paris and New York, and it’s all about moving the products you buy every day from your favorite brands and your favorite retailers, from products that you own in the end and have to throw out, to products you never own, but simply borrow and never become waste whatsoever. And who knows what’s going to happen? We’re really excited about it but that’s what’s coming up.
Andrew: Give an example of that one.
Tom: Yeah, absolutely. So, without getting into too much because a lot of this is still confidential, we’re doing a big release on it, but we’re working with, for example, a major ice cream company one of the biggest in the world where today if you think about ice cream, it comes in one pint containers, and it’s basically a paper with some lemonade inside it, and it’s a very unexciting package. And when you buy it let’s say at Albertson’s, you know, supermarket, you buy it, you enjoy the ice cream, and then at the end it’s your property and you have to throw it out, but it’s not recyclable.
The new ice cream container we invented with this company is incredibly durable. You can’t break it. It’s like just built from beautiful materials like stainless steel, high strength poly-carbonate, really, really strong. And even keeps your ice cream frozen for seven hours after you remove it from the freezer so you can take it on the go, which is actually pretty big upgrade for ice cream, and when you purchase it, say at Albertson’s or some other major retailer, you pay the same for that ice cream, and it’s a really famous brand, and the difference is you put a deposit against the package, we send you the package.
Now if you lose the package, you lose your deposit, but if you send it back and we take it back and clean it, then you get your deposit back and that ice cream package always remains property of this ice company. And never becomes waste and in the process allows you to have a significantly better experience. And we’re doing this not just with ice cream, but about a thousand major products from diapers, toothpaste, to orange juice, you name it, all with the world’s biggest brands where you’ll be able to shop at your favorite retailers and live in an upgraded lifestyle without spending more and having the idea of waste completely eliminated. Doesn’t even exist.
Andrew: You know, and I could see the benefit to a company that if you’re an ice cream maker, the next time someone comes into the store to buy ice cream from Albertson’s, they’re all the same. But if I have the bucket from the previous ice cream, I have an incentive to continue. I think a better example actually for me of like where that works is what are they called gurgles or the thing where you buy beer from a from a brewery . . .
Tom: Oh! Yeah. I know exactly that was the big job growler for . . .
Andrew: Growler. Right. So once you buy it from one place if you love it like if my wife and I have dinner somewhere and I love the beer, I could take some home but they’re not giving it to you in a paper cup to take home, they give it to you in a growler and once you have the growler some other breweries will actually refill it for you but it’s kind of weird to tell them, “Put it in here.” And they prefer not to. So you have an incentive to go back to your favorite place as long as you’re returning it have them fill it up instead and take it back home and that’s what you’re going for.
Tom: Yeah. It’s sort of like the milkman model but on a really big scale in the sort of 2.07 that breaks all the challenges the milkman model had and why it disappeared and there’s a key learning here. There’s a lot of wisdom in our past. It’s not always just looking at the future. I think it’s also looking at the past and say, “What was great about the 1920s, 1930s,” and then . . .
Andrew: It was the milkman. So in San Francisco there are several milk companies that will sell you milk in these beautiful glass bottles and you’re saying shatterproof you’re actually answering one of the issues that I had. But I don’t buy them because I have to remember to take my bottle back to the grocery store and do it. If I could have a milkman or frankly if we do Amazon Fresh or Instacart, if I could just say to them, “Look, last time you delivered the groceries in this bag, it’s your responsibility to take this back and take the bottles back.” That would be interesting.
Tom: Well, this is what loop is. Imagine it’s like Amazon Fresh or Amazon Pantry, basically all the same products of the same brands. Instead of coming to you in disposable packaging, coming to you in successfully durable packaging, which you securitize through deposits in a super, durable container, and then the cool part is, as you empty them, you don’t have to clean them or anything, you throw them dirty into the container, we pick that up and every empty in there triggers a reorder. So you order with your empties, and you live in a world that is as convenient as shopping on Amazon. But doing it in a way where you have injected all this purpose, but not that being the primary goal. The primary goal is more convenience to you, this huge luxury improvement, oh, and by the way, breakthrough sustainability. But you put that as a by the way, and that becomes a really powerful proposition.
Andrew: You know, what a good place to end it, because that to me is one of the big messages that I took away from your previous interview and your books. By the way, it happens to be good for the environment, but here’s all the great things that make it great for you. So you’re going to want to sign up.
All right, for anyone who’s interested, do I send them to TerraCycle? If someone now says, you know what? Here’s what I’m going to send you guys. One of the things I love about you freaking, Tom, is you’re such a good storyteller. And every place you never say, “You know what? I’m going to half pass it and give you bullet points today because this is not important.” You just can’t help but tell great stories. So I’m going to suggest screw going to terracycle.com. For most people it’s not going to be super helpful. Go get one of his books. I promise you he’s such a good storyteller that you’re going to get lost in the story, and if it’s a beach read for me, it’s going to be one of those best books that you guys are going to enjoy reading. How does that sit with you as I say that?
Tom: I love it. It sounds fantastic.
Andrew: All right. Okay. TerraCycle, thank you so much for being on here, Tom. And the two sponsors that I had in this interview are, number one, the company that will help you do your marketing automation right and there’s one other thing I want to add at the end of this. The company that’s going to do your email marketing right is called ActiveCampaign. Check them out activecampaign.com/mixergy. And number two, if you need to hire a developer or a designer, I’ve been telling you for years to go check out Toptal. Today I’m going to tell you go check them out if you need somebody to help you with your finances, toptal.com/mixergy.
And I didn’t have time to prep for this, but the first person I ever hired is now working in New York on a health challenge for entrepreneurs. They will give you money if you have a startup that relates to health. I didn’t have time to prep for this. I’m going to ask you to go check out this URL. If you want money for your startup, she is working on this really as . . . she’s another do-gooder. But she knows that the best way to get great ideas is to work with our entrepreneurs and partner with them. So she created this URL. Really, if you want to raise money from this community challenge go check out nyhealthchallenge.com. And I’m going thank Christel Hyden for, first of all, being my first employee and also for putting this together and introducing it to us. Tom, thank you so much.
Tom: Thanks for having me here. I really appreciate it.
Andrew: Same here. Bye. Bye everyone.