Tom Szaky is the Founder and CEO of TerraCycle, a leader in sustainability solutions that creates and operates platforms in recycling and reuse. He dropped out of Princeton at age 19 to pursue his passion based on something that most of us overlook - garbage.
Every year we generate over 2 billion tons of waste, most of which ends up either in landfills or being burned, resulting in disastrous consequences on our planet. While these facts are alarming, have you ever paused to wonder what is the root cause of waste? And how can someone build a profitable business based on something so repulsive?
In this episode of The Founder Spirit Podcast, Tom Szaky, Founder and CEO of TerraCycle, shares his entrepreneurial journey as a Princeton dropout and the lessons that he has learned along the way. He talks about the pivot from selling liquid worm poop in the early days to unlocking the value of garbage, and emphasizes the importance of empathy and having purpose in business. Tom's passion for waste reduction and his innovative approach to waste management can help us save the planet.
Join us as we explore the fascinating world of garbage according to Tom Szaky and learn how his unique perspective on trash can help us tackle this critical global issue. TUNE IN now!
Tom Szaky is the Founder and CEO of TerraCycle, an innovative leader in sustainability solutions that creates and operates platforms in recycling and reuse. Originally from Hungary, Tom grew up in Canada and dropped out of Princeton University to start TerraCycle, a successful and impactful business that he built based on something that most of us overlook - garbage.
Currently operating in over 20 countries, the company is on a mission to rethink waste and has pioneered new waste management processes to create circular solutions for hundreds of waste streams such as cigarette butts, laboratory waste, coffee capsules, dirty diapers, chewing gum and flexible food packaging that otherwise would have no path to be recycled.
Tom is the author of four books, Revolution in a Bottle, Outsmart Waste, Make Garbage Great and The Future of Packaging. He also created, produced and starred in TerraCycle’s reality show, Human Resources which aired three seasons on Pivot TV Network and is also available to stream on Amazon and iTunes.
Tom and TerraCycle have received hundreds of awards and recognition from organizations such as the United Nations, U.S. Chamber of Commerce, Fortune Magazine and the Schwab Foundation for Social Entrepreneurship. In 2021, TerraCycle was recognized as one of Time100’s most influential companies by Time Magazine and one of the most innovative social good companies by Fast Company.
Tom currently serves on the board of directors at the D'Addario Foundation, and as an advisor to the Product Stewardship Institute, the Ocean Plastics Leadership Network and the Planet Forward Advisory Council. He also co-chairs the World Economic Forum’s Consumers Beyond Waste initiative and was named a Young Global Leader in 2018.
[00:04] Jennifer Wu: Every year we generate over 2 billion tons of waste, most of which ends up either in landfills or being burned, resulting in disastrous consequences on our planet. While these facts are alarming, have you ever paused to wonder what is the root cause of waste? And how can someone build a profitable business based on something so repulsive?
In this episode of The Founder Spirit Podcast, Tom Szaky, Founder and CEO of TerraCycle, shares his entrepreneurial journey as a Princeton dropout and the lessons he has learned along the way. He emphasizes the importance of empathy and having purpose in business. Join us as we explore the fascinating world of garbage according to Tom and learn how his unique perspective on trash can help us tackle this critical global issue.
Hi, everyone, thanks for listening to The Founder Spirit Podcast. I'm your host, Jennifer Wu. In this podcast series, I interview exceptional individuals from all over the world with the founder spirit, ranging from social entrepreneurs, tech founders, to philanthropists, elite athletes, and more. Together, we'll uncover not only how they managed to succeed in face of multiple challenges, but also who they are as people and their human story.
Joining us is Tom Szaky, Founder and CEO of TerraCycle, an innovative leader in sustainability solutions that creates and operates platforms in recycling and reuse. So hang on your seat belts, because we are going to be talking a lot of TRASH today!
Originally from Hungary, Tom grew up in Canada and dropped out of Princeton University to start TerraCycle, a successful and impactful business that he built based on something that most of us overlook - garbage.
Currently operating in over 20 countries, the company is on a mission to rethink waste and has pioneered new waste management processes to create circular solutions for hundreds of waste streams such as cigarette butts, laboratory waste, coffee capsules, dirty diapers and chewing gum that otherwise would have no path to be recycled.
Tom is the author of four books, Revolution in a Bottle, Outsmart Waste, Make Garbage Great and The Future of Packaging. He also created, produced and starred in TerraCycle’s reality show, Human Resources, which aired three seasons and is available to stream on Amazon and iTunes.
In 2021, TerraCycle was recognized as one of Time100’s most influential companies and one of the most innovative social good companies by Fast Company. Tom currently co-chairs the World Economic Forum’s Consumers Beyond Waste initiative and was named a Young Global Leader in 2018.
Hi Tom, welcome to the The Founder Spirit podcast!
[02:55] Tom Szaky: Pleasure to be here, thanks for having me.
[02:57] Jennifer: Tom, your family escaped Budapest in 1986, shortly after the Chernobyl nuclear disaster. As a four-year-old, do you have any recollection of what life was like in Hungary?
[03:10] Tom: Little glimpses, I would say, but it was one where every resource was used. I remember after my grandmother, for example, was cooking whatever meal she was cooking, she would take all the fat from the frying pan, pour it into a little yogurt cup, put it in the fridge, and that was effectively the butter for the next day.
Because it was very poor and (the) lack of resources, every resource was used. In Eastern Europe at the time, you had to apply to get cars. We didn't have a car, but folks would drive these things called Trabants. Everyone had the same one, and everyone knew how to fix it with rubber bands and chewing gum and whatever it would take.
Because of the lack of resources, my biggest recollection was this ability that everything was used and everyone knew how to fix everything with everything.
[03:53] Jennifer: Having made your way to Toronto, I understand that the first television set that you ever had was in a garbage.
[04:01] Tom: This was wild, it took three years to go from Hungary to Canada, basically seeking asylum, standing in immigration lines quite a bit. But net net, seven years old, we're in Toronto.
Back in Hungary you had to apply from the government to be given the permission to be given the TV set, and very few people had it. And if you did get it, it would be black and white, and you get one state channel.
Every Friday is garbage day and we were walking around, my dad and I, in apartment buildings. And there was all the garbage outside and every pile of garbage had like one or two, maybe three television sets - it was insane. The first TV I ever owned was collected from garbage - you plug them in and they work and they're in color.
I mean, it was the most insane thing that this is the way people dealt with resource, and it really opened my eyes that this concept of disposability is a massive luxury. And in fact, there's a lot of value if you're willing to look at it, noting everyone else walking by wouldn't even look because it's garbage and it's repulsive.
[04:53] Jennifer: Growing up in Canada, you were also influenced by the conservationist movement. How did this spark your interest in environmentalism?
[05:03] Tom: I think Canada as a country, it is mostly open nature. And Canadians have a significant love of nature, it’s a part of the cultural identity. When you grow up in Toronto, a big part of living there is going camping in the wilderness, and that is baked into, really, the Canadian identity, in a wonderful way. That gave me this innate love of environment.
I had the opportunity and privilege to really experience the awe of nature by going out in places that people aren't, which is something that you can do relatively easily in Canada. And my eyes opened up to on how important environment is, that it's our responsibility to be good actors to it.
Without living in Canada, I'm not sure if I would have embraced that in the exact same way. That was maybe the biggest thing that I took out in becoming Canadian.
[05:47] Jennifer: You were also very enterprising at a young age - I am told that your teenage bedroom was like mission control, where you literally had several computers and monitors going on at the time. And while in high school, you built websites during the dot-com boom and started three businesses. With your parents both being doctors, who influenced you as a young entrepreneur in the 90s?
[06:16] Tom: Yeah, all that’s true, you would’ve come into my room and it would’ve been like literally 20 monitors everywhere, computers going and so on.
And my influences, honestly, were the parents of my friends. My parents being physicians, it's a good communist profession, they really instilled in me this fierce love of education and the priority of education, and they focused on making sure I went to good schools.
Now the other students in these schools, a lot of their parents were entrepreneurs. And what really inspired me was hanging out with the parents of my friends, because it demystified the ability to go from nothing to everything.
One of my friends’ parents started as a taxi driver and became the biggest rock and roll promoter in the world, and is today in the Rock & Roll Hall of Fame and started companies like Live Nation. But there he is, the human being sitting there, and it's like, you know what? I can relate to that and I can do that, I could be like him.
And it wasn't just one example, but many. So it's different when you read about entrepreneurs on cover stories of magazines, because they become like these fictionalized celebrities, and it's hard to relate. But when you meet them in the flesh and you just see the human component, it became very attainable in my head.
So that to me was a massive inspiration and really demystified the ability on whether I could go achieve that. And I just fell in love with entrepreneurship because it is literally the American dream. It is this wonderful thing where you can have an idea and if you work really hard at it, you have the opportunity to create anything you want, and where you came from and what your background is doesn't really matter. I think that's really important.
And what is beautiful about North America is this ability to live in meritocracy, so it's why I think, especially first generation immigrants tend to aspire to be in this region of the world and many of them become entrepreneurs because it is there, it's possible and it's incredibly exciting.
[08:01] Jennifer: It's also during this time that you met Robin Tator who later became a co-founder of TerraCycle. Can you tell us who Robin is and what lessons did you learn from him?
[08:13] Tom: Absolutely. My first company, I started when I was 14, was called Flight Design. This was when the Internet was beginning, a kid could use Photoshop and simple text and code and build websites. And I had the privilege of doing that for some larger companies, that's how my entrepreneurial story began.
I actually ran into Robin, because he hired me to make a website for a startup he was putting together called We're Home, it was like HomeImprovement.com. This was just before the first dot-com bubble came onto the scene. He invited me to join the team and be the head of IT, and I thought that was incredibly exciting.
And I had the privilege, through Robin, to learn not what it's like to run a little company but let's go out and raise capital and meet venture capitalists and really all those next level things. The concept didn't work, it failed. But in failure, you learn quite a bit. And that was my first learnings in the proper entrepreneurial experience, where you raise money and build a team and all those things.
And what Robin really taught me as well was how do you approach people and the art of sales - he did that incredibly well. One of the key lessons was this idea of convincing someone begins with being empathetic to who they are. It's not just going in and hammering your proposition, but really first understanding who the person is you're speaking to, and not just understanding, but empathy, which is very different, and then thinking about how your concept will help them. That was an incredible lesson.
From there, when that idea didn't work, Robin and I started a couple of other dot-com ideas, those didn't work either in 2000-2001, when the whole dot-com bubble occurred. But again, we learned a lot. And then when I went down to university and (at) the end of my freshman year, had the spark for TerraCycle, I called him and said, hey, do you wanna play in this game with me? And he did, and he was a really, really important part of our early history.
[09:55] Jennifer: I want to go to the beginning of TerraCycle because it was following a road trip to Montreal that you had discovered the power of vermicompost, aka worm poop, and with some help from Marley. Can you tell us how Marley gave you the business idea to start TerraCycle?
[10:15] Tom: I want to take a step back, even before Marley, I had this really big turning point. One of the first classes I took at Princeton was Intro to Economics, Econ 101. And the professor gets up on stage and asks this opening question, which is, what is the purpose of business? And many people gave these inspiring answers, save the world, help people... But the answer she was looking for was, in fact, maximize profit to shareholders.
And that felt really uninspired because if you think about how many stakeholders, from customers to employees to other vendors, a business interacts with and affects, very few of those stakeholders care at all about profit to shareholders because very few of them are shareholders.
And to me that created this reflection on maybe profit isn't the purpose, but is critically important as an indicator of health. If you are profitable, you'll flourish and grow and be very healthy. But that then leaves room for the purpose being something else, like maybe how does it help the planet or people or both. And so I had this idea in my head and I wanted to find a business concept that fit that algorithm of it's purposeful but profitable.
Fall break freshman year, we did a road trip up to Canada with my friends from college. My close friends during high school, we'd been trying to grow some pot plants in our basement, which we fondly called Marley. We couldn't make them work, and then my friend Pete takes over the plants, and finally gets the plants to work incredibly well.
So you can imagine, we drive in, and this failed experiment is now amazing. And I asked Pete, so how did you do it? How did you get them to work? And he goes, oh, yeah, I've been feeding organic waste to worms and feeding that vermicompost or worm poop to the plants, and voila.
And it's like, poof, a really exciting inspiration, because he was taking garbage, which is something you're willing to pay to get rid of, negative cost input, and making it into something that is a positive cost output. I thought that was a really interesting business idea. And in doing some quick research, no one had built a big worm poop company, so there's an opportunity there.
And it started creating what has now become this lifelong fascination with waste, because the topic of waste is filled with an incredible amount of weird anomalies. We were drawing supply and demand curves all the time in economics - basically where do they intersect creates the price and if you have more supply, the price goes down; more demand, the price goes up.
The first anomaly that had me head scratching was where the hell do you draw the supply and demand of garbage. Because garbage has massive supply, but strangely, it has a unique type of demand, it has negative demand. So it intersects in the negative quadrant on the supply and demand curve, and the craziest part is no econ textbook explores that at all.
I mean, my goodness, it's a huge thing and it doesn't show up in a single econ textbook. And that became the spark of wow, this worm poop thing is really cool, and there's something interesting in this topic of waste that should be explored.
[12:58] Jennifer: You dropped out of Princeton after three semesters to pursue your business venture. Was it a difficult decision to make?
[13:07] Tom: It was, but I had a lot of benefits that made it a soft landing to be fair to your question. Because I speak Hungarian, I was able to get four extra credits, which allowed me to effectively take a semester off, so the first step wasn't “dropping out”, it was leveraging a semester off. The other thing that made it easy was Princeton doesn't let you drop out, you go on indefinite leave. I'm technically still 20 years later on indefinite leave.
[13:30] Jennifer: You can still go back. TerraCycle was a very scrappy startup - your business was all about making liquid worm poop and your office furnishings were basically someone else's garbage. And besides having to roll up your sleeves and literally shoving some shit, pardon the language, what was it like in the early days, Tom?
[13:52] Tom: I look back now, 20 years later, and it's incredibly romantic, the picture I have. But it was grueling, something I would never want to live through again. This is like a once in a lifetime experience.
Because imagine you're leaving relative security for the rest of your life, renting a basement office, which I was worried could I make rent on month over month, living in the basement office, quite literally beside our photocopier.
And then the days were spent shoveling rotting, maggot-filled, putrid garbage. This stuff makes you hurl, it’s so bad. And that is a juxtaposition compared to the fancy Ivy League. It took an hour to shower it off, and I had to still sneak into the showers at school because we didn't have a bathroom.
Robin, it would’ve been awkward for him as an older guy to go in, had to take sink showers, quite literally go into the office bathroom, which just has a sink, at 2 a.m., and take a little towel and try to create a shower and hope no one enters, because it would have looked really odd to any person who wants to use the toilet at that time to see a grown man doing this. And this is where I really appreciate Rob because he also would take an air mattress and sleep on the floor - this is how we did it.
We really had a lot of foundational learnings in that really grueling time, and I think when you are up against a lot of stress, innovation comes more easily. So that's how we found the idea of packaging in used soda bottles, it’s how we would grind our way to getting into Walmart and so on. It's all these things built up because of the desperation we were in at the time. I mean, no one would fund a worm poop business, bottom line.
[15:18] Jennifer: So for a worm poop company that nobody would fund, how did you fund yourself?
[16:22] Tom: It was tough to be clear, because you're in your early 20s, you're expected to do a dot-com, or some IT thing. That's what investors will gravitate towards.
The first successful capital to come in was actually us entering and winning business plan contests. So we would go around and enter every business plan contest we would find. The first half a dozen to a dozen we'd fail, but every time we learned and through failure you learn a lot. And we got pretty good at winning them. And so the first $100,000 that came into the company was winning a handful of business plan contests after losing money. That then pivoted to the ability to go find angel investors who would give $25-50,000 checks and that became the funding strategy for the first few years.
[16:01] Jennifer: And TerraCycle had an angel investor who was literally an angel, Martin Stein. And in what way did Martin support you and the development of the company?
[16:12] Tom: I think Marty had invested disproportionate. His first check to us was $500,000, I'd never had a check that large before. But more important than the money was this thing that Marty did, I remember I was living in the basement office, he would call me at 2am and he would ask about how the business is going.
Most importantly, he always finished the call with this statement - he goes, so Tom, I just want you to know if TerraCycle goes belly up, here's what I want you to do. And every time he asked it, the feeling that comes through is like what, you want me to wash dishes till I earn your money back?
He always said, no, I want you to call me with whatever your next idea is and I want you to know no matter what it is, I'm in, no problem. And that fueled the ability to, you know what, let's play, let's take risks, let's do this. And that was so important.
This is so unique to the American culture is people like Martin, where he himself inherited his parents’ failed deli at the age of 30, basically finished up a bankruptcy and built a real estate empire and did incredibly well from nothing, just with his own wits.
He taught me to make a successful entrepreneurial culture, you don't just need people who are willing to invest, much more importantly, is willing to invest after failure. This is critical, it's not about seeking failure, certainly not, but it's about being able to embrace failure and not let it become detrimental. Because if you create that feeling, no one's going to take the risk.
Today, we take Marty's lesson. And every time we have a challenge that comes up, and certainly there are many, the more we innovate, in fact, the more challenges that occur. We always start a meeting where we debrief a challenge by saying, okay, we invested this much time and money, it didn't work, let’s view that as tuition.
What did we learn from that tuition, so that we can honor the failure. And everyone around the table relaxes a bit because everyone's worried about being chewed out for the failure, and if you do that, they'll never put an idea on the table again.
[18:01] Jennifer: I totally agree with you, it's important to see it as learning moments instead of failure.
There's a famous story about you turning down $1 million from Carrot Capital, while you only had $500 in the bank. Something that I could totally relate to, by the way, so tell us about that.
[18:21] Tom: Yeah, so we'd raised about $100,000 from business plan contests and Carrot Capital was a business plan contest, but for $1,000,000 and we won the thing. And we were out of money at the time, basically no cash.
And the Carrot Capital management team said, look, you guys have a really cool story here with the worm poop, but we don't like the team you put together, Tom, and we want you to not focus too much on this garbage idea, but just do a nice organic fertilizer. They may not have been wrong, by the way, there's many paths to take.
But they were jeopardizing two very important things to me. One is that I didn't start TerraCycle to be a fertilizer company, I got excited about the idea of waste, and the first way to address waste was to produce fertilizer. And the second was people like Robin and others who were sleeping literally on the office floor and sacrificing, I felt like a loyalty and a responsibility to them. And they wanted me to abandon both those ideas. And again, there's no right or wrong, but to me, those were not things I would compromise on and we said no to the money. It was very tough though, because we came back very elated, but incredibly poor.
And then the next conversation was, what do we do to not bankrupt the business. And in fact, out of that desperate, desperate moment, the biggest innovation for the worm poop project occurred. Since we couldn't afford packaging, we said, why don't we start packaging quite literally in garbage? Why don't we just go through all the recycling containers in the town of Princeton, just fill them and sell them and start making money that way.
And that actually turned out to be such a profound innovation of making a product out of garbage and packaging it in garbage that it's how the biggest retailers, Walmart, Home Depot, and others gave us a shot.
[19:56] Jennifer: And you created this idea behind the Bottle Brigade. What is the Bottle Brigade?
[20:02] Tom: From desperation, we said let’s package in used soda bottles, used Coke and Pepsi bottles, and that created the product. And we, through just a lot of persistence, got meetings at the big retailers, Home Depot, Lowe's, Walmart and Target, that's 90% of the fertilizer business in the US. And we got meetings with them, and more or less, in some order, they all said yes.
So we had to now get a bunch of used soda bottles, you can't just order them, especially, uncrushed ones, not damaged ones. And so we said, why don't we go to schools and ask them to collect for us? And that created this thing called the Bottle Brigade, where we would go to schools and basically say, can you collect used soda bottles? We'll give you $0.05 per bottle to your school, and we'll pick them up.
And then we'll wash them out and fill them with worm poop, and that's how we ended up getting our packaging. There's a subtext to this, which is, it also became the underlying idea of what we ended up evolving into. That’s how it all began, getting bottles for the worm poop.
[20:54] Jennifer: And as you mentioned, TerraCycle secured its first high profile clients with Home Depot and Walmart Canada. Can you tell us how you went about signing these two retailers because it seems like quite a daunting task to do for a very small startup.
[21:13] Tom: It is. This comes down to the biggest lesson I learned in the story - I think what really separates successful entrepreneurs and team members from others is the ability to grind. And the way we got these retailers was entirely a grind.
You can't just call them and they won't just give you a meeting, so we just called every hour, different phone numbers. And we did this for a month, 10 calls a day for 30 days straight - that's a grind. And at the end, the buyer picked up the phone and said, look, just come down, so you stop calling me. But I think they appreciated that persistence, that polite persistence.
And honestly, I think 90% of the reason that the buyer put the product on the shelf was the passion and the purpose, those two things. I mean, think about the purpose - we were collecting used soda bottles from schools, raising money for them, taking organic waste from coffee shops and cafeterias, and putting that all together to make this most eco-friendly fertilizer that worked, we got it at a good price, you have to have those fundamentals. And there was a huge amount of passion behind it. And those two things was what gave us a shot. And not just once, but over and over again.
[22:14] Jennifer: And I think passion and purpose is probably also how you ended up attracting a very talented team at the beginning, because I understand that every single one of those key people were very seasoned business professionals like Robin. And that's an impressive thing to do in your mid-20s, of course.
Yet a few years after you signed Home Depot, Target, Walmart, TerraCycle pivoted away from organic fertilizer towards developing recycling solutions and collection systems designed to recycle, upcycle, and reuse these products and packaging that are traditionally considered non-recyclable at the standard government-run waste facilities.
What prompted you to make this pivot? Because the company was moving along quite well, you were generating a few million dollars a year, so you were actually on your way to make quite a good business, in fact, with these liquid worm poops.
[23:15] Tom: That's right. Our sales were $70,000 in the first year, then $500,000, then $1,500,000, then $3,000,000, then $6,000,000, that's good, right? Something to be very happy about - good CAGR, as you look at year-over-year growth.
But what was bothering me a little bit was that we had begun this whole thing because of the fascination of the topic of waste. And when we were making the worm poop, we were effectively a product company. And as a product company, your business hero is the product. You're going to make the very best product you can.
And yes, while our rule was it must be made from waste, we were picking the very best type of garbage - certain organic waste, but not other organic waste; certain soda bottles, but not other soda bottles. We would never then really dig into other types of waste, so that was one thing that was irking.
And then an opportunity came up, which is brands, the first few was Honest Tea, Stonyfield Yogurt and Clif Bar, the eco-organic product space. And so they came to us and said, we see you're running this Bottle Brigade. We make yogurt pots that are hard to recycle, juice pouches that are hard to recycle, energy bar wrappers that are hard to recycle. Can you create a brigade for us as well?
So those two things came together and we said, wait a minute, we need to shift the hero of our business from the product to the garbage. And instead of making a product out of waste, let's figure out what we can make waste into. Now this may seem incredibly similar, but by shifting the focus, it was a massive fundamental pivot. And as we looked at each other, we said, it's way more exciting, it’s way more purposeful.
And over a one year, a very painful process, we shifted the hero away from worm poop and into garbage, and effectively began the journey of what we really look like today. It was a fundamental metamorphosis from a caterpillar to a butterfly. And it took about a year, and any metamorphosis, there's a lot of pain that you go through, a lot of our management team didn't agree with this. It really required everything to be restructured.
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[26:41] Jennifer: As you pivoted towards this new business model, can you tell us what your growing pains were at the beginning?
[26:52] Tom: Yeah, there was a number. I think one is that there's a lot of stakeholders, could be investors, could be board members, could be team members, probably the three major stakeholder types where many of them didn't agree. And in all three of those, we had to restructure, change the board, change some of our management team, shift out some investors. That's always challenging when you have that fundamental debate because they're like, let's just be a fertilizer company and I want it to be something more than that.
And we were able to successfully persevere, but it was many times on the edge - I almost lost my job. It was very, very dramatic, but something that you had to get through. Because there was such clarity that this makes sense and why, I think that's why we persevered. It was very clear that we had to make this shift.
Another thing is if you're running a product company, there are books written about how you build a product company. There's a clear arc, there's knowledge, it's a known journey. But what we were doing, and even what we still do today, it's all unknown, so you're also not sure what's around the corner. How does your business get sold? How does it mature? What are the challenges that come up not in year 1, but in year 2 or year 3 of one of these constructs?
And there's benefit to going after domains that no one's working on. The benefits are you can really create something that is unique and so you have very low competition, you can learn, fall down, get up without many people grabbing your lunch. But you also have no idea as you trail the path what that path looks like, and is it rocky, is it flat, or whatever you have to traverse.
But the benefits, in my eyes, outweigh the challenges, which is why we have stayed for 20 years on this path of always focusing on business models in ways that other people are not looking at, we want to create new paths. And because waste is such a repulsive category, there is a lot of land to be discovered.
[28:31] Jennifer: When you pivoted, you also pivoted from a B2C business model, selling a consumer product at big retailers, to a B2B business model. So I understand that most of your clients are CPG companies, large consumer packaged goods companies. Why would these companies pay TerraCycle for something that has to do with their packaging?
[28:55] Tom: It's a good question. And I think in every major innovation, this first one was pivoting from just being a product company to effectively a recycling service company, it’s really critical to take a step back and understand where the problems begin.
And if we do that in the world of recycling, the challenge is on the surface, most citizens statistically today will say, what makes something recyclable is if it can be recycled. And that means that then the solutions to making more things recyclable are about inventing new mouse traps that allow an object that wasn't technically recyclable to become technically recycled.
But the reality is that it has nothing to do with that. What makes something recyclable is can a garbage company make money. What makes something not recyclable is if a garbage company can't make money. And that is how recycling works.
Recycling is basically saying, look, I'm going to get rid of all your garbage, get it to a landfill or an incinerator, out of sight, out of mind. But these few things, the corrugate, the aluminum can, the PET bottle, I want, so please sort those to the side because I can make money on those. That's what recycling is.
So now to answer your question, why would a brand care about this? If 90% of objects are not recyclable, you have an issue, your product has a problem. At the end of its life, the consumer has a negative experience, they have to put in the garbage. And you want to elevate that to a positive experience where they feel like something good will happen to it because that will make them more happy with your product.
And so our model became very simple: find a stakeholder who will simply make recycling something that is not profitable, through their funding, profitable to recycle. And Pampers, as a dirty diaper brand, just to stay with the poop metaphor, will pay. Whatever it costs to collect and process a diaper, minus its residual value.
And that's the essence of what became our first business model, which now has 40,000 customers, over a thousand billion-dollar brands in 20 countries, recycling everything from high-end Yves Saint Laurent packaging in China all the way to coffee capsules in Canada.
[30:55] Jennifer: You're basically collecting garbage and then reprocessing it into new materials and new products, that's the business model that we have now since 2008, I guess.
[31:06] Tom: Yes, for our first division, that's exactly right - we collect the waste and we make sure that it has a new life.
The secret sauce is we have to go get someone to pay for it - could be a brand, could be a retailer, could be a consumer, could be a municipality, many different stakeholders. And we need to show those stakeholders that it's worth investing in making that happen because they don't legally have to.
[31:28] Jennifer: Right, which is why you also have all these brigades now, Bottle Brigades and Wrapper Brigades. I'm staying with that idea of making new products, your mission of eliminating the idea of waste. You are now recycling cigarette buds, chewing gums, flexible food packaging, diapers. What products are you making out of them?
[31:53] Tom: Absolutely, maybe we'll pick two different waste streams and we'll give you specific answers on two, but any two you like.
[31:57] Jennifer: Dirty diapers.
[31:58] Tom: Okay, that's one, and the second one.
[32:00] Jennifer: Cigarette buds.
[32:01] Tom: Cigarette buds. So all waste streams are different animals, they behave differently. And what we have to figure out in creating a supply chain for waste streams is how to collect it, how to process it, and how to get it funded, those three things.
So cigarette butts in collection, it's important to think where is there avid smoking that occurs so that you can aggregate these. Turns out it's places like city busy streets where there's bars, restaurants, people tend to smoke a lot there, also casinos and cruise ships. Those are like your three biggest areas of smoking. And so we have to do outreach to cities, we're now up in 400 cities that have TerraCycle cigarette recycling bins all over the city, but also cruise ships and casinos. There's others as well, but those tend to be the three areas. And we got to collect it in devices that are fire-retarded because people may put in a lit cigarette. So it's about where is the consumption of the waste stream, how do we do it in a safe way, in an economically efficient way, and in a way consumers will actually take part.
Now dirty diapers, the best place to collect them are either nurseries or supermarkets because when you have a bag of diapers, you also need new diapers. So you see, these human constructs have to be really thought about in the world of a diaper. It's just quite literally a shit show of a project, you have to make sure you build bins that have smell control in them and so on.
So that gives a little taste of collection, now once you've collected this, you have a pile of cigarette butts and dirty diapers - quite pure in fact. When you do very segregated waste streams, the purity levels are 99%, it’s incredibly pure.
Now cigarette butts, our team of scientists and designers first looks at is it reusable? No, cigarette butts can't be reused. Could they be upcycled? Yes, some art could be made and we've commissioned some artists to make neat art, but that takes 0.001% of the billion butts that we collect. And so then it's the science of it where we need to deconstruct the waste stream and we do that by shredding the butt, separating the ash tobacco paper, and that goes to appropriate composting. And the filter is left, which is made from a plastic called cellulose acetate, which then could be made into shipping pallets, plastic benches, ashtrays. Now our output is not those objects, but the raw material to manufacturers who then make those objects, that’s a cigarette.
And then dirty diapers. Dirty diapers are made from plastic components like non-woven polypropylene, that's the outside layer, inside it is cellulosic material, the fluff, there's a super absorbent polymer in there that absorbs the liquid. And in all these cases, it's about deconstruction because none of them can go to reuse. So we deconstruct the diaper, separate the plastic from the cellulosic. Cellulosic material can be composted or it can be recycled depending on the application, and the plastic can then be melted and made into various industrial products.
What you'll notice is we first look at can it be reused and it's rare in disposable products, but yogurt pots and margarine containers can be reused to become planting pots, so there is some opportunity. Upcycling, like sewing juice pouches into backpacks, can be done, but the volume is limited, but it also gives high visibility to waste applications, especially for children. If they see a backpack made from sewn together juice pouches, they understand the connection to waste much better than if I melted those and made them into a watering can.
But the vast majority of the waste goes into deconstruction processes where we try to get to valorizable raw material blends. And then from there, they get sold to manufacturers who make new goods.
[35:15] Jennifer: It's fascinating how you view waste in the way that you do, because for most of us, as you said, it's something that we're willing to pay for someone to haul it away. We don't think of them as components and raw materials. How did you develop your perspective on looking at waste as a potentially valuable raw material?
[35:38] Tom: It's a good question. The value in waste is not just the physicality, that's the intuitive and obvious. The problem is that the value of those outputs is not even close to enough to fund the cost of collecting and processing, which is why no one ever looked at a cigarette butt.
And so the first type of value to think about in waste and this will unlock the other types of value. So what do I mean by other types of value, like getting someone to collect dirty diapers. If you can create a dirty diaper recycling program sponsored by Pampers and you can put any brand of diaper into it, but then the machine weighs the diapers and gives you back coupons to Pampers, maybe that creates the value of market share shift.
Or if you're a Walmart collecting cosmetics for recycling, maybe that brings the value of foot traffic. All the way to our newest division Discovery, where we're analyzing the residual content on waste, there the value is insights and analytics. These supplementary ideas of value are really the unlocking opportunities in business models around waste. And this is what fascinates me about the garbage industry.
Here's another sort of crazy anomaly. The garbage industry will one day own everything you and I possess. Let that sink in, the one industry that will own it all, it is also objectively the least innovative industry per dollar of revenue it enjoys. Because it is so unattractive, that then to me, it’s a playground for innovation because everyone has their back literally turned to it in disgust.
[36:59] Jennifer: Reading your book, I had my own aha moment, which is, waste is not something that we want to think about. We want to think about how is generative AI going to change the world tomorrow.
[37:08] Tom: Sexy stuff, right?
[37:09] Jennifer: Yeah, sexy stuff. What is the craziest product idea that TerraCycle has come up with over the years?
[37:16] Tom: The stuff that excites me the most are the things that are the most taboo, because look at how much fun we've had talking about poop. For some reason, (it) gets people to listen a little more and lean in. So the recycling solutions I'm the most proud of are things like dirty diapers, cigarette butts, sex toys, chewing gum, femcare products.
People go, oh my god, how can you do that? Because of the taboo-ness around it, that really gets this leaning in to occur, which then helps us create solutions to things that are maybe less exciting, like a cereal bag or a pen or a razor blade.
So for me, it's not about product ideas. It's about which waste streams we develop solutions for.
[37:55] Jennifer: I thought you were going to tell me something about femcare product.
[37:58] Tom: Femcare products are great because it's high-taboo. To me, beyond being able to create recycling solutions for single-use femcare products, we even have solutions for recycling reusable femcare products.
One really exciting piece in our Discovery division is the ability to diagnose the blood and also vaginal microbiome that is deposited on a tampon. That's something we're developing with the company now, which could be massively breakthrough. Imagine for menstruating women, you could get blood work without having to have a needle and a lab appointment and all that.
[38:28] Jennifer: Gosh, I never thought about it that way…
[38:30] Tom: It makes the used tampon a more exciting topic, right?
[38:32] Jennifer: (chuckles) Yeah, exactly. Speaking of exciting new products, in 2019, you launched Loop, which is a global reuse platform that's aimed at eliminating waste with the circular end-to-end process. It's a paradigm-shifting moonshot, can you tell us what Loop does exactly and why you decided to implement this innovation at scale?
[38:56] Tom: Absolutely. So back in 2017, we'd grown to a good size, but primarily based on offering recycling solutions and recycled content solutions. Those are our first two divisions; we can collect and recycle it and help you make your stuff out of garbage.
And we asked ourselves, again, similar to the worm poop moment, honestly, are we fundamentally furthering the mission of eliminating the idea of waste? And we said to ourselves, look, recycling is critically important, we're not going to stop it. But it's a band-aid to the idea of garbage. So we said, hey, we got to go deeper, and then went on a journey to ask, what is the root cause of waste?
I would argue that there was a massive shift to the type and volume of our outputs 70 years ago in the 1950s. We really commercialized in a big way complex materials that have done phenomenal things, but nature has no systems for it. Because before then, our chairs were made from wood; after, they were made from polymers and all sorts of composites. Our clothing was made, before 1950s, from silk, cotton, wool; now it's all nylon and polyester. And everything went in that direction, we compounded that by monstrous consumption - today we buy 10 times more stuff than we did 100 years ago; it’s a phenomenal increase.
Disposability, to me, then became the root cause of waste; that is the epicenter, this idea of disposability creates the garbage crisis and plastic bags and ocean plastic and all this. And why did disposability win, and we still vote for it today? Because it brought about unparalleled convenience and affordability, which we deep down care about more than the existential threat of voting for it.
Disposability, how do we solve it? You can't just crucify it, you have to beat it, that's solving with empathy. And so if that's the issue, then we said, look, we have to move back and honor the past, where things were made to be repaired. They were timeless, they were durable, they were reusable in the world of packaged goods, you had the milkman.
And one interesting construct now going to economics is in the milkman day, the package was an asset to the manufacturer. And if it's an asset to the manufacturer, they are fiscally motivated to make it long-lasting and durable because they got to bring it back. Just like a rental car company doesn't want that car to break after one use.
How do you solve the unintended consequences of disposability, which is products getting worse and cheaper design, made to break and the garbage crisis, while maintaining the virtues of affordability and convenience? What Loop is, pragmatically, is a platform for reuse, really focused on the FMCG, or fast-moving consumer goods industry - think like Kraft Heinz ketchup to Coca-Cola to Pantene shampoo to enable reuse.
So we're not a product manufacturer, we're not a retailer. But we do two things - we're the platform, the rules within you have to behave. And then operationally, we're the waste management function of reuse.
Loop contracts with brands. There's about 200 CPG companies that have joined, where brands from Procter & Gamble to Unilever make reusable versions of their products. We simply approve them that they fit the rubric, they are reusable. Then they are sold at retailers like Walmart in the US or Aeon in Japan or Carrefour in France.
And then basically when you access these now beautiful, upgraded packages, you pay a deposit, and then when you're done, you return the empty, like a milkman model and get your deposit back. You put in a Loop bin and that's where we are - we’re the bin, we return your deposits, we take the empties, we sort them out, clean them if necessary, and give them back to the brands who simply refill them. And it really hits waste at the root cause because with Loop, there really is no garbage.
That bottle goes around 10, 20, 100 times, and then at the end, it just gets melted back into itself. And around it goes another set of times, and that keeps happening. The materials, the molecules, always maintain as that object.
[42:32] Jennifer: So I have to add that the packaging for the Loop products are really beautifully designed. And I know this is because, Tom, you got a keen eye for art and aesthetics.
But even then, getting people to change that consumer behavior, they're still living with the inconvenience of having to take that container back to the store. How do we really truly get consumers to reuse these products in Loop?
[43:03] Tom: You hit on the essence, and convenience is king. You know how people ask this question, will someone pay more for an organic banana? It's a quintessential sustainability question, it’s the wrong question. It's first, is it convenient? As convenient as my choice today. That's a gate you have to pass. If it's as convenient, then tell me about the features and benefits and then tell me about the price in that order.
Convenience is everything, it’s not just convenience for the consumer. There are three stakeholders, where convenience is incredibly important. The retailer, convenience is defined as I change the least amount possible. The brand, again, convenience defined in the same way, least amount of shift to my supply chain. And the consumer, the least amount of shift to how I shop today, because disposability is king.
And so it's not about getting you to behave differently, it's about making reuse feel like disposability. So for the brand, we say, all you have to do is make a slightly heavier duty version of your package. For a retailer, the only shift is now you have to have a concept of a deposit.
For the consumer, it's about removing many barriers. It's not perfect, but we give you reusable garbage bags that you can purchase, you can throw all your Loop products into the reusable bag, and so when you drop it off at the retailer, you just throw a bag of garbage in the bin, and we are the ones who go through it and return your deposit. That's a way to make it feel like disposability.
One big innovation I give a lot of credit to the Walmart team is the way they launch Loop in the US is through their in-home platform, where they deliver the product to you but here's the twist. They also pick up your empties, which I would argue is just about as convenient as them picking up your garbage for your disposables. That is the closest synonym to it's no shift for you, the consumer.
And this is important because many sustainability innovations tend to focus on behavior change. And behavior change is the hardest thing to do. It's much easier to play downhill and play into what people already care about. That's why I think plant-based protein has finally done better than before, because now, the Impossible Burger or the Beyond Burger taste damn good, relative to the beef burger. I think that's how we have to think about sustainability innovation, not uphill through sacrifice and constraint and inconvenient actions.
[45:10] Jennifer: Well, I think such a disruptive innovation takes time for adoption, because we're not used to it. It's always a process, nothing is an overnight success.
I'm going to shift a little bit on the personal and the philosophical side. Tom, I know you have endless energy and you have a relentless work ethic and you're very efficient in terms of your time usage. And I also hear one of your superhuman qualities is that you can go to sleep on a whim. (chuckles) What do you enjoy most besides working?
[45:43] Tom: Honestly, I would say, family. I have a wonderful wife and four little kids between the age of four weeks and eight years. So I really tried to, after I'm done, like I will grind like crazy and work very hard. But then when I go home, I don't open my computer.
But then beyond family, I love the idea of creating things, artistic pursuit, I would say. I spend a lot of time building exciting things in my home for my family to enjoy. I love just surrounding myself with interesting creations. During my day job, I do that in business models. And when I'm not doing my day job, I do that through art, design, because why not? I mean, I think we are on this world and why not make it a dream setting?
[46:25] Jennifer: Absolutely, speaking of art, the exterior of your building in your headquarters is covered with murals by local artists, and it's also repainted very often, particularly during your annual graffiti jam. What's the story behind the graffiti at your office?
[46:42] Tom: Well, look, ever since the beginning, if you walked into my childhood bedroom, it would have looked like mission control. Now mission control is not just a bunch of screens, but art everywhere and very maximalist in design. And so it's always been important to me to make sure that the physical spaces that I live in are like a kaleidoscope of fun and high energy.
And there's a lot of ways to facilitate art, I give a lot of credit to this guy called Jim Budman, who had these studios, one in New York where I hung out a lot when I was in college, in LA and Miami, and he would just bring artists and make it a space where artists can come and create and then the space itself became this evolving kaleidoscope.
And I've taken that inspiration from Jim into everything because I like to make art myself, but I'm much more into facilitating art because I get way more volume of art because I can only do so much with my two hands. And so our space is always open to artists; we have an artist in residency program, for example.
Urban art, interestingly, also has this metaphor around garbage because most urban art is something people pay to get rid of. It's in fact the legal definition of garbage. And so if you're an urban artist, you're struggling because you have to find spaces at two in the morning and you're jumping barbed wire fences and all this stuff and you're not even going to have the luxury of comfort to paint beautiful pieces. And we saw this, especially in Trenton (New Jersey), which is one of the most dangerous cities in the US where we're headquartered.
And so I just said to some of the urban artists I knew, hey, I've got this building, it’s just cinder block, so uninspired, why don't you guys come and paint? That's it, and they said, this is great. Finally, a legal spot to paint, and it created a perpetual engine, they bring everything.
And it's become such a big thing, the graffiti here at TerraCycle. There's probably someone outside right now painting, if I went outside. Our building is brand new every month, and then we have a festival, our graffiti jam, which has been running almost now for I think 15-16 years, where the whole building is redone in one day.
And our walls are now like half an inch to an inch thick of latex spray paint, latex spray paint. One day we'll put a book out on it, but it is wonderful. I think if any building I would have anywhere in the world, it's always open to artists to come and express and do their thing. And I would encourage any company to do that. Why have a gray cubicle farm? That's so depressing.
[48:50] Jennifer: Thank you, I love that. So now going back to your kids, how do you educate your children about waste?
[48:56] Tom: Yeah, it's a good question. I would first want them to understand that we vote for waste to exist through our purchasing and that our purchasing is the most powerful vote we cast, it’s fiercely democratic.
We vote constantly with money for the future we want, with what we buy and don't buy. And that is the fundamental lesson that I want to instill in my children about sustainability, not just garbage, but about all sustainability, is vote consciously with your dollar. Because when you spend, you are voting.
And then from there, to really always look at what value can you see in areas where people don't see value. But that could be in people, it could be in places, it could be in objects. That's why I like graffiti, graffiti is the garbage of the art world.
[49:39] Jennifer: Before we wrap up, I also just want to mention that Tom is the author of four books. I've had the pleasure of reading the first one called Revolution in a Bottle. And if you want to know what negative cost marketing is, you have to read the book, it's a fun read and it's a fast read.
And also Tom's most recent book, The Future of Packaging from Linear to Circular, was named the book “Most Likely to Save the Planet” by the Independent Publisher Book Awards in 2021.
And so now we're coming to the end of the episode. Can you tell us where can people find you and TerraCycle online?
[50:17] Tom: Yeah absolutely, me, best place is LinkedIn. And TerraCycle, visit us at TerraCycle.com and you can access there in 20 countries where we operate free recycling programs, paid recycling programs, and learn all about what we're doing in recycled content, reuse, all the way to Discovery. Take a moment to click around because there's a lot of waste innovation below the surface.
[50:36] Jennifer: Great, and then over the years, what have been your favorite books?
[50:40] Tom: My first book that got me into purposeful business was Natural Capitalism by Paul Hawken. Cradle to Cradle (Remaking the Way We Make Things) by Bill McDonough is a very important book vis-a-vis circular economy. Those two I would certainly recommend to anyone thinking about purposeful entrepreneurship.
[50:54] Jennifer: Thank you. And last but not least, what does the Founder's Spirit mean to you, Tom?
[50:58] Tom: I think it's envisioning a future, a better future, not about money-making for oneself, and starting the path to get there with a relentless ability to grind your way through it, which could be as you said, an overnight success is 20 years in the making.
The most important thing to the Founder Spirit is the ability to hack your way through that relentlessly for years and perhaps decades after decades.
[51:23] Jennifer: We're now coming to the end of our interview. And as you know, we end every episode with a quote. And for this episode, because Tom doesn't do philosophical quotes, we chose one from his first book, Revolution in a Bottle, on how he first saw America as a Hungarian-Canadian immigrant.
“Failure is a stepping stone, not a tombstone.”
because no one would have guessed how often and how close TerraCycle came to failure in its early days.
Tom, thank you for taking the time and sharing your life passion and your journey with us today. I'm quite sure that most listeners out there, like me, would never look at garbage quite the same way again.
[52:03] Tom: Thank you so much.
[52:05] Jennifer: You can find us on Apple, Spotify and Google Podcasts, as well as our website at TheFounderSpirit.com.
[52:19] END OF AUDIO
(02:57) From Budapest to Toronto
(05:47) Who Influenced Tom to Become an Entrepreneur
(08:13) Lessons Learned From Robin Tater
(10:15) How Marley Inspired Tom to Start TerraCycle
(13:30) The Early Days of TerraCycle
(15:18) Funding a Worm Poop Business
(16:00) Martin Stein, The “Angel” (Investor)
(18:00) Turning Down $1 Million with $500 in the Bank
(21:54) How TerraCycle Signed Home Depot & Walmart
(23:15) Pivot From Organic Fertilizers to Recycling Solutions
(28:31) Why Would CPG Companies Pay TerraCycle
(35:15) Unlocking the Value of Waste
(38:30) Loop: A Global Reuse Platform to Eliminate Waste
(39:10) The Root Cause of Waste
(46:25) Why Tom Likes Graffiti, “the Garbage of the Art World”
(48:50) How Tom Educates His Kids About Waste
(50:58) What the Founder Spirit Means to Tom
Social Media Links:
LinkedIn: Tom Szaky
Tom’s Books on Amazon.com
Tom’s Favorite Books:
- Natural Capitalism by Paul Hawken
- Cradle to Cradle by Bill McDonough