King of the Roll-Ups: The Man Who Created a Trash Empire, Then Built Blockbuster Video

0:00If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about? Keeping up with cyber threats. That's where MasterCard can help with access to tools that help identify cyber threats to better protect your business. Building your dream business? Priceless. For cybersecurity in a changing world, there's MasterCard. Learn more at MasterCard.com slash small business. This is Jacob Goldstein from Business History. When the internet arrived, most people used it to look things up.

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1:50Pushkit Too quick? No, it was perfect Pushkit Stop You got it

2:08Robert Smith. Yes, sir. Today's show's about Wayne Huizenga. Hmm. Man who got into the garbage business in the 60s when it was rough and tumble. Mom and pop shops with a couple of trucks. And he went on to create the biggest garbage company in the world. Waste Management Inc. by executing a historic roll-up, one of the all-time great roll-ups, buying a bunch of little companies. And then, in the 1980s, he got out of the garbage business and made the same move again, and he built Blockbuster Video. Blockbuster Video and a garbage magnet? Into the blue and yellow pillar of our high school weekends.

2:45I'm Jacob Goldstein. I'm Robert Smith, and this is Business History. What would you say to this? What is it about? It's hard to tell, but I think it is a show about the history of business. Wayne Huizenga was a man who loved a roll-up. The roll-up is a standard business move. You got a fragmented industry, you buy a bunch of little companies to make a great big company. Billy Durant did it to build GM. We talked about that. Private equity today loves this move. You know, they roll up car washes. Plumbers. Plumbers, dentists. Doctors' offices. Doctors' offices, veterinary clinics. So today on the show, we are going to talk about Wayne Huizenga, The garbage business, the video industry, and the art of the roll-up.

3:27Wayne Izinga got into the garbage business in part because it ran in his family. His grandfather, Harm Izinga. What is harm short for? Harmonious. Harmonious. Or maybe he was just a bad man. I don't know. Harm Izinga worked in Chicago in the 1890s as a blacksmith and wheelwright. Two jobs you don't hear a lot anymore. and he would drive into Chicago every day in a horse and buggy. And on his way home, people would ask Harm Huizinga if he could just take some trash out to the edge of town for him and throw it on the ground, basically. Oh, you live out in the country? Yeah. I have something for you, a big bag of trash.

4:08And Huizinga thought, wait a minute, here is a demand. Here is something people want. So he bought another wagon and turned it into a garbage buggy. and I believe created the first trash business in Chicago. Wayne's father, that was his grandfather, Wayne's father moved the family to South Florida where Wayne grew up. And during summer breaks, he'd go back to Chicago, drive a dump truck, I guess when he was in high school. And in 1959, he lands back home in Florida. He's 22 years old, and he's managing a family friend's three-truck garbage firm, a company called Pompano Carding Company. Oh, sounds great.

4:49Sounds amazing. And there's this thing that happens at this point in Wayne Izinga's life, early career, that shows you what kind of a guy he is. And it's a little bit Rashimani because there's two different versions of the story. And they're different in important ways. So the first one is Izinga the tough but sympathetic businessman out there in a rough and tumble world. That version goes like this. A customer named Thomas Millwood complains that his trash hasn't been getting picked up. And Huizinga says the bill hasn't been paid, and that's why. And the customer's like, yes, it has. And things escalate.

5:29And at some point, Huizinga grabs the customer's balls and twists. And then the customer pins Huizinga down until the sheriff comes, and Huizinga gets charged with assault and battery. Version one. Version one. Version two comes from the Miami New Times All Weekly. Not so sympathetic to Huizinga. This version is essentially Huizinga the bully. In this version, Huizinga is going door to door, selling garbage collection services on behalf of Pompano Carting. And he knocks on the door of this customer, Thomas Millwood, same guy. But Millwood doesn't go for the pitch, says, no thanks, I'm not interested.

6:07But Huizinga refuses to leave and starts using abusive and profane language to Millwood and his wife. And then in a fit of rage, he attacks Millwood, hits him, breaks his sunglasses, and grabs his balls and twists. One detail that is the same in both stories. And then gets charged with assault and battery, also the same. So he is definitely tough and aggressive. And he is in the right business in the right place at the right time. Perhaps the most important ingredient to success in business is right place, right time. Florida in 1960 is a good time to be in the garbage business for a few reasons.

6:44Air conditioning is spreading. People are moving to Florida because now you can live there in the summer without it being awful. There's so many flip-flops and pop-tops to throw away. Flip-flops, pop-tops, rag mops, lollipops. Consumption in the U.S. is booming, right? This is the post-war boom, better living through chemistry, plastics. And Americans are creating more and more garbage. The rate of garbage produced by Americans is growing faster than the population, which is good if you're in the garbage business. And Huizinga is definitely a hustler. And he borrows$5 ,000 from his father-in-law and buys a beat-up garbage truck and a handful of customer accounts.

7:26And in February of 1962, he starts Southern Sanitation Service. Ooh, it sounds fancy. Robert, give us Wayne Huizinga on his early years as a businessman. I worked 20 hours a day, bar none, all the time. And I never drove main streets. I always drove the alleys and the side streets trying to find out what was happening. One more quote from another interview. I picked up garbage from 2 a.m. until noon. Then I changed my clothes and went door to door selling my services. I didn't know anything about the business. I just worked hard and gave good service. This part seems true. Huizinga tried very hard to keep his customers happy.

8:01I guess except the balls guy, but maybe he wasn't a customer. Service is his edge on a certain level. He's just a guy with a garbage truck like lots of other guys with garbage trucks. By 1968, he has 40 trucks covering routes from Key West to Tampa. And this was common at this time. It's the 1960s. There were something like 12 ,000 garbage businesses operating in America. Over half of them were just a guy with a few trucks. There was no big national player. And so there is this kind of big business history business question here, which is, why do we find that some industries are highly fragmented like this?

8:42Tons of little players, no big dominant firm, while others are concentrated. And for the answer, I want to go to Michael Porter. Ooh, legend. Harvard Business School professor. He was a famous business writer in the 20th century. Maybe the most. Maybe the most famous business writer. The most cited one at business school. Absolutely. He had something called Porter's Five Forces. Don't ask me to list them off. List them. Oh, no. They're going to take away my MBA. His five forces were competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and the threat of substitute products.

9:19Woo! So in one of his books, Competitive Strategy, Techniques for Analyzing Industries and Competitors. Woo! Bestseller. He actually lists, that may or may not be true for the record, he actually lists a bunch of reasons why an industry can be fragmented. And if we apply his framework, as I'm sure he would call it, to the garbage industry of the 1960s, we can see three reasons why it's fragmented. Should I get a whiteboard? One, low barrier to entry. Anybody can get into the business. Just like Huizenga, borrowed a few thousand dollars from his family, bought a truck. He's in the business. Two, personal service is key, which we talked about this as well.

10:01Huizenga has been able to grow his business because he's making sure that everybody gets well taken care of. But this is hard to scale. There's only one Huizenga. He can't make digital copies of himself to knock on doors. And we see this in all sorts of businesses, plumbers, roofers, painters, locksmiths. Any person who's putting a flyer under your door on a daily basis, those are people who are using personal service and low barrier to entry. Although I do have to say, I feel like the flyer is a negative signal to me. I want to hire the plumber or the roofer who doesn't need to be putting flyers on people's doors.

10:37I want the guy who, like, won't take my call. That's why it's very hard for me to fix my house. We got one more. Three, and maybe most important for Porter's List of why an industry might be fragmented, is there's not that much of an economy of scale. So if you grow a garbage business, you've got to buy more trucks and hire more drivers. So, yes, your revenues are growing, but your costs are also growing. And this means there's not a huge incentive to get big. And we see this also everywhere in barbers, right? Every new person who comes in, you're going to need another chair or another barber.

11:12And this is definitely true of the garbage business in the 1960s. And yet we know Huizinga is going to build a giant garbage business. The industry is going to become consolidated. And so there is this great question. What changed? Why did the industry flip? And you know the answer to this. Hippies. Environmentalism. Regulation. Regulation is going to change the equilibrium. If you think about the garbage business when Huizinga gets into it, it is not that different from Harm Huizinga's garbage buggy of the 1890s. Tossing it out, the carriage on the way out of town. It's close to that. People pick up garbage in the city.

11:53They drive out of the city and they do kind of whatever they want with it. Not quite, but you might dump it in a quarry or an empty ravine or burn it in an incinerator. incinerator. But of course, the incinerators put dirty garbage smoke into the air and the landfills is garbage just sitting there and then it rains on it. The rain goes down through the landfill into the water table. So it's poisoning the water potentially. And so as the environmental movement gets going in the 60s, people are like, we don't want to breathe garbage smoke. We don't want to drink garbage water. In 1965, President Lyndon Johnson signs the U.S.

12:32Solid Waste Disposal Act, and thousands of dumps and incinerators get shut down. Robert Smith, I got good news for you. We're going back to Michael Porter. Government or regulatory changes can force consolidation by raising standards in the product or manufacturing process beyond the reach of small firms. Recognizing the ultimate effect of such trends and positioning the company to take advantage of them can be an important way of overcoming fragmentation. There's actually two beats in that paragraph. Beat number one is the government can come in, raise standards, and make it too expensive for a guy with a truck and a quarry on the outside of town to run his landfill.

13:13If you had to line your pit with a certain plastic, you'd be like, I just want to dig a hole and throw the garbage in. I'm out of the business. And companies that see this happening and can afford to follow the rules can win, can roll up the industry. So, in 1968, Wayne Huizinga merges his garbage company with another guy's garbage company. The other guy is actually Huizinga's cousin's husband. Which is funny that your cousin's husband isn't just your cousin, but your aunt's husband is your uncle. Cousin-in-law? They put their companies together. The cousin's brother is Dean Buntrock, proprietor of Ace Scavenger Services of Chicago.

13:59Oh, the names just keep getting better and better. Dean had been convicted at one point of conspiracy to restrain trade, to willingly injure the business of others, to hinder others from performing lawful acts, and an attempt to monopolize the rubbish collection business. But apparently got something of a slap on the wrist. In any case, in 1968, Huizenga and Buntrock merge, and they call their new company Waste Management Inc. It's actually Dean, the cousin's husband, who has this insight about the new regulations. Landfills that comply with the new regulations are now scarce. And so if somebody could buy up those compliant landfills, you could have a local monopoly, essentially.

14:48Always buy the scarce resource. Always buy the scarce resource if you can afford it. Because then you can charge a lot for people to dump their garbage there. To do that, they need capital. But capital is actually hard to come by in the garbage business in the 60s. Banks are wary of the industry to see it as seedy, crimey. And they're not entirely wrong. Hey, in the waste management business, everybody immediately assumes you're mobbed up. It's a stereotype and it's offensive. That's my Tony Soprano. It's pretty good. You inhabited it. Anyways, you made it yours. Anyway, WMI can't get bank financing.

15:24And so they decide they're going to go public. Ambition. And they net from their IPO$4 million. $4 million. It's like Dr. Evil going public. I feel like that's the catering fee by an investment bank for a modern IPO. To do an IPO roadshow. Yes. If you're lucky, that's the catering fee. If they do the cut rate, no salmon. So$4 million could buy you some amount of landfills in 1971. And so Huizinga decides to focus on the suburbs. It's the early 70s. Suburbs are still growing. And in 1972, Huizinga really starts executing on this strategy, and he goes very, very hard. The company has this little propeller plane, and he's flying all the time.

16:14He'll wake up before dawn, fly off for a breakfast meeting in one city, get on the plane, fly to another city for lunch, get on the plane again for a meeting in a third city, sleeping on the plane. And between March and December of 1972, WMI buys 133 businesses, which is many per week, many per week. It's just deal, deal, deal. And these are mostly dumps. Largely dumps. Some little garbage companies, often they're combined. And one thing that Huizenga manages to do is, in fact, to get a monopoly on private landfills in certain cities, in certain areas. And once they do that, unsurprisingly, they can jack up the fees for dumping in those landfills because you don't have a choice.

17:04That's why monopolies are bad, frankly. But it's good if you're the one with the monopoly. They're growing at like 35 percent a year. And at one point, Buntrock, the partner, the cousin's husband, tells Izinga, look, we're growing. There's this huge market we're not in, New York, New Jersey. We've got to go look at it. So Izinga went up to take a look. Robert, read us what he said. I spent two days with these guys driving around, listening to them talk, and came back and said, no, we are not going to New York and New Jersey. What was the Tony Soprano line? It is a stereotype and it's offensive.

17:44Those things may be true, but in fact, the business was mobbed up there. Give me another line. We didn't do business there because of that. We didn't want to be tainted with that. And this is the real mafia. This is godfather type stuff. You know, Genovese, Gambino, Lucchese, Colombo, Bonanno. The real Michael Porter's five forces of New York. In 1970, yes. And there is a reason that this particular business was so crimey. And that is garbage is a commodity business. You can try and get better service or whatever, but essentially people just want their trash picked up at the lowest price. And maybe the central theme of business history that we have talked about so far is commodity businesses are terrible to be in because everybody competes each other down to the lowest price and you don't make any profit that way.

18:34So what do you do? you fix prices. If you're the mob. Even if you're not the mob, if you're just four guys with garbage businesses competing against each other, you get together and you have a few beers and you say, look, you take that neighborhood and I'll take this neighborhood and we'll just leave each other alone and we'll have our nice little businesses. And that is essentially a cartel. But there is a problem with cartels that is also interesting. And that is there's an incentive for everybody to cheat a little bit. Because they got in the cartel because they're greedy. They're, by definition, greedy people.

19:07And what do greedy people do? They try to take a little bit more from their competitors. And now they're competing. Yes. I mean, in a way, the optimal position for anyone to be in is to be in a cartel, but cheating a little bit on the side, lowering your prices a little bit so you can get a little more business or something like that. Now, what do you do if you have formed a cartel and someone cheats? You can't call the police. You can't call the police. You are a criminal. You have broken the law to create the cartel. You can't be like, wah, this guy is cheating in our cartel, come enforce it.

19:36This is where the crime comes in. This is where the threat of violence, and in some cases actual violence, is used to enforce the cartel. And this was the trash business in New York and New Jersey for a long time. And to be clear, if you live here, you're like, doesn't the city pick up my trash? Yes, it's the trash business for institutions, for businesses, that sort of thing. Still, if we were crime business history, we would hammer this lesson home all the time. divide up the business, and then use threats and violence to make sure you can keep prices high. It is extraordinary how high they kept prices, in part by killing people.

20:12Like, to be absolutely clear, people got killed in the garbage business. There was this moment in New York when there was a crackdown, not until the 90s, kind of amazingly. There was a crackdown on organized crime in the garbage business in New York in the 90s. And when that happened, prices fell by like 50 percent. They were not inflating prices by 15%. I guess you don't kill people for the extra 15. You're going to kill people. You might as well double the price. So it worked. And Huizenga and WMI stayed out of New York and New Jersey for a long time. Although this is a point to mention that at some point, WMI paid$19.5 million to settle a price-fixing suit in Philadelphia.

20:57also got fined in other places for harassing competitors and intimidating customers. That's the ball twisting? No. Huizinga was not personally attached to any of these WMI ones, I should say. But there was an instance in New Orleans when city officials said that people from WMI told them that they would wear cement boots and meet their maker if they kept investigating the company. Wow. We'll be back in a minute.

21:37This is Jacob Goldstein from Business History. Imagine Henry Ford trying to create the assembly line. He had factory plans, production schedules, supply information, research, and ideas coming from all directions. His team spent years studying how to make the process work. Now, imagine having ChatGPT work. ChatGBT work can help with big projects that have lots of steps. You give it the goal along with real information like notes, files, reports, feedback, and project plans. It can use approved apps, connected tools, and files to help turn all of that into something useful. A plan, an analysis, a tracker, a presentation outline, or a workflow you can keep improving.

22:18And you stay in control. You give direction, review the work, approve actions, and choose the final result. Would Henry Ford have built the assembly line faster with ChatGPT? We'll never know. Ford didn't have ChatGPT. You do. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow.

22:53What you probably didn't dream about? Keeping up with cyber threats. That's where MasterCard can help, with access to tools that help identify cyber threats to better protect your business. Building your dream business? Priceless. For cybersecurity in a changing world, there's MasterCard. Learn more at MasterCard.com slash smallbusiness. Today's episode is brought to you by Apple Ads. Ads on Apple Maps are changing the way local businesses get discovered. Reach customers when it counts, right when they turn I'm looking into I'm going. They're in decision-making mode, actively searching for businesses like yours and deciding where to go.

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24:21The ad break is over. It's the mid-70s. WMI has done its big roll-up. But the nature of Wayne Huizinga is to want more. Often the case with the people we talk about on this show. Clearly true of Wayne Huizinga. When are we going to do our lazy person show? Like the person who just did the thing and got out. Or did the thing, like the Ferdinand the Bull of business history. Who is the Ferdinand the Bull of business history? Email us at businesshistory at pushkin.fm. It's the mid-1970s. You're a big garbage company with lots of money. You have found a competitive advantage in government regulation.

25:00You've realized that government regulation gives you an advantage by being big and having access to capital because the complex rules are hard for smaller companies to deal with. How do you grow? What's your move? You look for something even more complex and highly regulated with more expensive rules, which is why in the mid 70s, WMI gets into the chemical waste management business. They buy their first major site in 1977. That's in Alabama. They buy a bunch of other chemical disposal sites. They're also expanding internationally. Saudi Arabia, Venezuela, Argentina become the biggest garbage company in the world.

25:42And then in the 80s, they get into trouble because of that chemical waste business, in particular that site in Alabama that they had bought. There's an expose on the front page of The New York Times, followed by charges from the EPA that the company improperly disposed of PCBs. Remember PCBs, chemicals that went into the local water supply. At one point, there was a fire at the site. A pipe failed. A quarter million gallons of liquid waste flowed onto adjacent property. Bad, you know, nasty stuff. But the company weathered it. Their stock fell, but it bounced back. They hired a bunch of former regulators.