Making garbage useful with Tom Szaky of TerraCycle

25:34So we figured three things have to come together. We have to somehow collect the waste, then to process it to make sure it turns into a recycled output. And then most importantly, to get someone to go out and fund all that. And our beginning point was going to manufacturers and brands. Because they tend to be the first in line for when someone points a finger on why is that object a waste object. It tends to go to the brand. So we thought that's a good place to begin to try to get funding. So I think one of your first partnerships is with Stonyfield and Cliff Bar. And explain how that would work.

26:12They would pay you to create a program for them for people to, what, send in the Stonyfield yogurt cups or drop them off somewhere? How would it work? Yeah, that's exactly right. Very similar concept as how we were looking to or how we were collecting the soda bottles in the worm poop days. We said, and we had some experience on how to do that. So we went to the folks at Clif Bar and Stonyfield and Honest Tea. Those were the first three partners that chose to back us. And we said, look, you guys have non-recyclable packaging forms, juice pouches for Honest Tea, all the way to wrappers for Clif Bar.

26:48And we'll set up a national platform for you where schools and other community organizations, places of worship, fire stations, libraries, can sign up, put out a collection bin, fill it up with that category of waste. So it wasn't just for, say, Stonyfield branded yogurt cups. Any brand of yogurt cup could be put in through that program. Then download a shipping label, send it in, and then we'd give a little bit of an incentive to that organization, a little money to be donated to them or any charity they want. And that's effectively how all this waste would come in in this first iteration. Right.

27:19Okay. So the idea is to get brands to finance this. And recycling doesn't necessarily mean melting it down all the time. It could mean just cleaning the containers and returning them to the company so they could reuse them. Absolutely. So generally speaking, if you think about comparing recycling and reuse, recycling is where you recover the materials an object is made from. And then those materials are now new inputs for other products. Reuse is more where the package is cleaned and then refilled. At the beginning with these brands, most of what we were looking at was doing recycling-based outputs or what's sometimes called upcycling.

27:57Think like sewing juice pouches into a backpack or folding energy bars into a bracelet or something. So what would you do with recycled energy bar wrappers? Like how does that – I mean are they melted down? I'm trying to imagine how they're recycled. Yeah, absolutely. So the way the process for that would work is we'd first get in the wrappers. We would shred them. then run them through a washing cycle. So all the residual oils, foods, and greases, and so on would come off. Then we would create what's called a compounded pellet, where it all gets melted down. And then we would look for manufacturers that could use that material instead of buying new materials.

28:34So an energy bar wrapper may turn into a watering can, or a dog food bowl, or a plastic bench, or something like that. Got it. Okay. So over time, you began to presumably to find other partners, other brands that were interested in doing this and you and so you would essentially set up a program for these brands right they'd have a TerraCycle logo on it and and how would you like as a consumer right if I went and bought I don't know a cup of Stonyfield yogurt right or a Cliff bar how would I know because instead of just throwing it away in the garbage in my house how would I know that I could do this?

29:13Yeah, creating awareness was really important. So we would go out, I mean, we're a small organization, we would create as much awareness as we could by talking to the media, our own social media presence, things like that. And then the brands would also promote it by putting the TerraCycle logo on their package, maybe sharing it on their assets, like their social media pages, websites, and so on. And people would then become aware that, hey, there's this option of what I can do with this package beyond just throwing it away. Okay. So Tom, explain how, I mean, this is not a nonprofit business. I mean, this was a for, and is a for-profit business.

29:47So the business model depended and depends entirely on partnering with brands? Not just brands, but yes. I mean, so, and by the way, my advice to mission-driven entrepreneurs is typically to try to do this stuff in a for-profit context because access to capital is way easier in a for-profit. So our job is to go out and find as many stakeholders that are willing to fund. So brands is one area. It could be retailers. It could be office buildings or campuses, all the way down to even individuals. And so what we're first focused on is how do we create as many methods of collection as possible? Our mail-in programs are one today of about two dozen different ways that we're able to do collection from doorstep all the way to retail collection.

30:32And then because these waste streams cost more to collect and process and the results are worth, it's about finding folks that are willing to fund. And there's many different stakeholders, but each one, our job is to figure out, hey, will you pay for this externality? Noting you have no legal obligation to do that today. It's sort of crazy, right? Like as a consumer, I can throw something in the garbage and I get no fine if I put a recyclable in the waste. I have no obligation. Manufacturers have no obligation to fund this externality, nor does any other stakeholder. And so we're out there sort of saying, hey, take voluntary responsibility over this, and then we can set up a solution that people can access.

31:11All right. So you have this model, right? And as you say, these companies are not required to do this, right? Like when I get a bottle or whatever it might be, or anybody does, a tub of yogurt or anything that we consume, a snack, it's our instinct as humans to just find the easiest way to dispose of it. And most of the time, it might just be the nearest trash can, right? I mean, there's no cost to us as consumers to throw things away. I mean, there are obviously huge environmental costs, but we don't actually get penalized. The companies don't get penalized. And so right now, there's no market solution to – there's no sort of market fix, right?

31:54Because you could create a market around this. You could say, well, you have to do this or you'll be penalized. And then everybody would change their behaviors. But right now, it's entirely voluntary. Exactly. And this is a foundational flaw in the entire concept of waste is that as a manufacturer today, let's say you and I started a company, we can invent anything, Guy and Tom's cool new pen, and we would have no responsibility over its end of life at all. And there's no regulatory body we even have to go through to approve that that pen is okay to exist. And we think this is normal, right? Like this is just how businesses operate.

32:30Right. But essentially, if you think about it, like in 100 years from now, we might look at this and say, wow, that was a period of chaos in human history where we just allowed everybody to make whatever they wanted without thinking about the consequences of disposing of that product. Right. And if I can zoom out for a minute, I think you have nailed the foundational issue in all of sustainability versus business, which is that business and almost all the externalities it produces, not just waste, but deforestation, species extinction, everything. Carbon emissions. Yes. It does not have to be responsible for those externalities.

33:08So effectively, they're going and being paid for by the plants and animals that inhabit this world that have no point of view on whether this stuff should happen and future generations. Net-net, I mean, that would be the solve is all these externalities being somehow embedded. The challenge, of course, is that the price of products would explode. Right. And so I would say that – I would argue that it's not just companies and corporations. It's consumers too that are getting a free ride. Yes. Because because the cost to us is not is also very low. We get cheap consumer products. And, you know, right, because if companies had to do that, if corporations have to do that, they'd have to raise prices, and we'd have to pay for that, which you can make the argument that that we should everybody should should be doing that companies, consumers.

33:52Yeah, yeah, yeah, exactly right. I mean, that is, if you gave, you know, sort of the a dream state for me from a legislative point of view, that would be what would happen is that all the externalities of creation of products would be in their price, which of course would mean that everything, as you just said, would get much more expensive, which would mean we would consume less. And consuming less is the actual answer to every environmental issue we face. Why don't we come back in just a moment? More on strategic consumption and why Tom's actual goal is to put himself out of business. Stay with us.

34:27I'm Guy Raz, and you're listening to How I Built the slab.

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36:52Welcome back to How I Built This Lab. I'm Guy Raz. So Tom is the founder of TerraCycle, a company that works to recycle and reuse packaging. The problem, though, is that creating new plastic is often cheaper than recycling old plastic. Today, plastic is still cheaper to make new than to collect it and process it and then to use it as a recycled material, which is why we see the use of virgin plastic increase year over year over year. So, I mean, how do you change? I mean, if it's a matter of economics, right, if it costs more to recycle than to use raw virgin materials, how do we fix that? I mean, essentially, can we fix that?

37:38Or will companies simply have to choose to just pay more because it's the morally right thing to do? Well, I think there are two ways we can manifest change. We can have mandatory change. Let's call that regulation legislation. And we see that coming in the world of waste. We've seen certain things get banned, like the plastic bag in certain states and countries, plastic straws, disposable dining ware. That we'll call mandatory action. And we should do as much of that as fast as absolutely possible. And it's good that we see some of that coming. After that, I think what's left is voluntary action.

38:11That's where, for example, TerraCycle sits. And there we have to seduce companies and convince them to invest in something they have no legal obligation to invest in. And with each stakeholder, it's a different sort of types of value that we have to show. So for a brand, our goal is to say, hey, you have this big issue. You can create a solution to it. But maybe you can also attract consumers into your brand versus a competitor that may not be offering that investment. Or if you're a retailer, maybe by offering recycling solutions for certain waste streams, you can attract more foot traffic. And in each case, it's about using the dynamic of business to think through what is the value that's being generated by funding the solution to that externality.

38:53What do you, I mean, right now, given that there are no financial incentives or penalties, right? What have you discovered is the best incentive to get consumers to participate? I find that there's really sort of two type of incentives that really move consumers. There is consumers certainly who care about the environment because it's the right thing to do. And we're seeing that trend in the right direction. It's just not for 100 % of people today. The other incentive is creating benefit for their community. So we do a lot of programs where we say, hey, collect toothpaste tubes and toothbrushes, and then they get turned into playgrounds that may benefit a community near you.

39:29We see that That drives a lot of motivation or donations to charity. And then the third is the odd one, which is making it fun and exciting. I'll give you a case study of this. We did a study at a train station. I think it was in New York, perhaps, like a busy train station. And we put out very well-marked recycling bins and very well-marked trash bins right beside each other. And we noticed how many people would put an aluminum can or a soda bottle in the right bin, and it was 50%. And that's crazy because they're right beside each other. Then we just inserted a little bit of fun where when you put something in the recycling bin, the recycling bin would light up and give like a sound effect back.

40:09And immediately it moved to 90 % of people put the recycling in the right bin. And so fun and excitement is also important to instill in these programs to get good participation. Tom, we've had many businesses on How I Built This that are beverage companies or food companies that use plastic. And occasionally I've asked them, why don't you switch to aluminum or to glass? I interviewed somebody who's got a beverage company and they said, look, aluminum creates actually more pollution and you can recycle plastic. And also the weight of glass creates more carbon emissions. I mean, there are all kinds of arguments you can make.

40:53But I mean, do you think we would be better off if most food brands and beverage brands just used aluminum and glass rather than plastic? No, I don't think so. Because I think every material type has pros and cons. We're in a moment right now where we are, I think rightly so, really projecting a lot of negative onto plastic because of microplastics, ocean plastic, all these things that are correct. But there's also externalities of everything. And so the right answer that we have to think about is the hardest, which is a meditation on our relationship with consumption. We are voting for all this environmental destruction to occur by buying things.

41:33And we're buying things at a phenomenally unsustainable volume. That's going to be, I think, some point in time that will have to be really reflected on. And I think it'll either come from us voluntarily reflecting on it. I hope that's the case. But if not, it's going to come through the earth effectively punching us in the face quite a bit and forcing that reflection to occur. Because, I mean, it's going to come to us one way or another. The material choices we make, I think, need to be less about is it an alloy or glass or plastic. It's much more about how do we eliminate the need of packaging if we can.

42:07Then how do we shift to reusable packaging where the packaging is just cleaned and refilled, which eliminates the need of extracting it every time from the earth. And then if we use disposable packaging, how to make sure that that material can still be honored by going around as many times as possible, perhaps into different applications and just getting away from this hyper disposability where it all ends up in destruction, whether a landfill or an incinerator. All right. So you're obviously fighting the good fight, but you're also running a business and it has to be a sustainable business. Tell me a little bit about the economics of TerraCycle today.

42:46I know I've seen different numbers about, you know, I know you raised about$25 million in 2020. I've seen different numbers about your revenue,$40 million,$50 million. I mean, are you a profitable business right now? Yes. So to give you a couple of statistics, in 2015, we turned profitable and we haven't looked back since. So we've been able to post profits every year since then. This year, you know, we'll do about 75 or 80 million in revenue, somewhere between those two numbers. And every year, this is our 20th year, we've achieved straight revenue growth every year. Now, mind you, I'd still say just under 100 million is a small number compared to the opportunity and the level of the issue.

43:28So we think we have a lot in front of us. But we have been able to achieve good stability and good foundations from a P &L balance sheet, all those vectors that you would look at in just, is it a good business model? Tom, here's sort of a weird question. And I'm sure at some point you've thought about this, which is essentially your mission is to, you know, in a perfect world is to eliminate waste, right? And so we would all be going to the market and refilling our glass bottles with, you know, apple juice or peanut butter, whatever it is, right? And if that were the case, your business is obsolete.

44:09Like, in a sense, your mission is to make your business obsolete, to bring your revenue down to zero. I mean, am I kind of right there? No, you're not just kind of right. You are absolutely right. And this is entirely why we invested in doing this. So it's not just passively. We've put all of our profits and investment into our third division, which is called Loop. And it's all about transitioning from disposability to reusability. And if Loop were to really succeed in a grand way, our first division, which is focused on recycling, would disappear. This obviously came up when we created Loop. It's like, wait a minute, this is going to cannibalize our first unit.

44:50And to me, It was sort of like, well, when Netflix created streaming, it destroyed their mailing system for DVDs. But it was the right decision. Right. So Division I is recycling. Division II is turning those recycled materials into other products. But the newest division that you launched in 2019 called Loop, or you announced it, I think you launched it in 2020. Yeah. This essentially is a – what you do is you partner or you're partnering with some big companies like Tide Laundry Detergent or Haagen-Dazs ice cream. And you are creating a program to – what? For them to reuse the containers or to like basically for consumers to reuse the containers.

45:30Tell me how it works. Absolutely. So we work with brands. Today, 200 major consumer product companies have joined. Even Nestle and P &G are now investors in this. and they basically create reusable versions of their brands that are there today. Our job is to approve and make sure it can flow through and it really is reusable. So let's take something like Tide laundry detergent, right? Today, Tide comes in that iconic orange plastic bottle. In select stores at Walmart today, you can find it through Loop in a beautiful stainless steel container. And they have to design that container to fit the rules, which it must be able to handle 10 reuse cycles or more.

46:08That one particular one's rated to be much more, but we say 10 is the minimum to be countable as reuse. And of course, what is really reusable? I mean, one could argue it's more than one use, but we worked with a lot of NGOs and stakeholders and said 10 is a good number to say, you know what, at 10 you are reusable. And so they have to do that. Sort of like similar to the concept of organic, where people have to farm in a certain way and then someone says, now you're an organic farm. We do the same, except we say now that's reusable. and the way it works for a consumer, for example, in Arkansas, you can get this in Walmart today where you can buy these products, whether it's Heinz ketchup all the way to Tide laundry detergent.

46:46You pay a deposit for the package and then when you're done, without sorting it, without cleaning it, you give it back to Loop, say in a drop-in at the store or if it's e-com, it's picked up from your home and then we return the deposits to you in full. We sort them out. If needed, we clean them and then they go back to the manufacturer who refills them and around it goes again. And one of the nice things here is then there is no waste. And at the end of the life of that container, one of the rules for Loop is that it must be able to be recycled back into itself so that those molecules always stay in the context of that package.

47:23So, I mean, and there are versions of this, like in California here in Northern California, you can buy Strauss milk, for example, glass bottles. And, you know, you pay$2.50, I think, per bottle. But, you know, that's an incentive to bring it back because it's a lot. I mean, these are very heavy, thick glass bottles. And so that's the basic model here. Yeah. Think of it as the milkman, which is the example you just shared. But it can apply to any product from insect repellent all the way to your favorite ice cream. And do these containers need to be made out of something other than plastic? or are they sometimes still made out of plastic?

48:00Well, there are three sort of material types we see work really well in reuse. Obviously glass, like the milk bottle you mentioned. Alloys are great, like stainless steel, aluminum. Those work very well, but also engineered plastics. So think like a plastic sports water bottle is a reusable vessel and we use it all the time. And in different applications, it's very appropriate. So for example, in a bathroom environment, let's say you have shampoo and conditioner. Glass is dangerous because – Not great, no. You don't want to shatter it on your shower floor. Oh, my God. Can you imagine, right? Or alloy, imagine if it's slippery and it falls.

48:38It can hurt your toes much more than a plastic container. So in something like shampoo conditioner, a thicker, more durable, but polymer container is the right choice. So, Tom, as the brand, TerraCycle, begins this transition over time to loop, right, let's say, where in the future, ideally, every product we buy is going to come in a container that's reusable, right? Let's say that's the future. What does that mean for your business? I mean, do you see this as a billion-dollar business? I mean, how big can your business become if this transition works? I think much bigger than recycling. I think this is going to take a long time, mind you, because we have to do it product by product, country by country.

49:26It's a big transition to get this all to occur. But let's say academically we did get there. The amount of jobs and the amount of revenue created on reuse is bigger than recycling, just like recycling is more jobs and revenue than landfilling. And so over time, you see yourself ideally getting out of the recycling business and focusing on the reusable business. Yeah, I would say I look at this transition as recycling is what we can bring at scale today. And let's do that while we're able to get everyone to shift to reusable. Nothing we spoke about is really the answer to waste. And I think this is really important.

50:05and it's the biggest realization I've had in 20 years of doing this, is that recycling is a band-aid, right? And it's better than landfilling and incineration. It's a step in the right direction. Reuse is an even better step than recycling. But in the end, the only answer is going to be a significant reduction of buying things. And it's the conversation that gets spoken about the least in the multi-stakeholder dialogues and all the halls of business because it is inherently anti-business. But I think it's so important for us to realize that, especially as citizens who are voting by buying things, right?

50:40That vote is what fuels all this, and we have to shift it. Tom, thank you so much. Thank you so much as well. That's Tom Zaki, co-founder and CEO of TerraCycle. Hey, thanks so much for listening to How I Built This Lab. Please make sure to follow the show wherever you listen on any podcast app. Usually there's just a follow button right at the top so you don't miss any new episodes, and it is entirely free. If you want to contact our team, our email address is hibt at id.wondery.com. This episode was produced by J.C. Howard with editing by John Isabella, research by Kerry Thompson, and music by Ramtin Arablui.

51:23Our audio engineer was James Willits. Our production team at How I Built This includes Casey Herman, Alex Chung, Liz Metzger, Elaine Coates, Chris Messini, Carla Estevez, Sam Paulson, and Ramel Wood. Neva Grant is our supervising editor. I'm Guy Raz, and you've been listening to How I Built This.

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