Why This CEO's Billion Dollar Idea Almost Didn't Survive Its Own Pilot

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2:24Tom Szaky:Everything is recyclable. The only things that might not be or were laws prevent you from doing it, like a bloody glove from a hospital legally has to go to incineration. What makes things actually locally recyclable is just that they're intrinsically profitable to recycle. And mind you, that's only 5 % of objects in our lives fit that description, because also what's the biggest megatrend in object design is cost reduction, which means every day we reduce costs out of goods, which also makes them intrinsically less recyclable.

2:53Jason Feifer:Running a business means solving problems. I tell you how the smartest entrepreneurs do it. Hi, I'm Jason Pfeiffer, Editor-in-Chief of Entrepreneur Magazine, and this is Problem Solvers.

3:07Jason Feifer:Big ideas can require big change. And I know that sounds obvious. What am I saying? I'm not saying anything totally new there. But the thing is that sometimes you have this big idea, right? You have this big concept that you want to introduce into a marketplace and you realize this is going to require some fundamental shifts. And I don't even know what fundamental shifts they are. How do you tackle a giant project that you know could be so good for your business, for the world, for your consumer, but you have really no idea exactly how it's going to be built out into the world. Well, today, I'm talking to someone who has done it, who has lived it.

3:46Jason Feifer:It was a big, hard project, but the lessons are changing everything. So this is a story, and we're going to talk to the CEO, and I am an obsessive recycler. and whenever I encounter something that I didn't think could be recycled, and then there was a way to recycle it, TerraCycle is always behind it. So I've always felt very fondly toward this company, but I didn't really know that much. Now, today, I get to talk to Tom Zaki, the founder and CEO of TerraCycle, who has built out this program called Loop, which we're going to talk about. A big, ambitious project that failed in many ways before it finally succeeded.

4:25Jason Feifer:How did you do it? Well, Tom, welcome to Problem Solvers. Thanks for having me. Okay, Tom, let's zoom into Loop, but first take a moment and just explain TerraCycle to me and anyone who's maybe just come across the name, sees that I can somehow recycle like a candy wrapper through TerraCycle, but I have no idea how.

4:46Tom Szaky:Absolutely. So, you know, for 25 years around the world, we've been doing at TerraCycle exactly that, creating recycling solutions for those objects, could be your cigarette butt, could be your toothbrush, that are not locally recyclable. The key issue, by the way, is what makes them not locally recyclable is simply they're not profitable to recycle based on the material value that you recover at the end. Imagine a dirty diaper, right? A lot of money to collect it, a lot of money to process it. The output's not that valuable and certainly not valuable enough to pay for those aforementioned costs.

5:15Tom Szaky:So that's like the white elephant in the room. And that's interesting.

5:17Jason Feifer:Can I just restate that to you? In other words, the world is full of many more recyclable things than we know. The problem is just that there aren't usually the economics behind that material and that recycling process for there to be a widely available path to do it.

5:35Tom Szaky:You got it. And just to really put a fine point on it, because you're absolutely right, but it's basically everything is recyclable. The only things that might not be or where laws prevent you from doing it, like a bloody glove from a hospital legally has to go to incineration. But I've not seen a waste stream you can't recycle. What makes things actually locally recyclable is just that they're intrinsically profitable to recycle. And mind you, that's only 5 % of objects in our lives fit that description. Because also what's the biggest megatrend in object design is cost reduction, which means every day we reduce costs out of goods, which also makes them intrinsically less recyclable because there's less money to recover.

6:14Tom Szaky:Fascinating.

6:15Jason Feifer:Okay. And so you listed off some of these things from wrappers to cigarette butts. And so the way in which people are getting these to you is what? There's a lot of mail-in?

6:28Tom Szaky:Yeah, so there's a whole choice. The first major choice is are they free programs or paid programs, right? So you'll see that on our website if you ever visit it. And basically the free stuff is free because companies are funding it. So it's not intrinsically free, but it's free to the consumer. And then there's paid solutions. Typically, you would use those if you can't find a free solution. Then within the solutions, there's a range of ways. It's certainly what you said. There's mail-in solutions. There's also find a local drop-off point. It could be a retailer. It could be a school. There's a whole plethora of different choices.

6:59Tom Szaky:We even do some curbside solutions. It all depends. Maybe there's about a dozen different ways you can get the waste to us. But simple examples would be things like mail it in or drop it off.

7:09Jason Feifer:Got it. Okay. So now let's move into, you have this program, you have this program called loop in which you're trying to do something different because recycling isn't the only way to reduce waste and use in the world, is there?

7:23Tom Szaky:That's right. So recycling, to be clear, recovers the composition or the material an object is made from. Let's just take a soda bottle. There, we would be recovering the plastic. In that case, something like PET. But you're destroying the form and the intention of that composition in that form. Both things, mind you, that also costs money to make. So better than recycling is reuse. And that's what we learned as kids. Reduce, reuse, recycle. Reduce is buy less, reuse is where you just clean the object, repair it maybe, use it again. And recycling is below that where you recover the composition.

7:55Tom Szaky:And that's what we wanted to elevate.

7:57Jason Feifer:Right. Which would make sense to me because I think if I'm holding a glass bottle and I put it in the recycling, I think it's kind of nuts that this thing has to get, I have no idea what happens to it, shattered and melted and then just turned into another bottle. We've already got the bottle. Why not just somehow clean the bottle and let someone else use it again?

8:17Tom Szaky:You're exactly right. Exactly right. And so that was what the idea of Loop was all about. And the crazy thing, too, is that that's also, by the way, how the world was until what I would argue garbage was invented, which is really in the 1950s. You know, everything, milkmen, you know, to motor oil, to our sodas were in these reusable vessels.

8:34Jason Feifer:That's right. So, okay. So you have this thought, which is, let's not just be in the recycling business. Let's be in the reusing business too, which is the big idea that I'm referencing at the start of this because, okay, how do you get people to reuse something? I guess if I were you, the starting point would be, I would be thinking, okay, well, we have to create reusable containers. Number two, we've got to teach people to reuse and not throw away or recycle. And then somehow we've got to get it back from them.

9:07Tom Szaky:That's right. It's exactly correct. And so the beginning is that first step that you mentioned. It's where we began as well is let's talk to consumer product companies. And the nice thing about TerraCycle is we work with just about every major consumer product company. So had these relationships. And what got them interested, I would think, is two things. One, they have a lot of pressure on them around the waste of their product. right so this is a topic they're actively looking for solutions for and the pressure from like the green pieces of the world is there the primary thesis is forget recycling go to reuse right so that's already there what was most interesting in our first dialogues which is why we got a lot of companies is uh you know to sign on is in disposable products or products that you you know you uh the vessel is thrown out after the content is consumed that bottle or that package is uh a cost of goods sold at 100 percent right so the wine bottle if it costs the producer a buck that dollar is in the cost of the one and uh when you shift to reusables the package now becomes an asset that's amortized over the number of uses so you could even upgrade potentially from a 10 cent package to a 50 cent package imagine the innovation and excitement of like 500 increase in package costs what you could do with that but if it goes around say 10 times it actually costs you half per use than the original disposable package.

10:26Tom Szaky:And that is was the original excitement that got, I think, around 200 major CPG companies to be like, let's start, you know, experimenting with this.

10:33Jason Feifer:Right, right, right. Because, yeah, what you're seeing in the marketplace now is a lot of companies, because they're so aware of waste and perception of waste, is they're trying to reduce the amount of material in their packaging. So people have noticed that your water bottle or your soda bottle might now feel even flimsier. And that's good in a way, right? Because it's less material. But if I'm the CPG company that's creating that, I'm thinking, oh, my packaging is getting uglier. It doesn't have the same quality of feel. And I don't love that. So this is in a way an interesting solution for them.

11:09Tom Szaky:At CLA, we're in your corner and on it. We coach tax strategies and Little League First Base. We help you adopt AI data tools and we adopt rescues named buddy. We walked your factory floor and jogged the local 5k, though sometimes we walk that too. Wherever you're coming from, we're right there with you. Wherever you're going, we'll get you there. CLA, CPAs, consultants, and advisors. Learn more at claconnect.com slash with you. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks.

11:55Tom Szaky:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. It's exactly right. And the crazy part of what you said, that bottle becomes flimsier. By the way, the end point is everything is a pouch, right? It actually makes it less recyclable in the process. And even more important, I think, to the CPG companies, way less exciting. And like innovation started coming out. You know, we started working with these EPG companies like Nestle, for example, with Haagen-Dazs. They went from a paperboard, you know, ice cream pint to a double wall stainless steel ice cream vessel that like is museum quality.

12:33Tom Szaky:The thing would keep your ice cream frozen in the summer for hours, you know, and all sorts of cool things. Tide's bottle was like nothing like this. It was so amazing, you know, the type of packages that that came out. So it's certainly got the juices flowing because as your packaging designer, you're given less resource tomorrow than today to make the package, which is just progressively harder and less inspiring.

12:54Jason Feifer:Right, which is great. So a thing that you're doing, and I just want to flag it for everyone, is as you're thinking about introducing something new to the marketplace, you have to be thinking not just what problem is being solved for TerraCycle, right? But what problem can I be solving for everyone else that I need to be involved in here? And so if you're working with CPG, I keep saying CPG, consumer packaged goods for those who don't know. And if you're working with them, then you have to introduce something that isn't just, hey, be involved in this because it's good for the world. That's nice, but if it doesn't help the bottom line, then people aren't going to be on board.

13:32Jason Feifer:But if you identify the problem, and the problem is that they're actually frustrated and feeling limited by the packaging. and packaging is such an important part of selling a brand on a shelf, then actually you're giving them a lot of options and suddenly they're more on board. So, Tom, I had said that this idea ran into walls. So tell me where the problems first occurred as you tried to build out this system in which you've got reusable containers. And actually, what is the consumer supposed to even do with a reusable container?

14:08Tom Szaky:Yeah, so the consumer experience is Loop itself doesn't make a product or sell a product. We're like a platform and the waste management function of reuse. So basically, the first part is we work with brands. They enable reusable versions of their product. Imagine Haagen-Dazs now in stainless steel. You're tied now in reusable, beautiful packaging. That then shows up at your favorite retailer. And then as a consumer, you see that, you buy it. The only new concept is every bottle has a unique deposit attached to it, right? So that Haagen-Dazs container, you may pay a 50 cent deposit, the Coke one, maybe 10 cents, whatever.

14:41Tom Szaky:And everything is normal for you, except when it's finished. When it's done, instead of putting it in the trash or potentially a recycling bin, you bring it back to any participating store. So you could have bought it store A, but returned to store B. You throw it into the loop bin. That gives you all your money back. So all your deposits are refunded. And then that's the consumer experience. What happens after that is we take it, we give you your deposits back, sort the packaging, clean it, and it goes right back to the manufacturer who fills it again and sells it to someone else. And the concept of waste is gone.

15:13Jason Feifer:Right. Okay. So I love it. I'd be down. I would go and buy that stainless steel Haagen-Dazs and I would bring it back to the store. So why did this not work?

15:25Tom Szaky:Right. And I want to emphasize what you said is also what all consumers said everywhere. It was 100 % out of the gate. Consumers have loved it, continue to love it everywhere we do it. So now, you know, when we started Loop, this was already 15 years into TerraCycle, which is now 10 years ago. We're in 20 countries. So we said, look, let's test this in five countries, put some bets on that proverbial roulette table. And we picked Canada, US, UK, France, and Japan. And we first started with brands. So we had all these brands doing this. Then we said, look, we don't want to be a retailer. Let's go to the leading retailers in all these countries and say, hey, do you guys want to distribute?

15:59Tom Szaky:And we got that everywhere, you know, Loblon, Canada, Walmart in the U.S., Eon in Japan, like number one everywhere. And the retailers said, no, let's go a little slower. Let's first prove that our consumer, like our Walmart consumer, our, you know, in France, Carrefour consumer cares. How do you want to solve that? And we said, look, we'll set up a digital platform in your retailers look and feel. But WeLoop will run it for you where consumers order, we ship out the reusables, pick up, you know, the empties. and prove that your consumer is interested. And that all went well. And from there, after about a year of doing this, we transitioned into in-store pilots.

16:37Tom Szaky:So we said, we don't want to be a retailer that long. So, hey, can you please do your function? And they all said yes. They all went in-store. And think like 10, 20-store pilots. And when you walked into one of these stores, you'd see like an aisle of 50 to 200 products. And again, it all functioned well. And mind you, all this is a lot of work because we have to go through crazy health and safety standards. and all this stuff to like, because you can imagine it's like a baby food jar, that baby food jar, when it goes out, you don't know what when what happened to it, someone could have pooped in it, put drugs into it.

17:08Tom Szaky:I mean, you have to assume, right, the worst, the worst.

17:11Jason Feifer:Yeah.

17:11Tom Szaky:And we were able to get that cleaned, you know, to a standard that like a very conservative Dan and and Nestle signed off and said, Yeah, we'll put new baby food and sell it to the next consumer, right. So all that hard work was working, you know, and, and, you know, all the traditional issues one would have are just making sure to stand out the system like this function. And then this is the crazy part. Now we're about five years in, you know, have deployed a lot of capital against it. And we started pushing the retailers to scale. Like, let's not do these dinky pilots. Let's go to thousands of stores and really make it big.