Tom Szaky - Co-founder and Chief Executive Officer of TerraCycle, Inc. - Part 1
"The Journey" - 20+ min. podcasts that let you wrap your mind and heart around the experiences of those business people and entrepreneurs who captivate you and motivate you. The emotions of the highs and lows are captured in a way that not only shares the experience but moves the soul. You won't help but find a nugget of truth you will write down and carry with you on your personal journey.
STREETER: So because of the time constraint this morning –
STREETER: You didn’t have a chance to really kind of give the audience the big overview. And I am wondering if you can tell about your journey in a like two to three minute sort of byte. And then we’ll go back and sort of dissect it and –
SZAKY: Do you want me to go the whole thing quick in sense?
STREETER: So maybe just you know. They are very interested in at least starting the college years. But I know you did a lot of stuff before that too. So maybe just if someone said you know, what is your entrepreneurial journey been like?
SZAKY: Oh okay. So overall.
STREETER: Yes. So maybe you could tell that story.
So I really started – I mean entrepreneurship I think is something that your – is ingrained in personality. And it really is sort of – it’s a risk quotient. If you are someone who is willing to take risks than you can be a – and that is an entrepreneurial trait in a big way. So I was really always into trying new things and just – what I got really interested in is trying to take ideas as big as possible. And even in high school you know, like the big events. And the bigger the better. I didn’t care what it was. It was just big. That was important. And – because that led to excitement. It’s like an adrenaline rush. Then you know, right around high school too, I got involved in some startups. None of them really worked out. But each time you know, we try to take a concept and make it big. And every time it got bigger and bigger. It just ended before it got really big. And I came to Princeton. It was a normal thing, economics major. A little bit of psychology. And went up to Montreal with some friends and discovered a worm box there. And really what it boiled down to was you feed the worms garbage and they make a great product, garbage is defined by something people are willing to pay you to get rid of. And product, something that they are willing to pay you to take. So you get paid on both ends. That was pretty cool. That started the whole idea. I ended up leaving Princeton a year after that. And once we developed the concept a bit more, and I really just couldn’t do both. I had to pick one or the other. That’s when I dropped out. And grew the company. You know, brought on staff. Tried to raise money. And you know if you fast-forward to where we are today, we’re in Wal-Mart, Home Depot, CVS. I mean, you know, most of the major chains. And we’ll probably be in you know, a good multiple of millions of sales next year. And growing really fast from there.
STREETER: I know that you were born in Hungary.
STREETER: And so I wonder if you could say, were there early influences that effected your development because you lived in Hungary and then in Holland, and then Canada.
SZAKY: Uh-huh. Yes.
STREETER: And I am just wondering. A lot of times someone with that background, it could effect them becoming more risk adverse because they have been through so much.
STREETER: But obviously some early influences for you really made a difference. So maybe you could talk a little about that.
Sure. I mean the early influences – it is interesting because my parents – and then I did go through living in – I grew up in Budapest, and Amsterdam, and Toronto. And so I had a lot of experience on just leaving life and going to the next thing. And my parents who actually did it, I just was around for the ride, are now very risk adverse. However, I just saw it all. And what I saw was growing up willing to just drop everything, jump in to the deep end in a sense and go on to the next life. And if got better every time. So I think it was reinforced because I moved from communism to Holland, which is one of the greatest countries in the world to live. It is just fantastic, to Canada, which is I guess rated the best country in the world to live you know, from just a you know, a human side. And so it also got reinforced I think subconsciously that every time we jumped in, it got better. And it is true. I mean in the sense, when you take a risk, you do set yourself up if you take a smart risk, to end up better. Or why would you be taking the risk? And if – and then what it comes down to is, once you take the risk, is actually working. I mean a lot of it, once you decide I am going to do it, it is all then work. And so I really fell in love with the idea of work. I really enjoy work. Just you know doing and creating. And you know, my – it’s – for me I don’t consider it work. That is the paradigm that’s broken down. Like I am in the office, I don’t ever look – there is no clocks in our office actually consciously. People work there. So they come in very early. And the close – the more you can think about it as not work, the better off you will be. And I don’t consider my job a job. I just think it is fun and exciting.
STREETER: What is the hardest thing for you about being a young entrepreneur?
Being a young entrepreneur is I think hard and it has got it’s major negative points. But also some major positive ones. And it’s interesting you know. On a negative side it is very hard to get people to invest in you. Very hard to get people to actually think what are doing is credible, real you know, thought out as professional as someone who is 40 would do it. And trust yourself. Like you know, do you have a well developed enough character to lead a company and do all this? But on the flipside – so that is the negative. And that – you just have to deal with and be able to – you have to take the advise there and not react negatively from an ego perspective. You’ve got to say I’m going to learn from it. I’m going to be a better leader. I am not going to get there. But I am going to get better and better and take down you know, the risk of being young. On the flipside though, it is very positive. The media is an incredible asset. And they love a drop out. I mean don’t get me wrong. There is major benefit to being a Princeton drop out versus having graduated done the same thing. I am better off for having dropped out. And there is a lot of you know people are excited by I think, youth. And excited by that. And here is – on another angle, being young has this incredible benefit that being old by definition doesn’t. You don’t have a box to think in. No idea is impossible. However, you have to combine that with older people. Because what older people have by definition that younger people by definition don’t is a sense of reality. And if you combine the two, you get to create ideas that have never been thought about, but can actually be implemented. That’s a cool combination.
STREETER: I have heard investors say sometimes that they – the fundamental decision is on the leader of the idea or the leader of the business.
STREETER: Have you found – or I should say what do you think are the keys to credibility for you? You are young so you have to cross a hurdle there.
STREETER: But why do you think people end up believing you?
I think people believe in me because I believe. And I am not trying to convince someone to believe in something I don’t care about. When – that is the case many times. When you are put into a normal corporate environment you know, you ask to do a job you might not necessarily honestly full heartedly believe in it. I believe in everything we do here fundamentally. And my goal is to make you believe as much as I do. And I think that is why people have invested. Why they believe in the concept is because you know, it is not false. It is just everything is as honest as it can be. And you are just sharing with people exactly how you feel about the idea. And then it is passion. You have to really care. You have to show that you are willing to go the extra mile on everything. I mean we had an investor, literally two weeks ago call the office at 9:00 p.m. – or sorry, 10:00 p.m. I think. And he just wanted to leave a message. It was – I was there and a couple of other executives were there. And we picked up lie we always pick up the phone. And he was shocked, and he invested the next morning. But that – so you have a combination – you have to have a good unique simple idea. I mean no question. But then in the leader, you need someone who believes and someone who is fully committed to the idea. That is it. That is all you care about. That is what your life is. And that is what you are here to make a success.
STREETER: If you were talking with entrepreneurial individuals in a college setting, and they were trying to figure out you know, should I try to start a business now? And should I try to combine it with school? I mean you made the choice to – I’ll say delay your school.
SZAKY: I am on indefinite sabbatical actually for the record. [chuckles]
STREETER: But what advise would you give them? How should they analyze that choice between doing all of one, a mixture, or all of the other?
It’s – you know, choosing between school and running a business and what percentage of you do at the same time is very tough. It depends – again, smart risk right? What do you think is better for you? And it’s not always clear-cut. And many times it’s hard to do both at once if you are going to really commit yourself. And you have to think about what you want out of the business. And where you want to take it. If you want it to be a small you know, thing that you are just getting your feet wet, it is great to run it in parallel. But if you really want it to be the next big thing and grow very quickly, well you can’t do school at the same time. And you have to weight those decisions. And if you can convince yourself that the business is the right thing to do and willing to give up everything you have worked for to date, well then it probably is. But many times it is not. And many times the greatest lesson in business is you have got to just do it. Make your mistakes and learn. And it is better to do that when you can make the mistakes. Because if you have taken the risk, you have limited the opportunities for how many mistakes you can make.
STREETER: We haven’t talked that much about the – this is kind of skipping around – but –
SZAKY: Yes no problem.
STREETER: But talking about the core value of the sustainability and eco-friendly nature.
STREETER: Was sustainability always a core value from the very beginning? Did it come along as a surprise along the way? What – how did that get to get such a strong focus?
Well profit – yes. Profit is our biggest focus by far. But sustainability and profit go hand-in-hand because you can’t be sustainable without profit. That is really the ultimate sustainability function, is how much money you make. However, what we discovered is that you can do a better job and make more money by doing it in a sustainable way. That’s the craziest irony is that the more eco-friendly, the more socially responsible we are, almost the more profitable we become. And that is what captivated me at the very beginning and what started this idea. So that sort of triple bottom line nature of this business is what was the Genesis. And that is our fundamental core. Everything else is irrelevant versus that concept.
STREETER: For people in the audience who don’t know what triple bottom line means, maybe you could just say a word about that.
Yes well triple bottom line is – it’s really simple to understand. Most businesses function under the idea of profit. Shareholder return, you know, that sort of thing. That is IRR, Investor Rate of Return, or it’s one bottom line to look at. It is the most important. Nothing compares to that because if you don’t have that, you are not in business, or you are a charity. It’s the only two ways to look at it. Now you have two other bottom lines. And there might be more, but these are the two main ones. You have environmental return. Most companies have negative environmental returns by definition. They have the thing called the footprint. If you have a footprint, you have a negative environmental return. And I would say 99.99 percent of companies out there have a negative environmental return. The only type of organizations I have seen that have positive environmental returns except the 0.001 percent are governments and charities. They’re function is to have a positive environmental return, but ironically they function in the negative investor return. And this next step, which is similar to it, an environmental return is a social rate of return. That usually is positive for most companies because they provide jobs. They help inhabit – they create towns you know. They do all this positive social stuff. Now some do have negative social returns. You talk about child labor you know, that sort of thing. But in general, an average corporation has a very high profit return, a negative environmental return, and a low or mediocre social return. That’s standard. Now if you look at a charity, they have a negative investor return, hence they keep raising money. Because you have a positive environment return or a positive social return. It’s one or the other because that is their focus. Now, the idea with the triple bottom line business, like ours, is that by increasing the environmental return, we actually compliment and increase our investor return. And by increasing our social return, again we do the same. Now I will give you some concrete examples of how this works on each front. Social return, we are located in Trenton, New Jersey, which is one of the most dangerous cities in North America. And because of that, has very abundant source of highly skills relatively affordable labor. Plus an abundance stock of incredibly cheap well-built buildings. You know, it is the city that went through this whole change in the 1950s. And we located there because it was the cheapest place to go with the most access to labor. However, it created an enormous social return. So in a sense, it’s all driven by profit. Triple bottom line, you have to be doing this wearing your greed hat. You can’t do it any other way. However, if you do it right, by wearing your greed hat and maximizing profit, you create great social return by locating for example, in the inner city in the slum. You know, that sort of thing. Now, environmental return same thing. We have – garbage is our war material which is a very cheap or negative raw material cost. And hence by – and that creates frankly, this is the most eco-friendly – like Terracycle plant food is the most eco friendly consumer product on any big box shelf today. And it does that, but it does it in a way where we maximize investor return because we get very cheap raw materials. So you have three bottom lines that all compliment each other and all get maximized. Social return, environmental return, and investor return. And allow you to create a true sustainable eco-capitalist enterprise. Now just make it one step further. Many eco products, organic products have sort of a triple bottom line. However, they are more like – many times they don’t compliment each other. Take your organic Windex you know, or your eco-friendly Windex. There you are minimizing shareholder return because the product is more expensive, can’t get major distribution, and is more expensive. So fewer people buy it. Yet you do have an environmental and a social return. But you know, the classic way to do it is to maximize social return you are taking down your investor return. This new paradigm is – they all compliment each other. And they just – it is positive sort of death spiral where instead everything gets pushed forward and compliments each other.
STREETER: I think that one piece of this that is worrisome of I look at the outside of your business just from a –
STREETER: Sort of a perspective, is if you are successful and doing what you want to do, which is you want to be in a big box store because you want to show people that it can be done.
STREETER: And to get them to think about this.
STREETER: That bigger companies with bigger pockets can follow, imitate the strategy and complete effectively with you.
STREETER: SO what about that competitive response, you know? Isn’t that – does that worry you?
Well, for – competitive response is interesting because you have to look at two sides. One is the effect on the environment and in a social perspective. Their competitive response if someone copycatting this is fantastic. It’s the goal because more people do this paradigm. So if you are looking at it just from the idea of growing and becoming it’s own living idea, competitive response is ideal. Now from us, Terracycle and how much you know, we can pocket from it. Competitive response is not a good thing. However , our product is so extremely unique, it is going to be a while before we see any major competitive response. And our hope – we’re banking on the fact that the competitive response will come in the form of, we want to buy you, then we want to try to do everything you have worked so hard on achieving so far. Knock on wood.
STREETER: You’ve been successful at a couple of different things, I kind of want to ask you about them, one is, and I’m always collecting ‘Cashflow is king’-type stories.So you have been really successful in managing the cost side of your organization it sounds like. Do you have any good cash flow stories for me to help make the point that cash flow is king, especially in a small company?
Sure. Cash flow is King. Absolutely. And I’ll give you some examples of how we have dealt with that. We run our company on a very, very, very lean budget. Our top salary today is $30,000 a year. Our average executive took about a 90 percent pay cut to be with us. And so that is a part of it. Is how you know, and the reason the people have done that is because they believe strongly enough in the idea. So you substitute cash expanse for belief – so you can absolutely make that substitution. Now the other thing you can do is you can stop paying for certain things. And the way you do that is you really look at this negative cost paradigm. Now yes you know, our inputs, our raw materials are waste, which have a lower or sometimes negative cost. However you know, inputs aren’t where it stops. Young startups should never pay for furniture. Should never pay for computers. All that stuff is waste. You know, people like this university throws out trucks and trucks and trucks of premium office furniture on a yearly basis. Places like Goldman Sachs and Merrill Lynch dispose of computers and pay people to take it off their hands. Good ones, you know. There is a lot of things you can look into and really maximize a shoestring. Cash is so important that people should really be careful of where to spend it. Don’t spend it frivolously. You know, if people – if you are buying people’s time you know, get them to – allow them to accept something other than cash. Whether it is stock, whether it is just intrinsic value you know, that they helped build a very cool company. And many time I have seen entrepreneurs you know, they get some money and then suddenly they want o blow it on consultants, on this on incorporating, on legal. And it’s like you have worked so hard to get so little money. You have to hold it on like it is the most precious thing in the world. And really spend as very little as possible as you possibly can because money is so hard to get.
STREETER: Now let’s talk about publicity.
STREETER: Because you have been very successful at getting a lot of press.
STREETER: And I wonder if you have been proactive in that. Is it a virile thing? What would you give as your advise to young companies trying to get publicity?
Well believe it or not – and sorry. All the – I mean we have had a phenomenal amount of press. We average more than one national you know, -- more than one exposure a week. And it’s growing. But believe it or not, we have never actually gone out really strongly and looked for press. It always has come to us. Now what do you need to get it though? Because press is an asset that young people have better chance of getting. And it’s incredibly, incredibly valuable. You need to have a story. You need to have you know, something exciting. And you know, everything. The team is a story. Your product is a story. But it is a story that sells. It’s a story that creates media. Creates people wanting to read about you. And you know, in products the story is important because our entire product has a story around it. And that is very valuable. Not all business models have the ability to have great press. Because not all of them have the ability to have a great story. But a story is so fundamental. And the moment you have that story, you just have to start sharing it. And the media will come to you. You don’t have to go out and get them.This ends Part 1 of our interview with Tom Szaky. I invite you to listen to more of my conversation with Tom in two additional podcasts. In those installments, Tom will be talking about managing people, work-life balance, venture capital and other fascinating aspects of running a startup company.