Tom Szaky - Co-founder and Chief Executive Officer of TerraCycle, Inc. - Part 2
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STREETER: Let’s talk about the early days of Terracycle. So you had this worm project going.
STREETER: And your – and I am wondering what it was like. Like when did you realize this is bigger than just this little project that we have going here. This has potential for something larger. Did you realize that at the very beginning? Or was there kind of a tipping point for you?
Well I think the realization of how big this idea was came at the very beginning. It was just wow, that can be very big. That is very cool. But that’s not reality. That is dreaming. So we dreamt big. And that was a very important beginning because you have to be able to dream big or you can’t get big. And then as you know, as every phase started going in. You know, there are certain things like we had to test the system worked. Once that worked, it was like wow. That could be big. And every time we proved more and more things, the bigger the dream got. But also what happened, it became more focused and more real based on everything we discovered. And I wasn’t ready – the moment I was you know, came up with the concept ready to drop out of school. It took me a year to get to the point where I was – this is real enough and can actually be big enough. And the odds are it can get there that I was ready to do it.
STREETER: Let’s talk about business planning a little because I know you wrote one.
SZAKY: Uh-huh. Sure.
STREETER: Because you entered all these business plan contests. Did you write it within a classroom setting, or you just wrote it on your own? So what was the early business plan process like for you?
Well the business plan process for us was serendipitous. And serendipity – don’t get me wrong, has a lot to play into any business. There was a business plan contest at Princeton, $5,000 was the prize. And so we wrote the business plan, my friends and I for winning that contest. We ended up losing it ironically. And everyone quit except myself. But that was what started it. And what it was great because it set us a deadline. It set goals to get there. And we had to get the business plan done by a certain date. And that allowed us to do it. Because had we not had that deadline we would have probably never finished it. because it’s just – can keep going.
STREETER: Were you surprised you lost?
SZAKY: I wasn’t surprised I lost the contest. But I was disappointed I’d lost. I mean we came back the next year and won it in a way that it had never been won before. It was just so such a sweep. But it was tough. And this is those things you know, it’s people have asked me, what’s the best sort of advise you can get? You know, are advisors important? They are. But only if they tell you every reason your idea is going to fail, it sucks and it’s miserable. That’s the advise you want. Anyone who says you are going to you know – anyone who says you are going to be successful or gives you a pat on the back, or gives you a prize in a competition is doing you a disservice. Because you think that you actually have something. An idea is nothing until it really gets shaken out. And the only way to know that is through harsh critical advise.
STREETER: I’m going to play that clip 100 times in my class. So let’s look at the difference between when you won the business contest and you lost it. What changed over that time period? Like what did you do differently?
Well so we looked at all the reasons we lost that competition. We asked the judges and said why did – you know, why didn’t we win? Come on. You know, don’t – and don’t be nice. Why? And there was 100 reasons. It was a – you know, it was a Swiss cheese business plan. Lots of holes. So our job was quickly filling every one of the reasons that they said it didn’t work. Just like when we met with investors. Most of the investors we met with in the first year didn’t invest. But they told us all the reasons they didn’t. And that was just as valuable. Because we went out and solved all those reasons. And we kept doing the things that people said were the problem you know, for them to not invest. And – because the idea was cool. You know, making something out of garbage is neat. But there is a lot more to it than just making something out of garbage. And so we have to figure all that out. And by the time we did the next competition, we had figured out enough to have won it.
STREETER: When you think about that first pitch and then how you pitch the business now, what have you learned about pitching a business idea successfully?
SZAKY: Well pitching is interesting. It’s about making people get it and have a good time while they get it. Most PowerPoints – and PowerPoints are your biggest vehicle to pitch because business plans are usually not read. They are just more for yourself. PowerPoints are your vehicle. Most PowerPoints are boring. They are so boring. I mean it is horrible. People get up and read just what they wrote on the slide. They don’t even look at the audience, but look at their presentation. You need to put on a show. You need to really get people to sit up, to smile, and then to get it. And that’s the whole goal, is you have got to keep reinforcing the idea. Keep explaining why it is simple, why it is easy, why it is unique. And make sure that they get it with a smile. And then you’ve got the investment.Learning to pitch the business is not the only thing Tom has been able to do, he’s also learned how to run the business
Yes I think execution is important. I mean don’t – it is – the idea is critical in that you have to hold on to the core of your idea. Everything else is execution. Because you can have a bad idea executed well that could succeed. But if a good idea is not executed, it will not succeed. So execution is the most critical aspect. And that is why you have to be in live with the idea of work. Because no matter what you r idea is, it’s a helluva lot of work. There is just – I can’t – I could – there is no way to get rich quick easy. There is maybe a way to get rich quick. But you have to work really hard for it. And you have to – anyone in the company, whether you are the leader or whether you are working in it, it’s important to enjoy the idea of work.So now we know the early part of Tom’s journey and what he has learned in running his own company. Although Terracyle has had good success, Tom still feels he has to be thinking constantly about how to meet and beat the competition.
STREETER: What about Terracycle’s value proposition? So when you have to say to somebody in a fairly concise way, Terracycle’s value proposition is – and how do you finish out that sentence?
SZAKY: Our value proposition is that we offer a better cheaper plant food that happens to be organic and the most eco-friendly consumer product in any store right now.
STREETER: And then once you get above the radar even more than you have now, now you are in box stores, how are you going to make that value proposition stick? In other words, so what is your sustainable competitive advantage?
Our sustainable competitive advantage is just our entire model. And it is because we make products entirely from waste allows us to have this very unique cost structure, which allows us to go in and compete head-on-head with Miracle Grow, our biggest competitor. But the only way you can compete with them is on only price and performance. Those are the two critical factors. Everything else is sort of gravy. But we have a helluva lot of gravy. So people are coming in and buying our product and don’t realize the 10 reasons that make it so incredibly unique. Many people don’t know that it is packaged in a used soda bottle. Many people don’t know that it was collected by school kids. They don’t even know it is organic. They don’t know it’s liquid worm poop. They don’t a lot of these things. But – and they are buying it on the two fundamental basis. Cheaper and better. And then they buy it again and again because they learn more about. And they realize all the other things that could have driven them to buy it that they didn’t even know yet. It’s such a pleasant thing you know, to get a product and as you grow with it to realize all the other reason you never knew why it was so cool.
STREETER: I think that is especially true because in the organics space it is not always true for consumer products. It’s not always true that they are comparable with other products.
SZAKY: No. I mean without mentioning the name, there is a big organic company that makes – equivalent to Windex, organic Windex. But if you ask their CEO they will tell you that it is more expensive because of how it is make. And it is all justified. They are not gouging, they are actually making less profit than Proctor & Gamble, or SC Johnson, which makes Windexes. But they also will tell you it doesn’t work as well. And that’s – if you ask organic to – of anyone out there right now, what does organic mean? Not in foods. Because usually organic foods maybe taste better. But in just household cleaning and chemicals. Usually more expensive and not as effective.
STREETER: So going back to the early days you know, I am sure there are people who thought you were crazy.
SZAKY: Oh yes.
STREETER: I wonder you know did you ever have to kind of look, how did you deal with the doubters that were around you?
Doubters are awesome because they fuel you. I mean people who say you can’t make it, that’s another reason you want to make it you know. And that is – and again, people – the best thing is people who criticize you with good thought out criticism of why you are not going to succeed. That’s the most important. Doubters fuel the ego because that just makes it even more you know, exciting to make it work because you have proven it to all those people out there that it did work. It’s ego fuel I think.
STREETER: Was it scary for your parents?
Oh yes totally. I mean keep in mind; my parents are physicians, very conservative. I had to tell them post fact that I dropped out to shovel worm poop for a living. I mean imagine this. It’s – and when we started – I wasn’t – I didn’t you know, drop out to be a CEO of a company that employs a lot of people. Or that had big sales. I dropped out to shovel rotting maggot-filled food waste for three months straight living on a basement floor. And you drop out of Princeton. So it’s – it’s two ends of the spectrum. And it wasn’t easy. I mean they supported me. And – but you can imagine from a parent’s perspective, that’s not the news you want to hear you know, after a year-and-a-half of sending your kid to school.
STREETER: So talk about a little bit about your funding strategy. So you started out with – maybe you started out with some money from yourself and then you had a little bit from the business plan contest that you won.
STREETER: How did your funding stream happen over time?
Well the funding for us -- obviously the first step is always putting in all your money. So I put in everything I had. It wasn’t a lot. It was like 3,000 or 4,000 bucks. I then borrowed all the money I had from my best friends, from whoever I could find. And we built out first system. The we couldn’t raise money through the traditional sources because we weren’t credible enough. We were young you know, kids in a basement, right. That’s – even though it sounds like that where all the Bill Gates’ of the world started, no one actually wants to put money in at that stage. So we went and entered a business plan contest. And they are all around the U.S. All universities have them. And you can win – you know, anywhere up to about $10,000 per contest. We won everything. And we kept financing ourselves. And very interestingly, strange paradigm shift occurred. Money didn’t become money anymore. Money became time. It wasn’t that we had $1,000 in our bank account. We had a month in our bank account. And it evolved because you can’t necessarily think of a dollar as a dollar. You have to think of it as how long can your company sustain itself without bringing in more money? And that’s what it evolved into. Then we you know, once we got out of the phase of business plan contests, we were credible, big enough to start raising normal money and we went to angel investors. And we started raising money that route because venture capitalists are really hard to deal with. And now, only now are we actually starting to raise money from venture capitalists.
STREETER: So at one point you said no to $1 million from one of the contests.
STREETER: And you – at that time it was a big risk because you didn’t have much money in the bank. What made you say no?
So we had won $1 million from a major business plan competition. An offer of funding to be clear, for $1 million. And we did have $500 bucks in our bank account at the time. But what they wanted – cost like venture capital. I mean this was not unusual. They wanted me to change my entire management team who had struggled real hard to get us to where we were. And more importantly than that, they wanted me to move away from the core of the idea, which was making a product out of waste. The just liked the idea of an organic fertilizer. But they didn’t like the idea of garbage. And that was the core. I could have potentially settled for an you know, a management change because that’s – I mean it’s not okay but it’s okay. But the core of the idea, that’s the essence. And I felt – and the reason that we refused it was because without the core we felt like it wouldn’t work. And so we turned down $1 million with $500 in our bank account and came back to Princeton and kept doing the company.
STREETER: And how about your long-term vision? What would it take for someone – well let me ask a different way. When you look ahead, do you have a range of exit strategies you can see? Do you want to build the company to a certain point? What is ahead for you?
Well I mean I am responsible to my shareholders. So when I look at long-term vision, it is not just what I personally want. I have to think about what everyone wants. And it is not just the shareholders. But it’s all the stakeholders involved in the company. And that’s how we make – how the decision will be made. Hence it is a we – type decision. And anything is possible. It could IPO. We could sell to another company. We could stay private. We could do any one of those things and I would be perfectly happy with it. Because my goal here is really to prove that this concept of eco-capitalism triple bottom line capitalism can work. And I think if I prove it, I’ll actually make a lot of money in the process. Because that is symbiotic. If I didn’t make money I wouldn’t be proving the concept. So it is nice you know. You have to prove a new paradigm and you get to make money doing it.
STREETER: Who funds you can determine the core direction of where you’re going. So, taking the wrong money at the wrong time can be a huge mistake.
Yes. You have to be so careful who you take money from because it’s just as careful as who you hire. These are your partners. Whether they give you their money or whether they work for you, they are the ones creating your business. In the end, what does a CEO do? I mean not all that much. He just keeps it sort of together. But he doesn’t actually create all that much. And he definitely you know. It is not all his money on the line. And it is not all you know, there is a lot of human hours that are put in. And only a very small minority are his or hers. And so you have to be very careful who you pick in investors. And we have turned down more deals than we have said yes to for that reason. Because we got – I was burned before on it. Other people in my company have been burned more than I have on it. And that’s the value. I mean keep in mind, you want to pick people. Not who are you know, chronically always getting burned, because that is just a poor expertise. But people who have been burned and know what to look for. And that is wisdom. That is just the easiest way to define it. And that is what allowed us to pick the right investors.One controversial decision Tom made was to go after Wal-Mart
I think Wal-Mart is – it’s tough. You know, because people only complain about Wal-Mart once they get burned by it. And that’s very easy. You are dancing with a very big gorilla. It’s not dancing with the devil because that is evil. You are dancing with a big gorilla that could step on your toes and like kill you in one wrong turn. It’s going to be very careful. But you also get all the benefit of dancing with a big gorilla. And so the people who complain about it are the people who get burned. Don’t get me wrong, if we get burned by screwing up you know; yes I would like to tell you now that I am going to be a big fan of Wal-Mart. But I would probably bitch a little bit. And be like you know, God you know, why do we even do business with such an evil corporation, right? But then again, we wouldn’t – I wouldn’t be here today talking to you without Wal-Mart. And when I say Wal-Mart, you really have to put – and this is again the big distinction. You can’t separate any big box store – if you can’t say you know all the big box stores on one end and Wal-Mart over here. It’s all the same. It’s just Wal-Mart just happens to be 20 percent bigger than the next biggest one. And they just get singled out. But Home Depot, same evil or same good. Lowes, K-mart, Target, you know. All the big ones.
STREETER: I thought that the point you made about the ability to get information from Wal-Mart about what is selling and what is not selling. That is huge especially for any company. Having access to that kind of experimentation in a large way in a marketplace, you just – a lot of people who are into organics like skip that whole venue. And I just –
SZAKY: Well if you don’t I mean think about it like; we just ran our infomercial for a week just as a test to see what happened. The only way I could actually find out – this is the only way I could find out what the effect was on a retail level, was only through Wal-Mart. No one else had detailed enough data that I could find out in the markets we aired it what the pickup on the retail level was. But with Wal-Mart I could exactly tell you that the infomercial had X percent benefit over baseline sales in this exact geographic market. That – you pay lots of money for that type of data and they give it to you for free to make you a better – to make you a better manufacturer. It’s very symbiotic.
STREETER: When I teach students business-planning, one of the struggles they have is they have an idea. They love the idea. And then I try to get them to see they need a business strategy, a business model for making money. And I wonder you know, in – what I am trying to teach then is there is some evolution along the way. So I am wondering about whether the business strategy/model that you started with that you first thought, this is how our company would make money, is that evolved over time? Did you kind of get into the market and have to adjust it? You know, how has the business strategy thing evolved?
Our business strategy has evolved hugely. I mean not just the 360. But has like spun totally differently. We started out literally as a waste management company. We thought we would make all of our money on taking in garbage and converting it to something that wasn’t an issue. Instead we ended up as a consumer product company that happened to make their product out of waste. That is like almost polar opposites. But here is the thing, is that the similarity between where we started and where we are today is garbage. However, what we do with it, what our focus is, where we put our energy, you can’t fall in love with that. That evolves. And we might change you know, and evolve again. I mean I think our evolution will refine itself and slow down. We’re still probably going to be a consumer product company, but we may not make plant food. We’re probably not going to evolve too much you know, more extreme than that. But you have to allow that. Because we would not have succeeded with the business plan we created at the very beginning.
STREETER: Let’s talk about growth. And I you know, it sounds like you have established a very effective and energetic corporate culture with your relatively small team.
STREETER: And I wonder how are you going to maintain that as you are growing? Are you –
SZAKY: You mean the culture?
STREETER: Yes. Are you somebody who likes to kind of touch all the parts of the company?
SZAKY: Yes. I mean the –
STREETER: And if so, then what happens as you start to grow?
It – well growth is interesting. And there is – I think the biggest change – at least what we are coming up to and where I think the biggest change in culture occurs, at least from my perspective where my role might change, is as we move more and more away from you know, a very fast evolving business model to more of a refining of the existing model. And that is happening. And we are right in the middle of that right now. And the roles change. You know, because you need some like – how do I fit in is the question. You know, I enjoy really touching on all parts. And seeing how everything comes together. And creating new concepts you know, that work within those paradigms. But it does change. It does start becoming by definition more and more and more corporate. Someone asked me you know, we make – we used to make decisions two years ago in six hours maybe. That same decision today we would make in a month. And that’s a totally different culture to work under. You have different functionalities and it evolves. And so my role might evolve. I might bring on potentially a new CEO to help do that while I can focus on you know, maybe more of the creative side. And you have to be open to it. I think fundamentally a strong team is a flexible team. And flexibility means that you are going to do what is best for the common good, not for your own personal ego. And ego I think is the biggest detriment of flexibility. And hopefully you know, we will be okay doing that. But that is a definitely a struggle that we have to go through.
STREETER: Is sourcing the bottles going to be an issue when you – if you get really big growth going forward?
I think – sourcing bottle is interesting. There are 40 million soda bottles thrown out on a daily basis. There are more than enough bottles that we could ever want. It’s getting them that is a little bit more difficult. And if we had hyper, hyper, hyper growth, it would be difficult to keep up getting the relationship set up with demand. But we’re way ahead of that. And it’s really just making sure that we are setting up relationships faster than the demand for the product is coming in. And it really just you know, each relationship takes two to three months to set up because you have to actually make the people who have the bottles believe that – again, believe in the idea. And change what they do currently to their bottles to accept the way we do it. Because you can’t just call up a guy and say look, I want a million bottles tomorrow. You have to convince a recycling center that this is a good thing to do and they have to change what they do to accommodate you.
STREETER: Is their tradeoff giving them to you or getting money for them? Or are they –
SZAKY: Oh no, we’re the recycling center or any other place we get bottles on the industrial scale, like Bottle Bill states, bottling plants. We still pay exactly what they would receive if they sold it. The only difference is they don’t have to do anything. So here is the benefit. In a Bottle Bill State, Pepsi gets bottles returned to them. They had to pay five cents a bottle for those. Then they crush them. They spend labor doing that. And then they ship them off and they get the commodity price for PET. We say to them look. Forget spending labor on doing anything. We’ll pick them up from you and we’ll buy them for the same price you would have sold them bailed.
STREETER: Is there any concept that your won users might recycle the bottles that you have sold them?
SZAKY: Absolutely. And we have had that. Now people do send us bottles back. And we are working – once we get to a critical mass, which will probably be another six months on coming up with programs where we have major incentives for people to actually return the bottle so we can just fill it up again and out it goes.PART III In this third and final segment of the podcast, we’ll start to hear more about how Tom funded Terracycle. You’ll learn that at one point he actually turned down a sizeable offer from a venture capitalist. In addition, Tom discusses how to brand a company and his ideas about growth, and a global vision for Terracycle. This part of the interview begins with Tom talking about how an entrepreneur has to balance his ego with the need to let his employees participate in decision making.
The biggest challenge at least for me, and maybe as a young entrepreneur, or as someone who hasn’t had formal – you know, has done – hasn’t done formal management is, entrepreneurship and human resources and managing people are two different things. And they are two different animals that many times conflict with each other. Because you have to be two different people. And ego is very important to sell something, to create energy, to get the idea going. But ego is the most negative thing when you are trying to manage your team and trying to you know, be a part of the team and not to be above it or separated from it and just telling them this is what has to happen. For the company to work, our goal is to – or at least my goal is to hire people who are all smarter than me. And what that creates is everyone’s ideas have to be brought in and synthesized to make the best decision. That is why we take longer in decisions now. But what that creates is, that is something where a big ego and team decision-making you know, have to come together because it is a give and take. It doesn’t work if you bring in your entrepreneurship let’s get this idea started ego into it.
STREETER: Sometimes I hear from entrepreneurs that one of the hard parts of managing people in your company is, those people aren’t motivated in the same way that the entrepreneur is. And so you are a young person. You sleep – according to Steve you sleep four or five hours a night.
STREETER: So – but you are going to employ people who are maybe older and have families and –
SZAKY: Nine to fivers yes.
STREETER: -- be there at 10:00. Is that – would that be hard for you to accept when someone isn’t driven in the way that you want?
I think – being driven is very important. How being driven is manifested is different with every single individual. Not everyone can work you know, 18-hour days seven days a week. Some people can only work nine to five, five days a week. They can still be just as driven as the other person. And if you see that, they’re fine. The big problem is when people are not driven at all. And that is – the last thing that I can instill in someone is drive. That is very, very difficult. Everyone can be taught a skill. Everyone can learn a function. But passion, drive, those things aren’t easy to instill in anyone. And if they have that, and you are comfortable to have the person on your team within the criteria they can give you their drive,that is fine. And it works.
STREETER: And while we are talking about people, I was curious because you started a couple of your companies with other people.
STREETER: Partners if you will. And I wonder if what the pros and cons of that were. At some point, and I think in TerraCycle you’re the top dog so to speak right?
STREETER: You don’t have an equal partner.
STREETER: Among the owners. So –
SZAKY: Keep in mind, I don’t own the most. My shareholders own way more than I do.
STREETER: Right. Right.
SZAKY: But there is no management. I mean management sort of stops with me.
STREETER: So I am curious about what goes into that decision. So have you had situations where you were partnering at the head of something or you really want to do it solo this time? What are you thoughts on that?
I think – I mean Terracycle at the very beginning started where it was a bunch of people all sort of equal in a sense came together. Very quickly though, you establish who is willing – who is into it more, who loves it more. And you really – it is important to have sort of you know, a driving vision. And to do that I guess you need a driving visionary. And I mean I am lucky enough to be that person. And it is important because it is not easy to make group decisions that take long. And it’s sometimes good just to make a decision. Whether it is the right one or not. But to start doing something versus thinking about it too much. And that is critical. So I think that it is good to have an individual leader at the top. I think it would be very difficult to have group leadership. It could work and I have seen it work. But I think that it’s harder to do than individual leader at the top. And that’s not to say you have to take in everyone’s view. But sometimes you have to make a decision.
STREETER: Did you have any issues with something coming out of a – you put the business plan together with a group of people. And then do they have any conflict over idea ownership? As you went along, people dropped out. Or how did that – who owned the idea from the beginning?
Well I mean the idea at the very beginning I came up with. So I guess I owned it at the very beginning. And then as people came on, the way I incentivised them was giving them part of the company. Giving them part of the idea. But what we did is we linked how much they get to also how long they stay. So we did something called vesting of stock where you have a manager join. There say they are worth 10 percent in theory. But they get only you know, two-and-a-half percent per year. So you incetivise them to stay. And then you know, it is great that they own a part of the idea. And everyone in our company from a bottling employee to an intern to our you know, CFO has stock. Different amounts, but everyone owns a part of the idea and hence it is everyone’s idea.
STREETER: How do you – just kind of shifting gears a little bit. You have so much going on and obviously so much passion for the things you are involved in. How about work/life balance?
Work/life is tough. Luckily I have a fantastic girlfriend. And what that has allowed me to do is I take my weekends off, most of them and spend it with her. But it is very, very hard. Usually I am in the office Monday to Friday every – like 20 hours or 18 hours a day. Like really a significant portion of the day. And then I take my weekends off. But before I had a relationship, I was – it was seven days a week. And one of the things you have to be comfortable with as an entrepreneur is you have to commit yourself. As the company develops and as it becomes more stable, and more stable you can have more of a life. But at the beginning, you have to commit yourself fully to the idea or you are not doing justice to the idea.
STREETER: And as you mention in class, it is not just – you have more and more on the line every time.
Oh yes. And you have to be ready to lose it. Because the odds are – this is the interesting thing. Odds are in entrepreneurship you will fail. Odds are with you towards failure. So it’s not how fantastic a person you are. Odds are your probably going to fail. You have to be comfortable with that. And you have to be comfortable enough with that that you are going to pick yourself up again and start it again instead of just saying you know what, I tried and I am out.
STREETER: So what is a failure that you have had that you really learned a lot from that was a big wakeup call.
I mean, we – I was involved – I was on the management team of a dot-com startup. And we were being courted by a venture capitalist. And once the venture capitalist invested, they pretty much did an entire management team dump and just ruined the company. I got burned – I mean you know, burned heavily in that. And it wasn’t a pleasant experience. But it taught me though what the effect of taking money in that fashion is. Not to say venture capitalists are evil. But deals can be evil. And looking at – you know, very – and not cynically. But maybe with more wisdom towards what a deal actually means. And realizing that things change. You know, and you have to not just look at all the positives in something but be very comfortable with all the potential negatives. Because they are equally opportune that both could arise.
STREETER: And it’s the difference between experience and experiential learning.
STREETER: It’s like when you really reflect on something that you have gone through.
Yes experiential learning is important. I mean number – it is interesting because you look at it – and I have seen people from all perspectives. From people who are coming in and they are 20, people who are coming in and they are 60. And years doesn’t mean all that much. Like number of gray hairs someone has or how many years they have been on this planet. It is how much they have been able to benefit from those years. Because you might have a 20-year-old who has as much wisdom as a 50-year-old. It happens. It’s very weird. But you can get that because maybe the 50-year-old never actually learned or decided to learn from anything that they did.
STREETER: How do you find your older employees reacting to having a young leader? Is that ever an issue when you have to be adamant with them or you need to make a decision they don’t agree with?
It is definitely a source for conflict to have such major age discrepancies. The fact that I am young and some of our executives are older. Most people you know, are very comfortable with it. But there is subconscious you know things that come into play. Because I am the age of their kids. So imagine you know, from your perspective. Your boss is the age of your son or daughter. That is not always an easy thing to deal with even though on the surface you are okay with it. Maybe subconsciously, maybe not. But here is the beauty of this. Is my staff is very willing to tell me you are full of crap. You know, this is not a good idea. We’re not going to support you on this. That is very valuable. Because hell, I don’t come up with every good idea. And being – having an open environment where people can just tell me straight up their feelings without any constraint is fantastic. And you know, it is interesting because many advisors, like other CEOs have told me that for them it is many times very difficult to get the truth. I get it put on my desk every single day in spades you know. But for other people, who are more intimidating, that might be tough. Because an employee might not be willing to really share their true feelings with you. And that is not helpful. It’s really helpful to have very frank environments. But then again, it just – it’s not – you know, it hurts the ego a little bit. And it’s a more – it’s a brutally healthy environment you know, where you are not always happy. But the best things are happening for the company because you are growing together really well.
STREETER: While we’re talking about this whole area of feedback, I am interested in – we have talked about getting feedback from staff. One thing that can be difficult for young entrepreneurs is learning how to give feedback.
SZAKY: Oh yes.
STREETER: And so I wonder what you – if you have had any experiences that didn’t work or did work and if you could share those.
Giving feedback, especially to someone more senior with more experience is very, very hard. And even feedback in general is a sensitive thing to give. Because you have to make sure – and I have learned this by making the mistake. You have to make sure that when you give feedback, you do it in a way where the person leaves and is inspired instead of like God damn it. And here is an example on how to give feedback you know to – maybe on a simple criteria. You know, labor. We have a lot of labor who do simple tasks. And you know, I can go back there. You know, back into our factory and tell the you know, certain laborer that they are not doing this right. And here is how they should do it. And when I leave, odds are he will just you know, flip me the finger and say ah, I don’t care. And he will probably even take his production down. However, the way at least I have learned how to do it, if you get on the line with the person for 20 minutes, and do it with them for 20 minutes and show them how you should do it by doing it, not being above it. Being exactly there and saying you know, if we were doing this together, here is you know, maybe a better way to do it. And here I am physically doing it with you. Then what you have created is you leave and the person you know, potentially says something like you know, wow. I didn’t get patronized you know. And I’m inspired by that. And he might even take his or her work up even more after you leave. And it is sustained. Now that is on the one end. Now on the executive end it’s a little bit more difficult. Because there you are talking to someone who is smarter than you who by definition should be smarter than you. And so the feedback you have to give has to be done in a way where you are trying to work on things that the person might not have seen, may not have been aware of, might not have looked at. So – and I am in a lucky position where I get to see every aspect of the company. No other manager is in that position. So here I can bring some wisdom to that person and say look. You know, I know you know, from your perspective you did everything correct. But look at it from the macro level. Put yourself in my shoes and see here is how it didn’t work. And here is how we should grow from it. It’s you know, what I have learned is you can’t say you know, you should do this. Or why don’t you do this better? Or you know, -- or you screwed up. Or worst of all, your stupid. That is you know, it doesn’t work because then you know, what comes back to the person, especially being a young CEO is you know, this little idiot you know, kid doesn’t know what he is talking about you know. I don’t care. Because they don’t have – you know, I don’t have certain thing that an older executive would, which is just sort of inherent you know, intrinsic wisdom of an aura or whatever it is. And – but by doing it that way, you build – you know, you have the ability to build a very strong team. And the best thing to do is to keep asking for people’s advise. And keep very open communication. Over communication is way more healthier than under communication if you had a choice of the two.
STREETER: Is there a more global vision in your –
Yes. And for us, Globalization is something that is very much down the line. We’re really focused on making North America a success. Because if we don’t make that a success we can’t make Europe, Asia or anywhere a success. However, we have shipped product to Malaysia, to you know, to Jamaica, to Europe by proactively – or by reactively heeding requests. So our idea is spreading outside these national boundaries. And people find out about it. Hopefully get inspired by it. And then want to buy it. When they buy – you know when they buy the idea or buy Terracycle, we can then you know, we’ll heed that and we will ship it. But until North America is an incredible success, we are not going to move outside you know, this continent. Because as a young startup, we can you know, North American is a big enough challenge to deal with. Imagine throwing in another you know, continent.
STREETER: I kind of admire your – that focus. Because I am – undoubtedly you have been approached by people who want to take this everywhere.
SZAKY: Oh yes. Once – seriously, once a week I get a request from a country – or someone in the country saying they want to open up and do a joint venture or you know, do a distribution or something. But we just always put them on the – we can’t deal with it. It is just not you know.
STREETER: You know, not everybody gets that controlled growth is important. You know, that aspect of getting the model right.
SZAKY: Well to be clear though, it’s not – you know, there is a difference between controlled growth and controlled explosive growth, right?
SZAKY: I am not a fan of growing it 20 percent a year. That’s not exciting to me. But I also want to make sure that we take all the growth potential we have and focus it like a laser in one spot. And get it really right versus taking all that growth potential and just letting it sort of dissolve over a huge sphere where there is no effect.
STREETER: Let’s talk a little bit about the whole area of mentorship.
STREETER: Steve had mentioned to me that you’re a great mentor to him. And I am sure a lot of other people on your staff will say something similar – the people that you interact with. And I wonder if there are you know, kind of what are the rewards and challenges that you find in mentoring people close to you in age?
Oh I love mentoring people close to my age. It’s just exciting because what drives me is the excitement. And when I see that excitement in someone else, that is so exciting. I mean I just love helping any entrepreneur. Especially someone you know, who is young because I remember what it was like being in their shoes. And hopefully they get ahead of where I am. And then they can help me. But you know, it’s – I just think that it’s so exiting. Entrepreneurship is just the craziest most exiting ride you can have. And the easiest time to do it is when you are young. It is hard when you have kids. It’s hard when you have a family. It’s hard when you have a mortgage. It’s hard when you have college payments. It gets harder and harder and harder. And then when you are older it’s hard to put that energy in because you might not have that energy anymore. This is the time to do it. Now is the time to do it. And I just love seeing people who are interested in that because there are so few. It is so rare that you know, anything I can do to help people do something like this instead of you know, doing the normal thing is fantastic.
STREETER: Your comment is an interesting counterpoint to what I often hear from entrepreneurs in their 50s, lets say 50s and above. They say, go out and get in-depth experience in one industry so you really understand whatever the customer pain is in that industry.
STREETER: And when you were talking in class today I was thinking, this is a great counter example because you didn’t have any experience.
SZAKY: I’m not a gardener. Yes.
STREETER: Yes you are not a gardener or anything. So you know, that kind of speaks to taking the less traveled path even if you don’t have – I mean if you are driven to do it in that way.
Yes. I think that there is this – there is a difference yes. Exactly as you put it where you have you know, people who have gotten that experience and have been successful you know, say in their 50s spinning off a new widget that is within the category of widgets they were making before, which is slightly different. That sort of – following the path and diverging from it slightly you know. Taking sort of the scenic route versus the you know, the main highway in a sense. But what’s lucky – and especially you know, doing it young without the experience is, you are really just trailblazing. Because you are creating it as you go. And you don’t have to function in the built up paradigms you have before. So one of the counter points is that if you have all that experience, you have built all your walls. And you are functioning within these walls because of what assumptions you’ve made before. And it is very difficult to question the walls you have built up. Because they have logically been out there. But if you know, don’t have them, then you are by definition going to question it and say well why are we doing this? And the answer you know, if you were on the other end of the spectrum, it would be well, because it has been done like this for 50 years and it has worked. Versus actually having the ability to question and say well, should it be done like this? Or should we do it like so you know, some other way?
STREETER: One option that I think is often overlooked, if somebody doesn’t want to take the risk of starting a business, or maybe doesn’t have what they consider to be a you know, a smart risk, an idea that represents smart risk, is I always say why not think about working in an entrepreneurial environment?
STREETER: And I wonder if you can speak to that as an opportunity for people who don’t you know, as opposed to investment banking don’t want to start a business themselves but maybe could you know, look for a growing firm.
That’s where I started. I started in working for an entrepreneurial environment. I didn’t start by starting my own firm. And I think I learned so much. Because it is such a small group. You really get to interact. You really get to see the whole idea evolve. You get to see what works, what doesn’t work. It’s like being, if you want to be a CEO, it’s like CEO in training because you are really close to that. And you really get to see how to do it, where the mistakes have been weighed (?), where not to make the mistakes, and where to grow. And I think if you do want to be an entrepreneur, you don’t want to take that mega jump and just try it and do it for yourself. Working in a company that is entrepreneurial is fantastic. I mean it is the best thing you could do. And maybe the next best thing from there, maybe if you really like the banking thing is to be like you know, in venture capital or on the investment side. But the difficulty there is you really just get to see on a high level what is going on. You don’t get to live it. And living it is important I think.
STREETER: I know you don’t sleep a lot at night because you are able to function on few hours. But what does keep you awake at night?
It’s – what keeps me awake evolves. You know, what kept me awake a year ago was, how are we going to raise money? What kept me awake six months ago was , how are we going to get into stores? What keeps me awake now is, how are we going to make enough? And what is going to keep me awake in six months is, how are we going to get it off the shelf? And then I don’t know. That is going to come later, what the rest of it is. But it is whatever the most critical problem at hand is, is what really keeps me awake. The where I see the risk. And that is what I focus most of my time. And that is why my day is never a good day. I always you know, I get a lot of good news. I always get a lot of bad news. And where I spend my time is on the bad news. The good news is great, done. Okay I don’t have to worry about it. And let’s focus on what we have to worry about. So it is interesting. You sort of dwell on the negatives all the time.
STREETER: That’s good. I like that. And you know, Steve said something before you arrived at class today that was so interesting to me, that you can be on a call and get bad news.
STREETER: And then you have to – and it can be very intense and very engaged. And then you have to turn on a dime and turn around and show a really strong face tot eh team of people that you are working with. And I wonder, is that – does that ever get tiring? Of always having to kind of show the mask to the employees?
Well it’s tough if you consider it as a mask. You know, this is why communication is important. You have to develop a team. And I have learned this again, by making the mistakes, where you have the ability to communicate the negative. And in a timely fashion – you can’t – you have to do it right. But communicate the negatives just as much as communicating the positives. Because it is not fair to the team if you just put on a mask and only tell them everything is great. It’s not fair. And you are not actually utilizing your team for all it is worth. Your team should be able to function and deal with the negatives. Now, I made the mistake at the beginning, I always tried to do that. And it as very tiring. And it broke down because the team got frustrated in that they weren’t realizing and weren’t given the opportunity to react to all the negative things until I couldn’t handle it anymore. And it got through me in a sense. And you have to let go of that because you have to have a team that can absorb it. Now I wanted to – I don’t know if Steve, did you mention the idea of garbage? Because it came to a question about – I want to just if I may – the – you know, you were talking about competitive response. And just – take the business aside.
But we make a product entirely out of waste. Right. And how do you define waste? Waste is defined really by something, a commodity that someone doesn’t want and is willing to pay to get rid of it. That’s I think a fair definition of garbage. Now if you make a product out of garbage, we get paid for the raw material. Because someone doesn’t want it. We get paid for it. Hence it is garbage. So say we’re making our product primarily out of say beer hops for example, is our raw material. Now right now it is garbage because we are the only you know, player taking lots of beer hops. And Anheuser-Busch is willing to pay us for it. Say that is the – you know it is a hypothesis. But – now say more and more companies start having the competitive response. And say this is a great idea. We’re also going to make a product out of beer hops. Now, simple supply and demand, that negative price is going to start going up. It’s going to start going up, and at a critical point it’s going to become positive. Suddenly – or not suddenly, well not suddenly, but maybe over a couple of years, we’re going to get charged to take the beer hops. Now here is the interesting thing. Those beer hops have gone in a matter of a couple of years from being considered garbage to not being garbage. So you can eliminate this idea of waste completely by making it valuable.
STREETER: I think that that was – I’m glad – and I am glad we have it in your words as well. And I think that was really well expressed by Steve. And—
STREETER: It’s a whole new way of really thinking about it. That’s the paradigm.
SZAKY: That is. Fundamentally –
STREETER: And the thought.
SZAKY: And that’s –
STREETER: What is not brought with it, which is then that – that’s going to be bit away. It’s going to be – it’s not always going to be someone is going to pay you to take away their garbage because as it becomes a commodity, you know there is going to be competition for it instead.
STREETER: And so I think that is the you know, you are going to have to keep ahead of that curve in your business in terms of finding other sources of waste where people are still willing to pay you to take it away.
STREETER: And it is all – I mean this happened – a concrete example of this is chicken poop. Chicken poop five years ago costs – or you could get paid you know, $50 a ton for it. Today, you’d be lucky to find it for paying $50 a ton. In five years chicken poop – and there is a lot of chicken poop made in this country – went from being considered a waste to a commodity. That’s pretty cool.
STREETER: Through --?
SZAKY: Through people buying it. By taking the demand up for it.
STREETER: Because – what – how are they going to use it?
SZAKY: Oh sorry. They use it for fertilizer.
SZAKY: They palletize it and use if for farm fertilizer. But it is interesting because you know, all economics is supply and demand. And waste really has no demand. It is just a commodity that has negative demand actually. And once that demand gets up, then you know you have changed the – yes exactly. I mean yes.
STREETER: Let me ask you one final question for today. I hope we’ll have a chance to –
STREETER: To do a few more chapters of your story.
SZAKY: Yes. Well you have to come down. I think you’d a—.
STREETER: I would really like that.
SZAKY: Our factories, we just had these –
You know speaking – you know these sort of like unique things. We just – we used to have a lot of art in our smaller office. Like I used to encourage everyone to paint and put something up on the wall. Our factory is so big now that we have had these you know, Trenton has a lot of urban artists who again, it is sort of this negative thing because they usually can only paint on surfaces that are legal, train cars, you know that sort of stuff. So they have come in. And we have encouraged them. Our goal is by the – in the next six months to have every single surface of the factory inside and out painted in some urban art – whatever they want to do. And so already about 30 percent of the factory is done. And if you come you will see sort of how that is evolving. You got this neat – I mean hell – this is the fun part about being 23 and running a company. You get to do sort of crazy things as well you know.
STREETER: We have talked about all different kind of parts of your journey. And I wonder you know, if you reflect on all of it, what has taken you most by surprise so far?
What has taken me most by surprise is that it is real. You know, it started as a dream. And I believed that it could happen. But seeing it actually manifest itself in reality. Walking into a Home Depot and seeing the product on the shelf – that is the biggest you know, just – I can’t describe it in a word of what it is. But that is maybe the biggest surprise. I mean you never actually think it’s going to happen. You believe it will. You fully believe it’s going to happen. But the moment it does, wow. That’s cool.This concludes our conversation with Tom Szaky of Terracycle. His journey holds so many insights for aspiring entrepreneurs, and his final comments give us insight about what keeps him driving to succeed with Terracycle. I hope you’ll join us for other conversations with entrepreneurs in all stages of life, by going to our website: eclips.cornell.edu Check the list of podcasts for entrepreneurs that interest you in your journey.