Making garbage useful with Tom Szaky of TerraCycle

Tom Szaky runs a recycling company, but he’d rather live in a world where recycling was obsolete... Today, his company recycles everything from shampoo bottles and makeup containers to snack wrappers and cigarette butts. And through their recent Loop initiative, TerraCycle works with consumer brands to develop packaging that is actually reusable -- an even more effective waste-reduction tactic than recyclable packaging. This week on How I Built This Lab, Tom recounts his entrepreneurial journey launching a worm poop fertilizer company from his college dorm room, then transforming that company into a multimillion dollar recycling business. Also, why Tom’s ultimate goal is to put himself out of business, and how our actual path to eliminating waste is radically reducing consumption. This episode was produced by J. C. Howard and edited by John Isabella, with research by Kerry Thompson and music by Ramtin Arablouei. Our audio engineer was James Willetts. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 5:11Guy Raz?

  Hello and welcome to How I Built This Lab. So how much garbage do you throw away? And how much of it is actually reusable? And I don't just mean recyclable. Lots of things come in plastic packaging that says it can be recycled. But how many products come in something that can actually be used again and again, like a glass jar or a stainless steel container? Well, not many, and so garbage piles up. And that's where today's guest sees opportunity. Tom Zaki is co-founder and CEO of TerraCycle. It's a recycling service that collects an assortment of waste and turns it into raw materials, materials that can be used to make other things. TerraCycle started back in 2001, actually as a fertilizer company.

• 5:53Guy Raz?

  Tom started the business during his freshman year at Princeton, when he and a couple of buddies made a surprising discovery after they took an interest in growing a certain type of plant in a basement.

• 6:06Speaker 01

  Let's just say they're much more legal today than they were back then.

• 6:09Guy Raz?

  I see.

• 6:09Speaker 01

  Yeah.

• 6:11Speaker 01

  Long story short, my friends took the plants to Montreal. They were going to McGill. And so they set up the shop there and started trying to make the plants work. And I got this exciting call from my friend Pete who goes, finally, they're working. You got to come visit. And I walk in and yeah, the plant was doing phenomenally well. And that was really exciting, of course. But I asked Pete, like, you know, so what did you do? And he took me very proudly to his kitchen where he was showing me how he was taking his food scraps and feeding them to red worms. And then the worm poop that came out as a result is what made these plants flourish. And that really was the first moment I became foundationally fascinated with this idea of garbage. Because simply speaking, he was taking garbage and making it into something amazing and

• 6:55Speaker 01

  solving this problem that we couldn't solve until then.

• 6:59Guy Raz?

  All right. So basically, they get their marijuana plants to thrive by basically feeding food scraps to worms, using the fertilizer to feed the plants. And you're just blown away by this. I mean, so blown away that you go back to college, you go back to Princeton, and you can't stop thinking about it. Like, you want to do something with this idea.

• 7:18Speaker 01

  Oh, absolutely. Yeah, I mean, the first thing was like, has anyone thought about this? And so we were scouring the internet on, are there any big worm poop companies out there? And it turned out there was no one who'd really looked at taking the idea of worm poop and really commercializing it on a very, very big scale. And, you know, we even set up a little worm composting unit in our dormitory.

• 7:37Guy Raz?

  This is like you and a roommate or a friend or?

• 7:39Speaker 01

  Yeah, I always had like the knack to sort of get folks to join up with my idea. So it was a friend of mine and then a couple of other folks got involved and helped out. And, you know, within a few months, we were basically tending to worms in our dorm room, taking the scraps in the cafeteria and showing that we could do it and, you know, writing a business plan and all these things you do as you sort of explore an idea at the beginning.

• 8:03Guy Raz?

  So you would basically take food scraps from the dining hall at Princeton and you would put them in a container in your dorm room with worms in there?

• 8:13Speaker 01

  That's exactly right. So think like a massive tote-type container, and that basically fit our fireplace. And we were putting all the scraps in there and then trying to harvest worm poop. I mean, let's be clear, it was smelly, we had lots of flies, you know, we were really trying to figure it out.

• 8:29Guy Raz?

  Yeah.

• 8:30Speaker 01

  But I was hooked on this idea, you know. To me, it was the fascination, because we were taking, one of the classes that that semester was Introduction to Economics. And we had been drawing supply and demand curves in that class at nauseam. And it always fascinated me, like, why can't you find the supply and demand of garbage on one of these graphs? And it turns out, it's because there is, while there's massive supply, there's in fact negative demand. And so in this worm poop concept, the simple business model was, wait a minute, we can get paid for the input, because that's, in a way, the definition of garbage. People are willing to pay to get rid of it, and then make this phenomenal fertilizer on the other side. And that sort of kept this all moving in that really exciting fashion.

• 9:13Guy Raz?

  And the idea here was, I guess, from the beginning, to see whether you could scale this. Like, there was no one

• 9:20Speaker 01

  Yeah.

• 9:21Guy Raz?

  making fertilizer from worm poop on a commercial scale. And you thought, well, I've seen how it works, I've seen how well it works. This could be a business, a big business.

• 9:31Speaker 01

  Absolutely. That was entirely the goal.

• 9:33Guy Raz?

  All right, so summer of 2001, I guess you go on a local radio station in Princeton. You were talking about this idea, and a caller calls in and was like, I'll invest in you.

• 9:45Speaker 01

  Yes, yes. And we were desperate. Let's, you know, let's be clear, at this moment, I had already taken all the money I could borrow from anyone that would talk to me. And we invested it in this, it was like a $20,000 machine that we had dreamed up that could take the organic waste and feed it to worms very quickly. And it was all chips in. Every dollar we had was invested in this, and we were basically going broke. And honestly, the last ditch effort was, this radio station was interested in the story. And we thought it was actually the last hurrah, honestly. Walking in, it was like, well, at least we'll end with a nice piece on the local radio. And from that, an investor called and showed up the next day and wrote us a check and kept us alive.

• 10:30Guy Raz?

  It was a $2,000 check.

• 10:32Speaker 01

  It was, it was, but it was enough to pay rent. It was enough to.

• 10:35Guy Raz?

  You guys were really close to the end. If that 2,000 bucks was like, all right, we got another lease on life.

• 10:41Speaker 01

  Oh, yeah. Yeah, yeah. It bought like 30 more days on the clock, you know, and and then from there, you know, a little bit more word came out and a few other angel investors came in. But it was, gosh, those early days, the the touch and go nature, just keeping the company solvent was really challenging. Because, you know, as a as a 20 year old guy, everyone is expecting you to do a dot com of some kind, right? And no one was interested in hearing about a waste management infrastructure fertilizer idea.

• 11:08Guy Raz?

  So basically, the idea was you would take this fertilizer and and it would be in bags like like regular fertilizer? Or how are you going to sell it?

• 11:19Speaker 01

  Also, the interesting thing about worm poop as a fertilizer is that unlike conventional fertilizer, let's say like Miracle Grow, it's jammed with a huge amount of beneficial microbes. And so we had to think through what's the right way to deliver that. And where we landed was to actually make it into a liquid fertilizer, sort of like a tea. And so we would take the worm poop, brew it into a tea, and then you would purchase that effectively as a liquid or spray on fertilizer.

• 11:47Guy Raz?

  And and you called the company Terra Cycle from from the beginning?

• 11:51Speaker 01

  Exactly, yeah. And it was, you know, Terra Cycle came out from a worm poop concept, Terra Earth Cycle. Even the logo I originally drew as a worm. That was its intention.

• 12:01Guy Raz?

  And I guess what initially you sold it to like local gardening centers?

• 12:07Speaker 01

  So this was another, it's funny you ask that because this is another sort of major moment of desperation that occurred. We couldn't afford any packaging at all. And so we went through all the recycling bins in the Princeton area, which is sort of sketchy. We were doing that at like 2:00 in the morning, going through people's garbage. And we thought maybe we could just temporarily package the worm poop we had in these used containers. And then, exactly as you say, sell them to local gardening centers. And this sort of desperate moment led to this phenomenal breakthrough that it turns out in in beverage containers. There's not many shapes and sizes. I mean, certainly different shapes, but there's half liter, 20 ounce, one liter and two liter volumes. And in each of those sizes,

• 12:49Speaker 01

  the more, the most important context of shape, like its height or its width are identical, whether it's a Coke or Pepsi bottle. And that then truly became our first product, Liquid Worm Poop, packaged in a used soda bottle.

• 13:01Guy Raz?

  So you would take these used bottles, and I guess you people would start to donate them.

• 13:06Speaker 01

  Yeah.

• 13:07Guy Raz?

  And you, you like washed them out, cleaned them and slapped your label on it?

• 13:11Speaker 01

  Yeah. So the way we got the bottles, that's exactly right. We would first begin by going to schools and saying, hey, schools, you know, you may not have a recycling program, you know, would you like to start collecting your soda bottles for us? And schools were quite interested. We would cover the shipping to get it to us. We even made a small donation to them for every bottle they they collected. Those would come in, then we would take off the labels, clean them out, sort out anything that was already crushed or deformed or something like that, then fill it up with the Liquid Worm Poop and put on a label and put on a trigger sprayer and that became our finished product.

• 13:43Guy Raz?

  And meantime, you dropped out of Princeton to pursue this.

• 13:47Speaker 01

  That's right. I was able to first start by saying, look, I'm going to take a semester off. And then Princeton has this funny thing where you don't drop out, you just go on indefinite leave. So it was less so of like this spectacular exit and much more me just continuously extending this leave, which one day turned out in the end to become permanent. And it was, it was the most gentle way to bring my parents along who, gosh, for years and years, didn't understand why I was doing this.

• 14:14Guy Raz?

  They were probably like, when are you, so when are you going to go back to school?

• 14:17Speaker 01

  Oh, yeah. Oh, yeah, absolutely. They thought it would be a nice little adventure. And luckily, by the time, you know, two, three years rolled around, we were, you know, growing enough that they saw that, no, this is making sense and it's not just a harebrained idea.

• 14:30Guy Raz?

  All right. So you. Take a leave of absence from school, focused entirely on this. And you, I think you were, you were working with another student named John Byer.

• 14:40Speaker 01

  That's right, yeah.

• 14:41Guy Raz?

  So you've got this machine and you start to package the, the liquid fertilizer. And who, who are you selling it to?

• 14:49Speaker 01

  Well, so we tried, you know, at the beginning, when we were getting advice in the, you know, from lawn and garden folks on how do you do this? They sort of said, look, the way to do this is you've got to go to independent garden centers. Then you have to build up your brand and then maybe one day you get a shot at Home Depot or Walmart.

• 15:03Guy Raz?

  Right.

• 15:04Speaker 01

  And when I looked at the, at who controls the fertilizer market, it's only four retailers control the vast majority of it, which in the US is Home Depot, Lowe's, Menards and Walmart. And so our answer was, wait a minute, if they are the ones who control the volume, I mean, let's go there. And that became a key focus was just calling and calling the buyer at Walmart and Home Depot. And we did that incessantly for, gosh, like weeks and weeks on end until they finally gave us a meeting and off we went.

• 15:32Guy Raz?

  And so how'd it go? I mean, Home Depot or Walmart, I mean, how did, how did you eventually get in the door?

• 15:39Speaker 01

  Well, so the, the first one was Walmart. And the, the whole thing was a little bit crazy because, so we got the meeting just through persistence, I would say. You know, I think we were calling every day from different phone numbers. So different numbers would pop up on the buyer's phone. And we were doing this for sort of six weeks straight. And finally he gets on the phone and says, you are these guys who keep calling. I mean, fine, come down, have a meeting. I think part of it was, what is this all about that these people keep calling so often? And maybe to have us stop calling. So they, you know, he said, look, at eight o'clock on this day, come down to Bentonville and, and talk to me. And so of course we were super excited and there was this like crazy travel moment where, I remember I'd, we'd booked a flight from Newark to go down to Fayetteville, seeing Walmart.

• 16:24Speaker 01

  And by the time I got to the airport, the flight had been canceled because it rained out. And so right away, we're like, assuming we're not going to get another meeting. So we rebooked the flight, you know, at an airport two hours away. Get there, it cancels. Then I look at my friend and we're like, look, if we drive 10 miles over the speed limit and take this number of breaks, we can get there right on time, driving from New Jersey down to Arkansas. And so off we went and we had to like make, you know, make these time gates. And during that whole time, we were looking for a flight, you know, maybe from Ohio or somewhere to pick up and, and, and take the rest by plane. And we did find a flight. We book it in cash and, and I think I get to the airport at like 3am for this 5am flight, get through security, you know, I'm sitting at the gate, taking a little nap.

• 17:09Speaker 01

  And then they call for boarding and I get up and board and they say, you know, because you've bought your ticket in cash, you have to have a special security screening, which they never performed on you when you came in, probably because it was 3:00 in the morning and everyone's really tired. And I made this like really impassioned plea to the gate agent saying like, look, we're these students, we have this worm poop. I had the worm poop with me and everything. And they call the security team over to pat me down, get on the plane, and then finally make it in. And at 8am, you know, we're there having the meeting with the buyer and we explained this idea of, you know, this is all about purposeful capitalism. You know, we're taking organic waste, feeding it to worms, packaging in used soda bottles that schools nearby are collecting. And then tell him this whole travel story.

• 17:52Speaker 01

  And he looks at us and it was this amazing moment. He walks over to his planogram where he's setting, you know, what the fertilizer's set for the next year will look like. He takes off, one of the, the products, maybe it was like a miracle grow or something, and puts one facing of the TerraCycle worm poop on the shelf. And he goes, you know, it's entirely your passion that, that has caused me to, you know, give you this national placement and let's see what you guys can do with it.

• 18:16Guy Raz?

  Wow.

• 18:17Speaker 01

  And that's how we got our first purchase order.

• 18:22Guy Raz?

  When we come back in just a moment, Tom takes his growing fertilizer business and completely shifts focus to garbage. Stay with us. I'm Guy Raz and you're listening to How I Built This Lab.

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• 22:16Guy Raz?

  Welcome back to How I Built This Lab. I'm Guy Raz. So Tom and John have convinced a Walmart buyer to carry their TerraCycle fertilizer spray in reused soda bottles. But now, they actually have to fulfill the order.

• 22:30Speaker 01

  Imagine the scene where all these dirty bottles are coming in, and it's all my friends from Princeton, who are cutting labels off, washing them out, pouring the worm poop in with a jug. The hardest part in this manual process was actually getting the labels on, because they were heat shrink labels, because they had to contour to, is it a Coke bottle or a Pepsi bottle? And since we couldn't afford a tunnel, like a heat tunnel to do this, we built this little rig where, imagine four hair dryers are placed on like this plywood, pointing in a center direction. And if you dip the bottle into this hairdryer tunnel just right, it will shrink the label on beautifully. You may burn your hand in the process a little bit. But that's how it all went out. And it was like a truckload of this stuff.

• 23:13Guy Raz?

  And so Walmart carried different kinds of bottles of this? I mean, it just, it seems unbelievable, like they would, you would imagine that they would expect like a standard size and a standard bottle, but you had different shapes of bottles?

• 23:27Speaker 01

  That's exactly right, yeah. So it was all 20 ounce. That was the, that was the volume they wanted. But if you think about 20 ounce bottles, that's like what, you know, one would find in a soda bottle in a vending machine, for example, if it's a plastic bottle. They're all different contours, like your Dr. Pepper bottles, different from your Coke, different from your Pepsi. But the key things are the same. So the heights are the same, diameter is the same, the tread on the cap is the same. So you could do effectively mass production of mixed-use soda bottles. And that way, the cases all look the same, everything was moving out, it worked nicely on the shelf. But then when you touched it, you were like, wow, this is a different contour than the other one.

• 24:05Guy Raz?

  All right. So you get into Walmart and eventually into a few of these other big chains with this product. And that does pretty well. I read that by 2005, you know, your, your sales were projected to be around $3 million that year. But I guess, within about two years, around 2007, you decide to change the business model and move away from, from the fertilizer, from the worm poop.

• 24:35Speaker 01

  That's right, yeah. By then, so we had grown up to about 6 million in, in revenue on doing worm poop. All the major retailers carrying us in the US and in Canada. And there was this big moment of reflection, you know? I had started TerraCycle really thinking through, how can we use business to create solutions to garbage? And I woke up four or five years later, effectively running a fertilizer company. Where, yes, technically, the input was garbage, but the part I was struggling with, like, when you take input of soda bottles, we had to sort out any soda bottle that had some level of damage on it. You know, maybe it was a car had driven over it, or there was a dent in it, because then it wouldn't look good on shelf. And the same for the worm poop.

• 25:17Speaker 01

  We had our scientists at that time had to pick certain types of organic waste to feed the worms, to get the right Type of poop. So when we were making cactus fertilizer, we fed the worms a different diet than if we're making tomato fertilizer. And so we were really cherry picking the very best of the garbage. I mean, all technically garbage, but it, you know, we were never going to contemplate to take cigarette butts or dirty diapers or really what makes up, you know, uh, waste out there. Um, and that led to a big struggle, you know, it was like, are we going to be a waste? Solution organization? Or are we going to be a fertilizer company? And where I really wanted to take TerraCycle was no, into innovating and solving waste. And so we had to pivot away from fertilizer at that time.

• 25:59Guy Raz?

  That meant that you were, I mean, your entire process was going to change, right? Because you're moving away from obviously worm poop and essentially a form of composting to becoming a recycling facility, essentially, I guess.

• 26:17Speaker 01

  That's right. Yes. And this had a lot of challenges. You can imagine the investors who invested. Some of them, you know, liked this idea. Some said, why not just keep doing what you're doing? The same with our management team.

• 26:31Speaker 01

  You know, in retrospect, of course, I can sit here today and say, you know, I think we did the right decision, but it was very traumatic during, during that moment.

• 26:40Guy Raz?

  Traumatic because for not just for the investors, but presumably for the people involved in TerraCycle.

• 26:46Speaker 01

  Yeah, yeah. Half the staff thought I was crazy. The other half thought it was a great idea. And I think that split was about the case across all the major stakeholders, you know, the board, investors, our team members, you know, we lost and had to change a lot of people in that process, you know? It was a very big metamorphosis, not just an evolution.

• 27:04Guy Raz?

  But Tom, what was the argument you made? I mean, how did, you know? What were you saying to the team? Like, we have to do this because?

• 27:13Speaker 01

  For me, it was, look, we started TerraCycle because we wanted to create business models that solve garbage and fertilizer was a good example of that. But we were not in our core trying to set out to create a fertilizer company. And if we become a consumer product company where our role is to make products from garbage, then the business hero of that equation is the product, which means we're going to have to find the very best inputs so that we can make the very best product. And how are we going to solve waste if we're only going after the very best of the garbage? That was the foundational issue. And so my hypothesis was, look, we need to make not the output, the product, the hero of the business equation, but the input, the garbage.

• 27:57Speaker 01

  And really think of how can we make sure we create business models that can deal with everything, all the gross and difficult things out there.

• 28:05Guy Raz?

  All right. So, given that you were going into the recycling business, was the idea you had to build a recycling center or were you going to work with existing recycling centers and essentially be focused on collecting the waste?

• 28:20Speaker 01

  So, we figured three things have to come together. We have to somehow collect the waste, then to process it to make sure it turns into a recycled output, and then, most importantly, to get someone to go out and fund all that. And our beginning point was going to manufacturers and brands because they tend to be the first in line for when someone points a finger on why is that object a waste object?

• 28:44Guy Raz?

  Right.

• 28:45Speaker 01

  It tends to go to the brand, so we thought that's a good place, a good place to begin to try to get funding.

• 28:50Guy Raz?

  So, I think one of your first partnerships is with Stonyfield and Cliff Bar. And explain how that would work. You would, they would pay you to create a program for them for people to, what?

• 29:06Guy Raz?

  Send in the Stonyfield yogurt cups or drop them off somewhere? How would it work?

• 29:11Speaker 01

  Yeah, that's exactly right. Very similar concept as how we were looking to or how we were collecting the soda bottles in the worm poop days. We said, and we had some experience on how to do that. So we went to the folks at Cliff Bar in Stonyfield and Honest Tea. Those were the first three partners that chose to back us. And we said, look, you guys have non-recyclable packaging forms, juice pouches for Honest Tea, all the way to bar, you know, wrappers for Cliff Bar. And we'll set up a national platform for you where schools and other community organizations, you know, places of worship, fire stations, libraries can sign up, put out a collection bin, fill it up with that category of waste. So it wasn't just for, say, Stonyfield branded yogurt cups. Any brand of yogurt cup could be put in through that program. Then download a shipping label, send it in.

• 29:55Speaker 01

  And then we'd give a little bit of an incentive to that organization, a little money to be donated to them or any charity they want. And that's effectively how all this waste would come in, in this first iteration.

• 30:06Guy Raz?

  Right. Okay. So the idea is to get brands to finance this. And recycling doesn't necessarily mean melting it down all the time. It could mean just cleaning the containers and returning them to the companies so they could reuse them.

• 30:19Speaker 01

  Absolutely. So generally speaking, if you think about comparing recycling and reuse, recycling is where you recover the materials an object is made from, and then those materials are now new inputs for other products. Reuse is more where the package is cleaned and then refilled. At the beginning with these brands, most of what we were looking at was doing recycling-based outputs or what's sometimes called upcycling. Think like sewing juice pouches into a backpack or folding energy bars into a bracelet or something.

• 30:51Guy Raz?

  So what would you do with recycled energy bar wrappers? Like, how does that, I mean, are they melted down? I'm trying to imagine how they're recycled.

• 30:59Speaker 01

  Yeah, absolutely. So the way the process for that would work is we'd first get in the wrappers. We would shred them, then run them through a washing cycle. So all the residual oils, foods, and greases and so on would come off. Then we would create what's called a compounded pellet where it all gets melted down. And then we would look for manufacturers that could use that material instead of buying new materials. So an energy bar wrapper may turn into a watering can or a dog food bowl or a plastic bench or something like that.

• 31:27Guy Raz?

  Got it. Okay. So over time, you began to presumably to find other partners, other brands.

• 31:34Guy Raz?

  That were interested in doing this and you and so you would essentially set up a program for these brands, right? They'd have a TerraCycle logo on it and and how would you like as a consumer, right? If I went and bought, I don't know, a cup of Stonyfield yogurt, right? Or a Cliff bar, how would I know? Because instead of just throwing it away in the garbage in my house, how would I know that I could do this?

• 32:00Speaker 01

  Yeah, creating awareness was really important. So we would go out and we were a small organization. We would create as much awareness as we could by talking to the media, our own social media presence, things like that. And then the brands would also promote it by putting the TerraCycle logo on their package, maybe sharing it on their assets, like their social media pages, websites, and so on. And people would then become aware that, hey, there's this option of what I can do with this package beyond just throwing it away.

• 32:26Guy Raz?

  So Tom, explain how, I mean, this is not a nonprofit business. I mean, this was a for and is a for-profit business. So the business model depended and depends entirely on partnering with brands?

• 32:40Speaker 01

  Not just brands, but yes. I mean, so and by the way, my advice to mission-driven entrepreneurs is typically to try to do this stuff in a for-profit context because access to capital is way easier in a for-profit.

• 32:53Guy Raz?

  Yeah.

• 32:54Speaker 01

  So our job is to go out and find as many stakeholders that are willing to fund. So brands is one area. It could be retailers. It could be office buildings or campuses, all the way down to even individuals. And so what we're first focused on is how do we create as many methods of collection as possible? Our mail-in programs are one today of about two dozen different ways that we're able to do collection from doorstep all the way to retail collection. And then because these waste streams cost more to collect and process than the results are worth, it's about finding folks that are willing to fund. And there's many different stakeholders, but each one, our job is to figure out, hey, will you pay for this externality, noting you have no legal obligation to do that today?

• 33:36Speaker 01

  It's sort of crazy, right? Like as a consumer, I can throw something in the garbage and I get no fine if I put a recyclable in the in the waste. I have no obligation.

• 33:45Guy Raz?

  Yeah, right.

• 33:45Speaker 01

  Manufacturers have no obligation to fund this externality, nor does any other stakeholder. And so we're out there sort of saying, hey, take voluntary responsibility over this and then we can set up a solution that people can access.

• 33:57Guy Raz?

  All right. So you have this.

• 34:01Guy Raz?

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

• 34:46Guy Raz?

  And then everybody would change their behaviors. But, but right now, it's entirely voluntary.

• 34:50Speaker 01

  Exactly. And this is a foundational flaw in the entire concept of waste, is that as a manufacturer today, let's say you and I started a company, we can invent anything, Guy and Tom's cool new pen, and we would have no responsibility over its end of life, at all. And there's no regulatory body we even have to go through to approve that that pen is okay to exist.

• 35:12Guy Raz?

  And, and we think this is normal, right? Like, this is just how businesses operate. But, but essentially, if you think about it, like, in 100 years from now, we might look at this and say, "Wow, that was a, that was a period of chaos in human history, where we just allowed everybody to make whatever they wanted without thinking about the consequences of, of disposing of that product."

• 35:33Speaker 01

  Right. And I, if I can zoom out for a minute, I think you have nailed the foundational issue in all of sustainability versus business, which is that business, and almost all the externalities it produces, not just waste, but, you know, deforestation, species extinction, everything.

• 35:51Guy Raz?

  Carbon emissions, yeah.

• 35:52Speaker 01

  Yes. Does not have to be responsible for those externalities. So effectively, they're going and being paid for by the plants and animals that inhabit this world that have no point of view, or, you know, on whether this stuff should happen, and future generations. Net-net, I mean, that would be the solve, is all these externalities being somehow embedded. The challenge, of course, is that the price of products would explode.

• 36:15Guy Raz?

  Right. And so I would say that, I would argue that it's not just companies and corporations, it's, it's consumers, too, that are getting a free ride.

• 36:21Speaker 01

  Yes.

• 36:22Guy Raz?

  Because, because the, the cost to us is not, is also very low.

• 36:26Speaker 01

  That's right.

• 36:26Guy Raz?

  We get cheap consumer products, and... You know, right? Because if companies had to do that, if corporations had to do that, they'd have to raise prices and we'd have to pay for that, which you can make the argument that we should. Everybody should be doing that.

• 36:38Speaker 01

  Yes.

• 36:38Guy Raz?

  Companies, consumers, yeah.

• 36:40Speaker 01

  Yeah, yeah, exactly right. I mean, that is, if you gave sort of the a dream state for me from a legislative point of view, that would be what would happen is that all the externalities of creation of products would be in their price, which of course would mean that everything, as you just said, would get much more expensive, which would mean we would consume less. And consuming less is the actual answer to every environmental issue we face.

• 37:05Guy Raz?

  When we come back in just a moment, more on strategic consumption and why Tom's actual goal is to put himself out of business. Stay with us. I'm Guy Raz and you're listening to How I Built This Lab.

• 37:32Guy Raz?

  Welcome back to How I Built This Lab. I'm Guy Raz. So Tom is the founder of TerraCycle, a company that works to recycle and reuse packaging. The problem, though, is that creating new plastic is often cheaper than recycling old plastic.

• 37:48Speaker 01

  Today, plastic is still cheaper to make new than to collect it and process it and then to use it as a recycled material, which is why we see the use of virgin plastic increase year over year over year.

• 38:03Guy Raz?

  So, I mean, how do you, how do you change? I mean, if it's a matter of economics, right? If it costs more to recycle than to use raw, virgin materials, how do we fix that? I mean, essentially, can we fix that? Or will companies simply have to choose to just pay more because it's the morally right thing to do?

• 38:24Speaker 01

  Well, I think there are two ways we can manifest change. We can have mandatory change. Let's call that regulation, legislation. And we see that coming in the world of waste. We've seen certain things get banned, like the plastic bag in certain states and countries, plastic straws. Disposable dining ware, that we'll call mandatory action and we should do as much of that as fast as absolutely possible and it's good that we see some of that coming. After that, I think what's left is voluntary action. That's where, for example, TerraCycle sits and there we have to seduce companies and convince them to invest in something they have no legal obligation to invest in. And with each stakeholder, it's a different sort of types of value that we have to show. So for a brand, you know, our goal is to say,

• 39:07Speaker 01

  hey, you have this big issue, you can create a solution to it, but maybe you can also attract consumers into your brand versus a competitor that may not be offering that investment. Or if you're a retailer, maybe by offering recycling solutions for certain waste streams, you can attract more foot traffic. And in each case, it's about using the dynamic of business to think through what is the value that's being generated by funding the solution to that externality.

• 39:31Guy Raz?

  What do you, I mean, right now, given that there are no financial incentives or penalties, right, what have you discovered is the best incentive to get consumers to participate?

• 39:44Speaker 01

  I find that there's really sort of two type of incentives that really move consumers. There is consumers certainly who care about the environment because it's the right thing to do. And we're seeing that trend in the right direction. It's just not for 100% of people today. The other incentive is creating benefit for their community. So we do a lot of programs where we say, hey, collect toothpaste tubes and toothbrushes and then they get turned into playgrounds that may benefit a community near you. We see that drives a lot of motivation or donations to charity. And then the third is the odd one, which is making it fun and exciting. I'll give you a case study of this. You know, we did a study at a train station. I think it was in some, in New York perhaps, like

• 40:25Speaker 01

  a busy train station and we put out very well-marked recycling bins and very well-marked trash bins right beside each other. And we noticed how many people would put an aluminum can or a soda bottle in the right bin and it was 50%. And that's crazy because they're right beside each other. Then we just inserted a little bit of fun where when you put the, something in the recycling bin, the recycling bin would light up and give like a sound effect back. And immediately it moved to 90% of people put the recycling in the right bin. And so fun and excitement is also important to instill in these programs to get good participation.

• 41:01Guy Raz?

  Tom, we've had many businesses on How I Built This that are beverage companies or food companies that use plastic. And occasionally, I've asked them, why don't you switch to aluminum or to glass? I interviewed somebody who's got a beverage company and they said, look, aluminum creates actually more pollution and you can recycle plastic. And also, the weight of glass creates more carbon emissions. I mean, there are all kinds of arguments you can make. But, I mean, do you think we would be better off if most food brands and beverage brands just used aluminum and glass rather than plastic?

• 41:42Speaker 01

  No, I don't think so because I think every material type has pros and cons. We're in a moment right now where we are, I think rightly so, really projecting a lot of negative onto plastic because of microplastics, ocean plastic, all these things that are correct. But there's also externalities of everything. And so, the right answer that we have to think about is the hardest, which is a meditation on our relationship with consumption. We are voting for all this environmental destruction to occur by buying things. And we're buying things at a phenomenally unsustainable volume. That's going to be, I think, some point in time that will have to be really reflected on. And I think it'll either come from us voluntarily reflecting on it. I hope that's the case.

• 42:26Speaker 01

  But if not, it's going to come through the earth effectively punching us in the face quite a bit and forcing that reflection to occur. Because, I mean, it's going to come to us one way or another. The material choices we make, I think, need to be less about, is it an alloy or glass or plastic? It's much more about, how do we eliminate the need of packaging if we can? Then, how do we shift to reusable packaging where the packaging is just cleaned and refilled, which eliminates the need of extracting it every time from the earth? And then, if we use disposable packaging, how to make sure that that material can still be honored by going around as many times as possible, perhaps into different applications, and just getting away from this hyper-disposability where it all ends up in destruction, whether

• 43:11Speaker 01

  a landfill or an incinerator?

• 43:14Guy Raz?

  All right, so you're obviously fighting the good fight. But you're also running a business and it has to be a sustainable business. Tell me a little bit about the economics of TerraCycle today. I know I've seen different numbers about, you know, I know you raised about $25 million in 2020. I've seen different numbers about your revenue, 40 million, 50 million. I mean, are you a profitable business right now?

• 43:42Speaker 01

  Yes. So to give you a couple of statistics, in 2015, we turned profitable and we haven't looked back since, so we've been able to post profits every year since then. This year, you know, we'll do about 75 or 80 million in revenue, somewhere between those two numbers. And every year, this is our 20th year, we've achieved straight revenue growth every year. Now, mind you, I'd still say just under 100 million is a small number compared to the opportunity and the level of the issue. So we think we have a lot in front of us. But we have been able to achieve good stability and good foundations from a P and L balance sheet, all those vectors that you would look at in just, is it a good business model?

• 44:22Guy Raz?

  Tom, here's sort of a weird question. And I'm sure at some point you've thought about this, which is essentially your mission is to, you know, in a perfect world, is to eliminate waste, right? And so we would all be going to the market and refilling our glass bottles with, you know, apple juice or peanut butter, whatever it is, right? And if that were the case, your business is obsolete. Like, in a sense, your mission is to make your business obsolete, to bring your revenue down to zero. I mean, right? I mean, am I kind of right there?

• 44:58Speaker 01

  No, you're not just kind of right, you are absolutely right. And this is entirely why we invested in doing this. So it's not just passively. We've put all of our profits and investment into our third division, which is called Loop, and it's all about transitioning from disposability to reusability. And if Loop were to really succeed in a grand way, our first division, which is focused on recycling, would disappear. This obviously came up when we created Loop. It's like, wait a minute, this is going to cannibalize our first unit. And to me, it was sort of like, well, when Netflix created streaming, it destroyed their mailing system for DVDs. But it was the right decision.

• 45:38Guy Raz?

  Right, so Division 1 is recycling. Division 2 is turning recycled materials into other products. But the newest division that you launched in 2019 called Loop, or you announced it, I think you launched it in 2020.

• 45:51Speaker 01

  Yeah.

• 45:51Guy Raz?

  This essentially is a, what you do is you partner, you're partnering with some big companies like Tide Laundry Detergent or Haagen Dazs Ice Cream. And you are creating a program to, what, for them to reuse the containers or to, like, basically for consumers to reuse the containers. Tell me how it works.

• 46:11Speaker 01

  Absolutely. So we work with brands. Today, 200 major consumer product companies have joined. Even Nestle and P&G are now investors in this. And they basically create reusable versions of their brands that are there today. Our job is to approve and make sure it can flow through and it really is reusable. So let's take something like Tide Laundry Detergent, right? Today Tide comes in that iconic orange plastic bottle.

• 46:34Guy Raz?

  Sure, yep.

• 46:35Speaker 01

  In select stores at Walmart today, you can find it through Loop in a beautiful stainless steel container. And they have to design that container to fit the rules, which it must be able to handle 10 reuse cycles or more. That one, particular one's rated to be much more, but we say 10 is the minimum to be countable as reuse. And of course, what is really reusable? I mean, one could argue it's more than one use, but we worked with a lot of NGOs and stakeholders and said 10 is a good number to say, you know what, at 10 you are reusable.

• 47:05Guy Raz?

  Yep.

• 47:05Speaker 01

  And so they have to do that, sort of like, similar to the concept of organic, where people have to farm in a certain way and then someone says, now you're an organic farm. We do the same, except we say now that's reusable. And the way it works for a consumer, for example, in Arkansas, you can get this in Walmart today, where you can buy these products, whether it's Heinz ketchup all the way to Tide Laundry Detergent. You pay a deposit for the package. And then when you're done, without sorting it, without cleaning it, you give it back to Loop, say in a drop-in at the store, or if it's e-comm, it's picked up from your home. And then we return the deposits to you in full. We sort them out. If needed, we clean them. And then they go back to the manufacturer who refills them and around it goes again.

• 47:48Speaker 01

  And one of the nice things here is then there is no waste. And at the end of the life of that container, one of the rules for Loop is that it must be able to be recycled back into itself, so that those molecules always stay in the context of that package.

• 48:03Guy Raz?

  So I mean, and there are versions of this, like in California here, Northern California, you can buy Strauss milk, for example, in glass bottles.

• 48:09Speaker 01

  Yes.

• 48:10Guy Raz?

  And you know, you pay $2.50, I think, per bottle. But you know, that's an incentive to bring it back because it's a lot.

• 48:17Speaker 01

  Yes.

• 48:18Guy Raz?

  I mean, these are very heavy, thick glass bottles. And so that's the basic model here.

• 48:23Speaker 01

  Yeah, think of it as the milkman, which is the example you just you just shared. But it can apply to any product, from insect repellent all the way to your favorite ice cream.

• 48:32Guy Raz?

  And do these containers need to be made out of something other than plastic? Or are they sometimes still made of plastic?

• 48:39Speaker 01

  Well, there are three sort of material types we see work really well in reuse. Obviously, glass, like the milk bottle you mentioned. Alloys are great, like stainless steel, aluminum, those work very well. But also engineered plastics. So think like a plastic sports water bottle is a reusable vessel.

• 48:57Guy Raz?

  Right.

• 48:58Speaker 01

  And we use it all the time. And in different applications, it's very appropriate. So for example, in a bathroom environment, let's say you have shampoo and conditioner. Glass is is dangerous because...

• 49:08Guy Raz?

  Not great, no. You don't want to shatter it on your shower floor.

• 49:11Speaker 01

  Oh, my God, can you imagine, right? Or alloy, imagine if, you know, it's slippery and it falls, it can hurt your toes much more than a plastic container. So in something like shampoo, conditioner, a thicker, more durable, but polymer container is is the right choice.

• 49:27Guy Raz?

  So Tom, as as the the brand, a tear cycle, you know, begins this transition over time to to loop, right? Let's say, where in the future, ideally, every product we buy is going to come in a container that's reuse that's reusable, right? Let's say that's the future. What does that mean for your for your business? I mean, I mean, do you see this as a a billion dollar business? I mean, is it, I mean, how big can this? Can your business become, if this transition works?

• 49:58Speaker 01

  I think much bigger than recycling. I think this is going to take a long time, mind you, because we have to do it product by product, country by country. It's a, it's a big transition to get this all to occur. But let's say academically, we did get there. The, the amount of jobs and the amount of revenue created on reuse is bigger than recycling, just like recycling is more jobs and revenue than landfilling.

• 50:23Guy Raz?

  And so over time, you see yourself ideally getting out of the recycling business and focusing on the reusable business?

• 50:30Speaker 01

  Yeah, I would say, I look at this, this transition as recycling is what we can bring at scale today, and let's do that while we're able to get everyone to shift to reusable. Nothing we spoke about is really the answer to waste. And I think this is really important. It's the biggest realization I've had in 20 years of doing this is that recycling is a Band-Aid, right? And it's better than landfilling and incineration. It's a step in the right direction. Reuse is an even better step than recycling.

• 50:59Speaker 01

  But in the end, the only answer is going to be a significant reduction of, of buying things. And it's the conversation that gets spoken about the least in the multi-stakeholder dialogues and all the halls of business, because it is inherently anti-business. But I think it's so important for us to realize that, especially as citizens who are voting by buying things, right? That vote is what fuels all this, and we have to shift.

• 51:24Guy Raz?

  Tom, thank you so much.

• 51:26Speaker 01

  Thank you so much as well.

• 51:29Guy Raz?

  That's Tom Zaki, co-founder and CEO of TerraCycle. Hey, thanks so much for listening to How I Built This Lab. Please make sure to follow the show wherever you listen on any podcast app. Usually there's just a follow button right at the top, so you don't miss any new episodes, and it is entirely free. If you want to contact our team, our email address is [email protected]. This episode was produced by J.C. Howard with editing by John Isabella, research by Kerry Thompson, and music by Ramtin Arablouei. Our audio engineer was James Willetts. Our production team at How I Built This includes Casey Herman, Alex Chung, Liz Metzger, Elaine Coats, Chris Messini,

• 52:13Guy Raz?

  Carla Estevez, Sam Paulson, and Romel Wood. Neva Grant is our supervising editor. I'm Guy Raz, and you've been listening to How I Built This.