Interview With Tom Szaky, Founder, Terracycle
We spoke with Tom Szaky, TerraCycle’s founder and CEO, about social enterprise, locating in a distressed community, and what he as an employer would want out of workforce development programs.
By Miriam Axel-Lute and Harold Simon Posted on October 2, 2014
Miriam Axel-Lute: What was the role of Isles, Inc. [a CDC in Trenton, N.J.] in the growth of TerraCycle and your decision to locate in Trenton?
Tom Szaky: TerraCycle started in 2003. I was going to Princeton [University] at the time. When I left school, we first located in a small office in Princeton, [N.J.], which is definitely [not an inner-city]. We ended up moving to Trenton once we needed manufacturing space and a larger office. Trenton was a fantastic opportunity to accomplish that. There was affordable real estate. It was also a city that had very few businesses, so they really welcomed us with open arms.
After we decided to get a building in Trenton, I found Isles through the Princeton community and got to know Marty [Johnson, Isles’s executive director], and he really helped as a mentor, helped guide me in the ins and outs of operating a business in the inner city, helped introduce me to a lot of people and give advice on certain things to do and not do.
Isles, about six months later, invested about $50,000 into TerraCycle, which really went a long way back then.
You know how they always say, “Teach a man to fish instead of giving him fish”? I think the same goes for young startups located in inner cities. Established nonprofits like Isles can really help quite a bit, not just by advice but also helping fund these companies so that they’re able to succeed.
Many years later we ended up entering into a long-term lease on one of their buildings for warehouse space.
The other thing, too, is they helped us find good talent. People who were applying to Isles who may not have been a fit or [when they] didn’t have an open position, many times Marty would throw those to me.
Miriam Axel-Lute: Can you give some examples of the sorts of things that he helped you understand about locating in Trenton that you might have had trouble finding out on your own?
Tom Szaky: How to deal with building inspections, how to work with the police, the fire department, a little bit of knowledge on the political situation.
Marty showed that it is possible to have a long-term business succeed in the inner city. Inner cities tend to have more of a depressed vibe than not, if we just call a spade a
spade. Him showing that this was all possible was really critical, because I think when someone sees something is possible, that’s half the battle.
He also helped us navigate how to access public money. We ended up getting a loan from the New Jersey Economic Development Association, which was in many ways thanks to Marty pointing us in the right directions and introducing us to the right people.
Miriam Axel-Lute: Talk a little bit about your decision to stay in Trenton long-term.
Tom Szaky: TerraCycle today operates in 24 countries around the world. We’re headquartered in Trenton, but we operate all over Latin America, have offices in Buenos Aires, Sao Paolo, all the way to Western Europe, Middle East. We just opened up in Australia, New Zealand, and we’ll soon be launching our Tokyo office and Seoul office for Japan and South Korea. So, we’re definitely a global business, and growing quite well.
One of the things we try to do in our foreign offices is locate in inner cities, or the equivalent of inner cities. In Latin America, the idea of an inner city’s not quite the same as in America, but we do try to locate in impoverished areas, because we’ve found that locating in these areas is actually a major business benefit. It’s cheaper economically. It really plays into what TerraCycle is all about, which is trying to be a social business, so it really reinforces our values.
And it [gives us] much more flexibility in creating things and doing stuff. The government is more wanting you to build stuff than trying to block you. In more developed cities or rich cities, it’s all about how to navigate permits, and it’s always an issue. In inner cities, it’s quite the opposite.
We intend to stay in Trenton indefinitely. I have absolutely no intention of moving out of the city, to the point where we just went under contract to buy another building in Trenton because we need more office space.
Trenton is in one of the best geographic areas I’ve ever seen. It’s an hour south of New York City, 40 minutes north of Philadelphia.
The biggest challenge for us is that I would like to hire people that are from Trenton. While maybe 10 percent of our U.S. staff is from Trenton, that’s a disappointing percentage to me. I’d like it to be higher.
With that said, what we have seen happening is a lot of our employees who live outside Trenton moving into Trenton or the surrounding neighborhood. That’s a positive, but I think it’d be more positive if we could draw more from the actual labor force. My message there to any mayor is education, education, education.
Miriam Axel-Lute: Why don’t all these other companies recognize the value that you’ve seen in being in a place like Trenton?
Tom Szaky: I will speak bluntly. White people are scared of black people. Another way to put that statement is they’re intimidated by the inner city because they worry that it’s incredibly dangerous. It’s all synonyms for the same sort of emotional base. It’s not factual-based perspectives. I hate to say it, but that’s the reason.
My message to all the folks who don’t want to locate in there [is] it just makes good business sense. Forget doing the right thing. Don’t do it for that. Do it because the rent is cheap. The location is good. You’re going to get way more leniency in what you’re trying to accomplish, and you’re going to get much more support and attention.
And don’t be scared. We’ve have worked in Trenton for eight years now. We’ve had not one single crime issue ever, not one.
Miriam Axel-Lute: Have you worked with any job training programs or groups that try to funnel job candidates to you?
Tom Szaky: I’m generally really bullish on the inner cities. What I’m, unfortunately, really pessimistic about is the labor force talent inside inner cities. Just to be very blunt, they were one of the worst labor forces I’ve ever had the chance to work with. There was major lack of pride, motivation, so our quality control was suffering greatly, and that was just impossible to solve for no matter what we tried. It was very challenging. We tried it for a few years, lost millions of dollars in the process, and ended up moving to a more outsourced model.
Harold Simon: The best possible thing to do is to have a good school system, we know that. But, even if tomorrow you had a good school system, the people who are looking for work now won’t be able to go through it.
So, here you are. You’re in the place you’ve committed to. What do you think would make a good workforce training program?
Tom Szaky: Right now all the workforce training programs out there are more suited toward manual labor type trainings. But where a lot of the American economy is going today is not manufacturing.
In addition to just teaching front office type of skills, the biggest challenge we have is the culture of it. I think that somehow instilling the idea of career is important. As one concrete example, I have seen from inner city sourcing the habitual attempt to get fired so that they can go right on unemployment.
Harold Simon: There are values that are taught from birth, and there are values or behaviors that are incentivized by the circumstances or environment. So, when people lose their jobs as quick as they can so they can get on unemployment, it seems like that’s an incentive system. And I’m not trying to say we should not have unemployment, far from it. But, what kind of an incentive system do you think might work so that people are more motivated?
Tom Szaky: I totally get the reasons. I think the reason people have the perspective of wanting to try to get fired basically to get unemployment, is because they have probably gone through a lot of jobs that haven’t treated them well, haven’t ever felt that a career can happen for them, and then why should they care about the long-term possibilities when it’s never materialized for them.
I think what has really helped new people is to see someone who’s like them, who’s been there for five years, who has gone through and has increased [their] salary and inspired them to say here’s what you can get to. One thing that maybe job training can do is go out there and really focus hard on creating some inspirational stories about a dozen people who can inspire the local community, role models and things along those lines.
Miriam Axel-Lute: And possibly some guidance for helping people tell a good job from an exploitative job, because there are both out there.
Tom Szaky: Maybe it could be more effective, as a nonprofit or as a social good organization, to say, hey we’re going to provide job training once that person joins your company, to help them, motivate them, get them through some of the challenges that others may not have. That could be a neat thing, where it doesn’t become the burden of the employer, but it’s something that a nonprofit or the government can do to make sure that person succeeds.
To me, that would suddenly make it a lot more exciting to go out and proactively prioritize folks from the inner city because, frankly, I want to anyway. I just don’t have the resources to invest that into the people myself.
Miriam Axel-Lute: So we jumped right into the meaty, interesting questions, but let’s back up and talk about how you got started and what TerraCycle does.
Tom Szaky: TerraCycle’s business model is that we make non-recyclable waste nationally recyclable. Non-recyclable waste is any waste that you cannot put in your recycling bin, everything from dirty diapers to used chewing gum to used cigarettes to food packaging and so on.
What we do is we create national collection systems for these waste streams, where people can go to our website, TerraCycle.com, or whatever the local country website is in 24 other countries, sign up to one of our many systems, collect waste in a box, download free shipping labels from our website, send it to one of our warehouses in America where it’s checked in. And then, in many of the waste streams we give a small donation per piece of waste to the charity or school of your choice. For chip bags, for example, we give two cents per chip bag. We give away probably about $3 million to $4 million a year in these donations.
These programs are all funded by major multinational brands who are able then to render their waste nationally recyclable. And give you a sense of scale, we collect 4 percent of America’s juice pouches, 1 percent of America’s coffee capsules, 2 percent of America’s chip bags, 7 percent of the coffee capsules in the United Kingdom, half a percent of the cigarettes in Canada, and so on.
We have versions that are funded by brands, versions that are funded by retailers. For example, Staples in every store in America collects binders to be recycled through TerraCycle, and that happens in 70,000 retailers around the world. We have versions that are funded by consumers.
We have a team of scientists and a team of designers. The designers look at how we can reuse the waste, like refurbishing cell phones, which we do quite a bit of, or how we can upcycle the waste, like sewing juice pouches into backpacks. Then, our team of scientists looks at how we recycle the waste, for example, recycling cigarettes by shredding and separating them, composting the organics and melting the inorganics into a plastic.
Harold Simon: How in the world did you come up with that? Not exactly your everyday compost recycling kind of stuff.
Tom Szaky: The honest story is when I got into university, my friends and I started to grow pot in our basement. And we found that the best way to make the plants work was to feed them worm poop, which is organic waste fed to worms.
That’s what started getting me to think about why does garbage exist. Garbage doesn’t exist in nature. It only exists in the human system. I realized that it exists because we have way too much consumption, and the stuff we buy is made from really complicated materials that nature doesn’t know what to do with.
Then, digging even deeper, we started asking the question, why is something recyclable? It turns out the only reason something is recyclable is because its economics are inherently positive. In other words, the reason an aluminum can is recyclable is because the aluminum is more valuable than the cost of collecting it and processing it. Everything in the world can technically be recycled.
And that’s how TerraCycle really began. It started with growing better pot, and got into figuring out can business solve for non-recyclable waste.
Miriam Axel-Lute: So what made you think you would be able to turn the economics around when others couldn’t?
Tom Szaky: Oh, it’s a simple answer: finding stakeholders who care. So, in cigarettes, it’s the cigarette companies. In binders, it’s the retailer, Staples. In some cases, it’s the individual. In some cases it’s the government, or a city. It’s all about figuring out which stakeholder cares enough to help you fund the difference. That’s the whole magic in making the economics work.
Harold Simon: So, when you say “cares enough,” are you saying they woke up and they want to do some social good? How do you identify the motivation of Philip Morris? I mean, they do sell poison.
Tom Szaky: We made a company policy to not really have a perspective on the product of the companies we work with, so we work with everyone.
The reason Philip Morris cares is not because they woke up one day and wanted to do social good. We’ve been able to show them that they get concrete business benefit by investing serious dollars into creating national recycling solutions for their waste.
For example, Capri Sun launched with TerraCycle seven years ago, [and] now we collect 4 percent of all America’s juice pouches. Because they’ve been funding and really getting behind that system, they’ve been able to gain major market share from their competitors. So, our job is to show these companies that they can do the right thing, fulfill their goals for corporate social responsibility and other things, but still also gain business benefit in the normal way they evaluate business opportunities.
Miriam Axel-Lute: In the environmental movement, people like to talk about the three Rs: Reduce, Reuse, Recycle, and there’s been a lot of push to point out that “reduce” is more important than “recycle.” If we have a choice, we should be getting rid of things that we have to recycle instead of using them and recycling them. Is there a concern that your business model relies on that over-consumptive society that you referred to in the beginning?
Tom Szaky: I completely agree. The best thing to do for the environment is stop buying. Now, TerraCycle’s business, yes, is a reaction to the consumption culture, but I would be more than happy if everyone stopped buying and my business was not relevant. I would view that as a success.
The reality of the situation is that we have billions of people around the planet who are addicted to consumption and are buying and buying, and TerraCycle’s at least a great reaction to that. But, I personally wish that TerraCycle didn’t need to exist. It’s a reaction to a problem, and it’s not the solution to the problem.
Harold Simon: San Francisco recycles a lot and they have a number of companies that do the pickup and the work of recycling; one that I visited is also a job training program for people from some of the public housing projects. Do you work with any groups like that?
Tom Szaky: Yes, absolutely. When we look at identifying suppliers or partners, we of course first evaluate out can they do the job at a good price. That’s our number one criteria. Now, if that criteria is met, then we really try to prefer people who are socially minded because it reinforces what we’re all about, which is trying to show that business can exist for the function of doing environmental and social good, [and] doesn’t just have to exist as a function of creating profit.
Instead of focusing on maximizing profits, focus on being profitable and then focus all your other efforts on doing your service, or making your product as best as it can be, because isn’t that the reason we go to work anyway, to do the function of our jobs, not just to create as many profit dollars as possible?
It’s similar to the whole idea of curbing consumption. More is not always better. Instead of buying a bunch of crap, spend the same amount of money and buy great, durable, high-end products that will last a while, give you more enjoyment, and so on. It’s not about destroying the economy. It’s about re-imagining the purpose of the economy.
What’s good is that a lot of young people now, especially young people entering the workforce, are much more interested in purpose jobs than they are in just what salary they get.
I think if we shift our perspective to focus on why does a company exist and what purpose does it serve, how does it move humanity forward, that is really the exciting part. And then, basically every business is a social business. There shouldn’t even be the concept of a differentiation between a social business and a normal business.
Harold Simon: So, besides the example of what you and some other companies are doing and the shifting values of young people coming into the work world, how else do you get that miracle to happen?
Tom Szaky: That miracle has two sides. One is the consumer supporting these things. Like, if people didn’t collect waste with TerraCycle, they didn’t participate in our programs, I wouldn’t be talking to you today. And the other is people who are, when they’re starting a business or getting involved in one, to think and seek out businesses like these, or come up with one or look at working for one.
Harold Simon: So, it’s a slow virus, not a pandemic.
Tom Szaky: Look, a pandemic will occur if we get into crisis mode, like we run out of oil or run out of raw materials. Yes, it’s going to be a slow movement, but it’s one that can accelerate if more and more people join. It could really become overwhelming at some point. It is happening.