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Using worm poop as cleantech

It’s a low tech idea- selling worm poo (from compost) in a recycled soda bottle-, but the “Zerofootprint”-certified TerraCycle Plant Food is no niche item: Target, Home Depot, Wal-Mart and Whole Foods are selling it and company sales last year were $1.5 million. And with a recent partnership with a private equity firm that figure could go much, much higher.

Back in 2001 before green became a marketing strategy and cleantech became an investment category, 19-year-old college students Tom Szaky and Jon Beyer wrote a business plan that involved making a product from waste- feeding organic garbage to worms to create a chemical-free plant food- and they entered it in a Princeton Entrepreneurship Club contest.

After failing to win the college contest, they invested personal savings, borrowed from family and friends and maxed out two credit cards to keep their idea alive.

The following summer, they convinced the university to give them the dining hall waste and a bit of space to set up their prototype “Worm Gin” (to help the worms compost faster) on school property. It was a messy summer with no real success.

Rejecting $1 million to stay true to a vision

A year later Szaky dropped out of the Ivy League to develop their concept and shortly thereafter he won the Carrot Capital business plan contest, this time for 1 million dollars. He refused the winnings. “They wanted to us to give up ‘garbage’ to make yet another line of organic fertilizers, which was completely out of sync with our vision. So even though we had only 500 dollars in the bank, we turned the money down.”

Their vision has always been to create a new way of doing business. As “arguably the first-ever Eco-Capitalist corporation”, from the moment they began feeding dining hall garbage to their natural composters, they have set out to prove that “a company could be financially successful while being ecologically and socially responsible.”

They have had no problem proving the latter, their product is made from waste (the organic garbage) and packaged in waste (reused soda bottles) and even shipped in other companies’ waste (misprinted cardboard). It’s a pure cradle-to-cradle concept, and last year they became the first consumer product awarded the “Zerofootprint” seal, signifying their materials and manufacturing process produce virtually no negative environmental repercussions.

Stumbling upon free packaging and a Zerofootprint status

While the concept of using worms on waste was a focus since the initial business plan, the idea to package the product in recycled soda bottles was simply a reaction to a lack of resources.

Back when they just had $500 in the bank and had refused the ethically-compromising award winnings, the TerraCycle founders couldn’t afford packaging for their product so they decided to try to reuse someone else’s.

After a nighttime raid of the college recycling bins, Tom made a discovery: all the plastic bottles fit within four size categories, meaning they could be run through a high-speed bottling machine and used for mass production.

As Tom told Inc Magazine for their story, The Coolest Little Start-up in America, “That was the moment when it all came together, when we crystallized what we could do in a powerful way. We realized we could make a product entirely from recycled waste. I thought, This is it. This is what we have to do. Within five months, we had raised $1.2 million from private investors.”

Today, all this good for the earth stuff is selling product: they’re packaging 30,000 gallons of poop into 50,000 bottles every week for sale in 7000 stores nationwide and they estimate $5 million in sales this year. But that figure may just be the beginning.

Selling shares without selling out

With cleantech venture investment reaching $1.28 billion last year, the 25-year-olds have had plenty of offers from institutional investors, but have turned them all down on principal. “We have turned down every other firm that has approached us… They have never shared our vision or energy and have wanted to move TerraCycle away from our commitment to being environmentally beneficial in all aspects of business.”

On may, 2007, they finally said yes to outside money. San Francisco-based private equity firm JH Partners- known for building brands like Peet’s Coffee & Tea, Bare Escentuals and Bell Helmets- doesn’t just accept TerraCycle’s commitment to the environment, but see it as a selling point. In fact, JH Partners president John Hansen thinks they can leverage this eco-focus into exponential success. “The Company is well positioned to capitalize on the growing market for natural and eco-friendly home products and is poised to become a leading brand.”

When the market leader takes you to court you know you’ve arrived.

In the meantime, the leading brand of plant food is suing TerraCycle. Scott’s Miracle-Gro claims that TerraCycle’s yellow and green packaging infringes on their “distinctive and famous trade dress” and that they are falsely advertising that their plant products are better than the rest, including Scotts.

Szaky has turned the suit into free publicity, telling The Wall Street Journal that “it’s the most common fact that worm poop is one of the best organic fertilizers out there” and The Associated Press that “Miracle-Gro has sued us over advertising. I’ve never bought an ad.”

To prove the David and Goliath aspect of the suit, Terracycle has put up a website pointing out that Scott’s Miracle-Gro has profits of $132.7 million ($2.7 billion in annual sales) and 59+% of the market share while TerraCycle has “infinitesimal” market presence and han’t even shown a profit yet.

They also show photos of 120 other lawn and garden products with the yellow and green labels. So why was TerraCycle singled out? Everett, Washington’s Daily Herald writer Debra Smith suggests it could be Scotts desire to dominate the growing organics market. “I listened to a teleconference on organic trends in March and a representative of Scotts said the company’s goal is to be the ‘undisputed leader in organic and natural products’.”

Szaky claims Scotts singling out of TerraCycle is a sign of their success. “I guess in a way it’s an honor to be sued. I’d rather not, but I guess it means you’ve arrived.”