The Eco-Capitalist Guidebook:

Chapter 5: Composting to the next degree: worm poop

One of the biggest problems that the owners of classical compost sites have is the marketing and sale of their finished product. The reason that this is a challenge is that compost, in bulk, sells for roughly $30 per ton. Ironically, in many cases this is less than the profit they generate from their negative raw material costs.

Without the ability to command a premium price, the composting site can only make profit by quickly turning as much waste as possible into as much compost as possible. However, what would happen if you expanded the model and focused not on turning as much waste as possible into as much finished product as possible, but on turning the waste into a premium output that could command a premium price?

One answer lies in worm poop! Worm poop has a market price that is close to $0.50 per pound or $1,000 per ton. That's over 3,000% higher than the value of compost! The process of making worm poop is very similar to the process of making compost. Both models use organic waste as their raw material, however vermicomposting (the process used to make worm poop) takes compost to the next level. In this process worms eat semi-composted organic material over short period of time to create worm poop. The time it takes to turn organic waste into worm poop is actually 200 to 300 percent faster than the time it takes to turn the same waste into compost. The only downside is the higher operating cost of a vermicomposting system than a composting system.

The major benefit, as long as you can effectively market your worm poop, is the significantly higher price you can demand for your finished product.

We founded TerraCycle Inc. five years ago to specifically take advantage of this business model. Luckily we were one of the first to look at this on an industrial scale, and today we are the biggest worm poop company in North America.

If we examine the triple bottom line report card of both classical composting and vermicomposting (TerraCycle), you can see the major difference lies in the stronger economic bottom line.

*The difference in the social bottom lines will be addressed in chapter 7.

The biggest lesson in comparing these two models is that when one engages in modern eco-capitalist manufacturing, it is critical to focus on the finished product and to produce something that can demand a non-commoditized price. If this is done effectively the negative raw material cost will not become the driving factor and instead will ensure that the product you are creating has strong margins.

To take this to a boarder perspective, the key lesson is that profit is king and one must be in business to create as much profit as possible. Since many composting sites are government operated, their primary purpose is to reduce the waste input into landfills, not to generate profit.

When we founded TerraCycle in 2002, we were looking primarily at taking the composting business model to the next level and generating more profit from the output. However as we grew we found ways to differentiate ourselves and to rely less and less on the negative raw material costs of the input. In focusing all of our effort on creating the best finished product that we could, we quickly realized that we could liquefy the worm poop to create a potent liquid fertilizer, a product that could compete against the popular chemical fertilizers that you find when you walk into Home Depot or Wal-Mart.

This realization allowed us to move from being able to command roughly $0.50 per pound of worm poop to being able to sell 20 oz bottles of liquefied worm poop for roughly $4 per bottle. In other words, by liquefying the worm poop and finding a market where it could compete against traditional players, we were able to move from producing a commodity to a premium product, TerraCycle Plant Food. The same ton of converted organic waste went from being worm $30 as compost, to $1,000 as solid worm poop, to a significantly higher number at retail as TerraCycle Plant Food. Granted the cost of manufacturing is significantly higher as you focus more and more energy on the finished product, but it doesn't grow by multiple orders of magnitude. In the end this has allowed us to compete against the major chemical fertilizer companies without having to charge a premium price, and more over has allowed us to have an extremely competitive price, while offering a product that is not only organic and extremely effective, but also the most eco-friendly product in the category, if not in all consumer product categories today.

To be able to compete with the mega fertilizer companies such as of Miracle Gro, we had to not only have a premium organic fertilizer (which we did with our liquid worm poop) but we also had to package it in containers. Since TerraCycle was built on the foundation of waste, why not also package our product in waste?

For any consumer goods company there are two main options when it comes to packaging: virgin plastic and recycled plastic. The problem is that recycled plastic bottles (even though they save up to 60% of the energy required to make virgin plastic bottles ) are still significantly more expensive than virgin plastic bottles. If you are purchasing millions of bottles, a virgin bottle may cost close to $0.07 per bottle while a recycled one will be closer to $0.10 per bottle.

Looking at this problem from an eco-capitalist perspective we started to think if there was a waste stream in which we could package our liquid worm poop. What about used plastic bottles? There is a tremendous supply out there since American's throw out over 25 million bottles per hour. And since the FDA doesn't allow these bottles to be refilled with soda, no other company in the North America was using them. However, as with organic waste and compost, plastic bottles had a way to generate a modest profit. Recycling centers accept soda bottles that they then crush and turn into a bail. This bail is then sold to a plastic company on a per pound basis (roughly $0.15 per pound) for the value of the plastic (PET) in these bottles.

If we break apart the plastic bottle into two aspects, the plastic and its shape, we can see where the negative cost paradigm lies. The plastic has value since the plastic company is willing to buy it. However, the shape has negative value since the recycling center has to spend money in crushing it and in some cases mulching it so as to make it easier for the plastic company to utilize the plastic. In other words, the recycling center has to spend money to render the plastic in the plastic bottle usable.

However, if you can use the plastic bottle without having to crush it, mulch it and melt it down, you can take advantage of yet another negative raw material cost. That is what we did at TerraCycle. We called up a number of recycling centers and told them to ship us their plastic bottles and not to bother spending resources on crushing them. Since the plastic does have a positive value we agreed that we would pay for the plastic, but not the shape (since that has negative value).

Since roughly six 20oz bottles make up a pound, we are buying our bottles today for close to $0.025 per bottle. In 2004, when we started packaging TerraCycle Plant Food in used soda bottles, we not only became the first company in the world to reuse plastic bottles on a large scale, but we also had the cheapest source of packaging of any other company in the world (not to mention the MOST eco-friendly).

The final step was to find trigger sprayers and boxes to ship our products in. The solution to these problems also came in the waste stream, in the form of rejects and over runs. Rejects are created when there is a mistake with the order. In most cases this doesn't mean that the item is defective. Usually this has to do with a mistake that occurred with the artwork. For example, the artwork on a box is the wrong color, upside down, or the wrong artwork entirely. In these cases the boxes are considered waste. Over runs occur when there are too many units made or there is no more demand for a certain design. For example, when the marketing people at a major consumer brand decide to change their trigger sprayer design, a tremendous amount of waste is created. Not only are the trigger sprayers at the factory now waste, but so are the trigger sprayers at the trigger sprayer factory that made them.

These "mistakes" may sound like they are very infrequent. However, there is an entire industry that has been built around re-selling these rejects and end runs (at a dramatic discount). San Diego Boxes (www.sandiegoboxes.com) and Kirsh Carton Company (www.kirshcarton.com) are two examples of companies that specialize in "used, overruns and misprint boxes."

Once the dust settled, TerraCycle became the world's first mass-produced product to be made from and packaged entirely in waste. While this led to numerous environmental awards (Home Depot Canada awarded TerraCycle with their environmental stewardship award in 2005 and the Clean Air Foundation rated TerraCycle Plant Food as the most eco-friendly product ever sold at Home Depot), the benefit of our product was that it could be made more cost effectively, and thus be sold at a competitive price while retaining good margins.

While all other organic fertilizers are priced between 10% and 30% higher than Miracle Gro, TerraCycle can currently be found in stores across North America at a competitive price to Miracle Gro, or in some cases slightly cheaper.

Remember the question of the eco-friendly bar of soap versus the normal bar of soap:

In the same lectures, after I ask this question I always ask the following question:

"What if the two bars of soap were the same price? Which one would you honestly buy then?"

In this case, again as if the entire audience is reading from the same book, everyone (there has never been an exception) puts up their hand in support of the eco-friendly bar of soap. It seems that everyone wants to buy organic and eco-friendly products. Everyone wants to do the right thing. But nobody wants to pay extra for it!

Through modern eco-capitalism, and looking closely at the waste stream, one can create THE most eco-friendly bar of soap and get it onto the shelf at a competitive price. As the executives at major big-box retailers have suggested, if this occurs on a grand scale then there is no stopping eco-friendly and organic products from becoming mainstream threats instead of niche players.

This is why TerraCycle Plant Food, in the six months after its launch, became the most popular plant food on homedepot.com and just two years after introduction became the best distributed organic plant food in North America.

Our goal for TerraCycle over the next five years is to not just stay the number one organic fertilizer brand in America, but to become the number one fertilizer brand in America. In other words, our goal is to out-compete the chemical fertilizers, a classic manufacturing model, through an eco-capitalist business model.

Disclaimer: These thoughts are pure musings on the potential of eco-capitalism in manufacturing. We must make generalizations to grasp macro thoughts. In other words, welcome to the rabbit hole.