It has become a point of pride in some circles to declare the era of environmentally conscious business over. ESG is in retreat, the skeptics tell us. Sustainability was a nutty crunchy belief, indulged in bull markets and abandoned the moment capital got expensive. Companies that organize themselves around environmental problems, the argument goes, are destined to be outcompeted by companies that don’t bother.
I’d like to introduce the skeptics to Tom Szaky. Again.
Thirteen years ago, I wrote about Szaky and TerraCycle, the company he famously started as a Princeton dropout selling fertilizer made from worm castings (or “worm poop” as it’s more memorably called) packaged in used soda bottles.
Inadvertently, Scotts Miracle-Gro rocketed the company to widespread recognition by suing the then-tiny upstart for misleading claims that its natural fertilizer had advantages over chemical-based variations. Quite unintentionally, the fertilizer giant provided TerraCycle with fabulous publicity with a David-and-Goliath quality, just as consumers were becoming more interested in organic products.
In “The End of Competitive Advantage,” my argument was that sustainable competitive advantage was giving way to waves of transient advantage. The winners would be organizations that could catch a wave, ride it, and disengage in time to catch the next one, over and over. TerraCycle struck me then as a company built for that world: not organized around any single product or category, but around a continuous capability for finding value where everyone else saw garbage.
Thirteen years later, here he is again—this time with an announcement that deserves more attention than a recycling press release usually gets.
The waste stream nobody planned for
In July, TerraCycle’s commercial division launched the first national collection and recycling service for nicotine vape devices in the United States. It’s a bigger problem than it might seem at first.
Disposable vapes barely existed as a consumer category 15 years ago. Today they are among the fastest-growing waste management challenges in the country, and one of the nastiest. Each device contains a lithium-ion battery that becomes a fire hazard when it’s crushed, compacted, or overheated, which is exactly what happens to things we throw in the trash.
A PIRG report estimates that fires caused by discarded vapes cost U.S. waste facilities at least $95 million every year. A growing number of states now regulate their disposal by law. And until now, there was no scalable, compliant way to deal with them.
The reason this matters is that we urgently need to figure out ways to make our economy more earth-friendly without framing actions in terms of finger-wagging virtue. Customers generally don’t want virtue at the price of inconvenience or deprivation. They will, however, buy relief from fire risk, liability, and regulatory exposure.
TerraCycle’s offering is deliberately mundane in the best way: a prepaid, turnkey container program sized for households, schools, hotels, and municipalities, with bulk options for larger operators. Devices get disassembled and recycled and nicotine pods are incinerated in compliance with the law.
How they got there holds great lessons
TerraCycle didn’t boldly launch a U.S. vape program as a leap of faith. It piloted the project in New Zealand first, where its VapeCycle program has collected and recycled more than a million devices. Then it operated a national program in Australia for two-plus years. Only after testing its assumptions in smaller, more forgiving markets did it bring the solution to the far larger and far more legally complicated United States, supported by acquisitions that built out its commercial division and a capital raise designed to scale it.
Readers of my work will recognize this immediately: It is discovery-driven growth, executed almost by the textbook. When you’re entering a space with high uncertainty, you don’t bet the company on a business plan full of assumptions dressed up as facts. You stage your investments, design each stage to convert assumptions into knowledge as cheaply as possible, and scale only what survives contact with reality. Szaky has been operating this way for a quarter century, which is why a category that looks impossible from the outside—hazardous, regulated, fragmented, unglamorous—looks to TerraCycle like Tuesday.
A fixed center, and everything else in motion
In 25 years, almost everything about TerraCycle has changed: the products, the geographies, the business models, the customer base, and the waste streams (more than 400 of them now, across 18 countries). What has never changed is the center: a mission to eliminate the idea of waste. That stable center is what makes all the activity possible. Because the company isn’t anchored to a category, it can abandon categories. Because it’s anchored to a mission, every strange new waste stream, from juice pouches and cigarette butts to now vapes, is on strategy.
This is the combination the skeptics miss. They frame environmental responsibility as a constraint bolted onto a “real” business. But for companies like TerraCycle, the mission isn’t a constraint at all. It tells the organization where to look for the next transient advantage while competitors are still defending the last one.
“We are proud to deliver a national solution for vape device recycling,” Szaky said in announcing the launch. The operative word is deliver. Not pledge, not aspire, not commit by 2040. Deliver.
There’s one more move here worth noticing, because it may be the most strategically radical of all: how Szaky is funding the expansion. A mission-anchored strategy is only as durable as the capital structure protecting it.
Eric Ries calls the threat “financial gravity.” He’s referring to the relentless pull that conventional capital exerts on a company’s purpose, bending decision after decision toward the expectations, timelines, and exit requirements of whoever writes the checks. Rather than submit to that pull, TerraCycle US is raising growth capital through a Regulation A offering. Here is the link to the circular offering, which the Securities and Exchange Commission requires be provided to protect the consumer: https://invest.terracycle.com.
This is a structure that opens ownership to ordinary investors, including the households and communities that use its programs, on terms the company sets. Investors who buy in are, quite literally, buying the mission. That keeps the center of the company where it belongs: in the hands of the people committed to it. A capital structure deliberately matched to the strategy is far rarer than it should be, and it’s no accident that a founder who has spent 25 years escaping conventional wisdom about waste is also escaping conventional wisdom about money.
What leaders should learn from this
- Anchor on a center, not a category. Categories are transient; a well-chosen center can create virtuous flywheels. Ask, “What would your organization be pursuing if your current flagship product disappeared tomorrow?”
- Treat regulation as an opportunity rather than a burden. When regulation makes something difficult or expensive to do, overcoming those difficulties can give you an advantage with a built-in competitive moat. Others who didn’t invest in overcoming those obstacles can’t compete.
- Use discovery-driven practices. Test the model where failure is cheap, convert assumptions into knowledge, and scale only what works. Do New Zealand before New Jersey.
- Match your governance processes to your center. When you create something of value, it will always attract predators who would like nothing better than to extract it. If you can match your mission to your capital structure, you have a chance of defying financial gravity.
- Respect the cumulative power of persistence. Twenty-five years of capability-building is why TerraCycle can make an “impossible” waste stream turnkey. There are no shortcuts to that.
The people who insist that looking after the environment responsibly can’t be a durable, scalable, profitable business have been making that argument for as long as Tom Szaky has been running one. Thirteen years after I first wrote about him, he’s still doing what nobody thought was achievable, one preposterous waste stream at a time.
