Tom Szaky: How I turned rubbish into profits

College dropout Tom Szaky faced bankruptcy soon after launching his recycling company, TerraCycle. Now his business is heading for sales of $30m a year.

Tom Szaky, 27, may scour rubbish dumps for a living. But he's no 'dirty old' rag-and-bone man. His New Jersey-based company, $12.7m-a-year TerraCycle, turns everyday waste such as rolled-up newspapers and old computers into everything from pencil cases to plant pots. Not bad for a college drop-out who came close to bankruptcy within months of launching.

Born in Budapest, Szaky's family fled Hungary in 1986 when "Chernobyl created some instability and allowed us to leave". His parents, both doctors, settled in Canada, where the young refugee took his first steps in business, first on a lemonade stand and then, at 14, designing his own websites. But it wasn't until 2002, as a student at Princeton University, that he hit on his 'rubbish' idea. "Some of my friends back in Montral were growing marijuana and having a really hard time of it." That was, at least, until they started using worm food the detritus left over by worms as fertiliser. "That turned the proverbial lightbulb on in my head. And it wouldn't go out."

More interested in the worms than the marijuana, Szaky dropped out of college, maxed out his credit card and pumped $22,000 into buying and operating a machine that housed millions of worms. Working from a friend's garage, he fed waste from the Princeton cafeterias into the machine, along conveyor belts that pumped out a tonne of fertiliser a day. "That was my summer. Shoving rotten garbage into the machine."

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His parents weren't too happy. They "couldn't understand why I'd thrown away everything on something as silly as worm poop". By September 2002, they had almost been vindicated. No one wanted the organic fertiliser. "I was just about ready to sell everything and walk away. That's when the media really saved us." A local radio station carried a story on the fertiliser business, which led to an investor stepping in with $2,000. "It doesn't sound like much, but it really saved us," Szaky explains.

With no money for packaging, Szaky used recycled containers such as coke bottles, which he wrapped with colourful labels and sold into stores such as Home Depot and Wal-Mart. By 2005, he was completing sales of $0.5m a year, growing to $1.5m in 2006, as more investors stepped in with cash. "That's when companies began approaching us, asking for help with their own waste."

TerraCycle started off turning used yogurt cartons into plant containers, moving on in January 2008 to holdalls made from Capri Sun drinks pouches. It's a win-win situation for all involved. Companies such as Kraft Foods, which funds the collection of its waste, can show the public that they care about the environment, while TerraCycle has a constant stream of cheap raw material to make its products.

The business is heading for sales of $30m next year. Is Szaky worried at all that there might be a green backlash during the downturn? "I'm no environmentalist. I don't have a hybrid car and I don't buy organic food. This is entirely about price. And because we have cheap raw materials, we can provide that."

Jody Clarke

Jody studied at the University of Limerick and she has been a senior writer for MoneyWeek for more than 15 years. Jody is experienced in interviewing, for example in her time she has dug into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.