As I reflected on the end of 2012, I decided to write a letter to our more than a hundred employees around the world to discuss the role profits play at TerraCycle.
TerraCycle is a social business, which means that we focus on the so-called triple bottom line: planet, people and profits. For us, this has meant creating a business model that involves capturing nonrecyclable waste — like chip bags or diaper packaging — before it goes to a landfill or incinerator and finding a way to recycle, upcycle or reuse it. Basically, we’re giving garbage a second life by creating a system for otherwise nonrecyclable waste to be recycled.
Through sponsorship from more than 50 brand partners (L’Oréal, Kimberly-Clark) we are able to offer free shipping and a small donation (typically 2 cents per piece of waste received) to a school or organization of the collector’s choice. Today, we engage more than 35 million people in collecting this waste in 22 countries around the world. While our sales have grown every year for the past nine years — we finished 2012 with slightly less than $15 million in revenue — we just became profitable in 2011. We earned a small profit in 2012 as well.
In my letter to the company, I wrote that our goal is to eliminate the very idea of waste: “This is a lofty goal that I believe is best executed via a for-profit platform. But I would like to underline that we do not exist for the sole purpose of profit.” Instead, I explained, profit is a tool we use to help us accomplish our purpose. But it can get complicated, and much depends on how a company is structured and financed.
One challenge of trying to balance profits with a socially minded business can be the law. Perhaps the best example is the sale of Ben & Jerry’s to Unilever. Ben Cohen and Jerry Greenfield started the company in a renovated gas station in South Burlington, Vt. They were fair to their employees and their cows, they cared about the environment, and they used the business as a vehicle to raise awareness about social and environmental issues.
But by 2000, Ben & Jerry’s had raised money by becoming a public company. When Unilever offered to buy it, according to a 2010 NPR interview with Mr. Cohen, “the laws required the board of directors of Ben & Jerry’s to take an offer, to sell the company despite the fact that they did not want to sell the company,” Mr. Cohen said. “But the laws required them to sell the company to an entity that was offering an amount of money far in excess of what the stock was currently trading at.”
What the board could or should have done is still being debated, but there is no debating that maximizing profit ran counter to some of the socially and environmentally minded investments that the founders valued. And there is also no debating that some of those investments were eliminated after the sale.
This kind of discussion led to the creation of what are known as “benefit corporations” — or B Corps. Under this corporate structure, which is now available in several states, a board of directors can account for a range of considerations, because the board’s fiduciary duty must include nonfinancial interests like social and environmental benefit.
TerraCycle is not a B Corp — the company was formed as a Delaware C Corp before B Corps existed — but we try to run the company as if it were. We have long emphasized our focus on the triple bottom line, and the majority of our investors are socially minded, patient-capital investors who agree with our mission.
So what is our view on profits? In my letter I explained to our staff how we approach our triple bottom line:
Planet: The service we provide helps the planet by keeping non-recyclables out of landfills and incinerators.
People: Our secondary service is giving money and resources to members of society who help us recycle nonrecyclables. As part of their contract with TerraCycle, our sponsoring brands provide us with funds to incentivize collections — those 2-cent payments per unit of waste. In 2012, TerraCycle gave away more than $1.5 million to schools and charities in the United States alone, and to date, the company has given away more than $7 million globally.
Profit: Profits are important to us. In 2012, we earned almost $100,000 in profit on our almost $15 million in revenue. The next few years represent an important growth stage for our expanding company; as chief executive my goal is to maintain modest profitability and to reinvest as much capital as possible increasing compensation, hiring more employees, and adding more tools and resources to deliver our services in better ways. That should allow us to grow faster, have more impact and ultimately increase our revenues and profits.
I went on to encourage everyone at the company to use our mission statement to increase our sales. If clients question our fees, I suggested, showing them that our profits are very low will help them see that we are not charging what we charge out of greed. That is what it really costs to solve the problem of waste.
Already this framing has generated substantial benefits for our organization and has helped accelerate our growth. Happily, minimizing our profits now to build the company will help us maximize our value to our shareholders over the long term. And that’s my fiduciary responsibility to my shareholders.