|
||||||||||||||||
From In Business Magazine September/October 2001, Page 20 Expansion Srategy HEADQUARTERED in western Pennsylvania, AgRecycle, Inc. offers valuable lessons for entrepreneurs on how to carve out a niche in a green industry — and expand that niche sustainably. “We are a business dedicated to the recycling and reuse of materials to enhance soils and foster plant growth,” explains Carla Castagnero, president of AgRecycle since its founding in 1991. The company currently operates large-scale composting sites that have been fully approved by the Pennsylvania Department of Environmental Protection — one of only two operations in the state granted the necessary permits to accept diverse organic residuals. These source-separated feedstocks include leaves in kraft bags, manure, newsprint, pallet pieces, yard trimmings, grocery store waste and snack food from the producer. AgRecycle maintains organics recycling centers, where local communities, school districts, golf courses, florists and other green-oriented businesses can drop off as well as purchase materials. HOW IT ALL GOT STARTED In the 1970s, Dan Eichenlaub (now vice president of AgRecycle) cofounded Eichenlaub, Inc., a landscape construction company. By 1990, it had grown into a multimillion dollar business with three divisions: construction; maintenance; and lawn, tree and soils care. Construction represented about half of the company’s gross sales, including paving, decks, walls, and creating nature trails. In 1988, the soils department of Eichenlaub, Inc. began producing limited quantities of compost made from yard debris and grass clippings originating from their job sites. The matured humus performed well, and reduced the amount of organic material they needed to purchase for landscaping projects. Also in 1988, Pennsylvania passed comprehensive solid waste management legislation, which included a ban on the landfilling of leaves. The ban was to take effect in September, 1990. The value of compost in their own operation, combined with the upcoming ban, led the Eichenlaub staff to make an earnest commitment to composting as a stand alone operation. To help with the start-up, Eichenlaub enlisted Castagnero, a friend and lawyer who was an environmental and safety consultant for USX Corporation. “We would work in the evenings and on weekends, investigating markets, composting technologies and financial requirements,” says Castagnero. “After about six months, we decided we either had to go for it full time, or abandon the idea.” RAISING CAPITAL While access to the resources of the existing landscape company helped lower start-up and operational costs, outside investment capital estimated at close to $1million was needed. Castagnero and Eichenlaub raised it through individual investors, none of whom were involved in their industry. Bank financing was sought as well. To develop an accurate pro forma statement, the partners talked with managers of more than 20 composting operations during actual site visits in 1991. Start-up costs included $480,000 to prepare ten acres of the 41 acre site leased by the company. AgRecycle also procured close to $600,000 of composting equipment (some leased), e.g. a grinder and front-end loaders, and a truck to transport yard trimmings to the site. Ongoing expenses include fuel and repairs, lab testing fees for raw materials and finished product, and disposal of rejects. Capitalization also needed to cover the seasonality of the compost business. LOGISTICS AND HIGH END MARKETS Because the composting site is in a remote, rural area, AgRecycle set up three dropoff locations, one in the city of Pittsburgh and two in the suburbs. Two of the dropoff sites are operated under contract by a different landscaping firm; AgRecycle owns and operates the third. The furthest hauling distance is 25 miles from the composting facility; the closest is eight miles. Over 300 landscaping firms use these locations to drop off organic debris as well as to purchase finished compost and mulch. The company charges a tipping fee of $9 per cubic yard, or between $20 and $30 a ton. That is competitive with area landfill charges of about $40 per ton. Other feedstocks are individually priced and range from $2 per cubic yard to $24 per cubic yard — depending upon how much processing is required. All yard trimmings are ground at the dropoff locations by a mobile grinder. “By grinding the materials first, we get significant volume reduction,” says Castagnero. “Given the distance we have to travel and the related transportation costs, we don’t want to be selling air.” \ Finished compost in 2001 sells for $21 to $33 per cubic yard (bulk wholesale prices picked up at AgRecycle). Everything we do is geared to generating a premium humus in a cost-efficient manner. The end market is our real source of income. And we’ve been a market driven company right from the start.”
|
||||||||||||||||