ENTREPRENEURS LAUNCH BUSINESS THAT PAYS RESIDENTS TO RECYCLE

In Business, September-October, 2005, Vol. 27, No. 5, p. 15

When Patrick FitzGerald and Ron Gonen came up with the idea to use incentives for residents to separate recyclables from trash, they didn't realize that three years later they'd be running RecycleBank LLC.

David Biddle

USING a combination of market-oriented consumer incentives, high technology, strategic business relationships - and a bit of luck - Patrick FitzGerald and Ron Gonen are using their start-up company, RecycleBank LLC, to reinvent municipal recycling in America.
The idea is simple enough: Give people credits for recycling that are “banked” for them, then let them convert those credits into discounts and coupons with stores in their communities. The more a family recycles, the more credits they earn.
In a pilot project they have been running in Philadelphia for the past year, RecycleBank doles out up to $5 in coupons for each ten pounds a household puts out for collection, up to $25 a month. Households can choose between discounts at neighborhood convenience stores, restaurants, pharmacies, grocery stores, and even Starbucks. “It works for everyone,” Gonen said in a talk he gave last spring, “families get rewarded, businesses get free advertising and more foot traffic, and the municipality sees its recycling rate go up significantly.”
At their web site, RecycleBank now boasts exclusive relationships with over 100 companies, including Coca Cola, Bed Bath & Beyond, Home Depot, RiteAid, WholeFoods, and FedExKinko's, to name just a few. Participants can even use recycling credits to buy green power from a Philadelphia energy co-op. And for those not interested in coupons, it is also possible to donate credits to a fund for nonprofits and community groups.

YES, BUT DOES IT WORK?
So far the fruits of FitzGerald's and Gonen's labor are paying off. They have worked out a partnership with the city of Philadelphia to use the RecycleBank method in two distinctly different neighborhoods to test their concept. In the first phase of their pilot project - a 1,200 household section of the up-scale Philadelphia neighborhood Chestnut Hill - participation rates went from 30 percent to over 90 percent in just a few months. And weekly recycling moved from just ten pounds per household to 35 pounds. The second phase, implemented in a low-to-moderate-income neighborhood known as West Oak Lane, saw participation rates also jump to 90 percent. Average recovery rates have gone from a meager three pounds a week to almost 20 pounds.
Gonen feels the difference in weight between the two areas is due to income levels and household size. The program collects mixed paper, cardboard, plastic beverage containers, and glass and metal food and beverage containers all in one special 32-gallon cart that is set out on the street on the same day as trash. Philadelphia's Sanitation Division, using separate compactor trucks for trash and recycling, does the collections.
The implications of this pilot project are huge for Philadelphia. In the late 1980s, the city was a pioneer in curbside recycling with the first comprehensive big city municipal curbside recycling program. However, since the early 1990s recovery rates have rarely been above seven percent for the city as a whole. Numerous education and advertising campaigns have been tried over the years, but nothing has seemed to work. Even the threat of enforcement failed - not because it wasn't effective, but because Mayor John Street pulled the plug because of citizen complaints. (Philadelphia pays about $60/ton to landfill and incinerate trash from over 500,000 households.)
Gonen and FitzGerald feel confident that they can help the city achieve a 40 percent recycling rate - or more - in just a few years. Of the results from their pilot, Gonen says: “We wanted to know if people were taking the time to recycle 35 pounds per week, what could possibly be in their garbage?” So RecycleBank did a “black bag” study, opening the contents of people's rubbish bags: “All we really found were yard waste and organics.”
RecycleBank recently made a proposal to the city of Philadelphia to expand their program citywide. They want to provide carts, computerized documentation, education, and advertising - plus their incentive program - for a cost of $2.00 per household per month. This could mean a cost to the city of $12 million annually. However, according to RecycleBank, they are guaranteeing $15 million in savings on trash disposal costs. The city would also keep all of the revenues from the sale of their material - another three to five million dollars at least. “[The city's] savings will always be greater than our fee,” says Fitzgerald, “and if it's not, we'll pay [them] back.”
DON'T TRY THIS AT HOME
Moving from concept to reality has not been easy for these two entrepreneurs. FitzGerald says he had the idea of incentivizing recycling while he was studying for bar exams in 2001. He knew that Gonen (the two grew up together in the Philadelphia suburbs) was on his way to business school at Columbia University. “I told him to talk the idea up,” said FitzGerald, “and see what people thought of it.” The response was overwhelmingly positive, and in 2004 RecycleBank received a special investment grant from the Eugene Lang Entrepreneurial Initiative, a program run through the Columbia Business School. Columbia University is now a minority partner in the venture.
But that was just the beginning. Fitzgerald and Gonen needed to find a municipality to try their idea out on, they needed to establish relationships with sponsoring companies, and they needed to find the appropriate cart and weighing system that would allow them to digitally capture household recycling data. Very early on, they saw that the key to their success would be the partnerships they were building with private companies.
Although they were encouraged to approach New York City with their venture, FitzGerald says they knew they wanted to focus on their home turf first. They contacted the Pennsylvania Department of Environmental Protection and were told to try townships like Abington and Cheltenham, “…all these places we knew and grew up in.”
FitzGerald notes, however, that: “As a new company, the response [from most of the suburban communities] was wait and see - not necessarily we need your help.” Then they tried Philadelphia, “…and Philadelphia said, this is a great idea. Let's try it out and see if it works.”
From pilot design to implementation, there was about a six-month buildup covering every single angle in the planning phase. “We have to give the folks (in Philadelphia city government) a lot of credit,” adds Gonen. “From the beginning, it was collaborative.” But the city wanted to know what would happen if RecycleBank's idea was a success. “We're used to a six percent rate,” Gonen says they were told. “You're telling us you're going to give us a 40 to 50 percent recycling rate. That's going to radically change how we do business.”
RecycleBank needed the collection capacity that the city had, the trucks and the manpower, and a market for the material to be collected, but they were going to provide everything else: special carts fitted with radio frequency identification tags (RFID), scanning and weighing technologies, computers to log data, and they were going to pay to have the truck retrofitted with twin tipping units for the carts.
STRATEGIC PARTNERSHIPS
Strong relationships with industry companies are one of the reasons RecycleBank has been able to move forward quickly with its business plan. Early in the development of their pilot program in Philadelphia, they established a relationship with the city's main recyclables processor, Blue Mountain Recycling (recently acquired by Casella Waste). Blue Mountain's founders, David DiIenno and Herb Northrop, have built one of the more successful single-stream processing plants in the country.
Since they can accept mixed recyclables - fiber and commingled bottles and cans - in one stream, they have dramatically increased the cost-effectiveness of the RecycleBank collection model. Curbside recyclables don't need to be placed in compartmentalized vehicles, but can simply be emptied into the back of rear-loading compactor trucks. Recyclebank and Blue Mountain have developed an exclusive partnership ensuring that both companies maximize the potential of their mutual relationship.
Similarly, for their carts FitzGerald and Gonen have established a proprietary relationship with Cascade Engineering. As both a manufacturer and an engineering firm, Cascade was able to work with RecycleBank and modify technologies for other applications to meet their needs. The end result is a state-of-the-art wheeled cart, complete with embedded radio frequency identification (RFID) chip, and on-board computers, digital scales, mechanized tipping arms, and scanning equipment.
Additionally, RecycleBank has signed deals with the companies offering discounts to consumers in exchange for recycling credits. All of these relationships give FitzGerald and Gonen a competitive edge, but they also give them the ability to operate with certainty about the service they have to offer.

REALITIES OF IMPLEMENTATION
Despite the overwhelming positive nature of this program, there are obviously many things that can go wrong along the way. There are also people in the industry who are still a bit dubious about giving their full support. Several newspapers in the region have pointed out that it is troubling that some people will only recycle because they are getting paid to do so.
In addition, as most recycling coordinators know, over the years dozens of entrepreneurs and businessmen have spun wonderful ideas about everything from automated on-board truck separation systems to aggregate building material made of compressed garbage. RecycleBank's concept seems to have made it through the first hurdle of small-scale implementation, but can it be expanded to a city of 1.4 million people? Furthermore, can RecycleBank expand its services to multiple municipalities and maintain the high quality of work they have done in their pilots?

BEYOND PHILLY
But Gonen and Fitz-Gerald aren't banking solely on Philadelphia. They are exploring options with a few cities in New Jersey, Delaware, and the surrounding suburbs of Philadelphia. They are also meeting with businesses and officials in Baltimore, New York City, and Washington D.C. FitzGerald says they are working on all sorts of levels, including municipalities that do their own hauling, municipalities that contract out trash services, and municipalities that have subscription waste management services where households choose and pay their own haulers directly.
When asked what they see as their biggest problem, both men chuckle. Gonen finally says: “Starting off, we assumed that if the people want something, government representatives were going to be eager to work with us. But that's not necessarily the case. Some people would say I'm being naïve, and maybe I am, but I would say to them that we have a big problem if the people really want something and it will save money, but officials aren't willing to work with us.”
Fitzgerald adds: “If you go to a committed public works [manager] or recycling coordinator who for ten years has been sending out leaflets telling everybody to recycle, and has been driving around to events and schools and that kind of thing, and the recycling rate is still 15 percent, when you come in and say this is the new way to do things, we can get you to 50 percent - even they get defensive.”
When talking about the growth of their company, Gonen indicates they want to make things gradually. “A smart business philosophy is to make sure you get it right, then saturate your region to achieve economies of scale; once you've saturated your region, then you look at other parts of the country.”
They point to their partnership approach as another key to growth. They know that if they need to develop a program in Utah or Arizona or California, they just need to find a processing facility as a partner and they can get off the ground relatively quickly.
RecycleBank also isn't just offering a standard package. They're listening to township managers and engineers, seeking to tailor programs to specific local needs. One municipality in New Jersey wanted to know if they could include organics in their program. “We told them, sure,” says Gonen, “then they said, 'well if you can do organics, would you be willing to build us an anaerobic digester so that we can create fuel for our sanitation trucks?' And we told them, sure …because that's a great example of environmental management. That's what we do. “
Blue Mountain's Northrop and DiIenno agree that RecycleBank's incentive-based program has all the earmarks of major success. “It's mind blowing,” laughs DiIenno. “The recovery rates are through the roof and the material that comes into our facility is as clean as any we've ever seen.” Northrop echoes his partner's enthusiasm, adding, “There may be a revolution going on in the streets of Philadelphia soon.”

David Biddle is a contributing editor to In Business and executive director of the Greater Philadelphia Commercial Recycling Council, a nonprofit research and technical assistance group based in Philadelphia. He may be reached at http://blueolives.blogspot.com. Websites for companies discussed in this article: RecycleBank, www.recyclebank.com; Blue Mountain Recycling, www.bluemountainrecy-cling.com; and Cascade Engineering, www.cascadeng.com.

Copyright 2007, The JG Press, Inc.