Garbage collection and disposal is easy to ignore: You put the coffee grounds, kitty litter and banana peels in a can, then once a week someone comes around and collects it.
But behind that simple service is a $40 billion-a-year business and one of the world’s most massive supply-chain management problems: Just how do you haul away hundreds of millions of tons of smelly—and potentially dangerous—materials from every household and business in the country?
No matter how well you answer that question, there’s always room for improvement. The trash may disappear from the cans on the curb, but the collection process is costly, dangerous and inefficient.
The garbage industry has been slow to embrace technology. The fragmented, local business of collection, processing, recycling, destruction and land-filling hasn’t changed much since the Dempster brothers invented a standardized metal container for dumping trash in 1937.
But a bunch of venture-backed startups are quietly and completely changing the business of trash. They are creating or using existing technology to cut costs related to garbage collection, such as optimizing truck routes to save on fuel costs; coming up with new and better ways to treat hazardous materials; modernizing how the garbage industry operates to eliminate inefficiencies; and coming up with new recycling strategies that help the planet—and save money.
Venture capitalists are slowly embracing the future of garbage, having invested about $330 million in 21 companies in the waste sector in the past several years (see table).
Recent industry consolidation has made it profitable to improve operations and expand services. Entrepreneurs are faced with a unique opportunity to drive technological innovations deep into this massive supply chain.
The Garbage Collection Problem
Each day, more than 179,000 garbage trucks rumble millions of miles around neighborhoods, highways and through crowded cities. More than 90% of those trucks run on diesel fuel. That’s not good for the environment, but it’s even tougher on the businesses operating those trucks—Waste Management Inc.’s fuel bill was $715 million last year alone.
Enter Routeware, whose goal is to automate the process of dispatching and tracking garbage trucks to optimize the route each truck takes. The Beaverton, Ore.-based startup has collected $1.5 million from Mount Hood Equity Partners to develop its software suite.
Routeware’s added intelligence helped Lansing, Mich.-based Granger Waste Services improve not only its garbage collections, but also its collection of unpaid accounts. Granger was using paper-based accounting and route information. The accounting department and the pickup crews had trouble communicating, especially when it came to customers that hadn’t paid up.
Before long, Granger realized it was picking up trash for people who hadn’t paid for the service. “We found the best way to communicate the seriousness of the unpaid bill to a delinquent account customer is to put their service on a ‘stop service’ status,” says Granger COO Steve Reed. “Once their trash is not collected, it usually generates a call to our customer service department.” Payment typically follows.
Routeware is hoping to go beyond software to offer better tracking technologies and data to its customers. Last year, for example, it partnered with Texas Instruments to offer customers RFID tracking of their waste containers. Routeware CEO Robert DeKoning calls it a “next-generation digital overhaul of the hauling business.”
Of course big trash haulers aren’t the only ones looking to cut their fleet costs. Municipalities are just as anxious to reduce their need for hauling services. The City of Philadelphia recently paid $2.2 million for 710 solar-powered trash compactor cans and recycling bins. The high-tech cans are expected to cut the city’s trash collection costs by $800,000 a year, meaning the cans will pay for themselves in less than three years.
The solar-powered trash cans are the brainchild of Jim Poss, founder of Big Belly Solar. Poss used to design electric motors for Zamboni ice resurfacing trucks before he went to business school at Babson College. There he got the entrepreneurial bug and went to work designing a solar-powered trash-compacting garbage can. A couple of patents later, plus about $5 million in angel financing, and he’s selling his $3,500 can to municipalities who can’t wait to get it.
What Poss realized was that big city trash collection is super expensive. A single trash can on a typical downtown street corner costs a city $275 per month to service. Half the collections are in response to over-flow complaints rather than scheduled pickups, which drives the cost up even higher.
Because it has a built-in compactor, Big Belly’s trash container holds five times as much garbage as a traditional can (cutting garbage truck fuel costs because of fewer trips), plus it has sensors that indicate when a can is getting full. As the can approaches capacity, it sends an SMS message to a server that plots each trash can on a Google map and helps collectors better determine their routes.
Big Belly’s cost-saving pitch is resonating during the recession, as many cities struggle to pay their bills. For its part, Philadelphia expects to save $12 million over the 10-year horizon it used to calculate the benefit of its Big Belly buy.
“We’ve heard from so many people that this is the first innovation we’ve seen hit the [garbage] industry in decades,” says Poss. “The leaders in this industry who implement faster are just going to have a huge competitive advantage. If you’re a big company and you can get 5% efficiency, you can win contracts and pass that on to the customer—and then, all of a sudden, you’re dominating.”
Big Belly has collected plenty from angel investors to fund its growth, but nothing from venture capital firms to date. “They [VCs] weren’t that interested in us in the beginning when we needed the money,” Poss says. “Now we get a call [from a VC] every other week and I’ll probably get a flood of calls soon.”
Getting a Better Handle on Hazmat
We’ve heard from so many people that this is the first innovation we’ve seen hit the [garbage] industry in decades.”
Jim Poss
Maybe it should be.
Magazines, newspapers and blogs lavish attention on trendy Internet doohickeys and the next iteration of sleek consumer gadgets, mistaking buzz for business. Venture capitalists, at their best, see through hype and spot opportunities to change critical business problems.
Creativity happens at the crossroads of different industries. It happens when engineers and entrepreneurs see a problem in one business they can fix with the tools from another. It’s using genetics to engineer glycose-eating bacteria, harnessing solar power to crush trash and applying consumer Internet savvy and digital sensors to encourage recycling. It’s American ingenuity at its best.
SIDEBAR: Harder than It Looks
The trash business isn’t easy. If you’re thinking about getting into the sector, first consider what happened to Archimedes Technology Group and CerOx Corp.
Archimedes had an impressive group of investors and directors, including Arthur Rock, backer of Apple, Fairchild and Intel; Daniel J. Evans, a former senator and a man Richard Nixon once mentioned as a potential vice presidential candidate; activist shareholder Keith Gollust; and American Enterprise Institute Chairman and commodity trading powerhouse Bruce Kovner. Together, the investors put $12.7 million into the company.
The San Diego-based startup’s technology was impressive, too. Founded on the work of master researcher Tihiro Ohkawa, Archimedes used plasma physics to separate the elements of nuclear waste. It had to bring in a special contractor to build a warehouse of non-ferrous materials because the magnetic fields it generated were so large. San Diego Gas and Electric hadn’t seen an application for service so large in nearly a decade.
But Archimedes had a big problem. It couldn’t get the necessary government contracts to remove and treat nuclear waste. It was hoping to secure a contract to clean up the Hanford site in Washington, which had nine nuclear reactors and produced most of the plutonium for the U.S. nuclear arsenal during the cold war.
Archimedes eventually sold its technology to General Atomics for an undisclosed amount. “They weren’t having enough success to be viable,” says General Atomics spokesman Doug Fouquet. “We took it over to see if we could do something with it. I don’t believe we’ve had any better success with it.”
Fancy footwork
CerOx also stumbled, but it pivoted in a completely different direction when its hazardous waste treatment technology didn’t pan out.
The startup has $12.8 million in backing from DFJ Frontier, Draper Fisher Jurvetson, Kirlan Venture Capital, NGEN Partners and Rockport Capital Partners, according to data from Thomson Reuters (publisher of VCJ).
CerOx was trying to use electricity to convert hazardous industrial waste into safer substances. But the technology never really came together. “We just couldn’t make the reverse fuel cell work other than on the bench; it just wouldn’t work in the field,” says David Cremin, a managing director with DFJ Frontier.
So the company hit Ctrl/Alt/Delete and re-launched as a solar panel installer. The VCs kept their equity stake in the company. CerOx “kept all the money and have been deploying solar solutions,” Cremin says. “It’s kind of a good thing. We’re happy.” —Alexander Haislip
SIDEBAR: Q&A with Waste Management’s Tech Guru
If there’s a new trash technology out there, Carl Rush is probably looking at it for Waste Management, the world’s biggest garbage services company. As the company’s VP of Organic Growth, Rush is tasked with finding and promoting technology that can drive the company’s growth and improve its bottom line.
Senior Writer Alexander Haislip caught up with Rush to ask him a few questions.
Q: What’s the biggest shift in Waste Management’s technology strategy?
A: Part of what we’re seeing is that the waste stream is a resource stream. Just under two years ago we entered into the fluorescent light recycling business and recovering the glass, aluminum and the powder the mercury is in. What we’re seeing is a lot of technologies and resources we can pull out of the stream.
These are new revenue models and new platforms and serving our customer base. They tell us they don’t want to throw out something that is valuable. [Roofing] shingles are a great example of resources that were wasted. We’re working to process those shingles and put them back into the market for shingles or asphalt paving.
Q: How does Waste Management work with small tech companies?
I truly believe that while most people are focusing on biofuels and solar, recycling is on the cutting edge of clean technology.
”Steve Westly
A: We act as sort of an investment arm. We’ve done everything from acquire emerging technologies, to invest in technologies, to partner with VCs and developing firms. We’re covering the gambit and looking at technologies. We’re open to investing with, partnering with and acquiring.
Q: What are you doing to knock down the $715 million gasoline cost Waste Management had last year?
A: The fuel purchase is a large number. We’ve developed a technology and we have an experimental plant in Oklahoma that turns landfill gas into diesel. We’ve got another joint venture with LINDY Corp. that will probably be up and running next month that will turn landfill gas into LNG [liquefied natural gas]. When we finish it, it’ll be the world’s largest and produce 13,000 gallons a day. We’re looking at using algae as a treatment means for some of our water and to produce gas.
Q: Have you looked at employing sensors on dumpsters?
A: We do have sensors in some of our compactors. The technology we have will have predictive models in it based on fill rates and time, and it will be able to predict when it is full and help with the scheduling of trucks.
Q: What technologies might people be surprised to learn Waste Management is involved in?
A: We have a green social network: Greenopolis [at http://greenopolis.com]. It’s about all things green and educating a consumer about sustainability. It was really meant to interact with our consumers at a different level than just picking trash. Our green social network gives points, and our partnership with Whole Foods does, too.
SIDEBAR: Big Buyers
When it comes to picking up the trash, these companies are some of the biggest. They’ve also gotten in the habit of picking up smaller companies that can expand their revenue or improve their operations.
Clean Harbors
NYSE: CLH
HQ: Norwell, Mass.
Revenue: $1.03 billion
Net Income: $57.5 million
Cash & Equivalents: $249.5 million
Acquisition History: Bought into the dangerous disposal and industrial recycling space. Spent $27.6 million to buy two businesses in 2008: a used-oil recycling company and an industrial solvent recycling business.
Republic Services
NYSE: RSG
HQ: Phoenix, Ariz.
Revenue: $3.68 billion
Net Income: $73.8 million
Eighty percent of all garbage is recyclable, yet the average residential recycling rate is less than 20 percent.”
Trae Vassallo
Cash & Equivalents: $68.7 million
Acquisition History: Bought Allied, the second largest non-hazardous waste collection company in the U.S., last year. The $11.5 billion deal left Allied’s shareholders with 52% of the resulting company. Also bought other companies for $13.4 million during 2008, up from $4.4 million in 2007.
Stericycle
NASDAQ: SRCL
HQ: Lake Forrest, Ill.
Revenue: $1.08 billion
Net Income: $148.7 million
Cash & Equivalents: $9 million
Acquisition History: Paid $191 million for 22 companies in 2008, down from the $240 it spent on acquisitions in 2007. Has made 157 acquisitions since 1993. Makes acquisitions to expand into new businesses and help grow revenue it can wring from small service contracts. For example, it moved into the regulated waste services for pharmaceutical companies via nine acquisitions starting in 2005.
Waste Connections
NYSE: WCN
HQ: Folsom, Calif.
Revenue: $1.05 billion
Net Income: $105.5 million
Cash & Equivalents: $265.2 million
Acquisition History: Company’s decentralized management gives local executives extraordinary power in determining what’s bought. Focuses on acquiring exclusive service rights to municipalities. Specifically focused on family-owned businesses, like Washington State waste disposal company Harold LeMay Enterprises, which it bought for $210.9 million in 2008. Made 14 other small acquisitions in 2008 and is involved in the purchase of several assets to be spun out of Republic Services.
Waste Management
NYSE: WMI
HQ: Houston, Texas
Revenue: $13.38 billion
Net Income: $1.08 billion
Cash & Equivalents: $480 million
Acquisition History: Paid $32 million for acquisitions in 2006, $90 million in 2007 and $280 million in 2008. Looks for companies that will improve operations and expand services. “The core areas we’re investing in are renewable energy, recycling technologies, conversion technologies and consumer-facing sustainability models,” says Carl Rush, VP of the company’s Organic Growth Group. “Our group acts as a front-end screen. The best way [to work with Waste Management] is to call the corporate office and get directed to the person who is closest to what you do.”
Source: Reporting by Alexander Haislip, VCJ
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