We just made what some may consider either a stupid move or a brilliant move, but it's definitely an interesting one -- we've opened a retail store. But that's not the part in question here. We've got solid product offerings that customers clearly want. No, what makes this launch unique is that we've decided to start out by letting people choose what to pay for their purchases.

Are we nuts? Why, yes, but that's the beside the point. In other sectors, namely music and restaurants it's shown to be quite a success, drawing a lot of media attention, building good will with fans and customers, and in the end, turning out to be profitable.

Will it be so in the retail sector? That's still to be determined. We're trying this, and the store will also serve as a place for people to bring product packaging that we normally collect via our Brigades, getting 2 cents per piece to the charity of their choice.

So what do you think will happen?

There's a number of factors at play here: The economy's in the toilet, which may cause people to pay lower prices, but could also lead to an uptick in brand affinity, because we're offering this option. Then there's the fact that we are a leader in upcycled products, making a tangible impact on the environment, which could cause people to pay more -- their small way of supporting a company making a solid effort. Others, not familiar with our highly competitive prices, may accidentally pay more then we normally charge anyway!

Then there is the very real possibility that people could do the very thing that business owners would fear most: Completely take advantage of this situation, paying pennies on the dollar for gear they clearly know is worth more. It's our hope that it's not the case, but we are being pragmatic about this experiment, doing it on a trial basis.

So what industries do you see this model working in? Do there need to be constraints put in place, or does doing that encourage people to pay the lowest allowable price? What do you think will happen at our store?

Tune in next week to find out...

In an economy like the one we're facing now, the conventional wisdom is to pull back on the reins, focus on your core business, and economize in every way possible. We've never been a company to follow the conventional wisdom, and a historic recession isn't enough for us to lose our fearless ways.

TerraCycle is about to go where we've never gone before: the United Kingdom. Starting September 1, we joined together with Kraft UK and Think London, a sustainability focused, private/public-funded service whose sole purpose is to effectively locate foreign businesses and help them establish a U.K. presence. We are also being assisted by our first major sponsor here in the United States, Kraft Foods.

We're an unknown in United Kingdom, and so is, for the most part, upcycling. At least anywhere beyond nichey green boutique stores. We're about to change that, breaking the cost barrier to people making greener choices, due to the extremely low cost of our source material -- pre- and post-consumer packaging, in this case from Kenco and Tassimo instant coffee brands, products Europeans enjoy much more then we do here. They will be transformed from a short-lived package to a long-lived umbrella, weekend bag, and coasters, among other things.

Expanding to the United Kingdom was an obvious choice -- our friends across the poind are savvy consumers who know and vocally ask for products that have a higher standard of sustainability and ethics. Yet, they aren't particularly high-percentage recyclers, partly due to lack of infrastructure.

Yes, they technically speak the same language, but in many ways, it's a different world. Thankfully, Think London's services, as they are funded by the Office of the Mayor of London, were totally free to us, and have helped us extensively in every facet of thinking about and getting established in London. With their assistance and the corporate backing of Kraft Foods Europe, we're looking forward to successful expansion into the United Kingdom and ultimately into mainland Europe

Given this, where in the world do you think your business should next be? How can you do it intelligently? Who can help you locally?

When you think of socially responsible, sustainable food companies, which come to mind? Ben & Jerry's? Stonyfield Farm? New Belgium?

How about Mars?

Mars? You mean the company that makes Milky Way, Starburst, and 3 Musketeers, among others? Not likely top of mind for you. Yet. And I'd wager it just may be in the coming years. Why? Mars recently made two monumental commitments, with action and money to back it up. They encompass both what's in and outside the wrapper. And they could even serve as an example and even a resource to you. Yes, you, the perhaps-already-sustainable-in-many-ways company. Read on...

Mars recently committed to purchasing 100 million tons of sustainably sourced cocoa beans, certified by UTZ Certified. While not as well known by you and I as, say, TransfairUSA, UTZ's work is of no less substance. Along with source sustainability certification and verification of supportive workplace practices, they actively reach out to farmers and those in the surrounding communities to educate them on the viability of and market for sustainably grown cocoa.

What impact could this have on you?

If a major player like Mars is committing to have all of its chocolate sustainably sourced, this both sets a precedent for others to follow suit, and it will have ripple effects of an increasing supply, as more farmers see the long term viability of choosing to grow in a planet friendly way. Which means more room for new green chocolate companies. Question is, will it remain a niche, or become the norm?

Mars is taking their commitment beyond the bar, to include the wrapper. Not yet going the Sun Chips compostable route, they've made an agreement with us, the largest such for upcycling of post consumer waste. Translation -- 3,000 tons of packaging that would have otherwise been burnt for power will now be turned into new products. Nineteen candy brands, three cat and dog food brands, plus Uncle Ben's, Seeds of Change, and Flavia to be precise.

If a mammoth company like this can make such a huge commitment to repurposing its waste, what's stopping you? Ideas? Money? Creativity? Figure out how you can do it as easily as possible, while profiting at it. Can you do it? How would you do it? We started with a composter and plastic bottles out of our people's curbside recycling bin (unbeknownst to them). You can do it too, in a way fitting for your industry. We'd love to hear your ideas, stories, and successes. Drop me a comment here.

I was driving through a neighboring town recently when I encountered a seemingly endless line of going-out-of-business signs along the side of the road. You've probably seen similar signs -- small, low signs stuck into the ground, one after the other, like daisies springing up on the roadside. This one was a local patio store. I knew the store well. Independently owned, about 6,000 square feet, they'd been there for years, selling high-end patio furniture, huge gas grills on steroids, pool tables to balance out the seasons, and artificial Christmas trees and other holiday decorations.

I decided to stop by and take a look. I suspected the signs had just gone up, and when I got to the store it was clear the sale was just getting started. Everything was marked down 15-25 percent, as appropriate for the beginning of the end, but what struck me were the inventory levels. Somehow, it was like they never got the memo that there was a recession going on, and that high-end discretionary items in particular were out of favor. Instead, they were loaded to the gills.

As I left the store, I was reminded of a stop I'd made last fall at a similar store a couple of hours away. That store is a pretty good sized free-standing store, on two levels, close to 12,000 square feet in all. When I walked in, the ground floor was already fully set with Christmas merchandise, and what first caught my eye was that a good percentage of the boxed ornaments had quite a bit of shelf wear -- packaways from the prior year, not a good sign.

Then I went upstairs. From wall to wall, packed so tightly you couldn't leave the main aisle, was one top-of-the-line patio set after another, broken up only by high-end gas grills packed in just as tightly. Summer carry-over, 10 pounds stuffed into a five pound bag. When I saw the store going out of business this weekend, I immediately thought of this store, and wondered if they were still in business.

On my way home on Saturday, I decided to stop into a third, very similar store on the way. In addition to patio furniture, grills, and pool tables, they also sell swimming pool supplies, in about 10,000 square feet. I had always been impressed with this store; it had always struck me as well-managed and executed. And I wasn't disappointed on this visit, either. The store was certainly lighter than I'd seen it before, but given what had been going on lately, the inventory levels made perfect sense. They still had more than enough assortment to satisfy most every customer need. It was clear they weren't going anywhere -- they were well positioned to be a survivor.

There is a lesson in all this about inventory and cash. In these challenging times, there's been a lot of discussion of right-sizing inventories and managing for cash. But regardless of the times, no small retailer can afford to invest every last dollar in inventory. Every small retailer must constantly manage their business to accumulate cash. Too little inventory is almost always better than too much, especially if it means the difference between maintaining a cash cushion and not. There's the mistaken belief that carrying more inventory will lead to more sales. All too often, the reverse is actually true.

Cash should only be invested in those activities that will directly lead to increased revenues or decreased costs. Maintaining good liquidity at all times is essential, regardless of how strong the sales trend is. Think about the store I visited this weekend that's going out of business, or the store I saw last fall that was buried in carryover merchandise. Do you think they'd rather have the cash right now, or all of that inventory?

What are you good at as a company? What are you not? Though we at TerraCycle (and I imagine you too) like to think we can do anything we set our minds to, we know what our core competencies are: Branding, materials science and repurposing, and post consumer collection programs.

Anything else, we can do it, but there are often others that do it better. And increasingly, we're happy to let them do it. Why expend a lot of energy trying to up our game in those areas, when we can instead focus on maximizing the amount of "waste" we collect, making the most people aware of the options we offer, and benefiting thousands of people who collect product for our brigades?

Take, for example, FAB. FAB has licenses for a huge variety of today's biggest pop culture brands: Paul Frank, Hello Kitty, Hannah Montana, Nickelodeon, Hello Kitty, Disney, Marvel, and so on. From backpacks to snow globes to "novelty clocks," their collective licensing and manufacturing might create an diverse array of products, cheaply and well. They'll make messenger bags, backpacks, stationary, school supplies, and home decor accessories for us, all out of what would otherwise now be sitting in a landfill somewhere.

Yak Pak makes everything from messenger bags to guitar totes, going on 20 years now. When it comes to making quality gear that has longevity, they're among the best. Now they'll be taking vinyl billboard material we collect and making messenger bags and backpacks out of them -- guaranteed for life. People trust our name to bring them a product with environmental integrity, and Yak Pak to make quality bags.

Our most recent potential partner is American Greetings. We'd like them to make TerraCycle Holiday by American Greetings. Just about any place in North America you see greeting cards and the things that go with them -- they're there, deeply ingrained in the gift-oriented retail landscape. In this case, we'd link them to waste we source and collect, and they'd turn it into bows, ribbons and gift bags. Again, it's the trust that our name imbues combined with the deep and wide reach of American Greetings that would be a powerful synergy.

Some of you may be saying to yourselves that this is a sensible approach, combining our skills and networks to maximize positive impact. Others may think we're making ourselves vulnerable by outsourcing production to others, giving our power away.

So where do you fall in this discussion? What's your company good at, and where could it be even stronger by finding others smarter, better, and faster than you? What other companies do you see TerraCycle partnering with?

I've been speaking lately to more and more people who are thinking about starting up a retail business. For the most part, these are folks who have not been in retail before, but have great ideas for offering customers something new, something different, something compelling. They've got the entrepreneurial bug.

If you think about it, this interest is not very surprising. There is a growing sense that the economy is nearing a bottom, and that things might start turning up before long. These people are at a point in their lives where they want to do something different, to follow their passion. They have cash that they're ready to invest and put to work. They just want to be sure they're putting it to work prudently and to the best effect.

Of course, there is an enormous amount of planning and work that goes into opening a new store. If you've caught the bug and are thinking about going into business, here are a just a couple of core thoughts to keep in mind:

Carefully define the niche that you want to pursue, and construct a plan to own and command it. Cutting-edge retailing today isn't about selling stuff; customers can get just as easily buy stuff on the Internet. To be successful today, you must engage your customers in a personally meaningful way, around a specific shared passion. That passion might be a mindset, a lifestyle, or an active pursuit. It's important to them, and that makes you important as well. The shared passion is what will keep them coming back to your store, that will set you apart, and, last but not least, earn you the margins you'll need to be successful.

Day in and day out, execute your passion. Create a compelling retail experience around that passion, and design every last detail of your business to work in complete harmony to captivate your customers. Everything -- from store design and build-out, to décor and layout, to merchandise presentation and assortment, to lighting and music, to fitting rooms and cash wrap, to your employees and their passion -- must be pulling in the same direction, and with the same intent; to provide each customer with a memorable experience, worthy of telling their friends about.

Success requires you to make your financial investment wisely, then manage it prudently. That requires a comprehensive and detailed set of plans, not just through Grand Opening, but for at least the first year you're in business. In retail, that means not just having a financial plan, but also a merchandising plan. You'll need a detailed set of sales, margin and inventory plans, broken down by category and subcategory, in units and dollars. When these plans are completed, you will have the essentials of an Open-to-Buy, with a detailed Buy Plan, by month, to guide your initial purchases. You'll also have a dynamic plan that will provide critical benchmarks, and that can be continually adjusted once you are open to reflect actual results and emerging trends.

Develop a companion monthly cash flow plan, derived in part from the sales, margin and inventory plans, that also takes into account every other cash expenditure as well. This takes you beyond pro forma financials, and provides you with a cash budget, and benchmarks for identifying variances and potential cash shortfalls in a timely manner as you go along. More than many other businesses, retailing is a cash business, so having a plan to manage your cash, and being able to self-finance your seasonal cash needs, is essential to success.

These are but a few general thoughts to guide your thinking. Most importantly, plan. It's easy to lose sight of the big picture once you've become immersed (if not overwhelmed) by all the details. If you have a passion, then plan carefully and execute your plan smartly, there could be no better time to get into the retail business.

As entrepreneurs, we all know the value and necessity of forming partnerships. Little would get done in the business world without a solid network to help grow our companies. Form an alliance with the right organization and your impact is amplified exponentially. But that begs a tough entrepreneurial question: Should a younger, cutting-edge company join forces with an established, more conventional company? It can be a slippery slope. Will the former company's values be in line with those of the latter? Whose mission and ideals will win out?

TerraCycle has recently wrestled with that problem, and because of our dedication to our to eliminating the idea of waste, we've decided to partner with a company that makes whole grain snacks and uses innovative new compostable packaging. They've also begun switching to alternative energy, forgoing the use of fossil fuel at one of their plants and relying on solar power. Worth noting, that partner is PepsiCo's Frito-Lay!

You've likely read that the Frito-Lay brand SunChips has made the switch to compostable packaging and solar power. In addition to these important steps, SunChips has also begun working with TerraCycle to provide a solution to the more traditional chip bags made from "hybrid" packaging. TerraCycle is now collecting both post-consumer and post-industrial chip bags and upcycling those non-recyclable materials into consumer products or into our still-in-development green building materials initiative.

Through this relationship, TerraCycle is reaching a wider audience than it could on our own -- helping to support our mission to make the greatest possible impact on the world. By partnering with Frito-Lay, we enable ourselves to collect and reuse the most possible chip bags and are able to call upon the extensive resources and expertise of Frito-Lay.

So here is my question for the Inc. community: Do you think partnering with much larger corporations is a good, bad, or indifferent idea for young companies? What are the advantages or disadvantages you have experienced or would expect? TerraCycle's experience working with Frito-Lay and other major CPG companies has been wildly positive, but I wonder if everyone has the same experience. I would love to hear about yours.

As too many small retailers have learned -- and are still learning -- this recession is different from those in the past.

This recession is a credit-driven recession. The lack of available credit, and the withdrawing of credit, has been the pinch point for many businesses in this downturn.

For smaller retailers, this means that as both your profit and loss statement and balance sheet come under pressure, you've got to pay close attention to your covenants and in close communication with your lender.

For many, the focus has been on the P&L, but it's a major mistake to take your eye off your balance sheet. You can be sure your lender won't. In fact, the balance sheet is likely the place your lender will begin.

One of the things lenders will track the closest is your inventory. Most of your asset base is likely invested in inventory, and if that's increasing during a time of declining revenues, that's an important tip off to your lender that you are likely to need additional financing in the face of declining free cash flow.

A key metric, which you need to watch like a hawk during these challenging times, is inventory turn. If inventory turn is slowing, that's likely to be a significant red flag to your lender. It means that inventory has not been brought down in line with your declining revenues, and portends all sort of potential trouble down the road. When sales decline, inventory must be brought down accordingly. A slowing of inventory turn, in the face of declining revenues, is not sustainable for very long.

In this credit recession, managing your credit, and your lender, take on added significance. Be sure to keep an eye on all of your covenants -- but also be sure to watch your inventory turn very closely.

Every time I've ever had a client tell me how important their inventory is to them, I respond by asking them if there were a way to do business without carrying any inventory, would they? It brings them up short every time. The fact is that there isn't a small retailer alive who wouldn't love to find a way to do business without having to carry any inventory.

It's an important point to consider in these difficult economic times. Retailers of all shapes and sizes have had to re-adjust their inventories to reflect new sales levels and build their cash balances. For many, it has been a challenge to find the right balance between reducing inventories and maintaining full assortments.

One of the ways that a small retailer can find an acceptable balance is to review those items that might be able to be supported through special orders rather than standing stock. When I review assortments with new clients, I almost always find a group of items or programs that could effectively be converted to special order.

The key consideration in these stock-versus-non-stock decisions is your customer's expectations. If a customer comes into your store and expects to find the item they're looking for in stock, then it needs to be in-stock. All too often, however, small retailers think that a customer expects every item to be in stock. Clearly, that's not the case, especially for those small retailers who are focused on servicing a very narrowly defined niche. The first step, therefore, is to identify those items that customers would be perfectly willing to special order.

The next step is to determine whether your vendor base can effectively service special orders. Most every vendor would prefer to ship in multiples or pre-packs and have their items inventoried (and paid for!), but most understand that some of their items lend themselves more to special orders than stocking.

The third step is to understand how long a customer would expect to wait for delivery, and to be sure that each vendor can turn around your special orders on a timely basis. Customers, for the most part, are going to be willing to accept whatever lead time you quote them, so long as it's reasonable, and you deliver when you said you would.

Finally, in a time when sales are not easy to come by, examine your assortments and consider whether there are any additional items or categories that you could offer on a special order basis that are complementary to your current offerings. Work with your vendors to identify opportunities for additional business that don't require you to bring additional inventories into stock, and consume valuable cash.

Increasing the percentage of business that you conduct through special orders is an excellent way to maximize your revenues without incurring the financial burden of carrying additional inventory. It's also an excellent reminder that carrying inventory has its costs -- and that carrying too much is never a good thing.

The major retail chains reported their March sales recently, and the good news is that for the third straight month, there wasn't any really bad news. Sales were down slightly from a year ago, after being up slightly in February. Still, Easter was in March last year, so we are likely to see the impact of a later Easter this year in April sales.

The key point is that after free-falling in the fourth quarter of 2008, things appear to be stabilizing. Most smaller retailers are still afraid there might be another cliff just around the corner, but there's a growing sense that the worst might be over.

This has been a long and painful period. While the economists date the beginning of the recession to the start of 2008, many specialty retailers, who typical focus on higher-end merchandise, saw their sales start to drop as early as the spring of 2007. The S&P retail index rolled over in the summer of 2007, and by the fall of the year, the decreases had spread widely. The major chains that year started breaking price in late September, broke their Black Friday sales in early November and were in full clearance mode right after Thanksgiving.

Retail sales in 2007 were a leading indicator of things to come, and they are likely to be a leading indicator as we dig our way out. The challenge for smaller specialty retailers is that while they were the first to experience the downturn, by their very nature they may be the last retail sector to recover. While low-price driven chains like Wal-Mart and Costco have actually weathered the storm pretty well, for specialty retailers, the performance of retailers like Macy's, Penney's and Kohl's may very well serve as the leading indicator for a turnaround.

Still, even if specialty retail may be the last segment to recover, every small retailer needs to be pushing forward, bucking the headwind. Customers are still spending, but they are much more judicious. I believe strongly right now in marketing to your best customers, and building your customer base through referral programs, early previews, trunk shows, and other initiates to strengthen your relationships with your customers.

My book, Revolution in a Bottle, hit the streets this week. It is a quick read that is meant to flow more like a novel, less like a business book. It follows the story of TerraCycle from our beginnings in my dorm room, shoveling maggot filled organic waste, to creating products we sold to Wal-Mart and other major big box retailers, getting sued by Scotts, and creating "sponsored waste" programs to upcycle branded waste. It also offers insights on how we approach media and pursue new opportunities. Here's are two excerpts from the introduction:

TerraCycle would never have succeeded if we had started it in another country. America is a land of unique opportunity, and it happens to produce disproportionate amounts of waste. A maverick with a big idea can go further in America than in any other country, and in our case, we were able to tap into the profound desire of millions of Americans to do good, if given the right vehicles and incentives…. The good will we have received from the press, both local and national, speaks as much about the journalists and publishers in the U.S. as it does about our positive story. With its many sizeable challenges, America offers unique hope and possibility. As someone not born here, I am grateful to America for allowing me to incubate TerraCycle in its uniquely fertile soil.

I almost lost control of TerraCycle several times. In each case, friends and angels have shown up at what appeared to be the darkest of moments. Luck and epiphanies were important to TerraCycle's early survival and over time, to our success. I truly believe that the company, like the ideas that inspire and guide it, has a life of its own.

TerraCycle's story is one of getting people interested and involved. One of the lessons I have learned over the years, is people have to care about your business to support your efforts. The more you can get people personally involved in the story, the product, and the program, the more likely they are to become your biggest fan. It has helped differentiate TerraCycle from many other companies over the years. After all, how many other companies pay 15,00 schools to recycle? You can believe every one of the those students, teachers, and parents is a TerraCycle supporter.

To get people more involved in my book, to make them not just passive readers, but an active participant in my revolution, I worked with a favorite partner of mine, Bear Naked, which makes incredible organic granola, to create a consumer involvement program. We decided to print prepaid postage on the inside cover of my book and instruct people to remove the cover, fill with used granola bags and return to TerraCycle, free of charge! For every cover returned, Bear Naked is donating 1 dollar to the Arbor Day Foundation to a plant a tree. Since my book is printed on 100% post-consumer paper, our hope is that with enough returns, we can confidently say that my book help plant more trees than it helped cut down!

I'm curious. Do you agree that America as a uniquely favorable place to incubate and grow a business? Will that diminish or improve in the current economic environment and President Obama's restructuring. (I'm hopeful that it will open up huge opportunities for companies responding to social and environmental needs). Also, do you find that businesses have a life of their own, and that they consistently attract sharks and angels who become part of the drama?

And if you do read my book, I hope you enjoy it. I'll be interested in your reactions, which you can post here.

As I’ve written in this blog previously, I believe the "green premium" works against green businesses, limiting their growth and thus their collective impact on sustainability. I think that all green producers should cut costs and focus on volume to offset their lower margins.

I can't tell you how many times I've heard someone citing marketing research that concludes consumers are willing to pay more for a green product. Clearly, people are wiling to pay more for what they perceive as a better product (people pay more for luxury cars, nicer homes, better wine, and organics). Many companies that produce green products and charge a "green premium" are viable and growing, though I know of none that are as large as conventional competitors. Yes, retailer Whole Foods Market always seems to be doing a booming business, but it represents a small share of overall retail business and the products sold at Whole Foods Market are limited to certain personal categories where people may be more willing to pay a green premium than generally.

Do me a favor. In the next week, or even better, next month, watch your purchasing decisions. How often do you pay more for something that you perceive to be green? How high a premium do you believe you pay, and in what categories are you more or less likely to accept a green premium? Has your attitude about paying a premium for green changed as the economy has declined? I’d be grateful for any observations and insights.

In my last post, I wrote about the likelihood that the current recession will not end quickly or with any perceptible rebound. From the retailers that I've spoken to recently, there is a sense that the sales decreases may have stabilized for the moment, but there's no confidence that things will actually improve anytime soon.

Right now, many entrepreneurial retailers are financially stressed, and at best are anticipating a very challenging first half of the year. Their immediate focus is on improving their cash position. Many are struggling with difficult decisions about reducing payroll. They are liquidating seasonal inventories, while deferring second quarter commitments as long as they can. They are uncertain about how to proceed with their marketing plans, whether to aggressively pursue new customers or focus on reaching their current, proven customers.

In the end, it's about cash flow. With positive cash flow, there is the promise of tomorrow and beyond. Without positive cash flow, there's only an abyss.

In this moment, cash-flow planning is more important than ever. From my experience, even before this recession set in, only a small percentage of entrepreneurial retailers paid enough attention to cash-flow planning. For most, their attention didn't go beyond keeping a close eye on their bank balance. That wasn't enough when times were better, but it's certainly not enough now.

Like any other planning, being able to project your cash flow into the future enables you to set up benchmarks and spot potential trouble before it's on you. Projecting cash flow gives you the opportunity to develop the widest array of options to deal with cash shortfalls, whether it's reducing expenditures, seeking additional capital, or sitting down with your banker to discuss additional financing.

Right now, more than ever, you need a cash-flow plan that looks into the future on a rolling month-to-month basis. Such a plan projects all of the transactions that will impact cash each month, including cash-in from sales, and cash-out for product and expenses, as well as any financing in-flows or repayment obligations.

The projected ending cash balance for each month is the key, for that enables you to spot where the pinch points might be. This is what you're looking for. As you plan each month out, at least six to 12 months forward, also be sure that the planned cash balance at the end of each month is sufficient to give you enough of a cushion to cover any surprises.

Once you've built a cash flow plan, put it to work. As each month ends, when you post the actual results and calculate your variances, be prepared initially for a few surprises. You're likely to see some variances that make you stop and wonder. As you review the significant variances, there are any number things that you're likely to find. Maybe in hindsight the original plan didn't make a lot of sense. On the other hand, maybe too much was spent on repairs and maintenance, or payroll ran a little heavy. Perhaps something was posted into the wrong account in error.

After you've tracked down the causes of the significant variances, and closed the operational leaks and bookkeeping idiosyncrasies that you find, you also need to take what you've learned and adjust the plans for the future months. Then, take the actual ending cash balance and roll it forward into those future months, and review each future month's projected ending cash balance.

This is the critical step in spotting potential cash flow problems as early as possible. Your cash-flow plan is a living document and must be constantly revised to reflect the most current information. This month's variance between your planned and actual ending cash balance may not have an immediate impact on your cash flow, but when you roll it forward it may project your cash into the red (or dangerously close) several months from now! And the time to learn about it is now, not several months from now!

In this economic environment, there's very little margin for error. Sales are down, margins are eroding, and credit is tight. Cash, as they say, is king. I've written before that if you show me an entrepreneurial retailer that takes the time to plan, and who puts that plan to work, I'll show you a successful retailer. That's true now, more than ever.

I was speaking with the owner of a small women's specialty store the other day. We were discussing the state of her business when she said something that made me pause for a second.

"I'm concerned that red may be the new black."

I thought I understood what she was saying, but I asked her to explain, just to be sure.

"I mean, what if the new baseline of my business is going to be 20 percent below where I've been? I've been running 20 percent down. What if that's the new baseline. At 20 percent down, I'm in the red, but if that's the new baseline, I've got to figure out how to run in the black at that level."

I suspect it's a question that many small, entrepreneurial retailers are asking themselves. What if red has to be the new black?

If you read the headlines, or have found yourself, like me, eating breakfast in the morning with CNBC on in the background, rather than CNN, you know that there's been a lot of speculation about the shape of this recession. Most past recessions have been V-shaped, in that the decline led to a brief bottom before the economy bounced back. The most difficult recessions have been U shaped, with a period of bouncing along the bottom before things turned up. Now, many economic prognosticators are expressing the very real concern that this recession will be L-shaped, that we're going to experience a prolonged period of bouncing along the bottom without any real perceived recovery.

If this recession does turn out to be L-shaped, red will be the new black.

What does this mean for small, entrepreneurial retailers? My suspicion is that most have taken the approach that they can sustain the current decreases for a while, but business will bounce back in the next six to 12 months, and they'll be OK. But what if business doesn't bounce back? What if we don't return to the previous level of consumer spending, a level that we now understand was driven by unsustainable levels of personal debt. We're told that in the short-term that we need to stimulate the economy to get consumers spending again, but in the long-term we have to spend less and save more. What if the consumer decides to ignore the short-term call to shop and settles in for the long haul? What if this recession is fundamentally transforming consumer spending patterns?

Every retailer, large and small, has to plan for this possibility, and they need to plan for it now. In many cases, losing 20 percent or more of your revenue base will require you to fundamentally rethink your business strategy. Here are just a few things to consider:

- How will margins be affected? The current decreases most likely have been accompanied by seriously eroded margins, as markdowns have exploded to keep inventories in line. What margin levels will you be able to sustain going forward? It's probably not prudent to assume that you'll be able to maintain your previous margins in this new environment. How can you generate more margin dollars from this revenue base? How will your promotional posture have to change given the new realities? How can you protect your pricing integrity?

- What levels of expenses can be sustained? What does this mean for your marketing budget and advertising? Can you continue to sustain the current channels? How do you re-strategize your marketing? As I've written before, my sense is that current marketing efforts should focus on your best customers, who are less expensive to reach than potential new customers.

- How much payroll can you handle? How do you manage payroll reductions? Do you reduce payroll through cuts in headcount, or cuts in hours worked or cuts in pay, or some combination of the three? How will this impact your customer experience? How will you have to alter your customer experience, and how do you alter it so that it's merely different, not worse?

- How does this change how you merchandise? You're going to need to reduce your inventory levels. How will this change your store layout and visual presentation? How will this affect your assortments? Will you become narrower but as deep, or shallower but as broad? Will you alter the mix between destination and impulse items? Will you use different strategies for different categories? How will this impact how you source? Will you use more domestic resources to shorten lead times? Will you narrow your vendor structure to remain important to your key resources?

These are just a few of the questions that a thorough strategic review must include. Given your individual situation, there will be many more. The point is that given what we know now, and all of the uncertainties that undoubtedly lie ahead, this is the time to carefully plan for what will need to be done to remain viable if this turns out to be an L-shaped recession.

Red just might have to be the new black.

For many small, entrepreneurial retailers, the post-holiday period has gone from difficult to frightening. Coming off of an extremely weak holiday selling season, which has left them behind the cash eight-ball, and facing gloom-and-doom headlines, they now find themselves staring at a sea of clearance merchandise with few customers coming through the doors, regardless of the discounts they're offering.

So how can they clear this inventory out and generate much needed cash, before it backs all the way up into the spring?

As urgent as the moment has become, there's also a real fear of putting the whole store on sale for 80 percent off (which might not even drive more traffic through the door) and doing serious harm to the very integrity of the store itself. How would we ever get them to pay full price again???

Successful small retailers have long known that the very best marketing involves personal referrals and recommendations that their best customers give to their friends. These retailers have historically gone to great lengths to foster and nurture these customers, because they were the route to the next tier of customers. They have done this not with price promotions, but with trunk shows, private viewings, and other special events. They have attempted to extend the warm, gracious, and engaging atmosphere of these events to their sales floors in general, trying to create a comfortable and inviting shopping experience. Long before there ever were loyalty programs, this was their intuitive approach to building enduring first-name relationships with their best customers.

I've been working with several clients on leveraging these relationships to clear out the backlog of seasonal inventory while protecting the long-term equity of the store itself. Without question, it's a tough balancing act. Still, what we've come up with is worth considering if you find yourself in this situation as well.

Rather than resorting to 75 or 80 percent off, as you might need to do if you took a straight clearance approach, or adopt a BOGO (buy one, get one) structure that leaves you essentially with a similar level of discounting, here's how we've approached it.

First, we started by leaving discounts where they've historically been for second markdowns -- usually at 50 percent off. Then we built a customer referral program on top of those discounts. Working from the existing customer e-mail lists, we've sent out emails offering these customers a gift certificate if they bring the e-mail and a friend not on our e-mail list, and that friend spends at least a given amount and gives us his or her e-mail address. Then, we offer the same opportunity to the new customer.

We've been working with a two-to-one ratio between the minimum amount that has to be spent and the value of the gift certificate. For example, if the minimum amount that had to be spent was set at $100, then the gift certificate would be $50.

This works for my clients for a number of reasons. First, we're giving their best customers an incentive to come in and see what's on sale. In an environment of weak traffic counts, these are the customers who are predisposed to come back in. These are the customers who are typically the easiest to convert, and have the highest average transaction and units per transaction.

Second, the friend is probably going to spend more than the minimum amount, and the current customer will likely make a purchase as well, whether she uses the gift certificate at that time or not. So, we're going to move through those clearance units, and probably at a cumulative discount of less than 75%.

Third, we're adding new names to the e-mail list. These are the customers we want to pursue over the coming months, to welcome and embrace. Whether business remains difficult, or the spring starts to show a rebound, these new customers are needed to expand the base the business is built on.

Finally, we're avoiding any banners or signs screaming "75 PERCENT OFF!" Yes, we're using price to incentivize our best customers, but in a way that's more subtle and also sends the message that they're special and important, as they truly are. It gives us our best chance to minimize any long term damage to our price integrity.

In this time, when it's tough to get foot traffic into your store, and tougher still to get them to open their wallets, turning to your best customers gives you the best chance to convert your inventory backlogs into precious cash. It's also the least expensive way, from both a marketing and a markdown perspective. You've spent a lot of years developing your relationships with these loyal customers. Now is the time to turn to them.

I'm noticing a recurring direction of today's retailers in light of the economic downturn we currently find ourselves in. People are addicted to consumption, but have less money to spend. The solution that most big-box stores are adopting is to reduce the prices of the products they sell. In order to accommodate, manufacturers have to reduce the quality of their products. The net effect is that we, as consumers, are being given lower quality products that will not last as long, or be as effective.

Why not take the stand and say, "We will still spend the same reduced amount, but we'll buy fewer, higher quality goods." The net effect is probably better since those goods will make us happier and last longer. If you agree in principle, do you think the message needs to reach manufacturers, retailers, or to other consumers?

We are arguably in the midst of the biggest boom the green-business movement has ever seen, with all those who have been paving the way for more than two decades saying that we are truly at the turning point. So what will happen now that we are mired the worst economic downturn since the Great Depression?

The recycling industry has already been hit hard. With low gas prices, the cost of plastic has taken a nose dive, and manufacturers are not ordering recycled plastic at the record levels they were a few months ago when prices at the pump hovered around $4. Also, and perhaps most importantly, consumers are steering clear of anything with premium prices (almost the exact definition of most green products).

So what should green business leaders do? Together, we cannot let a recession kill the amazing momentum that has taken the movement mainstream. This blog is not here to present solutions, but to identify issues, raise questions, and ask for your thoughts on what we can do. With that, I invite you to share your perspectives.

The National Retail Federation's annual convention is taking place this week in New York, and one of the roundtable sessions was called, "The Sky Has Fallen, Now What?"

For the uninitiated, the NRF is the industry trade group for the world of corporate retailing, and to be fair, this past holiday selling season has been called the worst since 1969, and retail bankruptcies are expected to continue unabated through the first quarter. Still, has the sky really fallen?

Perhaps it has for the world of corporate retailing. Peter Solomon, founder and chairman of Peter J. Solomon Company, an investment bank in New York, recommended during the NRF session that retailers focus on nothing but cash. "I wouldn't worry about anything else for the next year," he said. "You are selling on a survival basis and you have to survive... Don't worry about investing and if you survive, you'll somehow figure it out a year from now."

I wouldn't for a minute disagree with Mr. Solomon that cash is king in this environment. If you have cash, you can look to tomorrow. If you don't, you're looking into the abyss. Nor would I necessarily disagree with his advice to his corporate retail audience, many of whom are staring at business models that have led them onto the slippery slope of competing strictly on price over a basket of commoditized products.

Consider, however, the December sales results of Buckle, Aeropostale and Hot Topic. Amidst the doom and gloom, these specialty retailers generated comp-store increases of 13.5 percent, 12.0 percent, and 4.3 percent, respectively. Each are narrowly focused on a carefully defined fashion apparel niche, competing not on price, but by appealing to the distinct lifestyle and aspirations of their customers.

Yes, cash is king. But for small, entrepreneurial retailers, this is a rich moment, full of opportunities, for fresh thinking and innovation. Customers haven't stopped spending; they're just spending less, and are more discriminating about what they are spending their money on. Clearly, across much of their basket value is critical, but for creative entrepreneurs there is a real opportunity to captivate customers with stores, products, and experiences far removed from the me-too world of corporate retail.

The sky hasn't fallen. At the moment, there may not be a lot of capital available for rapid expansion of new retail ventures, but the time is ripe for many small, entrepreneurial retailers to incubate new ideas, develop and refine new strategies, and engage and captivate new customers. The innovators of today will be the ones addressing very different retail roundtables in the future.

These are difficult, unprecedented times. The constant drumbeat of negative news concerning retail sales is unsettling enough, but the day-to-day reality of many smaller retailers is truly frightening. The almost daily, unrelenting drop in traffic counts, transaction counts, and sales cause many to wonder where it's all headed. Small retailers who have never thought twice about their long-term viability feel now like they're fighting for survival. The dismal holiday shopping season was supposed to be the best time of the year.

For many small retailers, they've grown their business by listening to their customers, carefully assessing their opportunities and following their instincts. Their growth has been organic and has led them to a settled understanding of their business and the marketplace around them. In this daunting environment, however, the earth feels like it is moving beneath their feet. The margin for error is slim to non-existent. There are many more sleepless nights.

As we embark on a new year, it's essential that small retailers stick to sound, proven fundamentals, while developing sound strategies for re-invigorating their business, if not redefining the core business strategy and market positioning.

This is not the time to go it alone.

Amidst all of the uncertainty, small retailers have a number of resources that they can call on for perspective and guidance. The relationships they've established with their accountants, lawyers, investment advisors, and insurance agents can provide a valuable take on both local conditions, as well as a heads up to potential issues within each provider's specific area of expertise.

This is also the time for small retailers to partner with another experienced retail professional. Two heads are better than one. In many ways, the challenges a small retailer faces are unique from other small businesses, and that's even more true now. Having an informed, experienced outside perspective inevitably helps any small retailer complement their skills, spot potential problems before they become significant, and help anticipate and plan beyond the urgencies of the immediate moment.

An excellent direction to turn for this type of help is SCORE. Many SCORE chapters have retired retailers willing to provide their insight and perspective. While they may not be able to address every issue a small retailer might have, or be prepared to become too involved, they are a good place to turn first.

In this environment, however, many small retailers would benefit greatly with working with an experienced retail consultant, coach, or adviser. In down times like these, many small retailers think that engaging this type of assistance is an extravagance that they can't afford. In almost every instance, however, the investment will be well worth it in helping to protect cash flow in the near term and position the business to best capitalize on the opportunities that will be there when the rebound occurs.

Navigating these challenging economic times will not be easy for anybody. This will test the mettle of even the most seasoned merchant. Nobody can be sure when the turnaround is coming. Now is the time to be sure that you've got the perspective and guidance that you'll need to make the very best decisions.

Did you know the trade show industry is second only to the construction industry in the amount of waste it generates? The garbage comes from packaging, samples, handouts, and much more, and it piles up for days, creating endless pounds of unused or barely used materials! As someone deeply committed to eco-friendly practices, I've found my company participating in fewer and fewer shows.

However, in December, I spoke at a unique event called Eco Gift in Santa Monica, Calif. Unlike many trade shows, Eco Gift had a stated goal of being Zero Waste, or as close as they could get! The event featured many CSR companies showing off their products and services. Since I was speaking at the show, and given what I had read about the trade show's environmental commitments, I decided to have TerraCycle participate as a vendor as well. Zero Waste at a trade show is by all practical measures impossible, without putting serious restrictions on what vendors are allowed to bring to the show. Despite all the challenges presented with such an ambitious goal, Eco Gift was able to get to almost 90 percent no waste!

To help reach their goal of minimum waste, Eco Gift setup "Resource Recovery Stations" to help divert every piece of material that could be reused or recycled. The stations included a bin for recycling, a bin for compostable materials, and a bin ominously labeled "landfill" for non-recyclable materials. Because many vendors and consumers might not know the difference between recyclable and compostable, they actually provided trained volunteers to stand by the Resource Recovery Stations to help people get their material to the right bin! I loved Eco Gift's efforts and organization in trying to tackle an issue with many moving parts.

As an eco-entrepreneur, I find that trade shows represent an interesting collision of what is best for business versus what is best for the planet. What do you think? Is it irresponsible to be a vendor at consumer and trade shows unless they have a Zero Waste policy like that of Eco Gift? If so, if you participate in trade shows, even as a day visitor, will you take steps to require higher standards of the shows you attend? Or does a company's well-intended end justify an environmentally questionable means?

The November comps reported by large corporate retailers were brutal for the second month in a row. Once again, the only significant player to report an increase was Wal-Mart. Most everybody else reported drops of between 10 and 15 percent. To be fair, the late Thanksgiving this year moved almost a week of post-Thanksgiving selling days from last year up to before the holiday this year.

That said, business in November was pretty tough. The sales declines were despite unprecedented levels of promotional activity. Seemingly, nobody is focused on margins or profitability right now. They’re focused on liquidating inventory and generating cash. They’ll do what they have to do today in order to get to tomorrow.

And then there’s Abercrombie & Fitch. They really took it on the chin in November, reporting comp sales down almost 28 percent. In a sea of markdowns across all retail sectors, A&F has decided to hold firm on its pricing. They’re going to sail right into the storm.

A&F Chairman and Chief Executive Michael Jeffries was quoted as saying that "promotions are a short-term solution with dreadful long-term effects." And that tradeoff, in a nutshell, is the position many smaller retailers find themselves in.

Most smaller retailers stand firm on price integrity, running few if any promotions or events, and only breaking price during clearance periods. They don’t compete on price, rather they differentiate themselves by carving out a distinctive niche characterized by carefully selected assortments of high quality products, exceptional customer service and a warm, engaging shopping experience. Price integrity is critical to their competitive positioning.

But in an environment like were in now, cash flow is the key. Obviously, the stronger you are, the more pain you can tolerate. But for many of you cash flow is a major concern right now. Given the inventory you currently own, you have to balance between the short term goal of raising cash now (that inventory will generate a lot more cash in December than it will in January and February), and the long-term goal of maintaining price integrity. I’m advising my clients now to do what they have to do now to bring end-of-December inventories into line.

Abercrombie & Fitch will break price. They may wait until January and clearance season to do it, and take their lumps then, but they’re going to break price. They’re going to be stuck with a lot of fall and winter goods if they don’t.

Are you thinking of raising capital right now? Already in the process? We are. As a quick background, we've raised over $11.5 million since our company's inception and are raising another large chunk to fuel rapid growth. Luckily, its going great, but I have seen the entire venture market transform before my eyes.

VCs are either not investing and waiting "for the other shoe to drop" or are investing but demanding incredibly low valuations. I guess it's their right, since money is tighter now than it ever has. But it begs the question -- how do you raise capital in a down economy?

My thought is, if you can avoid it, don't do it. But if you have to raise some money, raise as little as possible and from a diverse group of investors versus just one larger investor.

Luckily, since TerraCycle is highly differentiated, we've been OK and have closed capital these past weeks. How about you? Are you trying to raise and if so how is it going?

I’ve been talking recently with the owner of two women’s boutique stores outside of Atlanta. She’s been on a very solid track for a number of years, even running good increases over the past year and a half when the women’s business as a whole has been really struggling. But that started to change late in the summer and over the last couple of months business has turned down pretty sharply. When I speak with her, I can hear the frustration and concern in her voice.

The collapse of overall consumer spending in October was stunning, and the worst part of it is that nobody yet knows whether it was an aberration or a harbinger. Some of the comp store decreases that the majors reported were jaw-dropping. And the retail headlines don't look like they're going to get better soon. As I write this, Best Buy said today they expect to be down between 5 percent and 15 percent for the rest of the year. The amount of the drop is concerning, but even more concerning is the huge spread between 5 percent and 15 percent. Even they don't know where things are going.

Continue reading "The Retail Blues"

In May, TerraCycle launched a line of school and office products, birthed from the same made-from-waste mantra as our other products. OfficeMax was our clear choice for a retailer, as they already had in place many environmentally responsible plans and support Adopt-a-Classroom, a non-profit TerraCycle fully supports as well.

After the initial launch of seven products, TerraCycle and OfficeMax forged a very unique and mutually beneficial relationship that I believe serves as an incredible model for manufacturer/retailer relationships.

TerraCycle's expertise lies in eco-friendly manufacturing using materials other consider waste. OfficeMax, as an industry leader, is an expert in the needs and issues surrounding office products. Instead of continuing the traditional retailer/manufacturer relationship and pitching OfficeMax products we came up with, we went to their category managers and merchandising experts and did something unheard of -- we asked them what products they needed!

Since school and office supplies were uncharted territory for TerraCycle, we thought it would be best to defer to the experts. Doing so enabled TerraCycle to make more environmentally responsible versions of the industry's worst eco-offenders. It also allowed OfficeMax to have more say into what products they thought would sell best and make the most impact!

From this redefined relationship came an incredible new line of TerraCycle products, which includes tree-free paper made from coffee leaves, straw, and banana peels. In addition, at the direction of OfficeMax, we created biodegradable corn plastic pens and 100 percent recycled plastic pens and pencils made from old newspapers. Those are just a few of the cool new items.

My favorite item is a computer bag that is made from used billboard vinyl. I use one everyday. The billboard is thick and sturdy, and since each cut off the billboard is different, every bag is 100 percent unique.

The concept of a retailer telling a manufacturer how best to focus their efforts seems like a no-brainer to me. What do you think? What are new and different ways that manufacturers and retailers can work together? What are the advantages and disadvantages to working like this?

It’s no secret to anybody running a small or independent retailer that we’re operating in an unprecedented economic environment. Right now, it feels like the only thing that we can be certain about is uncertainty. Credit is extremely tight, and forecasting sales is like throwing a dart. The only bright spot is that gasoline prices have begun to descend from the stratosphere.

Most retailers are struggling on the top line right now. The only major national retailers who seem to be reporting increases are Wal-Mart, TJX and the warehouse clubs. For everybody else, the internal metrics are just about the same; weak traffic counts, conversion rates, average sale and units-per-transaction.

In an environment where everybody else is running sale after sale after sale, it can be hard for a small or independent retailer to know how to respond. I have long advised small and independent retailers to avoid competing on price. I believe that sustained success for any small or independent retailer flows directly from compelling product offerings, exceptional product knowledge and customer service, and an in-store experience that appeals directly to each customer’s passions and aspirations.

Continue reading "Fresh Thinking for Uncertain Times"

Lately, I have heard lots of talk about the "Green Bubble" as the next looming boom and bust on the horizon. It is true that far too much loosely invested money is driving up prices on any company to tied clean energy, biofuels, or clean water. The green revolution in business does fit the bill for a looming bust. Many see eco-innovation, especially alternative fuels and energy sources as the future, and rightly so. But looming trends in innovation often cause over-exuberance and "gold rushes" into a market, which can only sustain so much growth and investment. The dot-com and housing busts are just the most recent examples.

Yet, I have to wonder if the green bubble might be a positive in the long run. I believe that to truly achieve a sustainable future, much more investment into green technology is necessary to continue to drive the innovation and infrastructure needed to address our environmental woes. Sure, many starts-ups will fail and investors' money will be lost, but in return will surely come more affordable and efficient ways to produce alternative energies, biofuels, and sustainable products and practices. Plenty of people got burnt in the dot-com bust, but where would our lives be without Google?

What do you think about the Green Bubble? Good? Bad? Indifferent? Nonexistent?

I recently got a note from my friend Eric Hudson at Recycline. By way of background, Recycline is an amazing company that takes #5 plastic and recycles it into new products like toothbrushes. It even has a #5 take-back program similar to our yogurt brigade, which I blogged about in this post. Recycline is a landmark company in the green revolution. I even brush my teeth with the company's amazing toothbrushes.

So how about some controversy? That's what blogs are for anyway (Eric - that's a wink your way). There has been some debate out there questioning whether it is better for the environment to make something from recycled plastic vs. virgin plastic. Here are the facts: According to a published 2002 report by the EPA, using recycled materials instead of virgin materials to make new products yields a 40 percent to 60 percent savings in energy use.

So what do you think? What's better for the environment? Upcycling a yogurt cup into say a planter pot (a la TerraCycle) or melting it down and creating a toothbrush (a la Recycline)? (By the way, I support both solutions!)

In these challenging economic times, many small and independent retailers find themselves focusing their attention on their most loyal customers, the regulars that make up the core of their business. It seems like common sense. Still, over the past few years, customer loyalty has become a retail buzzword that’s taken on a life of its own. What is customer loyalty, and how does a small or independent retailer develop loyal customers?

Building customer loyalty, as a strategic retail objective, is founded on the theory that loyal customers represent the best opportunity to increase sales. It’s long been accepted knowledge that it’s easier and less expensive to sell more to existing customers than it is to attract new customers. The concept is to focus on retaining those customers that shop in the store on a regular basis, those customers that form the underpinnings of the business, and then expand on that base by converting occasional shoppers into additional loyal customers. The idea is to build market share by creating greater customer loyalty in an over-stored and on-line retail environment, where consumers seemingly have an infinite number of choices.

Continue reading "Thinking Through Customer Loyalty"

As the CEO of a company that proudly touts its products as eco-friendly, I am often asked by reporters, investors, and others, "How do we know you aren't just Green Washing?" For TerraCycle, the answer is easy. We manufacture and package most of our products entirely from waste -- Including a lot of non-recyclable waste. So if weren't making use of the waste, you can be sure it would be in a landfill somewhere.

But the question makes me think about the products I see people use everyday. How many are green washing and how many are truly environmentally friendly. The watchdog group CorpWatch defines greenwashing as "the phenomena of socially and environmentally destructive corporations or governments attempting to preserve and expand their markets or power by posing as friends of the environment." Well it's easy to tell when governments are green washing -- take George Bush's Clear Skies program, for example. Sure Clear Skies sounds great, but the program actually weakens the Clean Air Act and results in less regulation of air pollutants.

It's much harder to decipher the true environmental value of consumer products. That's because the claims are harder to fact check and quantify. Sure, the product might be made from Organic Cotton, but if it's shipped it to China to be manufactured and then shipped back, then how eco-friendly could it really be? But how do you know? Many consumers, busy with jobs and families, have little choice but to take things at face value.

Oddly enough, some products that seem like clear examples of green washing turn out to be truly green. After seeing many lawn mower companies claiming to be green, I wondered, "How eco-friendly could a lawn mower really be?" Then I met the founder of Neuton, Inc., who gave me a sample of his battery-operated lawn mower. I was wrong. Some battery-operated lawn mowers are in fact green.

Some products sound so eco-friendly and yet are misleading the public. My (least) favorite example of this is the profileration of the "Eco-Shaped" water bottle being marketed by Poland Springs and others. It is "Eco-Shaped" because it uses 30 percent less plastic than the old bottle. But what about the other 70 percent? It is not even post-consumer plastic. So how "Eco" is that shape?

Are there examples of green washing that irk you? Or, more interestingly, what are some surprising items you had pegged for Green Washing but were surprised to find are truly green?

In launching TerraCycle's lines of liquid fertilizer, cleaners, repellents, etc., I realized something: Almost all products that are sold as liquid in a bottle -- from window cleaner to ant repellent -- are in fact extremely similar to bottled water. In most cases, the difference is only 1% to 2% of the contents. In other words, these products are typically 98% to 99% water -- no matter which brand you're looking at, eco-friendly or otherwise. This is true even with TerraCycle products.

Most people in the bottled water industry fear that we are nearing the end of selling bottled water as we know it today. If that is the case, why are we not trying to reinvent all of the other products that have the same issues as bottled water?

Continue reading "Don't Blame Bottled Water!"

Walk into an upscale mall today and there’s something new and different that’s hard to overlook. The storefronts of some of the most trendy national retailers -- Abercrombie & Fitch and Hollister, just to name a couple -- appear to be hardly storefronts at all. No expansive entryways framed by plate glass, inviting customers into the store. Instead, these stores have been hidden behind elaborate walls and narrower doorways, hiding from view all that lies behind.

It’s a bit startling the first time you encounter them.

In this new concept of a storefront, there is something forbidding, exclusionary. The message is clear; if you’re merely curious, window shopping perhaps, then this store isn’t for you. If you feel put off by what you see, uncertain perhaps, then keep walking.

But if you get it, if you want to be a part of this, if this is who you are, then this place is for you, come on in!

In very dramatic fashion, these retailers have demonstrated the underlying concept behind niche retailing. They are not trying to be meaningful, much less important, to everybody. But to their target customer they seek to be extremely meaningful, incredibly important. So important, in fact, that they seek not just to shape the identity of their customer, but to become no less than an integral part of their customer’s identity. An identity built around being on the inside, belonging to an exclusive club of others just like them, who are just as fashionable, trendy, just as NOW!

Continue reading "Selling Cachet"

Here's a real world quandary. At TerraCycle we recently launched a line of ultimate eco-friendly cleaners. Their efficacy is great (same or even better in some cases than the synthetics). They are packaged in used soda bottles, with end run triggers, and moreover, they retail at a strong price ($2.99 for a 1L bottle). We've gained some fantastic distribution from Office Max to Target and have been happy with the sell through.

So here's the question: At mass market, our cleaner is a great price vs. other eco-brands such as Mrs. Meyer's, which retails for $4.99 for a 1L bottle of, say, Window cleaner. We even do better than 7th Generation which is in the $3.99 range. However, we are $0.70 more expensive than Windex, which retails for $2.29, or the generics, which ares priced even lower.

Our sell through at our retailers is very strong, so we could keep our price at $2.99 and be the best price in the eco-field but still be a premium to the national brand. Or we could cut our margin and either match or even beat the prices of the conventional brands. It would hurt margin, but it should increase market share. It would be a bold but tempting move since we may be able to gain market share beyond the "eco-cleaner" category.

What do you think we should do?

It is clear that it is uncool to copy the trademarked and patented Coca-Cola plastic 20-ounce bottle and fill it with some form of beverage. It's uncool (and illegal) because you would be benefiting from all of the work that Coke put into developing the shape and the brand.

But let's say someone buys that Coke bottle and throws it out, and it's collected and ends up at my factory. I then clean it and refill it with TerraCycle worm poop or cleaner or repellent and sell it to Home Depot. Moreover, I mix it in with other brands of bottles that come across our factory floor, including Pepsi brands and other random brands. In this case would Coke have a case if it wanted to stop TerraCycle from employing the used Coke bottles? It’s a moot point because Coke actually wants us to use its bottles, but – hypothetically speaking – I don’t think Coke would have a case because we’re not benefiting from the bottles’ shape. In fact, use all shapes without any discrimination (all garbage has equal rights).

The reason I pose this question is that, unlike TerraCycle, most small companies that upcycle waste don't have extensive licensing agreements with the brands whose garbage they play with. We got our experience in a law suit involving Miracle Gro, and since then, we have become very proactive legally. Is that really necessary? Well, I recently heard about a college student who was making magnets and other knickknacks out of beer cans and bottle caps. She recently got sued by Heineken.

Welcome to the club.

Six months ago the folks at Target asked us to solve two problems. They wanted to solve the plastic bag problem and they wanted a new designer bag to sell. We solved them both simultaneously.

Everyone knows how big the plastic bag problem is. According to the Wall Street Journal, the U.S. goes through 100 billion plastic shopping bags annually. Plastic bags don't biodegrade. Instead, they photo-degrade, breaking down into smaller and smaller toxic bits that contaminate soil and waterways and enter the food web when animals accidentally ingest them. On top of this, it can cost up to $4,000 a ton to recycle plastic bags, and the resulting polymers are worth only a fraction of the cost, rendering the recycling of plastic bags economically unsustainable. Since legislated plastic bag collection exists only in select parts of California, the vast majority of plastic bags are discarded improperly.

Continue reading "Solving the Plastic Bag Problem"

Our entire "green" economic transition is based on carbon credits and global warming. Unfortunately that is ALL people seem to care about. While global warming is a crisis and is extremely important, it is only one aspect of the environmental dilemma that we find ourselves in.

Continue reading "Is Carbon the Only Thing That Matters?"

There are some early signs that the retail downturn may be starting to ease. It's still very early, and there are some very strong headwinds, notably $4.00 a gallon gasoline, but in several retail segments and categories there's finally signs of life. Whether it's the Fed's aggressive interest rate cutting in January that has kicked in, or consumers beginning to spend in anticipation of their federal tax rebate checks arriving in the mail, or shoppers simply tired of sitting on their hands, it appears the worst may be behind us.

Having said that, there are many retailers that haven't seen any sign of a rebound yet, and those that feel the recovery will be slow and anemic at best. Business is still likely to be difficult, and retailers large and small are likely to remain under financial pressure for the foreseeable future.

For small and independent retailers, this has certainly been a challenging period. For those in carefully carved out premium niches, offering their customers a compelling shopping experience and outstanding service, things haven't been quite as daunting. For many others, it's been tough to sleep at night.

The key for most small and independent retailers to weathering these turbulent times, and staying liquid until business opens back up, is to adhere to basic retail fundamentals. Yet for many, there's a temptation to try to drive sales through an increase in promotional activity.

Continue reading "Surviving a Soft Market"

With hundreds of authorities out there purporting to measure how green products actually are, how do we know the authenticity of a green product? What does "natural" mean? "Organic?" "Carbon neutral?" Is being carbon neutral even enough? I'm always asking this question: "On a scale of 1 to 100, how green is this product?"

Continue reading "How Green Is That Product Really?"

I was recently asked that question by someone at Office Max (as a quick background we just launched a major partnership between TerraCycle and Office Max this week). This is a tough question because one of the conventional methods of maintaining market share is to block competition and to construct numerous barriers to entry -- from IP to exclusive partnerships, etc. This is definitely the case in a mature and stable market where it is challenging to grow the market.

But is this the case in an emerging, niche market like green consumer goods? The best case study I can give is the launch of Clorox's green line. The household cleaning category is a large multi-billion dollar market in the U.S. The green household cleaning segment, however, is at best 3% to 5% of that. Probably less. Prior to Clorox's entry, the segment's leaders were companies like 7th Generation and Ecover. These green companies have strong distribution in places like Whole Foods but almost nonexistent distribution in places like Wal-Mart (actually Jeffrey Hollander, CEO of 7th Generation, writes on his blog that he will not sell to Wal-Mart).

When Clorox entered the green cleaning segment, all major retailers took a second look, and in the end the entire category experienced major growth. This allowed our cleaners to be launched at Office Max, tested at Target, and slated to be launched at a number of other major retailers. So, in other words, bring on the competition within the green segment. It may just be our ticket to truly turning the majority of consumer products green.

What small and independent retailers can learn from baseball stats.

It's finally April and the start of another baseball season. Football may be our most popular game, but baseball is our national pastime, and the start of every new season brings with it essays and odes to the game.

This week, CBS's 60 Minutes ran their own feature to mark the new season, a profile on Bill James. For the uninitiated, James is one of the game's most creative and influential statisticians, and has been credited with changing many long-held beliefs about how to evaluate players and think about the game. He started out over 30 years ago, writing and self-publishing an annual statistical abstract for each coming season. Today he works for the Boston Red Sox, and his approach to statistical analysis has been almost universally accepted and adopted throughout the game.

James' essential insight was that looking at baseball through in-depth analysis of the statistical data could shed new light on old preconceptions, and tell a story of what's happening on the field, and why, far beyond what the eyes of players, managers, executives and fans actually were seeing. He demonstrated, for instance, that slugging percentage and on-base percentage were far more accurate predictors of on-field success than the traditional statistics of batting average, home runs and runs batted in.

Continue reading "A Numbers Game"

Take a simple paradigm: plastic bottles. The cheapest way to make a plastic bottle is to use 100 percent virgin plastic (the worst thing for the environment). If you want a "greener" bottle, you can integrate some recycled content, but with every extra gram of recycled plastic, you will be increasing the price of that bottle (and decreasing its strength). If you wanted to go "uber green," you might use biodegradable plastic -- like Ethos water, which is available at your local Starbucks. That move would result in the most expensive way to make a plastic bottle today.

Continue reading "Will Your Customers Pay to Go Green?"

Businesses across America are facing increased pressure to go green. To face this challenge, many companies are attempting to find some way to do something green. But what does this actually mean? Is it a good thing? Or does it dilute authentic green innovation? What constitutes "green-washing"? And is green-washing a bad thing? Here are some recent examples I've seen:

Elle magazine in its April green issue made a big deal that it was going green by using 10% recycled paper. What about the other 90%, or the fact that a large percentage of every magazine is thrown out and never sold (I wonder what the folks at INC magazine have to say about that)?

Starbucks stopped double-cupping. It now uses a sleeve made from 100% recycled content, and its cup is made with 10% recycled content. But its paper cup is still not recyclable, which means that billions of cups every year end up in our landfills.

Ford launched a "hybrid SUV" -- a title that almost seems oxymoronic.

Green is definitely a major trend that has captured the American consumer and is now being reflected in the products and services that are coming to market. I'm curious as to what you think. If Coca-Cola makes its bottles with .01% more recycled plastic content, should it call them the "new green bottle"? What if they're made with .1%, 1%, or 10%? Where do you draw the line?

When does a company have to qualify why their are calling themselves green? Is it a sin to greenwash one's brand -- or is any movement to a greener economy a good thing?

This is an ironic title since this blog is, in fact, a press hit that will
go into our ever growing press kit. That kit that has more than 1,000
articles in it from the past couple of years (check out:
http://www.terracycle.net/media_coverage.htm), which works out to more than one
article every day! So what's the trick? Well here are five simple tips:

Continue reading "The Secret Formula for Generating Crazy Amounts of PR."

We are used to thinking of waste as a physical thing. For example, and
most typically, what is thrown out in our garbage cans and ends up in
landfills. But what is waste? If we define waste as anything that we are
willing to pay to remove, then the idea of waste can be extended beyond the
physical objects that end up in our garbage can.

Take graffiti, we spend millions of tax dollars every year to remove it
From our walls, train cars, etc. It is seen as a huge negative. Just
type the word "graffiti" into Google News, and you'll see. However, graffiti can also be seen as a trendy art form. I know a number of people in New York City who
have paid big bucks to have a piece thrown up on one of their loft walls.

The economics behind this irony suggest that graffiti in the wrong place = a
big $$$ and social negative, but graffiti in the right place = a big
$$$ and social positive. The first step in discovering this was to talk
with the police in TerraCycle's hometown of Trenton, New Jersey, and see first hand the problems they have keeping the graf crews at bay. On the flip side, the graf crews hate
running from the Police. I had someone show me a monstrous scar on his
leg from pumping a barb wired fence. After seeing all of this, we opened up our
factory and told the graf crews that they can paint anything hey want -- except nudity and gang signs -- whenever they want.

Continue reading "The Happy Economics of Making Products from Waste"

The amazing thing about eco-capitalism is that you can create business
models where everyone truly wins: the environment, the consumer, the big business, the retailer and your business. In other words, all stakeholders (even the environment) can benefit. What's amazing about this kind of solution is that it creates the opposite of a death spiral -- a growth spiral. That is exactly what happened when we launched what we call "sponsored waste."

Let's take one step back. What is waste? The idea doesn't exist in the
natural world -- in other words it is completely man made. It is a
commodity that has negative value, a commodity that most people are willing to pay to get rid of. Or in other words a commodity that people are willing to pay you to take.

Even with a modestly advanced recycling system, most of what is produced in America is not recyclable. Examples range from yogurt containers, to drink pouches to energy bar wrappers to plastic bags, etc. This list is monstrous in size and scope. Within these waste streams, there are a subset that I would call "branded waste" -- that is, waste that has the manufacturers' logo all over it. Let's revisit the examples again with
brands involved: Stonyfield yogurt containers, Honest Tea and Capri Sun
drink pouches, Clif Bar energy bar wrappers, Target plastic bags.

None of these streams of sponsored waste is recyclable today, which means the only option is throwing them into a landfill. The numbers are staggering: more than 10 billion yogurt cups, more than 5 billion drink pouches, more than 20 billion energy bar wrappers, and well more than 100 billion plastic bags. And hese numbers are for the U.S. only!

Continue reading "A Solution for "Sponsored" Waste"

The concept of TerraCycle came up when my friends and I were trying to figure out how to grow "better tomatoes" in our basement and figured out that worm poop did the trick. The fascinating thing for me was that the worm poop itself was made from waste, a commodity that people are willing to pay you to take. Within six months of that serendipitous moment during my fall break (freshman year at Princeton) I left school to corner the market on worm poop. Inc. magazine wrote about us in 2002, giving our business plan a rating of 4 out 10. Little did anyone know that three years later we would be on the cover as The Coolest Little Startup in America.

Since then, our company has grown at Inc. 500 rates, and our products are now available at almost every major retailer in North America (from Wal-Mart to Whole Foods and everything in between). We've been sued by our biggest competitor and survived. We have succeeded in setting up our own factories and making our product in America, in the inner city (Trenton, New Jersey). We've raised more than $10 million without changing our culture.

What started as a company that made worm poop and packaged it in reused soda bottles has led to a paradigm of eco-capitalism that is much bigger than plant food. Today, we are a consumer products company that sells more than 50 products -- including garbage cans made from crushed computers, hand bags made from energy bar wrappers and juice pouches, and the most eco-friendly binders and pencils. All are available in major big-box retailers. If you average out the year, we are launching a national product every two weeks.

Our business plan is based on using stuff that people either don't value or, in many cases, give a negative value to. The result is a brand that has been called the most eco-friendly in America -- all while holding true to three simple brand principles: Better, Greener, and most importantly Cheaper.

Welcome to the Eco-Capitalist.

Engaging customers can make your store more than just a place to buy things.

In 1989, Steve Wynn opened the Mirage Hotel and Resort in Las Vegas, the first new resort on the Strip in 16 years. As recounted in a recent PBS documentary, "Las Vegas, An Unconventional History," this represented a critical turning point in the history of Las Vegas. Mr. Wynn was quoted at the time as saying, “They don't need another casino… but they could sure as hell use a major attraction." Or as Brian Greenspun, editor of the Las Vegas Sun, says in the documentary, "Steve came and he realized that if you build it, and you build it better and you create a little demand where maybe there wasn't demand … everyone will want to get into it.”

Give them something they haven't experienced before. Give them an experience that's new, fresh, and exciting. The story of the Mirage in Las Vegas is, at heart, a story about retailing, about differentiating and growing business by creating a unique, compelling shopping experience.

Retailers have long understood that doing business is much more than just selling things to customers. Every cosmetics salesperson understands that they're not selling make-up, they're selling glamour. And retailers have long sought to create compelling presentations and experiences to capture customer’s attention.

Continue reading "Create a Retail Experience"

With Big Box stores in clearance mode, smaller retailers can no longer compete for holiday shoppers on price alone.

The holiday selling season is behind us, and as small and independent retailers work through their customer returns and gift cards and clearance sales, it's not too early to be thinking ahead to next year. For many, this was an unsettling season, as customers waited longer and longer to shop, and established selling patterns seemed to shift.

National retail sales between Thanksgiving and Christmas this year were projected to be up just 3.6% over the prior year, compared to 6.6 percent in 2006 and 8.7 percent in 2005. Many experts have attributed the softness to a weakening economy. But there was something different about this year, far more different than just weaker sales.

A week after Black Friday, I came upon the Kohl's circular for the week. They were promoting their 50 percent off sale, and as I paged through it, I was struck by how category after category was included in the sale. Not just items, but whole categories. The week after Thanksgiving, Kohl's was transitioning into full clearance mode.

Continue reading "An Unsettling Season"

Even in a niche market, a well-planned expansion of consumer choices can reveal demand that was otherwise hidden -- and drive sales.

In his bestselling book "The Long Tail," Chris Anderson explored the emerging economic phenomenon observed in the on-line book, DVD, and music businesses. As the costs of production, distribution, and inventory have declined, while the assortment of available titles expanded almost exponentially, consumers embraced the choices available to them. The subtitle of his book, "Why the Future of Business is Selling Less of More," is a call to independent retailers that the future is to be found in capitalizing on consumers developing desire for an ever-expanding assortment of specialized, niche products.

The economic insight in "The Long Tail" is derived from studying a business such as Amazon.com. As Amazon was able dramatically expand the assortment it offered its customers in categories such as books, DVDs and music, the total volume of the business done by the thousands of titles that sold relatively few units rivaled the business done by the relatively few hits. When given near-complete choice, customers demand was not concentrated around the few hits, but extended to almost every title offered. The same sales pattern was found in such online businesses as Netflix and Rhapsody.

Continue reading "The Long Tail of Retailing"

Looking for new ideas to keep your store fresh and dynamic? Time to go shopping.

I admit it. I'm absolutely no fun to go shopping with.

The reason is simple. I'm not like other shoppers. I'm not like the mother out looking for the bargain for her family, or the kids looking for something exciting to catch their attention, or the dad on a mission to bring home the perfect gift. When I go shopping, I tend to see things a little differently than other shoppers. I tend to stop and linger on things, and make comments about things, that make little sense to whomever I'm with.

I'm a retailer, a retail consultant specifically, a student of retailing. I simply can't walk by a store, much less into a store, without trying to figure out what makes that store tick, how customers perceive the store, what that store does well, and what I can learn from them.

Continue reading "Studying Your Competitors"