Effectuation & Uncertainty Trying to Create a Market from Waste at TerraCycle Stuart Read Professor

Double Feature Heuristics for decision-making in uncertainty (called effectuation) Story of a venture (focusing on some of the key moments)

Causal principles (blue) what is taught in bschool To get started – effectual principles invert some of the logic traditionally taught in business school Causal principles (blue) what is taught in bschool Effectual principles (red) the logic of expert entrepreneurs 3

Meet Tom

2001: A freshman at Princeton, 19 year-old Szaky sees red wiggler worms turning organic waste into high quality fertilizer Prototype a business model that might convert this observation into a venture which uses waste as input.

Goals. Given (based on prediction) Where to Start Goals. Given (based on prediction) Means. The ingredients of new opportunities: Who I am What I know Whom I know

April 2003: TerraCycle wins Carrot Capital Competition April 2003: TerraCycle wins Carrot Capital Competition. Prize is $1million - and investors aiming to “professionalize” the firm. Terracycle has $500 in the bank. Accept the prize?

Risk, Return and Resources Expected Return. Calculate upside potential and pursue the (risk adjusted) best opportunity. Affordable Loss. Calculate downside potential and risk no more than you can afford to lose.

Out of money, with customer orders pending, Terracycle needs to buy packaging for its organic fertilizer. What to do?

Terracycle Organic fertilizer packaged in used plastic containers

From there, expansion into “upcycled” consumer products, built using consumer waste, collected by consumers

2007: Walgreens orders 100,000 pencil cases for delivery in 3 weeks (in time for “back to school” sales) Terracycle finds a Canadian recycler with a warehouse full of pouches. But Terracycle needs Kraft permission.

Attitude Toward Others Competition. Set up transactional relationships with customers and suppliers. Partnership. Build your “future” together with customers, suppliers and even prospective competitors. 13

Terracycle logo on CapriSun packaging

As the TerraCycle product range has grown, the firm needed more and more partners to help them “eliminate the idea of waste”

TerraCycle has achieved critical mass with more than 250 unique consumer products

And their “supply chain” generates all the inputs

Leverage Surprises. Basis of new opportunities. Avoid Surprises. Leverage Surprises. Basis of new opportunities. 18

Underlying Logic & What to Do To the extent we can predict the future, we can control it.  PLAN To the extent we can control the future, we don’t need to predict it.  CO-CREATE 19

Tom Szaky does not carry a business card Tom Szaky does not carry a business card. He carries a stamp so he can stamp his information into your (waste) paper

So creating new opportunities looks a lot less like a puzzle with a fixed set of pieces and a possible “right” solution…

To more of a crazy quilt – assembled from the things at hand by the people who commit to working on it.

Effectuation & Uncertainty Trying to Create a Market from Waste at TerraCycle Stuart Read Professor