In the battle for market share, "free" wins every time. "Free" is a whole lot more attractive than "cheap", "less expensive than the rest" or any other permutation. In a business that needs volume, why not drive for free waste disposal. Why not indeed? The obvious answer will be that the income lost from waste disposal fees must be regained in the sale of materials or other sources.
Income from the sale of materials will be determined by the price that can be obtained. Some materials, like scrap metal or cardboard, have their price determined by commodity markets. Indeed, you can go to London Metal Exchange and get spot and forward prices for all manner of metals. Generally a scrap metal dealer is needed to access the markets, but this might be achievable without a dealer provided there are sufficient tonnes. That is, a large upcycler might develop its own channels to market.
Other materials, like books, furniture, timber, mulch and compost are either not readily transported to global markets, or have an intrinsic value that far exceeds its materials. This is obvious - a second hand book selling for $5 might weigh a kilogram. At $100/tonne for scrap paper, the paper is worth $0.10. Conversely, selling the book as a book rather than as paper yields a price of $5,000/tonne.
Materials not easily transported need to have local markets, and this can be tricky, needing significant effort to develop the market. It may be that the upcycler is better off adding value, perhaps even straying into fields well beyond materials handling (there might be crops that can be profitably grown with compost rather than trying to sell the compost). Clever work is needed here.
So that is the sale of materials. Instinctively, with the value of resources generally falling over time as their supply increases to match and surpass demand, relying upon material sales seems unlikely to be a long term winner. But it might be.
Another, intriguing, source of income is advertising. An upcycling facility that has a strong flow through of customers with particular values might be a perfect forum for advertising similar services. As the facility gains in popularity, the advertising can grow as a source of revenue. This begins to move an upcycling facility towards becoming a platform through which advertisers can connect with a self-selected market. That could be very powerful. To make a "waste" facility into a platform able to attract advertising, it has to be absolutely not like a waste facility. It must be clean, clever, slick.
All of which begins to grow some ideas for a multi-faceted approach to building markets. Maybe use the facility, or network of facilities, much as a website might be used in the dotcom era. A channel for traffic, grown quickly (but sustainably) through its unique offering to become the dominant player. The Amazon, Facebook or Google of the "waste" world.
An idea.
Friday, 20 April 2012
Thursday, 19 April 2012
Making money upcycling
There are two classic ways to make money from waste: a fee for materials received ("disposal fee") and a fee for materials taken away ("recycling income"). Except in the case of a monopoly (not uncommon outside the city), both are determined by the market. A waste transfer station (i.e. servicing cars) is taken as an example.
The disposal fee at a transfer station is driven by landfills offering a service for cars. Since landfills are geared to dealing with trucks, and so have cost structures driven by trucks, prices are set for cars without a great deal of thought. The most common way is to look at the cost per tonne for waste disposal (say $100/tonne), assume 0.3 tonnes per car, and then apply the rate (i.e. $30 per car). As the cost per tonne goes up, perhaps by landfill levy, carbon tax or simple landfill scarcity, then the disposal fee goes up with it. A well located transfer station may be able to charge a small premium on the landfill, but also has transport and staffing costs to cover. Not to mention the cost of landfill disposal (that $100/tonne).
Recycling income at most transfer stations is only earned from the sale of scrap metal (generally steel), cardboard and other high value, easily handled commodities. Since transfer stations are driven by the logistics of waste handling, recycling income is insignificant. Perhaps 1% of the total. The beauty, of course, of recycling income is that it turns landfill expense into income.
And this is part of the secret of making money through an upcycling transfer station. Working hard to separate and recycle waste means reduces landfill expenses and increases recycling income. Clever work can increase the disposal fee for enhanced service provision (more on this later), and continued innovation can extract more and more value from the waste. On the other hand, the clever work might be holding the disposal fee down to drive up volume and thus maximise overall profitability. Or maybe a bit of both, moving with the market.
A successful business in the upcycling market works both sides of the business model, maximising income from disposal fees and recycling income.
The disposal fee at a transfer station is driven by landfills offering a service for cars. Since landfills are geared to dealing with trucks, and so have cost structures driven by trucks, prices are set for cars without a great deal of thought. The most common way is to look at the cost per tonne for waste disposal (say $100/tonne), assume 0.3 tonnes per car, and then apply the rate (i.e. $30 per car). As the cost per tonne goes up, perhaps by landfill levy, carbon tax or simple landfill scarcity, then the disposal fee goes up with it. A well located transfer station may be able to charge a small premium on the landfill, but also has transport and staffing costs to cover. Not to mention the cost of landfill disposal (that $100/tonne).
Recycling income at most transfer stations is only earned from the sale of scrap metal (generally steel), cardboard and other high value, easily handled commodities. Since transfer stations are driven by the logistics of waste handling, recycling income is insignificant. Perhaps 1% of the total. The beauty, of course, of recycling income is that it turns landfill expense into income.
And this is part of the secret of making money through an upcycling transfer station. Working hard to separate and recycle waste means reduces landfill expenses and increases recycling income. Clever work can increase the disposal fee for enhanced service provision (more on this later), and continued innovation can extract more and more value from the waste. On the other hand, the clever work might be holding the disposal fee down to drive up volume and thus maximise overall profitability. Or maybe a bit of both, moving with the market.
A successful business in the upcycling market works both sides of the business model, maximising income from disposal fees and recycling income.
Wednesday, 18 April 2012
Rethinking the business model
Having flown over to Sydney Monday evening and back Tuesday night, I had a LOT of time sitting inside a plane (9.5 hours all told). That along with a few hours wait at each end for the plane meant pretty much two full work days alone to think. And think I did, alongside listening to podcasts on US history (really!!), international law and entrepreneurship. Playing the odd iPad game. And reading (American Pastoral and Business Model Generation).
Different strands of thought, slowly coalescing into ideas. How might Madison's observations in forming the American Federation be used to inform how to deal with a collective of Councils? Game theory, historical thinking, manoeuvring to get to an end point that you want. And more importantly for Upcycle, how might the business model for a waste facility be reinvented to smash apart the competitors.
It is exciting to find a whole new set of tools for working this stuff out, and I find myself absorbing the concepts behind Osterwalder's work so that I can start to play. I can see a whole slew of different ways to make upcycling real in the lives of my customers, methods sort of on the edge of my thinking, akin to sitting alone at a campfire and having a whole wonderful world of conversations waiting just outside the flickering light.
So for now, some stratosphere level strategic thinking. It's all in the business model, delivering on the straightforward value proposition in such an ingenious, flexible and unexpected way that I have the drop on everybody else.
Different strands of thought, slowly coalescing into ideas. How might Madison's observations in forming the American Federation be used to inform how to deal with a collective of Councils? Game theory, historical thinking, manoeuvring to get to an end point that you want. And more importantly for Upcycle, how might the business model for a waste facility be reinvented to smash apart the competitors.
It is exciting to find a whole new set of tools for working this stuff out, and I find myself absorbing the concepts behind Osterwalder's work so that I can start to play. I can see a whole slew of different ways to make upcycling real in the lives of my customers, methods sort of on the edge of my thinking, akin to sitting alone at a campfire and having a whole wonderful world of conversations waiting just outside the flickering light.
So for now, some stratosphere level strategic thinking. It's all in the business model, delivering on the straightforward value proposition in such an ingenious, flexible and unexpected way that I have the drop on everybody else.
Sunday, 15 April 2012
Upcycling glass
Perhaps the classic example of the mindset required for upcycling is demonstrated with glass. You see, glass is as good as infinitely recyclable. It can go round and around and around without losing quality. Well, subject to colour requirements. And recycling glass saves energy over making glass from scratch
Since glass is recyclable, and since it has strong environmental benefits, people assume it must be recycled. In many places, this can happen. Not in Perth. In Perth, the closest plant able to convert glass back to glass is in Adelaide. Before glass can go into furnaces, it has to be sorted to remove ceramics. There is a size below which this is not viable. Glass coming from Perth (generally by rail) gets ground down in transit, exacerbating the already significant losses to "fines". The end result is expensive and unviable, leading to large stockpiles of glass around the place.
An attempt to resolve the problem was taken in 2010 when a multi-million dollar grant was provided to Colmax Glass to establish a glass plant in Perth. This all looked fantastic at the time, even if the launch was a few months too early, but the plant has stuttered since, never quite meeting expectations. The point is not whether Colmax is doing the right thing or not, but the approach. Having decided glass will be recycled, money then proceeds to be thrown at the problem leading to almost inevitable failure. It starts from the wrong way around, and never catches up with itself.
What would be wrong with starting a small plant servicing a small market? It could build upon its successes, taking more product in as its markets grow. The point is so important it needs reiterating: taking more product in as its markets grow. Notice the sequence - markets grow and thus product is received. Scale up with the markets.
Colmax or otherwise, upcycling does not work in isolation of markets. It does not try to "solve problems", but instead services markets. "Solving problems" drives a project down the value chain, servicing markets lifts it up. "Solving problems" risks ignoring local quirks, creating structures so big that they can only fail. Upcycling is niche, it is clever, and it will be the way of the future.
Since glass is recyclable, and since it has strong environmental benefits, people assume it must be recycled. In many places, this can happen. Not in Perth. In Perth, the closest plant able to convert glass back to glass is in Adelaide. Before glass can go into furnaces, it has to be sorted to remove ceramics. There is a size below which this is not viable. Glass coming from Perth (generally by rail) gets ground down in transit, exacerbating the already significant losses to "fines". The end result is expensive and unviable, leading to large stockpiles of glass around the place.
An attempt to resolve the problem was taken in 2010 when a multi-million dollar grant was provided to Colmax Glass to establish a glass plant in Perth. This all looked fantastic at the time, even if the launch was a few months too early, but the plant has stuttered since, never quite meeting expectations. The point is not whether Colmax is doing the right thing or not, but the approach. Having decided glass will be recycled, money then proceeds to be thrown at the problem leading to almost inevitable failure. It starts from the wrong way around, and never catches up with itself.
What would be wrong with starting a small plant servicing a small market? It could build upon its successes, taking more product in as its markets grow. The point is so important it needs reiterating: taking more product in as its markets grow. Notice the sequence - markets grow and thus product is received. Scale up with the markets.
Colmax or otherwise, upcycling does not work in isolation of markets. It does not try to "solve problems", but instead services markets. "Solving problems" drives a project down the value chain, servicing markets lifts it up. "Solving problems" risks ignoring local quirks, creating structures so big that they can only fail. Upcycling is niche, it is clever, and it will be the way of the future.
Friday, 13 April 2012
Upcycling waste timber
Timber waste is a great case for stupid solutions, and for clever solutions. A stupid solution takes something that works elsewhere in the world, and applies it out of context. A clever solution looks at the context, and applies bits of solutions from elsewhere.
In the case of timber, the common stupid solution is to build a furnace, reduce timber to its lowest state (heat energy by burning) and then claim to be recycling. Which it is, in a stupid kind of way. There are plenty of these sorts of proposals around the traps, and they all rely on massive capital investment and equally massive quantities of timber waste to pay it off. What they don't rely upon is intelligence; timber in the form of energy needs no intelligence to produce or sell or manage.
The clever solution for timber looks at the unique circumstances, and so can only be told in a particular context. I will refer to a facility that I had some part in establishing - the Hazelmere Timber Recycling Facility run by the Eastern Metropolitan Regional Council (EMRC). This facility started by looking at feedstock - how much is there? It then looked at markets for timber products, ranging across the sweep of high value, low volume markets (recycling timber back into structures, or art or something similar) to low value, high volume (energy). What emerged in the Perth context is two markets. Particle board manufacture for a high value wood chip, and bedding for broiler sheds for a lower value sawdust.
This worked for the two components because they had local markets. Wood chip had a Laminex particle board plant within 200 km of Perth (Dardanup) backloading trucks hauling virgin chip to the Laminex MDF plant in Perth (since closed). Laminex needed to diversify its wood chip supply from forest sourced product, and was a key partner. Saw dust supply for bedding also grew out of problems confronted by local broiler growers near Hazelmere in sourcing saw dust from sawmills in the south west of WA.
With the markets there, and reasonable fees able to be set for waste suppliers, it was then a matter of gently growing the business from a small nucleus to what is now a large undertaking. All the while, large investment was deferred until confidence could be built around the viability of the investment. This meant enough feedstock at the right price producing the right product for the market. Each needed, and will continue to need, tweaking.
The current operations work here. Pricing is such that an array of waste collection business have sprung up to source waste timber for the plant, the product able to marketed is well enough understood that a large investment (>$1m) in fixed plant can be sustained, and the EMRC justly earns kudos for the project.
This particular solution will not work elsewhere. Upcycling requires intelligence, it requires understanding and it requires the courage to let opportunities unfold. None of those attributes follow from copying the final outcome.
In the case of timber, the common stupid solution is to build a furnace, reduce timber to its lowest state (heat energy by burning) and then claim to be recycling. Which it is, in a stupid kind of way. There are plenty of these sorts of proposals around the traps, and they all rely on massive capital investment and equally massive quantities of timber waste to pay it off. What they don't rely upon is intelligence; timber in the form of energy needs no intelligence to produce or sell or manage.
The clever solution for timber looks at the unique circumstances, and so can only be told in a particular context. I will refer to a facility that I had some part in establishing - the Hazelmere Timber Recycling Facility run by the Eastern Metropolitan Regional Council (EMRC). This facility started by looking at feedstock - how much is there? It then looked at markets for timber products, ranging across the sweep of high value, low volume markets (recycling timber back into structures, or art or something similar) to low value, high volume (energy). What emerged in the Perth context is two markets. Particle board manufacture for a high value wood chip, and bedding for broiler sheds for a lower value sawdust.
This worked for the two components because they had local markets. Wood chip had a Laminex particle board plant within 200 km of Perth (Dardanup) backloading trucks hauling virgin chip to the Laminex MDF plant in Perth (since closed). Laminex needed to diversify its wood chip supply from forest sourced product, and was a key partner. Saw dust supply for bedding also grew out of problems confronted by local broiler growers near Hazelmere in sourcing saw dust from sawmills in the south west of WA.
With the markets there, and reasonable fees able to be set for waste suppliers, it was then a matter of gently growing the business from a small nucleus to what is now a large undertaking. All the while, large investment was deferred until confidence could be built around the viability of the investment. This meant enough feedstock at the right price producing the right product for the market. Each needed, and will continue to need, tweaking.
The current operations work here. Pricing is such that an array of waste collection business have sprung up to source waste timber for the plant, the product able to marketed is well enough understood that a large investment (>$1m) in fixed plant can be sustained, and the EMRC justly earns kudos for the project.
This particular solution will not work elsewhere. Upcycling requires intelligence, it requires understanding and it requires the courage to let opportunities unfold. None of those attributes follow from copying the final outcome.
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