Don’t let the recent upside in paper recycling markets dissuade a company from focusing exclusively on that one segment of the business. That was the theme of a panel on diversifying business opportunities.
The session, titled, “Additional Market Opportunities,” was sponsored by the Paper Stock Institute, and closed out the Third Annual Paper Recycling Conference & Trade Show.
The session was moderated by David Powelson, Tri-R Systems Corp., a Colorado-based recycling operation. According to Powelson, around 86 percent of paper recyclers are engaged in some type of additional operations. These value added strategies offer a viable avenue of growth and offer an opportunity to reduce the impact of recycling business cycles and enhance return on investment.
Executives from three recycling operations discussed the ways their companies used their leverage in the paper recycling business to extend their businesses to include other opportunities.
Cory Tomczyk, president of Industrial Recyclers of Wisconsin, noted that equipment rental is an excellent opportunity to help a customer save money, and increase the recycler’s bottom line.
One of the first things Tomcyzk noted is that “garbage haulers don’t like us.” The reason is that the company, while not involved in the waste hauling, is interested in helping customers reduce the amount of material that is being disposed of. “Our goal is to gain more recyclables, increase revenue through equipment revenue, and add to our waste disposal sales.”
As an example, Tomczyk laid out the following: Rental of a compactor may cost $150 per month. A pull charge may cost $100 per pull, and the disposal fee could be around $25 per ton. Assuming that a company has five pulls at four tons each, factoring in all the costs, including a $500 landfill tipping fee, the expense for a company to dispose of its waste may be $1,150 per month.
Armed with this information, Industrial Recyclers has been able to go in to the clients and show them, through waste audits, the opportunities to save a significant amount of money.
Another opportunity for recyclers is the possibility of recycling ink jet cartridges. While this often pits traditional recyclers against OEMs and printer and ink manufacturers, this area continues to grow significantly.
While .opportunities abound, Tomcyzk said a key to diversifying and strengthening a business is to “work your customer lists.”
Kerry Getter, with Balcones Resources, noted that while his company has been diversifying its operations, one of the clearest examples his company has taken to reflect the changes in Balcones is the name of the company itself. Originally called Balcones Recycling, the company has changed its name to Balcones Resources.
Under the new structure, according to Getter, the company is aiming to diversify its revenues so the volatile paper market makes up less than 50 percent of the company’s total revenue.
The company is growing, with multiple locations throughout the Southwest.
While the company still derives a majority of its revenues from the processing and marketing of recovered fiber, the company continues to look toward reducing its reliance on paper recycling and more on ancillary businesses.
While this is a goal, Getter readily admits that with the strong uptick in markets lately it is more difficult to balance this out. However, the company has created a number of other operations that it hopes will grow in time. These include the creation of a number of other business units, including the following: Consulting Services, Equipment Sales, new products, and alternative fuels.
Reflecting on the volatility in paper markets over the past five years, expanding and extending its business outside the core business “would protect us in periods of instability,” Getter noted.
“We got involved in the transloading business. With paper mills that ship material into our market. We provided rail siding, transportation to their end users.
“We also became involved in alternative fuels, Getter added.
Among others, these are all services that have been accepted by corporate customers, he added.
To grow many of these non-recycling businesses, the company went out and recruited employees who were expert in these other disciplines. Mike Tingle, with Dataguard USA, a division of Tri-R, says that a growth area is document destruction and shredding services. While the situation with Enron has generated greater scrutiny for this segment of the business, more companies are looking for on-site document destruction and shredding firms to handle files and other important materials.
“Identifying a diversification opportunity is the easy part; it is exploiting it that is the test,” Tingle said.
“The growth of identity theft is resulting in a growing demand for shredding operations. This trend is in favor of even greater demand for shredding services. More legislation is being crafted on both the state and federal level that prohibit the release of personal documents, including financial, medical and personal.
Reflecting this trend, Tingle notes that the number of shredding contractors increased from 545 in 1999 to 675 last year, a 42 percent last year.
“What does all this mean?” Tingle queried. “There is definitely money to be earned in turning big paper into little paper.
While there are significant upsides to growing this business, the task is difficult, although it is worth it.
In closing, Tingle said that there is a common virtue of all effectively diversified companies: “They appear diversified, they act diversified, and their history only makes sense in retrospect, not in the here and now.”