Food waste composting — planning for success
For-profit? Non-profit? For a successful composting operation, it doesn’t matter. At the bottom of the ledger, the number in the revenue column needs to equal or exceed the expense column. Otherwise, the operation will fail.
Even taxpayer-funded projects can generate revenue. There is no longer any excuse to operate a composting facility at a loss. Too many have figured out how to do composting right and still operate in the black.
And if the bottom line of an operating budget is skirting the red? Then it’s time to take a look beyond the compost pile. Multitude factors influence long-term economic viability for composting operations.
Making compost is only a beginning
Making high-quality compost is simple compared to building a successful business machine.
Ask the millions of businesses with good products who didn’t “make it.” Poor cash flow, lackluster marketing, and other pitfalls unrelated to production crash operations.
The privately-held rarely share business details in the public arena. So statisticians may not define those ambiguous “other pitfalls” for private sector operations.
But studies have examined failed non-profits. Researchers say lack of leadership and management skills plague this business class. These same factors may contribute to small business failures, too.
Non-profits have a high failure rate for new leaders who follow founders. It’s 85 percent according to one study. Lack of succession planning can trip up a for-profit, as well.
In recent years, companies with deep pockets have tossed their hats onto the compost pile. But the truth is, most new businesses face the same issues as their non-profit brethren. There are too few hands, not enough money, and debilitating experience gaps.
But it is possible to survive the difficult early years. Every successful business, no matter the size, was once a start-up. Plans that address common bumps help clumsy, error-prone start-ups stay on their feet.
Things to consider
Here is some food for thought for entrepreneurial owners:
- Support activities like accounting and marketing will take more time than compost production. Even when hiring outside firms or employees to do the actual work, an owner must oversee and track.
- When hiring specialists, either as employees or contractors, listen to them. They are the experts, after all. But know what they’re doing and why. Don’t understand accounting? Buy a book or take a class. Clueless when it comes to marketing? Search for “marketing basics” and find millions of webpages loaded with information. Read some of them. Get educated.
- Profit is not the same as a salary and is an unreliable income source for a budding entrepreneur. An active owner should pay him/herself like every other employee. Budget won’t stretch to cover everyone? Then the company doesn’t have a viable business idea. Rethink it.
- Be prepared to finance the early years outside of normal business channels. Companies with successful track records can get financing, including composting operations. But start-ups have problems. Banks seldom approve substantive loans without the pledge of personal or business assets. Savings, credit cards, and loans from family/friends are more common for start-ups.
- Large “anchor” accounts want to do business with successful, stable companies. They have hard-earned and expensive reputations to protect. A start-up company promising success is not the same as one with a good, solid track record. Plan on at least a two-year struggle before the big guys will be willing to look at you as a serious contender. In the interim, keep your nose clean and above water.
- Revenues may be lower than expected and expenses higher than projected. Be realistic, not optimistic, when developing budgets.
If taking the non-profit path
For those thinking about going the non-profit route:
- A non-profit corporation is exactly what the name implies. It is a business that does not distribute year-end profits to owners or shareholders. But a non-profit is still a business. It must maintain an income stream, keep books, and market products and services. Regulatory and other permits may be part of its business life, too.
- The ability to apply for more grants than for-profit groups is a non-profit advantage. But grants can be an unreliable crutch. Their availability can ebb and flow with the economy. They tend to be short-term and can’t provide long-term operating stability. For economic health, operate a non-profit like a for-profit. Seek experienced, successful business people to sit on the board alongside other specialists.
- Finding a pro-bono lawyer to handle IRS 501(c)(3) paperwork can cut expenses. But the entire process could take months. Don’t wait until opening day to apply.
- Sometimes, it makes more sense to partner with an established non-profit. Churches, food banks, community gardens and environmental groups are all possibilities for composters. The organization umbrellas the project. It is the official “owner.” It handles the reports and paperwork associated with grants and non-profit status. Expect to pay an on-going fee or percentage of revenues for the service. But this type of arrangement can be ideal for a manager focused on operations.
- Do not try to operate a bona fide composting operation using only volunteers. Many volunteer coordinators equate the job to herding cats. Volunteers are well-intentioned, but can be unreliable. Do not put one in charge of a mission-critical operation unless their dependability is well-proven. And it’s always a good idea to hire a certified operator to run any facility. Professional managed is a must if processing food waste or other highly-putrescible materials.
Waste management is competitive
Here’s the most important tip for composting operations that rely on income from tipping fees: prices must be competitive with the local landfill or incinerator.
A small green premium for a homeowner or low-volume commercial customer might represent only a few dollars. But for a high-volume customer, the price difference will represent thousands, if not millions.
Even in today’s environmentally-enlightened business climate, few corporations or municipalities can afford to take that big a hit.
Of course, there are always exceptions to these general rules. Congratulations if you find yourself among them — but don’t count on it when planning.
Pushing toward the food waste composting finish line
There is still plenty of room at the composting table — too much room. The industry needs to add millions of tons of annual processing capacity to divert the total volume of organic waste. Municipalities and businesses won’t meet zero waste goals without this expansion.
Many composting operations will be small start-ups established by entrepreneurs, community organizations and municipal entities. But none — large or small, indoor or outdoor, public or private — will succeed without trials and tribulations. Expect a hard run over steep terrain before the industry meets the challenge of 100 percent organics recycling.
But never forget the example of Manteo Mitchell. He was the runner from Cullowhee, N.C., who suffered a broken leg mid-race at an Olympic game. But he still finished his heat in a “more-than-respectable 46.1 seconds.”
Surely the composting industry — with thousands of collective legs — can manage to get itself over the finish line, too.
As we wrap our 3-part series focusing on building our national composting infrastructure, our thanks goes out to Mr. Mitchell for setting the example. Thanks, as well, to Cindy from Boston and Rebecca from Cleveland, whose recent questions inspired the series. We look forward to upcoming announcements about their respective projects.