Upstart organic plant-food brand TerraCycle has risen up in the past six years with no media spending, but with copious publicity that has landed it features on CBS Evening News, CNN, CNBC and many other outlets. It's also gotten more than 3,000 schools and churches to collect empty plastic pop bottles and milk cartons, which are used to package its products, paying the institutions 5 cents apiece.
Then along came Scotts, the $2.7 billion maker of Miracle-Gro, which in March sued its tiny rival ($6 million in projected 2007 sales) for trade-dress infringement and false advertising.
What a stroke of luck for TerraCycle CEO and founder Tom Szaky, a 25-year-old Princeton dropout from Hungary, who said the brand has gone to great lengths to differentiate itself from Miracle-Gro. For one thing, unlike Miracle-Gro's, TerraCycle's labels prominently proclaim all the products are made from worm poop.
TerraCycle has launched a website, SuedbyScotts.com, lampooning Scotts and its action. The site includes side-by-side comparisons of the companies' CEOs. Mr. Szaky's main perk: "Free worm poop." Scotts Chairman-CEO Jim Hagedorn's: "Personal use of company-owned aircraft valued at $555,465 last year." The site also lists 81 other lawn-and-garden products that use green-and-yellow packaging like Miracle-Gro's.
Tiny TerraCycle has won distribution in such behemoths as Wal-Mart Stores, Home Depot, Target and CVS and, despite its size, is growing at a 300% compound annual rate, which Mr. Szaky believes is what's really behind Scotts' suit.
Not so, said a Scotts spokeswoman. "This lawsuit is essentially about false advertising," she said. The suit takes issue with TerraCycle's claims of superior performance, which Scotts said are unsubstantiated and based in part on results from misusing Miracle-Gro. Also, the spokeswoman said, the TerraCycle packaging "is confusingly similar to Miracle-Gro."
Competing core competencies
With a roughly 59% market share, Scotts dominates its business like few other U.S. brands. And Mr. Szaky said documents from Scotts list litigation as one of the company's core competencies. But milking free publicity clearly is one of TerraCycle's core competencies. The Scotts lawsuit has already generated articles in The Wall Street Journal and BusinessWeek.
TerraCycle had plenty to work with even before the lawsuit. Mr. Szaky founded his company in 2003 after college buddies from Canada, "where they have more liberal rules about growing certain plants," he said, told him they had gotten great results using worm droppings as fertilizer.
He funded the company initially by winning business-plan contests, which also helped generate coverage in business media. But he turned down a $1 million prize from one contest that was contingent on dumping the worm poop in favor of more conventional organic ingredients.
TerraCycle bases its business model on recycling, from the organic compost that feeds the worms to the soda bottles and the misprinted corrugated containers they're shipped in. The exception, Mr. Szaky said, are the labels, which are made from recyclable PET.
Ten of TerraCycle's roughly 100 employees work in PR and marketing, which has been done, um, organically. "It wouldn't fit the culture" to go with an outside agency, Mr. Szaky said. What a waste that would be, after all.