Entrepreneurs for Impact (EFI) Podcast: Transcripts
#107:
$200M for Turning Organic Waste into Profitable — Joseph McMillin, CEO of Atlas Organics
Chris Wedding:
All right, Joseph McMillin, Co-founder and CEO of Atlas Organics, welcome to the podcast, man.
Joseph McMillin:
Thanks for having me.
Chris Wedding:
I think folks would probably be curious to jump right into the 200-million-dollar transaction announced between you guys and Generate Capital last, I think December, but we're not. We're not going to go there first. Let's go to, oh gosh, how many summers ago? Two summers ago, maybe you decided to find an old school bus, fix it up, including a toilet, many dogs, a baby, wife, and drive across the country. So, tell us that personal interest story first, Joseph.
04:46
Joseph McMillin:
Yeah, so before COVID started, right before we had our son, me and my wife decided to purchase a school bus from the Lexington County School District for a whopping total of $1,800, including all the fees.
Chris Wedding:
Oh, my God.
Joseph McMillin:
When I went to look at it, it was like, I can sell the tires off of this for more than I'm paying for it, so it seems like an all-right purchase. Brought that back to the house, really piddled with it for a couple of months with the thought that at some point we'd turn it into a school lease slowly over two years. We had our son Asher and then two weeks after he was born, we had the COVID lockdown, which led to a bunch of things where my wife ended up planning to start her own business because we were having to stay home, both of us with Asher.
One night we were sitting at the dinner table in April or May, and we had probably a crazy idea at the time to let's say speedy-ate the project. Basically, over the whole summer went heads down every night, every weekend, working on the bus. Trying to get it finished before September so that we could basically get in the bus for five months prior to Caroline starting her business, which was slated to open in February 21 and drive it all the way across the country.
So, after all that, we were a few weeks delayed. Most things finished on the bus, but basically packed up and we drove all the way to Seattle and back over the course of about eight weeks. Yeah, it was just as miserable and as exciting as you could imagine it to be. We were driving in the middle of winter, we didn't have running heat, so with a six-month-old and four dogs, it was an interesting experience, I'll leave it at that.
Chris Wedding:
Well, I think the audience was almost intrigued to try it themselves until the last part where you mentioned multiple pets and lacking heat. Keeping it real. There’s a saying which comes to mind, it's usually meant for entrepreneurship. It's like, entrepreneurs do what most others won't to have what few others can and I think the school bus is an example. Who thinks to go buy a school bus, first of all, then go heads down, fixing it up to drive it across the country? What was maybe a highlight and a low light of the school bus journey? Then we'll hop back into business.
Joseph McMillin:
I will say the third day was probably the most devastating kind of day. We didn't realize how cold it was going to be. There was a big cold snap early in the year and so that was already weighing on us a little bit. We were driving through, I can't even remember the state, somewhere in the Midwest and go to pull off the interstate and the entire HVAC unit volt fell off the back. It had pretty unstable brackets, so we mounted it to the back deck. We're just dragging our mini split down the highway, pull over and have somebody roll up on the side of us sounding on the horn. I'm like, “Oh, this is just not going well.” We almost turned back at that point, but decided to keep on chugging along.
08:19
Shortly after that, probably one of the best experiences we had is we camped in the Badlands for a couple of days up on a ridge that overlooked the entire area and had all kinds of wildlife just walking by the window every day. We're out there by ourselves, very peaceful interest, a great place to just sit there and work for a couple hours and go outside and hike and have fun. So, I'd say the Badlands was definitely one of our best experiences on the trip and camping in those spots.
Chris Wedding:
What kind of wildlife visited you on the bus in the Badlands?
Joseph McMillin:
Mainly sheep, just walking by.
Chris Wedding:
The big horned, I guess.
Joseph McMillin:
Yeah, big horned just walking by, but we saw a decent amount of other wildlife while we were there. But the big horned were what kept walking around the bus and coming through once a day.
Chris Wedding:
Nice. I didn't plan this, but your story of on day three travesty and then shortly after it, just a majestic experience. The time may not sync up exactly, but it sounds a little bit like the entrepreneurial journey. Lots of reasons you could be like, “Well, shit, why am I doing this? Let's just turn around anyway, if you persist, dot, dot, dot.”
Joseph McMillin:
Yeah, no doubt. Lots of highs, lots of lows, definitely like starting a business.
Chris Wedding:
All right, and still happily married to be clear for the audience, the school bus experience.
Joseph McMillin:
We are. We might have taken some therapy after the fact for both of us from the PTSD, but yeah, still happily married.
Chris Wedding:
All right, well, I'll also say, we have been hanging out for two years in this Climate CEO Mastermind peer group, and this is the first time I've heard those stories. As I joke with you guys, it's like peeling back the people onion, always more layers. For the record, Joseph, for the record, for everyone to hear, you were person number three.
Joseph McMillin:
Who beat me? I know Blake was one, who's two?
Chris Wedding:
Yeah. So, Blake at Encore Renewable Energy and Doug, CEO at World Tree. So, for folks listening, most folks know that I have the great pleasure of running these peer groups for three dozen CEOs in the climate space like Joseph. And so, Joseph was the third person to trust that I couldn't screw it up, or at least he would see how long it took to screw it up and experimented. Anyway, shout-out to Spring Lane Capital for the -- I said Spring Lane, who's a great CEO who should be part of this group, so you should talk to Joseph. Anyway, here we are.
11:10
All right, so back to the 200-million-dollar number I referenced earlier, this press release, very large transaction with Generate Capital. When you were starting Atlas Organics, co-founding it, could you or could your investors have imagined that six, seven years later, starting a company handling organic waste from South Carolina would be executing nine figure transaction with a multi-billion-dollar fund leader in sustainable infrastructure? I mean, obviously yes, but dot, dot, dot, there's a leap of faith there for sure, right?
Joseph McMillin:
Yeah. I think that early on we all thought we could get there and then maybe after the first year, I thought maybe we weren't going to ever get there. Luckily, we were able to have some really dedicated good investors around the table with us in the early days, Atlas, that really believed in us as a founding team and stuck with us through the really, really difficult times. Then, eventually we threw ideas at the wall and something stuck after a little while and it all worked out for all of us in the end.
The early days, we were having this conversation last night with some of our early employees, it was hard to believe we'd be here when it was like three of us driving around with trucks, picking up food waste covered in it every single day. Then trying to run the growth of the business at night and early morning. So yeah, I think it was always in the back of our minds that we could get there. We didn't know exactly how or when it was going to happen, but kept driving and eventually got there.
Chris Wedding:
Well, let's go to present day. Hopefully, we'll come back to those beginnings and who some of those high-faith, high-impact investors were, but describe Atlas Organics today. What do you guys do, where, scale, et cetera?
Joseph McMillin:
So, we're an organics recycling company. We specify in composting, so we basically take yard waste, food waste, and biosolids and we basically have four ingredients when we're making compost. You've got carbon, which is typically your yard waste, nitrogen, which is your food waste and biosolids, and then oxygen and moisture or water. And so, we take our feedstocks, blend them basically 50-50 by weight, carbon and nitrogen, and then we throw them in what's called extended aerated static composting, which is mass-bag composting. It allows you to do a lot of material in a smaller footprint in a shorter amount of time. We load the material in the bays. After 45 days, we have a compost product which we sell back into the landscape agricultural and home gardening markets.
For people out there who are listening that don't exactly know what the finished product of compost is, it is a lot of times the additives that are in your top soils and other medias that you would buy off the shelf from a Home Depot or an All Landscape Supply yard. So, those are some of our big customers.
Chris Wedding:
And describe a sample project, if you will. Like how big is it? Now what does it look like? What does it sound like?
Joseph McMillin:
So, average project is probably processing somewhere in the ballpark of 75 to a hundred thousand tons per year of material on an annual basis, essentially generating that in cubic yards on the back end of product, roughly 15-20 employees on a footprint of about 12-20 acres.
15:07
A lot of our projects are contracts with municipalities where we enter public-private partnerships to build facilities for them, to allow them to execute on their waste diversion goals because organics is roughly 34% of the entire waste stream. So, for us to hit some of the ambitious diversion goals that we have across the country, whether it's state or local, municipally driven, you've got to address the organics piece.
Chris Wedding:
Maybe you’ve said it already, but just to clarify the kind of municipality or state driven, or state drivers for you-all’s business model, would those be considered regulations or are they almost like internal targets they're striving for, voluntary versus compliance, if you will?
Joseph McMillin:
It's across the board. So, in the state of South Carolina, we have just a diversion goal, but in California now you have House Bill 1383, which is requiring municipalities to divert their food waste from the landfill through regulation and also procure products made from compost facilities back into the communities. So, it really depends on what region we're in. Some states have yard waste bans, some states have food waste bans. It's kind of all across the board. The US Composting Council, if anybody is interested, you can go to their website, they have a list of states that have certain type of bans in place.
Chris Wedding:
So, you talked about in the early days picking up food waste in trucks that you were driving and your co-founders driving. Tell us how the business model changed and why.
Joseph McMillin:
When we first started, we were a clutching company. Well, in the very early days, we were a recycling company when I started it in college. It's a project we were doing single stream recycling for a lot of large corporations. They were getting mandates usually from European headquarters, if they were a European based company to hit certain or 90% diversion from landfill goals. They couldn't do that without food waste so they were like, “Sure, you can have our single stream recycling contract if you figure out what to do with our food waste.” So, we set out on a mission to figure out what to do with food waste for these larger customers and that's when I learned about the composting industry.
So, started as a hauling business and then late 2014 met my now business partner, Gary. He had been in California working for a processing company out there, moved back to South Carolina and wanted to start building infrastructure on the East Coast. We basically had an investor or not an investor at the time, a mentor that said, “I wouldn't invest in your company independently. I wouldn't invest in your company independently, but if you put it together and you have the vertical integration then I think you’ve got a business.” So, that's what we did.
Basically, we were driven into having to figure out how to process material because we were hauling it two plus hours away to get processed, which just doesn't make any sense economically. So, combined the two ideas and went out and raised some angel capital to build our first facility. We raised the capital in ‘15 and built the first facility with a public private partnership with Greenville County, South Carolina in ‘16.
18:36
Chris Wedding:
And did the contract with Greenville allow you to get normal-ish project finance dollars?
Joseph McMillin:
No. So, the project in Greenville was pretty unique. It’s driven completely off of our collection routes, so we charge an internal tip fee. There's no outside waste coming in. We process yard waste for the county, but they actually do the grinding themselves and some of the pre-processing themselves. And so, we take that material and mix it with our material.
Our first true what I would say project that allowed for project finance equity to come into play was our second facility with the city of Durham, North Carolina, which came along in 2018. We actually raised venture capital to build that site. The round was led by Closed Loop Ventures, which is part of Closed Loop Partners out in New York City. But that was really the first municipally backed contract that we had where we were building significant infrastructure.
Chris Wedding:
Got it. Okay, and if you flash forward from 2018 to today, what does project financing look like for compost facilities?
Joseph McMillin:
So, we in 2020 really started working, like you mentioned with Spring Lane on true project level equity deals and did a variety of deals with them between late 2019 and the end of 2021. We essentially built two facilities and purchased two facilities in that timeframe with them. We had a capital stack where those were leveraged projects and we were using USDA loans in conjunction with the project level equity to build out the capital stacks.
Chris Wedding:
So, USDA, for listeners, just to clarify, US Department of Agriculture, helps to subsidize or guarantee the loans or what?
Joseph McMillin:
Yeah, they were USDA guaranteed loans and we partnered with a lot of our bank on those out of Wilmington.
Chris Wedding:
Going back just a second, you mentioned in the early days you had these corporations, sometimes foreign with goals of waste diversion, food waste was the hardest, but you also mentioned this started out of college for you. What do you think gave these sounds like multinational corporations’ confidence to trust someone who was 23, 24 years old?
Joseph McMillin:
I mean, I think at that point there wasn't a whole lot of other options because the main thing they were desperate.
Chris Wedding:
Right.
Joseph McMillin:
We were really the only ones to get it really figured out. That was definitely a challenge early on. I mean, still today, sometimes people don’t take us very seriously because of our age, especially playing in a very infrastructure heavy business where you've got a lot of more mature developers out there. But I think we came to them with a well laid out plan. I think they were shocked and they allowed us to go execute on it.
21:48
Chris Wedding:
Nice. You joked there were a few other options out there and there's this expression, being the one-eyed person in the land of the blind and I think that's sometimes true. If you can find that land of the blind, having just one eye makes you the best solution out there.
Now on Spring Lane, I think you mentioned building a couple sites and buying a couple of sites. I wonder if you'd talk about how you all thought slash think about acquiring existing facilities versus building new facilities, pros, cons of those strategies to scale.
Joseph McMillin:
So, our original dipping into buying facilities was mainly because we have a healthy what I call green-filled pipeline to do public-private partnerships, but we were really only able to execute on one or two a year just because of the time that it takes to nurture those relationships, deal with the procurement processes, and then build the facilities. And so, we wanted a way to expedite our growth as well as secure some end markets on the backend.
I really started to look into like, are there good merchant facilities in the market that we can acquire around of our existing assets to get leverage on the portfolio, and they speedy-ate our ramp time on our finished product sales versus having to go out and grow this market ourselves? And so, that's how we ended up in doing an M&A deal originally, just trying to figure out how to get these assets to play well off of each other once we had an anchor asset in the market.
Chris Wedding:
Yeah. Speed. You alluded to I think at least a couple of sources of revenue. So, tell us about the various sources of revenue and maybe where and why one revenue is more important than the other for these projects.
Joseph McMillin:
So, generally speaking, we have two major revenue streams. We have tip fees where people pay us to process waste and then we have product sales, which is our finished material that we sell in the backend. There's some other ancillary streams like transportation that we deal with, but I mean, at the core of the business, those are the two main ones.
How we basically break that down and look at it is, we want the tip fees to basically cover our operational expenses at the end of the day, and the compost sales are a real upside in the business. So, that's how we really divide the house up.
Chris Wedding:
Well, the tipping fees, are they something you can contract out for X number of years? How predictable or guaranteed are those? I think listeners can imagine selling the finished product, the fertilizer, if you will, that seems harder to lock down than contracts, but how much contract revenue versus spot market, if you will, is there for both those types of revenue?
24:52
Joseph McMillin:
Yeah. So, all of our Greenville facilities are no less than like a 10-year fixed term contract, your typical structure around a project finance type deal. Our backend is pretty much completely spot. We'll every once in a while, have some contracts in place, but they're not really fixed term, long-term. They might be an annual just to take X amount of product.
Then on our merchant facilities though, usually when we're doing M&A, there's not a ton of contracts out there for even the tip fees. And so, what we're looking for is really good customer diversification that no customer is making up a significant portion of the inbound tip fees, stuff of that nature.
Chris Wedding:
Yeah. Well, I hope listeners understand that, but those insights you just shared are pretty huge to have on the public-private partnership side. A, governments just move really slowly and the procurement process is really painful. So, although you would maybe like to do more business in that model just takes too long, and to have your operational expenses basically covered through 10-year contracts and somewhat predictable, I would assume, sales of the fertilizer. Or if you're buying the M&A stuff, the mergers and acquisitions, to have great diversification as the way to mitigate risks there. Tell us about some surprises. So, whatever expectation there is, either general population or even infrastructure investors versus here’s how the business really works. Describe a surprise or two, a mismatch, if you will, a gap.
Joseph McMillin:
A mismatch? A good example is, I mean, anytime that you go to paper a deal, it just never really seems to fall out exactly the way everybody planned, and you try to caveat for everything. Like with Spring Lane, whenever we started with Spring Lane, we planned on being a developer, not really an M&A shop then we ended up in the M&A world. But that's where having really good partners around the table really comes into play because we're able to say, “Okay, well, this makes so much sense for the business and this is how we're all going to get to our end goal.” If you have the right partners, then you can realign on what's really important at the end of the day.
Chris Wedding:
Yep. Speaking of Spring Lane, I know a couple of the other Mastermind members in our group, they or their team members were hanging out with you and Spring Lane at this Developer U event. How would you describe the Developer U? I was going to say training, but maybe that's the wrong phrase for it.
Joseph McMillin:
Yeah. So, unfortunately, I didn't get to stay for the whole conference, but it’s basically a conference of developers in the impact sustainability space and teaching them how to structure deals to where they can be financeable, as well as getting real world people in the room to talk about their experiences with project finance, with development, et cetera.
In the composting industry, I think that's one reason why we've been relatively successful is it's extremely important for people to just understand that, while we are in the impact space, our businesses have to make sense and be financeable at the end of the day. And so, I think that conference is really helpful in helping developers understand how to structure their businesses to achieve true impact and be lasting every time.
28:48
Chris Wedding:
Yeah. No profit, no scale perhaps is a true statement. If you were to flash forward, Joseph, pick a number, five, 10 years, describe where the organic waste processing business is in the US. How different is it, let's say, from California to South Carolina? What are the hard to solve issues still? How fragmented versus not? What do you see looking at five or 10 years?
Joseph McMillin:
I think over the next 5-10 years we're going to have somewhere between three to five emerging market players in the space, much like you do in waste and recycling. Whether the big waste companies get involved or not, I think at some point they'll be forced to. It's just going to be a question of when they decide to be innovative enough to make an acquisition in the space.
Right now, it’s still a pretty fragmented market. There’s a couple of big players in the space at this point that have grown pretty rapidly over the past 10 years, but no real leader in my opinion, or anybody who has made really a huge impact in the issues that we have. I think there's plenty of space for lots of innovative people.
Within Generate, we have a lot of assets, a lot of different technologies, all concentrated on organic waste, which is a little bit different approach, but yeah, we'll see what happens. We are seeing a lot more push from a regulatory perspective, from just incentives perspective, goals perspective, from local governments as well as state level government and a rapidly changing marketplace from a policy perspective. I think that too, we'll see over the next couple of years.
Chris Wedding:
All right. So, let's switch from the business building around Atlas Organics to you, to Joseph. Tell us about maybe two to three pieces of advice, let's say you'd give your younger self to be, pick a great adjective, happier, more effective, et cetera, either on the entrepreneurial journey or more broadly, Joseph. Look backwards, if you will.
Joseph McMillin:
A single word is probably concentrated. So, staying focused, not going down a bunch of different rabbit holes. Just try to make a dollar here and there, really finding a niche and being concentrated in your strategy.
Chris Wedding:
So, in a way, all your eggs in one basket can have good outcomes.
Joseph McMillin:
Yeah. I mean, I think pick up one or two or three things and do them well instead of pointing and doing them poorly.
Chris Wedding:
Yep. Okay. Cool. How about habits that keep you healthy, sane, focused? Tell us a few of those, Joseph.
Joseph McMillin:
I’m not doing a great job of it right now, but being disciplined, getting up early, having that morning routine before the day gets started. So many entrepreneurs live by that and I think it just helps you get in the right mindset before you kick off your day and things get crazy.
32:21
Chris Wedding:
Yeah. So, in an ideal morning where you are disciplined and you're practicing your morning routine, what is it? What does it look like?
Joseph McMillin:
4:45 wake up call, straight down or to the gym to exercise, meditation, journaling, reflection. Then from there, starting to work through emails before and responses, read memos, all that stuff before the real work day gets kicked off at 8:30 or 9:00.
Chris Wedding:
And how do you balance that routine with the rest of the family waking up?
Joseph McMillin:
It's changing for me a little bit with the two-and-a-half-year-old now, so I'm not necessarily losing, but an hour of that I'm not able to do that practice at the office where I used to go to the gym and then straight to the office to do it. Now, I carve out an hour to get Asher up, take him to school, spend some time with him in the mornings before everything gets kicked off. Maybe I need to bump my day up to 3:30 start time.
Chris Wedding:
What was it? Mark Wahlberg, I think I read somewhere, gets up to like 2.30 in the morning. That sounds like it's work in the third shift. All right, let's go to the next one here. Give us two or three recommendations on books, podcasts, tools, quotes, whatever comes to mind as resources listeners can go to next maybe.
Joseph McMillin:
One resource that we've used throughout the whole evolution of the company is the Rockefeller Habits, scaling up, bulk as a framework for thinking about your strategy, how you put in place your rhythm with your team, how you set metrics and priorities at the end of the day. So, that's been a super helpful book for us as we've grown the company. I think another thing that we've used a lot is, we use topgrading with some various other philosophies and books integrated at this point for recruiting and performance management.
Then lastly, I've heard a pretty good quote recently, chance favors the prepared mind. So, not necessarily being as goal driven, but more be in the right place so an opportunity presents itself, you can execute on it.
Chris Wedding:
Let's go back to that first one, the Rockefeller Habits, what's one or two of those that comes to mind?
Joseph McMillin:
The biggest one, we employ our rhythm, then the one-page strategic plan. It basically allows our teams to have scheduled meetings on an annual, quarterly, monthly, weekly, daily schedule so that way everybody can have their meetings and sub-blocks. Then you can spend the rest of your week actually getting work done.
Chris Wedding:
Yeah, predictability in rhythms for sure.
Joseph McMillin:
Yeah.
35:36
Chris Wedding:
On the topgrading, say more about that. I think most folks, or many folks probably haven't heard of topgrading.
Joseph McMillin:
Yeah, so topgrading is just a philosophy around how you hire people, how you also deal with performance management. I mean, the biggest part of topgrading is really getting into knowing people a little bit more than just an interview process beforehand in the shortest form. Then using competency skills and competency questions to really make sure they're a fit for your organization.
Like I said, it's not perfect. We build off of that. We've put in place some of Ray Dalio's philosophies and some other like testing, pre-hire at this point, but that's where the basis of our whole system came from.
Chris Wedding:
Yeah. Some of the listeners will recognize the name Ray Dalio for a number of reasons, but certainly he comes up on this podcast. I think the book Principles may be a good spot for some of what you're talking about among other places as well. It's really funny, Joseph, as we record this, I'm sensitive to other sounds that may show up on the podcast in the background and one of the sounds today is of crows.
Out my window, I'm looking at crows. I didn't put the lid on my giant compost bin at my backyard here and they are having a heyday with the food my kids did not eat. Hard for the course, compost podcast and crows making a guest appearance on the podcast about compost.
Joseph McMillin:
Yep, we have to try to keep the birds away. It’s not usually a huge challenge, but every once in a while.
Chris Wedding:
Well, Joseph, we're towards the part where I pass the mic back to you. Any closing advice, calls to action, the kinds of folks that you want to hear from perhaps as it relates to Atlas or Generate?
Joseph McMillin:
Yeah. The one thing that I'll say is, we couldn't do what we do without the people and so as people are thinking about growing their business, make sure you're consciously cultivating your culture, you've got the right people on the bus. I mean, at the end of the day, if you don't have good people, motivated people, people that you enjoy working with every day, then you won't be successful. I think that's in the past couple of years become extremely, extremely apparent to me as far as the business. At this point, I’m happy to talk to anybody who's interested in composting or financing a composting facility or just talking about the impact space in general.
Chris Wedding:
Yeah. I think on the culture piece, it can be easy to brush that aside as soft or qualitative or lower priority, but I think you're emphasizing it's not that, in fact, really core to maintaining the right team as you grow. For companies that are in early stages, every hire is a pretty large percentage of the full-time employment base. Well, Joseph, we'll call it there. Hey, we're rooting for the continued success of Atlas Organics and of course your partner, Generate Capital and their division upcycle. Until next time, man, see you.
39:01
Joseph McMillin:
Yeah.
Chris Wedding:
Hey, there, it's Chris again. If you want more intel on climate tech startups and investors, please join the thousands of other founders, investors, and world changers who have subscribed to our Substack newsletter at entrepreneursforimpact.com. Also, I'd really appreciate it if you took 90 seconds to leave a review on Apple Podcasts or give us a five-star rating on Spotify. This feedback is the number one way to draw more attention to the inspiring climate CEOs and investors I get to interview here. All right, until next time, keep on fighting the good fights.