Veteran readers will remember that I covered plastic recycling in some detail just over a year ago. Here is an update based on the progress of the Precious Plastic project probably the cheapest way small businesses can get into plastic recycling.
You have to read: Start a Plastic Recycling Company to get context and get up to speed. This update exclusively covers the Precious Plastic model.
Biggest changes in the Precious Plastic project
Last time I mentioned the “3 in 1 model”, the gist of the matter is you can operate across the entire plastic recycling value chain using the four (three or even just two Precious Plastic machines).
If you remember previously I recommended each person focus on an area, well the founder agrees with me:
You should know the process by now
Once the plastic is sorted
It is crushed into granules
The granules is then melted into filament or pellets || or the granules is pressed into a mould or pressed into a square.
That was the first generation or what they are now calling “Basic” machines (last was version 3).
The new machines are called “Pro” or version 4 and they are a bit of a game-changer as they are looking towards more heavy-duty and semi-industrial. Remember you get very large industrial, three-phase electricity machines that requires huge space and is used by large companies. Think of the Basic machines as entry-level consumer machines, and then you think of the “Pro” machines between the Basic and the large industrial machines.
Why do I say it’s a gamechanger? The margins in recycling are tiny on a per kilogram basis you need to do huge volumes to make a business or run a lot of smaller light-duty machines which need more space and more manpower.
My problem with the previous version of Precious Plastic machines was that you could see the guys behind the project were engineers and not entrepreneurs, great concept, great execution that the materials are globally available but I found the business case lacking. With version 4 there is a focus on building a sustainable business using their machines.
The best business model
When I saw the new machines launch, I was going to update this saying that my position on the business model has not changed since last time, and when I watched the video they are leaning towards that position as well. And I will articulate why I still prefer people to specialise in one part, maximum two parts of the value chain (collection/sorting & crushing or extrusion or injection moulding) instead of all three. Why did I still have this view? They are essentially different businesses:
You have vehicles to collect, facility to store, scales to weigh, maybe you buy from homeless people, maybe you have collection bins in fancy suburbs in gated communities etc. But your main job is collection and sorting.
The business model in this value chain: You collect plastic waste, sort and sell it to crushing place. When I say “sort” I mean the different types of plastics. You can make even more in this business if you can sort colours as well.
Here is where they grind the plastic bottles into granules to make them easy to store and transport.
Business model in this value chain: You sell your granules to people who will extrude and mould the granules into various products: filament, household products etc.
3. Extruding and moulding
This is where the shredded or crushed granules get turned into products. You buy it from the above.
Can you do two or even all three? Should you?
A 2-in-1 collection and crushing business. Nay or yay?
A collection business is different from a crushing business. But you thinking why I can’t have a shredder in my collection place, I mean the whole initial concept of Precious Plastic was to fit into a shipping container? A collection business can be time-consuming: sorting types and colours. Yes, you can mix colours but single colours are worth more. This will distract you from your core business.
All three: collection, shred and mould…
Risks of vertical integration in SA. Skip to ************************ to get back to plastic recycling
Let’s take a step back
When you operate across a supply chain, it is called “vertical integration” which is described as “the combination in one firm of two or more stages of production normally operated by separate firms”. The Precious Plastic machines together are a vertically integrated plastic recycling model: from collection to turning that plastic into a product. In other words, you can tell a school: give me your plastic and I will give your pupils rulers and you can make those rulers from the plastic collected from the school.
The problem with vertical integration is that it is often separate businesses. In this case: collection and sorting is a speciality, grinding is a speciality, what you do with the ground granules is a speciality whether you are making and selling 3D printing filament or plastic products. Designing, manufacturing and selling products are FAR different to collection and sorting and grinding they are completely different industries.
In South Africa vertical integration makes me very nervous it’s not impossible but to be in one industry alone is challenging, two and three? Tough, high risk and capital intensive.
Let’s take the farmer that grows products he sells that products usually to a distributor who then sells it to a retailer.
If that farmer wants to be vertically integrated he must have a farm, warehouse, trucks and a retail store. The risk to his whole business is enormous, farming is already challenging, crime, drought, now he has trucks that can break down, get attacked on the highway, his temperature-controlled warehouse needs electricity, Eskom can’t even keep the lights on in a dollhouse let alone a warehouse. And the retail store, well the workers trade union wants to strike because the union boss wants a nicer car and holiday house so his members must earn more so his commission can increase. It’s exactly like my nightmares.
In days gone by it was not unusual for companies in SA to be vertically integrated, companies in the dried fruit or canned fruit industry to own farms or have shares in farms. Those days are past, if you in the dried fruit business your main goal is to dehydrate the fruit, same for canned fruit, you must focus on canning.
Look at Yekani, backed by R1 billion in funding; now they bankrupt. They didn’t know whether they Foxconn or Apple. They wanted to be both, vertically integrated they wanted to make/assemble and sell tablets and laptops. They pissed away all that money in record time as they were meandering around instead of a having coherent strategy, R1 billion might sound a lot but it’s still only less than $70 million (USD) so it’s not really enough to build a factory to manufacture laptops and start a laptop brand with. Know where you fit into your industry’s value chain, pick a business model and focus on it, when it’s time to grow (or pivot) then you can look at others.
If you going to contract manufacture or do OEM for other companies that is one thing or if you are going to launch a laptop or tablet brand and take it to market that is another. These are completely different businesses; if it was profitable then Apple would manufacture their own devices. Ditto for Foxconn, sure they make branded motherboards and some other stuff but they don’t mess around in the consumer electronics business as their strength is in manufacturing. Take any laptop brand HP, Dell, Lenovo. Who makes their laptops? Most likely Pegatron or even Foxconn.
I know I’m kind of rambling now, it’s just that I think a 3in1 or vertically integrated plastic recycling operation in SA will be hard to grow into a big business. If you are three friends or partners and each person takes over a clearly defined responsibility and you working from the same space then great, you can even have one registered company with each holding 33.33%. But one person, even if you have staff, you need someone to manage each “division”. If you are weak in collection then you don’t have raw materials to make product, if your products aren’t selling then you don’t have petrol money to collect new plastic waste. A lot that can go wrong.
So that is my ramble over if you still want to vertically integrate knock yourself out. Regular programming will now resume…
The Pro Precious Plastic Machines
So what has changed?
There are now three heavy-duty machines so far in the pro range.
The shredder, extruder and a compression sheet press. The sheet press is the biggest change, the old compression machine is no longer “developed” in favour of a “sheet press”. To be honest, I didn’t like the old block machine, and I’m not the biggest fan of the sheet press. My problem is this: what do you do with the sheets? How can you sell it? Must it be further processed? Can it be sold as tiles?
The machine that presses has to produce a product in my opinion. If it was creating plastic poles or beams (“plastic lumber”) that you can use to make a bench with then that make sense, but a 1m x1m sheet of plastic that took 20kg of plastic to make. What do you do with that? You can’t make tiles with it; it’s too slippery unless you put some traction grooves. You would need a nice mould. That being said, a 1mx1m tile that uses 20kg of plastic is interesting if you can do something with it like convert to flooring. 20kg of plastic per square meter of “plastic flooring” is something to think about.
Here is what I would do, based on the new system:
If I can only afford one machine, and I have people within the local ecosystem that are shredding (watch the video below this one), then I will make me an extrusion machine, and make plastic poles: If you look at the poles, you can make a mould for cheap. Injection moulds will add a significant cost to your capital requirements. I would then sell those poles to other people making plastic recycled goods. I still have the choice of making pellets or filament but I can also make larger items. I would go with that machine. If I only had one choice.
If you had two choices its a bit difficult, common sense will say go for the shredder but if you have the ability to make poles then that press machine makes a bit more sense, you can create products with the poles and the press like shelving, products that sell for a premium.
Building an ecosystem
In version 4, Precious Plastic has produced a model what they call a “universe” which is a local ecosystem. Let’s say you have three people: Thabo, Jacob, Cyril, they all live in Cape Town. They each one can only afford one machine and bought into the concept of staying in their own lane. Thabo is a collector and he owns a collection vehicle and point, Jacob wants to shred and Cyril wants to make his own products: little buffalo keyrings he will sell at a market in Stellenbosch.
Anyway, they don’t know of each other: where is Thabo going to sell the plastic he collected, close by for a good price in his area? Where is Jacob going to find enough plastic to shred? Where is Cyril going to find the shredded raw material to put into his moulding machine? They currently don’t have a sustainable way. But if they were to work together they will each have a business:
Thabo collects and sorts and sells the plastic waste to Jacob
Jacob shreds the plastic waste he bought from Thabo and sells it to Cyril
Cyril’s machine melts and moulds the shredded plastic he bought from Jacob to create buffalos.
Problem solved, that is basically what a “universe” is.
The business case
In version 4 they have made their products entrepreneur-friendly, with crucial additions such as the ecosystem and starter kits etc. Their website is still a bit hard to navigate but that is fine. Here comes my main gripe: The business plan. They have added a business plan, action plan and workspace calculator to their startup kit. The business plan is a fourteen-page document, the action plan looks like their take on the “business model canvas” and then the workspace calculator is an Excel sheet with formulas to help you with your financial modelling.
I think they are over-engineering things here. Let look at their business plan:
1. Executive summary
4. Market Analysis
a. Product and Services
b. Target Groups
d. Sales Channels
a. Key Resources
b. Key Activities
c. Running Costs
6. Impact Measures
c. Income Streams
8. Legal Structure
I don’t like this format at all. It’s too traditional. Half of it can be cut out. There is no need for this long dramatic plan. A simple lean plan is suffice.
First things first: each machine will require a different business model. There is also another business model I have not covered before: having all machines and selling tickets to showcase plastic recycling. But I won’t cover that here.