What Does It Take to Start a New Recycling Business?

II get lots of calls and emails from folks who are entertaining the idea of starting a new auto salvage business. I've had this story on my to-do list for some time but saved it until now so I could see how some of the new yards that opened in 2001 and 2002 fared.

The jury is in, and it's interesting. Opening a new yard isn't nearly as hard as one might think as long as certain things are done up front. Ironically, they're the same things that current operators need to do but, most of the time, don't. Plan. Plan. Plan.

Anyway, on to the meat and potatoes. I saw two folks start new yards that failed or dramatically under performed. They didn't have plans. They thought it was as simple as just buying cars and selling parts. They opened up, had too many employees, lost their start-up money, and struggled big time. They didn't seek help, and both lost in excess of $100,000 in their small but ambitious operations. They didn't research anything, didn't have an operational or financial plan, and had no goals or benchmarks. Both of these folks balked at spending money on sophisticated help. In one of the cases, the owner was a very successful ex-counter person from this industry. (It takes much more than sales ability to succeed. In fact, the "winners" in this story, excepting one, had zero experience.

I saw four folks open new yards that were successful. None of them knew anything about the business. Some were smart; some were not as smart. Some had better attitudes than others, but all shared ambition and a healthy desire for success with varying degrees of maturity. One was only 20 years old; one was 48. All four sought help. All four had business plans, with full blown operating plans and financial targets, which included goals and benchmarks.

They started with sophisticated and refined systems and allowed them to run with very few employee. That's not a typo, no plural there (but it is bad grammar). They all got SBA loans and started with $50,000 to $75,000 of their own money. All four made a profit in the first 12 months and are doing well, although they are working hard and still drawing only modest salaries. All four spent about $5,000 developing their plans with outside help and consultation. There is nothing wrong with a small yard netting 15% to 20%, or at least $100,000. Several aspire to be bigger, several don't. (See my article earlier this year, "Is Bigger Better.")

The moral to the story? We have too much baggage. While we are wringing our hands about change and holding on to excess employees using bad systems (usually no systems) and weak or non-existent financial and operating goals, others are starting out with no baggage and doing well. It's a little like something we know intuitively very well. How many times have you said that you can't believe that your kids won't listen to you and learn from your experience? Oh no, they have to find out on their own. How many times have we said, "If I only knew then what I know now?" The new folks have to ask. They are babes. They don't question; their eager eyes wait for further instructions. If it were only that easy for us who have been doing it forever….