Sometimes, so the saying goes, our success contains the
seeds of our destruction. At other times, a phoenix is born out
of the ashes. Both have proven to be the case in the scrap
The success of entrepreneurs who built their companies-or
companies founded by their fathers or grandfathers-attracts the
attention of larger companies, and they see control being
wrested away from them. The question is what to do next.
Some receive a financial offer too good to refuse. For
others, the offer comes at a time when they are ready to bail
out the business is strong, there are no heirs to take over the
reins and they are lured by year-round warm weather in
Some are only too happy to pack it in and leave. Others stay
on for a while and work as an employee where once they were an
owner. Some chafe under the rules of the corporate world, and
within a year or two they are no longer employed by the company
started by their impoverished immigrant grandfathers and built
into a powerful business.
For some this is fine; they agree to teach the business to
others. For others, it is a change demonstrating that "their"
company is no longer the entrepreneurial family owned and
operated company they grew up with and helped to build.
Some are content to accept this fate. They made the choice
to yield the power and decision-making when they sold the
company. Others aren't quite ready to toss in the towel,
though. They sit quietly and observe the noncompete rules
spelled out in their severance agreement-and wait.
They may not say it, but starting up a new yard and building
it into a competitor is front and center in their minds. I can
think of perhaps a half-dozen such industry members; I won't
name them, but most know who they are. And better than that,
they know their goals and how to achieve them.
A few of these displaced entrepreneurs were at the Institute
of Scrap Recycling Industries annual convention in San Diego.
They did not go away quietly, as some might have hoped. They
are ready for new challenges. They also serve as a dramatic
counterpoint to the wannabe entrepreneurs who leapt into the
scrap business in the 1990s.
Armed with money from lenders on Wall Street, these players
bought up one scrapyard after another. As I recall, the main
goal of one was to buy only scrapyards with shredders. No
consideration was given to whether it would have enough junked
vehicles and appliances to feed those shredders. When that
strategy failed, it shifted to buying up scrapyards in one
In truth, it was a house of cards built with other people's
money and it collapsed on itself.Companies that started buying
binges in 1995 and 1996 were on life support by 1998.
One, Recycling Industries, simply folded up and its yards
were shut down or sold back to the original owners by the
bankruptcy court. Philip Services Corp. had two trips through
bankruptcy court and is doing well these days. Metal Management
Inc. was in bankruptcy as well, but many of the yards that made
up its corporate family were the cream of the crop. It has
survived and thrived, and is now known as Sims Metal
Management, having merged with Australia-based Sims Group.
More often, though, success in the scrap business is
measured in slow, steady progress. One now-retired scrap
entrepreneur liked to boast that he arrived in the South aboard
a train after World War II with $40 or $50 in his pocket and
set out to make his mark in the scrap business. He did.
The details of his life are unique, but there are many
similar biographies in the scrap business. Some worked by
themselves or for another company before they saw an
opportunity and pursued it. Some failed and went back to work
for another company. Others were favored by the growth of
industries like the steel mini-mills and their dependence on
scrap to make finished steel products. Others were able to
build their businesses under less-favorable circumstances but
That success turned what was sometimes a bonanza-or-bust
business like scrap processing into a high-tech link in the
metals supply network. It was inevitable that some would be
deemed takeover targets by steel companies anxious to gain more
control over their raw materials. They went from being
scrapyards to commodity suppliers, and it was not long before
their customers longed to control them.
None of this is new to the steel industry, or other
manufacturing industries for that matter. The big integrated
steelmakers of the past bought up coal and iron ore mines. Auto
assemblers learned to make cast iron motor blocks or bought the
foundries that knew how to pour the metal and machine them.
Now, some mini-mills have scooped up the most desirable
scrap suppliers to make certain they have an assured supply of
scrap. It's not a simple make-or-buy decision; it's more a
question of survival.
These acquisitions might seem like the hallmarks of a mature
industry where there is little room for new entrants. But don't
tell that to any of those displaced entrepreneurs anxious to
get back in the game. They might just prove you wrong.