As CEO of Clynk, the bottle-and-can-redemption business recognizable to anyone in Maine who shops at Hannaford grocery stores, Clayton Kyle may be in the business of recycling—but his specialty is in growing businesses.
Before he acquired Clynk’s underlying technology out of a Biddeford garage in 2004, Kyle didn’t know anything about the business of recycling or bottle-and-can redemption. He just knew how to spot an opportunity and build a business to capitalize on that market need. Before Clynk, Kyle had acquired and grew a company that manufactured casino chips, and co-founded another that manufactured industrial insulation.
Under Kyle’s leadership, South Portland-based Clynk has evolved from a garage-based technology to a profitable business with 49 locations in Maine (at every Hannaford store in the state) and more than $6 million in revenue in 2016. And it’s growing. Revenue will be closer to $10 million this year thanks to an expansion announced last summer that will see Clynk eventually set up operations at 51 of Hannaford’s stores in New York state, according to Kyle.
In the interview, Kyle, who will be 65 in March, shares his experiences as both an entrepreneur and an investor (he previously was a partner at North Atlantic Capital), discusses the importance of finding smart money, and leaves open the door to the chance his entrepreneurial nature will lead him to launch another company. As always, this interview was edited for clarity and length.
Maine Startups Insider: Tell me a bit about your entrepreneurial background. Where did your entrepreneurial journey begin?
Kyle: Well, it’s pretty straightforward in my case. I went to college, went into advertising for a while. Then I went to business school, and after business school worked at HBO in New York City for a while. You know, a pretty traditional trajectory.
About six years out of business school, my wife and I started thinking about living and raising our kids outside of the city and basically said we’d like to live differently. And that included me taking more control over my business life. I felt having done the Fortune 500 thing and seen that world I felt that I would be better at running and operating a business myself. And so it was really a desire to change the trajectory of my career and the feeling that I could find something to wrap my hands around and manage would be more enjoyable and something I could be more passionate about. So long story short, I bought part of a small business in Maine. And we moved up here and that sort of started me on a path of entrepreneurial adventures that I’ve really enjoyed. The fact is, we got to Maine—we had a couple of young kids at the time—and maybe three or four months after we moved here we said it was the smartest thing we ever did. Great place to live if you can make a living.
What was that small business you bought?
It was a manufacturing company that was in Windham, Maine, that made gaming chips for the casino industry. Eventually I sold my interest in that. Then I joined North Atlantic Capital, which is a venture capital firm [in Portland]. I really got a great education in running businesses as a venture investor primarily focused in northern New England. So we did a couple deals in Maine. We had a bunch of investors from Maine and it was just a great way to get linked in with the entrepreneurial community. Somewhere along that time I joined the board of the Small Enterprise Growth Fund, which is now the Maine Venture Fund. Anyway, the sequence of events got me really involved in small businesses in Maine and eventually I became a partner in another startup company called Hunter Panels [in Portland].
Hunter was a company that came out of the rigid-foam insulation business. It sells rigid foam for low-sloped roofs. It sounds pretty technical, but basically what it is is insulation that goes on big factories, not on buildings that have traditional steep roofs. Low-sloping roofs have a different kind of weight bearing and insulation need. Hunters was formed when there was consolidation in that business. There were only a few players in the country who made this kind of material and my partner was active in that business and when her business was sold, she approached me and said: ‘I know enough people in this business and I know that they want a choice of supplier, so if we start a business that makes this foam we will get a part of the market just because everybody wants a choice.’ So we formed Hunter Panels and eventually sold it to a public company that was one of our customers. And that sort of got me in the trajectory. I then was sort of in the business of looking at and buying into small businesses. I formed a private equity company with two partners and a private investor family and we bought three businesses in Maine. One of which ended up being Clynk.
Was Clynk in its current form when you acquired it?
No. It was in a garage in Biddeford. The technology was in its infancy. And we acquired the technology to basically try to automate the counting and the identification of the bottles in the bottle bill [which is a reference to the Maine law that incentivizes recycling by offering consumers a refund for each can and bottle they return to a redemption center].
So some inventor in Biddeford was already trying to figure out how to simplify the bottle redemption industry, and you got wind of it and acquired the technology?
That’s correct. The original thinking was that it would automate redemption centers. Rather than having employees handling those bottles when people came to drop them off, it would be a machine that would do it. But the machine was going to be too expensive for most small-size redemption centers to afford. So we thought if you aggregated all the bottles in a big redemption center and a bunch of machines and you ran them 14 hours a day, seven days a week, then the cost of the machine could be amortized over millions and millions of bottles and it might work. So that’s how we changed the concept after we got ahold of the technology. And we’re now on the third iteration of that equipment.
Tell me about how you went about taking Clynk from garage to successful business. After you bought the technology, what was your next step? Was it finding funding? Was it branding? Was it customer acquisition? Take me through the steps.
Well, because I had come up in the venture capital world, and my partners also had experience there, we were pretty well put together financially. We understood the risks involved in startup businesses and knew that you always had to have a lot more capital, and access to even more, before you started. So we were actually pretty good at that, but our first step was we had to find a partner who was willing to help us experiment with this idea. We were really lucky that Hannaford was willing to take a shot and agreed to do a test in one of its stores to see how it worked. So we opened the first Clynk location in 2006 in the Scarborough Hannaford and basically just tried it out. We didn’t have any economies of scale. We didn’t really have all the equipment that we needed. But we needed to see what the consumer did. And we needed to have enough money to stumble around and make mistakes, but present the consumer with a solution and see whether that really rang a bell with them. And it did.
Your business model is interesting. Clynk has, and correct me if I’m wrong, three different customers. You have Hannaford, which is not paying you from what I understand but sees offering Clynk services as a way to draw customers to their stores. You have the consumer who drops off their bags of bottles at Clynk locations, but is not really generating any revenue for you besides paying for the bags. The revenue is coming from the third customer: the beverage distributors. So it seems to me a really interesting business model because the people you are marketing to are not the people who are generating your revenue. Does that create any specific challenges?
Well I congratulate you because most people don’t understand how complicated and strange this relationship is in the bottle bill. So yeah we exist because it’s legislated. The beverage distributors are paying for the bottles. They pay you because—and this is a little bit of an exaggeration—because they have gun to their heads under the law that they have to, not because they value what you do. So you have your customer who is shelling out the most amount of money who really doesn’t wake up every morning say “Boy, I am really glad there is a bottle bill in Maine.” [Clynk passes on the five-cent-per-container deposit to consumers, but its revenue is generated from a processing fee it charges the beverage distributors.]
Now I think that’s changing because I think more and more distributors understand that people like the idea of bottles being recycled. They think that’s a good thing. But, in general, it’s an extra cost for the beverage companies in states that have bottle bills. And they in general resist government instituting those kinds of programs regardless of the fact that where they exist they’re very popular among the people that buy their beverages. But you’re right, we have a strange sort of combination of bedfellows that make this business work. You have Hannaford who initially did pay us a small premium for supporting this business, but also provides the space and they provide labor service inside their store to move bags around. Hannaford’s reasons for doing this is primarily to offer their customers a service that their customers value and encourages them to come back to Hannaford again.
You’ve obviously grown Clynk into a successful business, you’re expanding now into New York. What did you need in terms of resources or mentorship to get to that point?
Well there certainly have been mentors and helpers along the way. You know it was a very collaborative exercise that first started with having a partner Hannaford, who really was pretty innovative in giving us a try. Let’s face it, returning bottles is not right down the middle of what groceries are focused on.
And [the Maine Technology Institute] was an important partner in helping us fund the beginning of this. I mentioned to you that we had sufficient equity, but equity is expensive. And having intermediary funds between the bank and the equity that MTI represents, especially when the banks aren’t really ready to take a chance with you, was absolutely critical in helping us get the momentum we needed to be successful.
Speaking of raising capital. Given that you have been both a founder and an the investor, could you share some advice for startup founders in Maine who may be thinking about trying to attract quality capital, not just from Maine sources but even attract interest from investors outside of Maine?
It’s tough in Maine because professional equity investors, institutional equity investors, don’t generally get smaller. If anything the industry continually wants to take bigger and bigger bites because it’s as much work to put $500,000 to work as it is to put $5 million to work. You still you got to do all the same amount of due diligence. So it’s a little bit challenging in a market like Maine where there aren’t frequently large opportunities that represent multi-million dollar first round investments from institutional investors that you know team up from across the country and everybody puts in $2 million and you have a $10 million raise.
In Maine it tends to be a lot more bootstrapping, just because if you are going to raise a half a million dollars, you might be able to do it with family and friends and not even need a professional institution. So there are entities that provide risk capital in Maine for smaller groups, CEI and MTI are examples. But generally it is a little more complex in Maine if the scale is going to be at the traditional Maine business scale. It doesn’t generally represent something that somebody is going to cross the border from Massachusetts and invest in. It’s something that can be cobbled together, and obviously constantly is cobbled together. But it tends to be a little bit more of a cobble than an institutional deal in Maine.
Do you see that changing? I think it’s safe to say there is more activity in Maine’s startup community and more founders who are not just thinking about serving a Maine market, but are thinking much bigger and as a result are hoping to attract angel investors from Boston or VCs elsewhere. Do you have any thoughts on that? Do you see the quality of deals in Maine potentially increasing?
Well I’ve been out of the traditional investor business and running this business more directly for several years now. But you can certainly say that information flows more swiftly today than it ever has. Maine’s challenge I think is partly been that a critical mass of opportunities is limited by a population. There are not a lot of people in Maine.
So the fishing around, the prospecting for deals in Maine was historically, like any other market, driven by numbers. But now, you’re right. I believe that information flows so quickly that it doesn’t matter if a good idea is coming from a small town or the middle of the big city. I think capital is more fluid than ever, as are ideas. I think what’s missing in Maine is we haven’t had the years and years of entrepreneurial experience and success at a relatively visible scale. We don’t have a number of highly successful track records that can be marketed into the second and third and fourth idea.
That’s coming, but every investor likes to see somebody who’s been battle scarred and learned a few things. And in order to do that you’ve got to bruise your knees a few times and be involved in startups and deals. And so you have a little bit of a chicken-and-a-egg problem. But I think Maine like everybody else, any other place that’s got good entrepreneurial attitudes. which I absolutely believe Maine does, that’s changing. But as an investor, I’d like to see somebody who has seen fire and rain and that means that they have done some of this before. Maine needs to keep building its velocity in that area.
Alright, back to your experience as an entrepreneur and Clynk. Can you think back to a specific challenge you faced and how you overcame it?
Sure. At one time, Clynk’s model was to provide labor in the Hannaford stores. In the original stores where we opened, we had a person in the store with a service desk and we would hand count up to, I think it was 200 containers, just like a redemption center, if you didn’t want to use our bag-drop system. And we found that was hugely expensive and not very efficient. So as we worked with Hannaford and evolved the model, we realized that really most of the people were using our bag-drop system, they didn’t need a human being, and it was just too expensive to support that side of our service. So we got rid of it. And we just announced that, you know, henceforth we’re going to just offer the bag-drop system.
We had already built a relationship with the community and some people objected to that and it got back to the Department of Agriculture, which at that time oversaw the bottle bill in Maine, and they suddenly said we were in violation of the bottle bill because we didn’t offer a way for people to get their money right away. So we had a meeting with the governor and they said you know we’re going to have to shut this down because it isn’t really what you said it was going to be and you’ve changed it and we don’t think it fits the law.
So it was one of those things where you had to scramble with your legislators and get people that could spokespeople for your business and explain, look, people have hundreds of choices in Maine for redemption option. This is just one. And eventually we convinced the department not to revoke our license. But it was sort of a deep-inhale moment when we were on television as violating the spirit of the bottle bill and close to being closed down. It was one of those things where I think the marketplace spoke. Hannaford was happy, our customers in general were happy. Yes there were some people who had objected to losing that service, but by and large the overall design of the service what most people liked about it was what was going to continue forward and eventually that argument went out. It was a scary moment.
Did you draw any general lessons from that experience, maybe about how a startup should navigate regulatory issues, that has changed the way you operate?
Yeah, I think we have worked very hard to educate the legislators about what we do and how we do it. And frankly we’ve worked really hard with our partners in this business, meaning that beverage distributors, who as I mentioned aren’t always in favor of the bottle bill. But I think they see us as a good partner in a process that is here to stay in Maine. And I think they feel that because we put a premium on accuracy and customer service that we’ve developed a system that is very efficient for the customer, is relatively more efficient for the distributor. And so we’ve worked hard at making sure that the players that are involved in this thing understand what we do well and see it in that light when we come up against things we may not all agree.
You announced last summer that you were expanding to New York. Is this Clynk’s first attempt to expand outside of Maine?
It is our first physical expansion. We have a license agreement with a company in the state of Oregon that operates a bottle-drop system out there. We have an American patent on this process. We are in conversations in other markets to do the same sort of licensing, but right now we’re physically processing only in Maine and New York.
Tell me about your thought process in determining the best strategy to expand? Obviously Hannaford, given who its owner is, has a much bigger footprint than just Maine and New York, so how did you weigh the pros and cons of expanding? And is there a reason you didn’t try expanding sooner?
We had a lot of things to invent to get this right. As I mentioned, we are three generations beyond the equipment we started with in Maine. And many other parts of our model we had to figure out before we were ready to do this in other markets. By the same token the bottle bill is different in every market where it exists—and that only exists in 10 states. So for example there is no bottle bill in New Hampshire, so there is no opportunity for us to do business there under our current design.
We do have an agreement to expand into Massachusetts with Hannaford, although they don’t have as many stores there as they do in Maine and New York. But this has been a process of both Hannaford and Clynk learning how to execute. And we were careful not to get too far ahead of ourselves in expansion before we really nail this down. And then as I say the economics and the actual physical bill itself, what’s included in the bill, is different in each state. So your model has to be relatively similar but different enough so it meets the demands of each marketplace. So it isn’t really a plug-and-play like it might seem.
Yeah, that’s true. It’s again another unique situation that probably a lot of other startup founders would not face when considering scaling their business. Well, given those restrictions, are there any larger goals for your business that you’re working towards? What do you expect Clynk will look like in five years?
I think that you ask the most logical question. If you haven’t expanded with Hannaford, what’s going on? So we knew we needed to get this model right and we needed to demonstrate to the market that Hannaford was a satisfied partner and saw the legs that this concept had. So we needed to be able to say, ‘Yes, we were in multiple markets with Hannaford.’ That’s been our objective and now that we’ve met that our goal is to continue to do what we’ve been doing in bottle-bill states with other grocery partners.
So in Maine, for example, we have an exclusive with Hannaford. We will only do business in Maine with Hannaford. In these markets, it’s a geographic exclusive. So we will only do business with Hannaford in these markets where Hannaford has a footprint, but in western New York or down further on Long Island, we can do business with grocery chains down there. And of course in other bottle-bill states, we would be free to do business. So that’s now the focus for us. We would like to continue to grow our business with other partners.
So, is it crazy to think that in five years Clynk will be in California and Michigan?
Not at all. I don’t think it’s crazy. We would love to make that happen.
How about your future goals as an entrepreneur? You’ve bounced around and had a couple of successful companies in very different markets. Now that you’ve grown Clynk way past the startup phase, I’m wondering if you’re thinking about an exit strategy and have plans to go off and start another company.
It’s a fair question. I really enjoy this business. There’s been so much to learn and we’ve been breaking ground in ways that has really been fun. So even though the business is 10 years old, there’s a startup quality feel to it all the time still for me. You know I don’t know. Is this the last stop? I don’t know. I mean my biological calendar is going to have something to say about that, of course. But you know we’ve learned so much about the environmental movement and the handling of waste. It’s like the Wild West in this country. So whether we stay right down the middle of the bottle bill, or whether we—meaning Clynk or me and my investor group—get involved in other environmental and waste-related businesses, that’s a possibility just because we’ve learned so much. There are huge challenges out there, which are also huge opportunities. And I think our business that integrates the retailer, the manufacturer and the consumer in a way that solves an environmental problem. I get that there were sort of forced together by a law but the fact is that wheel spins pretty quickly today because all the players in the circle see the value of it. There’s no question that consumers today value the environmental part of the bottle bill much more than they did when it was first started. So they sort of take how the consumer relates to doing the right environmental thing, the need for industry to find environmental solutions, and when you put those together in a retail environment how everybody wins. That’s a pretty interesting new formula for businesses that is a new landscape in the waste-management business. That’s a long-winded way to say it ain’t over ‘til it’s over.
What advice would you offer an entrepreneur who is thinking about launching a startup?
I would say a partner that brings a good perspective to your business is much more valuable than a partner that brings just money. I mean, money is obviously what drives so many young entrepreneurs and chasing that money is pretty hard not to get consumed by. But finding a partner that really is a valuable partner is so much more important than finding just the money. It’s very unusual that you don’t hit a rough patch somewhere in your entrepreneurial adventure. And if you have the kind of partner that you’ve developed not only a mutual respect, but you can depend on to be supportive when times are tough, you can’t buy the value of that. So it’s hard to say, ‘Don’t take the money. The person is not the right person.’ We all know that money talks, but you have to value the relationship and put the value of the relationship in its proper perspective.