Entrepreneurial alchemists compress others' trash into their cash

When Alan O'Regan and Ken Schneider went looking for ways to diversify their Golden Valley business two years ago, they made a predictable choice.

"We were looking for an under-the-radar sort of product," said Schneider, 46.

"Something unglamorous," said O'Regan, 60.

They settled on trash compactors, which only confirmed a notion I had when I introduced you to the two former 3M and Imation veterans two years ago: They have an uncanny ability to turn boring, unspectacular products into impressive piles of legal tender.

"It's the secret to our success," O'Regan said with a grin.

You think he's joshing? When I first encountered Schneider and O'Regan in mid-2006, they had recently acquired Perm-A-Store, a struggling business that made plastic storage cases with molded slots to hold various sizes of computer tapes, disks and removable hard drives. They called them "Turtle Cases."

You can't get much more unglamorous than that.

The business grossed just $980,000 in 2003, the year before Schneider and O'Regan bought it. But thanks to product additions and a growing overseas business, they've nearly tripled sales since then, to $2.7 million in 2007.

That translates to a tidy 29 percent annual growth rate.

Hiding behind that number, however, is the fact that growth has slowed from 36 percent in 2004 to 17 percent last year to a projected 11 percent this year, the result of rising storage capacity of tapes and disks that limits growth potential for the Turtle case.

Which is why the partners went looking for a business that offered a sizable market with no dominant players. The result is Rex Compactors, a company with a midsized product aimed at restaurants and institutional cafeterias.

With a footprint no larger than a candy-vending machine, the Rex compactors fit neatly into a dining room or cafeteria and generated 2007 sales of $300,000, with momentum building each month. With sales in June and July combining to top $225,000, the owners figure that 2008 sales will exceed $1 million.

"And that's just the start," said Schneider, who heads the compactor business while O'Regan remains focused on Perm-A-Store. "Our eight distributors cover only about half the country and there has been very little penetration of international markets so far."

There is one similarity between Rex and the Turtle: The main competition for the plastic cases is the cardboard box that many companies choose for data storage; the principal competition for the compactors is the often-overflowing waste bins you find at the exit of your favorite Burger King.

In short, there is so much potential that Schneider and O'Regan are undaunted by the fact that the three largest competitors in their compactor niche own about 90 percent of the existing market.

"The penetration [of the potential market] is only about 2 percent," Schneider said. "So, with a market so large and penetration so small, we figure our main challenge is just to go out and sell."

What's to trigger the shift from waste bins to compactors that cost $5,500 to $7,500?

The way Schneider figures it, the Rex compactors can reduce waste volume by 50 to 90 percent, which promises fewer trash pickups and lower costs.

And with fuel prices at high levels, fewer pickups mean fuel savings, while smaller trash volume reduces the impact on landfill space, he said.

In their quest for diversification, Schneider and O'Regan found an ad placed by a manufacturer of compactors seeking a buyer. Their plan late in 2006 was to test-drive the business with a sales and marketing agreement that included an option to buy.

But the asking price was too high. So they spent less than 15 percent of that price to develop their own compactor line, a $270,000 investment that included a patent attorney's fees to ensure that they weren't infringing on any patents.

The result is a product positioned between small kitchen units sold to consumers and the large outdoor units that require forklifts to move the compacted bales.

Their design includes easily acquired, off-the-shelf electronics that can be programmed easily by the client to control compaction pressure and frequency. The line includes a slightly larger machine that compacts and bales cardboard.

Meanwhile, O'Regan has maintained growth in the low double-digits for Perm-A-Store with product additions that include several sizes and capacities for hard-drive cases and a variety of racks, carts and cabinets for tapes and disks.

The company also has added five distributors in the Pacific region and one each in Africa and Latin America.

Its 50 national and international distributors include Sony, Imation and Hewlett Packard.

But perhaps the most important addition in terms of potential growth is a lockable container for sensitive corporate documents that O'Regan expects to grow rapidly because of recent record-retention legislation.

I love the nickname they've given it: Turtle LocDocBox.

Dick Youngblood • 612-673-4439 • yblood@startribune.com