Circular Business Model
Realise the importance for your business to the transition from linear to circular but have no idea where to start?
Think through your profitable transition here with this
FREE step-by-step methodology.
1. Choose a product as a start
First things first, what bothers you when you think about sustainability, or waste or pollution with regards to your industry? Does your company already have a product that can solve part or all of these matters? Regardless of whether your present answer is 'Yes' or 'No', just choose one of your products to start this thinking process.
Once you have chosen a product, identify the key pollutants or waste that your product is helping or could help to solve. For example, is it carbon emissions or material inputs (e.g. steel, chemicals, plastics) of your industry or others' industries? What about other greenhouse gas emissions, water, land or biodiversity?
The product does not have to be the eventual one that you do something about but is meant to help the thinking process. Being clear of the key pollutants you are solving also gives more focus especially when it comes to making the transition profitable.
Getting people from different departments to work on this thinking process has found to be more useful than keeping it to single departments or units because all their work should be aligned in order to fully capture the circular opportunities. E.g. the product designers, sales force, procurement officers, strategy and board need to be aligned. The easiest way to start is to first gather people in your organisation who are already passionate about the environment or climate crisis to start before drawing in others.
2. Map your value chain and billing relationships
Why? Because you need to understand where you are in the system to be able to identify who could work with you to get some idea done. More often than not, the solution lies in the ecosystem rather than within your company alone.
So figure out who is in your value chain, who supplies you, who checks the quality, who enables your final product offering to deliver on value creation. Next, think about all the other support you get from other companies like finances, investors, logistics and delivery, or even your product technology providers. Lastly, think about the other stakeholders that are related to your products and operations like the regulators, the public, the environment.
3. List the bad and the good
List out all the negative impacts that your current value chain has on the environment and climate. Then list out what is that value proposition or performance that your industry delivers to people. Why do you exist?
E.g. You exist because there are people who need light. Your products have enabled them to see in the dark. But so many light bulbs and fixtures are thrown away every year and cannot be recovered. This wastes all the energy, water and materials used to produce these products and when discarded improperly, some materials inside may cause health issues to people.
This listing exercise will help you in the next step when thinking about how your company and products can do away with all the bad you listed while delivering more of the good that comes from using your product.
4. How can you zerolise the bad and augment the good?
There basically are only three things that you could do:
ADD | REMOVE | CHANGE
E.g. Add more material to make durable products, add a product take-back system
E.g. Remove materials that cannot be separated easily from each other in your product
E.g. Change to a bio-based material or change to service-based revenue model
If you need more inspiration on what to add, remove, or change, remember that you are doing that in order to:
Design out waste and pollution so that they don't get created in the first place
Keep products and materials in use at their highest value for longer
Regenerate natural systems that sustain our lives
Also, the tighter the loop, the better. So, recycling to material components should be the last option if there are other things you can do to capture value from the product or its components.
5. Project the management finances
How does the financial projections for existing management compared to the finances after the zerolisation and/or augmentation efforts? You need to consider:
Depreciation and Amortization
Profit before Tax
Profit after Tax
It is also important to consider the financial impact of key pollutants such as payment carbon taxes or carbon credits or extended producer responsibility (EPR) charges. For example, assuming carbon prices stay the same, a company that needs for 10 million carbon credits may pay USD 200 million initially for it but after zerolisation efforts it now only needs 5 million credits and pays USD 100 million. This financial impact of the key pollutant should be accounted for.
6. Making the transition profitable
To make a positive impact on the profit before tax, you may want to consider if it can be achieved by:
Growing sales revenue by targeting customers who prefer or are mandated to consume environmentally friendly products?
Tapping into an underserved customers that has different needs and budgets?
Better cost efficiencies e.g. capturing residual values through multiple life cycles, better design needing less input materials, or supplier-vendor relationships?
Obtaining tax incentives?
Working with regulators to migrate the industry together with other industry players and eventually ban the environmentally harmful products?
Switching to green financing options?
Reducing key pollutants cost? Earning from key pollutants offsets?
Gaining economies of scale by merging efforts with other companies or acquiring companies?
Increasing customer loyalty and per customer spend on your products because your brand and products are a clear representation for what they stand for or who they want to be (e.g. Harley Davidson, Apple, Tesla, Michellin Star restaurants)?
Disclaimer: This methodology is free to be used for learning purposes without claim of intellectual property by the authors. The authors do not hold any responsibilities for the results of the use of the above methodology for any purposes.
Updated on: 16 November 2021
Circular Business Model 211116A co-authored by | Lijin Chin, ACMF Circular Economy | Lewis Chong, ACMF Private Fundraising
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*The Circular Business Association is presently in the process of being registered by the Registrar of Societies in Malaysia.