Industrial and Technical Products: 12 things to know about Circular Business Models
In order to transition to circular business models, companies need to consider multiple factors, such as product design, life cycle, business model and cash-flow. But Technical and Industrial products are complex, thus it can be daunting to understand how to rethink material usage, product longevity, and energy consumption in this context. So, if you are thinking about changing your processes or parts of it to transition towards circular business models, here are 12 points to consider:
Sustainability and circular business models are linked, but different.
These two concepts are often confounded but they drive different outcomes: Circular business models are about business. Sustainability is about improving environmental and social impacts.
Circular Economic policy and circular business models have different motivations.
Circular business models are driven by profits, not ‘waste policy’. In order to keep your business running, earning money is the priority when operating a business. Even if your aim is to make the world a better place.
Start with the Business model. Understand payback. Be ruthlessly commercial.
The circular economy is a lens with a double benefit: profit and sustainability, but it is it is important to stay close to the market.
Design for remanufacturing.
It’s like a Formula 1 pitstop: it’s all about the time it takes to get a product back ‘on the road’.
Start at the high end of the market, not with <$100 articles.
Product margin is the value to play with. It is difficult to create circular business models for lost-cost products.
Technology is an underlying driver for B2B circular business models.
The evolution of technology, such as E-commerce, IoT, product passport knowledge, asset tracking, condition monitoring and others allows new usage of products. Set up new ways to monitor and enhance product usage.
From a sustainability standpoint, re-use beats “re-whatever”, by far.
Across most product categories circular product use shows 50-90% less climate impact, acidification, materials use, water use. Even biodegradable is just ‘less bad’, not ‘more good’.
Cannibalization of your current business is often feared, but rarely an issue.
That’s because you mainly address new customer segments with circular products. They create new markets by offering good quality products in a different place. Costs also play out differently in circular business models.
Established businesses are using 3rd party solutions and discrete segments to trial their circular offers.
They experiment in a safe place and do not risk everything they have. That can also be a shortcut to more sustainable practices.
Resource optimization does not necessarily mean ‘lightweight’.
Circularity is about RIGHT-weighting to allow the product to be used the right amount of time.
Balance material usage, longevity, and energy consumption – always drive energy consumption down.
Decreasing energy consumption and using as much renewable energy as possible during production and usage is a priority, irrespective of material use and lifespan.
Overcome incentives for linear business models.
Many linear businesses have self-perpetuating incentives to remain linear – it’s essential to change these incentives to support circular business models.
For established companies, transitioning to a circular economy model can raise many questions. Are you setting up a circular business and facing these problems as well? We’d love to help, please get in touch!