A framework to analyse Circular Businesses
Hi everyone and welcome to the seventh blog post of a Circular Victory! Last week we looked at “Change Drivers”. Change drivers are essentially the ways that change is encouraged throughout society. We have external change drivers, such as catastrophic events due to Climate Change and internal change drivers, such as individual or company efforts and changes in laws and legislations.
In this post, I’m going back to my thesis! This week, I will be explaining to all of you a framework that I developed in my thesis. The aim of the framework is to get a clear overview of a Circular business and to see whether it is Circularly and financially viable. This framework quite heavily relies on Circular business models and Circular strategies. These two components were discussed in the second and third post, so I would encourage you to go back and read/listen to those to help your understanding of this framework.
Going through the framework
The first thing to highlight when looking at the framework is the two distinct categories of questions we are posing. We are essentially analysing the business’s viability in Circularity and finances.
The first two questions clearly relate to Circularity while the third and fourth relate to financial viability. The fifth question is important for both, but is mainly aimed at Circularity.
Let’s go through the questions and see what we need to be able to answer each of them.
1. What makes product/service Circular?
This first question is absolutely essential. It gives us the opportunity to evaluate how serious the business takes Circularity. As previously mentioned, it is important that Circularity is not just a buzzword. It takes a real commitment and focus to make it work. By studying the product or service the company is offering, we can gain a great insight in their commitment to Circularity. This also serves as a first check of the viability of the business model. Is it an interesting product/service? Is there demand for the product in the market? These first questions will give us an important insight into the company’s operations.
Additionally, we are looking for evidence that Circular strategies are being employed. Remember the Circular strategies from episode 2? These strategies are the five R’s:
- Reduce
- Reuse
- Refurbish
- Repair
- Recycle
The point here is to find out what the company is doing to really employ a Circular business model. It should be clear that there is a clear commitment to Circularity, beyond just assuming the title and using the right words. By getting a clear image of what efforts the company is making, one can better judge whether they will be a good company to support.
2. Which Circular business model do they use?
In this question, we refer back to the five business models as we defined them in third blog post. We are following the Accenture model, with the following business models: Circular Inputs, Product Use Extension, Sharing Platforms, Resources Recovery and Product as a Service.
Identification of the right business model will help us to get a good overview of the business. Through identification, a lot of information about the business is exposed. A significant piece of information that is found throughout this process is the type of cashflow the company is expecting. This will help us in the next few questions as well.
Once we know the Circular strategies that a business is applying to their products/services and we have a good idea of the Circular business model they are operating in, we should have a good overview of the Circular initiatives are taking. These two questions together will also help us to thoroughly analyse the commitment of the business to Circularity.
3. Is the business model viable?
At this point, we have established whether or not the analysed business is sustainably viable. However, for a business to make a continuous positive impact, they also have to be financially viable. This will allow them to operate for years to come and to expand and improve their operations. If we have sufficiently proven that a business is sustainable, it is in everyone’s best interest to also make sure that this can be a profitable business.
Analysing whether or not a business is financially viable is outside of the scope of this podcast, but if you would like to know more, feel free to contact me at acircularvictory@gmail.com.
This balance and interchange between sustainability and profitability in a Circular Economy is one of the reasons it is such an attractive model to develop towards the future. It encourages entrepreneurship and innovation, two characteristics that will be absolutely essential to help our push to a sustainable world.
4. What risks does the business have?
In order to make sure that the business truly is viable and will have the ability to make a positive impact for years to come, we also need to analyse the risks. The risks involved in a business are highly dependent on industry, the role in the supply chain, the Circular business model that is being used and so on.
It is also important to understand that risks in the Circular Economy can be quite different from the risks we are used to in a linear economy. One example of this is the tighter collaboration throughout the supply chain. Because we are creating a closed loop system, every step along the supply chain needs to play its role to make sure the product will still be usable at the end of its lifecycle. This means that incidents can cascade through the supply chain more. This is one of the risks that needs to be analysed.
Again, an in-depth risk analysis is outside of the scope of this post, but for anyone that is interested, I would love to discuss it further through acircularvictory@gmail.com.
5. How are they informing their (potential) clients of their offering?
This might feel like a random question to analyse, but from my literature review it became clear that one of the biggest issues in the breakthrough of the Circular Economy is the lack of awareness among customers. Potential customers often misunderstand the services that are being offered and can be confused by the new payment structures and so on. And because convincing potential customers of the worth of the Circular Economy is such an essential part of making Circular models more mainstream, I have included it in this framework.
For this question, we must find out how the company is communicating to their potential clients. Are they actively participating in certain communities? How is their online presence? However, it is not only about communicating what the company does. One of the doubts users of Circular models have is about the division of responsibilities. In a linear model, the customer buys the product and is then sole owner of the product and therefore also responsible for all of its maintenance and repairs. In a Circular model, the manufacturer or vendor often remains owner of the product or at least wants it back at the end of the lifecycle. This brings confusion to the consumer about what responsibilities they have. By explicitly communicating this to the consumer, the Circular business can increase their chance of success significantly.
What will this framework show us?
Now that we have looked at all of the questions, we can see that the framework will give us a strong insight in several different aspects of a Circular business.
With the first two questions, we’ll get a good idea of the Circularity of the business. Are they really committed to being Circular or are the “greenwashing” their products? We will also learn more about the business model and get a good idea of whether it is a good and innovative idea or not.
With the next two questions, we will also learn whether or not the business is financially healthy. The questions will help to point out the long-term viability of the business and what risks it is exposed to. Having a sustainable, Circular business that is financially healthy will allow the business to make the biggest possible impact.
The last question is important towards the further development of the Circular Economy. In order for this model to gain steam, more people need to learn about it and come in contact with it. If a business is actively and correctly communicating their product/service offering, they are a business that will help to grow the Circular community.
More detailed framework
In this blog post, I have shared a basic version of the framework I developed in my thesis. If you are interested to see or discuss a more detailed version, feel free to contact me on LinkedIn at Victor Lanckriet or send an email to acircularvictory@gmail.com.
The more detailed version has better insights on financial viability as it is related to Circular businesses as well as a more detailed summary of what risks Circular business face.
