how to make more money by selling less: the power of circular business models

The weather is rarely out of the news. Wildfires in southern Europe, floods in Pakistan, hurricanes in the US, freak hailstorms in Germany and Mexico City, extreme heatwaves in the UK. And that’s just 2022.

The rapidly changing climate impacts us all. From human health to climate refugees, from the food we need to grow to the declining wildlife we need to protect. If we don’t collectively act fast to take care of our planet, it will no longer be able to take care of us.

We know that reducing greenhouse gases can put the brakes on climate breakdown. But did you know that 45% of greenhouse gas emissions are down to production? To make a meaningful impact on the climate emergency, we need to produce less stuff. And, surprisingly, this can be a driver for revenue growth, benefitting organisations, individuals, and the planet.

We have partnered with fellow B Corp QSA Partners to help our clients embrace the circular economy and transform their operating models, putting sustainability at the forefront. In a previous article we explored how organisations can use the triple bottom line strategy map to kickstart their sustainability journey. In this article, we take a step back and look at the big picture. We ask what the circular economy is and how businesses can embrace it, selling less stuff for more profit and for the benefit of all stakeholders – customers, employees, suppliers, communities, shareholders and the planet we all depend on for survival.

We chat to James Clement, Egremont Group COO, and Gerrard Fisher, a partner at QSA Partners. A world leader in creating circular business models, Gerrard has helped companies including Samsung, Argos and IKEA to find highly profitable, more sustainable ways of doing business.

Gerrard, can you start by defining the circular economy?

The circular economy is about making the most of the valuable products we make so that they last as long as possible and we maximise their utilisation. Ideally, we buy less stuff – but if we do have to buy something then we ‘sweat the asset’ and get the most value, potentially even sharing it with others. At the end of the product’s life, we can recycle it and recover the essential materials it contains.

James, how do you believe our clients can embrace the circular economy – and how can we help them?

It all starts with a vision. What is it that you want to do, for what purpose and for whose benefit? Then, we need to think bigger, laterally, differently. I think this is where our partnership with QSA really comes in. We work with QSA to help you define the strategic business model, and then our Egremont team brings that to life through the operating model. To embrace the circular economy, we need to view the current operating model through a different lens, seeing the art of the possible, bringing innovative thinking to the status quo – reframing a product solution as a service solution for example. A great idea is nothing without a means to implement it, so once you know what you want to do, you then need to apply the same energy and level of thinking to how you make it happen. This is where the real power of change lies: setting the direction, aligning people behind the strategy, empowering and upskilling teams, and tracking progress.

Gerrard, you’ve said before that a company can make more money by producing less stuff. Is this true?

Yes, with the right perspective on the value in the business model it’s possible to capture more value for yourself and share it with your clients. For example, in the conventional car market the manufacturers typically only get about a third of the total value of owning and operating a car. When they move to subscription and service models they’re providing more value to the customer – maintenance, fuel, insurance, etc. and they can package this more cheaply than individual suppliers can.

For an organisation that’s just starting to think about how they can embrace the circular economy, where would you advise them to start?

Gerrard: We always start by exploring their customers’ real needs. Doing this helps to identify the places where we can provide more value and monetise it. From there, we can work out the best business model to use (or the best option to start with, and how to develop from there).

James: Like Gerrard, we always advise our clients to start with the customer and work back. Once we have agreed on the best way to provide that customer need via a potentially radically different solution, it comes back to defining the vision, setting the strategy, getting leadership alignment, and reviewing the operating model. Understanding what needs to change throughout the organisation whether that be process, culture, IT etc is essential if you are going to bring your ideas to life.

And for organisations that are already on their sustainability journey, with clear targets and plans, what else can they do?

Gerrard: Work out whether you can decouple the amount of stuff you make from the amount of income you can earn. If you can do that, you’re well on the way to helping tackle climate change. If not, you’re likely to be stuck with trying to ‘doing less bad’ instead of genuinely ‘doing good’.

James: Challenge yourself to ask, ‘What if…’ and see where it takes you. Have you gone far enough? And then, test whether your sustainability goals are more than words on a strategy document. How do you know you can achieve your goals? Does everyone in the organisation know how they contribute to achieving your sustainability goals and/or are there competing metrics which are hindering progress? The key here is to embed sustainability principles into the fabric of the organisation so it’s no longer an afterthought but a trigger that feeds growth and operational excellence concurrently. Don’t assume you can get where you need to be within the confines of your existing operating model.

Has any organisation/individual inspired you in this space?

Gerrard: My favourite is a company called Bandvulc, who we helped to unlock the bigger value picture and re-engineer their tyre re-tread business. They now sell ‘miles of use’ to customers and ensure that tyres on clients’ trucks are always running and fuel-efficient. They’re a massive success in the commercial fleet tyre market now.

James: The growth in sharing networks has been wonderful to see: how small everyday things that reduce consumption can save you money as an individual and reduce environmental impact, all moving away from the model of ownership. For example, city bike hire, and village WhatsApp groups sharing power tools. I think the pandemic kickstarted many new initiatives out of necessity and the principles are here to stay.

Gerrard and James, what have you learned from each other/what most excites you?

Gerrard: Sometimes we find clients explore new business models with us but run out of steam or fail to make the most of the potential changes. Egremont’s ability to hardwire these changes into organisations and nurture them for growth is incredibly exciting for us.

James: We’re really excited about QSA’s ability to bring their experience and knowledge of the circular economy to help our clients innovate and explore the art of the possible. As I said earlier, the power of this partnership is the combination of strategic business model thinking with operating model transformation: you need both to really make an impact. It’s also extremely energising to work with partners and clients who are together focused on building a better world.

And, finally, if you could persuade Jacob Rees-Mogg to do one thing to address energy production and the cost of living, what would it be?

Gerrard: Jake mate, making more stuff inefficiently and wasting energy is so last millennium. British businesses must prepare themselves for the age of ultra-efficiency. That starts with using less energy (maybe by insulating?) and pushing for more onshore renewable generation – the cheapest energy there is!

James: keep your focus on renewables and energy reduction as the platform for the future. We want a circular economy, not circular thinking that takes us back to square one on energy production.

If you’d like to chat to us about how we can help you to achieve your sustainability goals, please get in touch.

For a fun look at what blocks innovation in an organisation, take a look at our How to Kill Innovation video.