New ways to create business value

In most manufacturing companies, everything evolves around selling more new stuff. It is the backbone of the business model and almost all essential numbers used to steer the business revolve around selling more new stuff. It can almost make you blind to the opportunities of another model. Models that could be more interesting business-wise and a better match to the over-consuming unsustainable world we live in.

As a regular reader of this newsletter, you will know that circular economy is a core tool that I often use when I work with companies to solve business problems while simultaneously creating a positive impact on the world. This article comes from the heart of the circular economic thinking. If you are new (ish) to the subject, I have included a brief introduction to help you see how circular economy fits in with business.

But first – spend a few minutes pondering these two questions:

1) What would happen if you made the shift from constantly trying to sell more new stuff to empowering your customers to maximize their use of the products you manufacture?

2) What would it look like and what benefits could arise from it?

It will turn value creation on its head and put the customer at the center instead of YOU. After all, the value for the customer in any decent product lies in the use of the product. Thus, this is also where the opportunity lies to support them and maximize their experience and value with your product. And as you know, monetization follows value creation.

From selling more stuff to empowering more use

We live in a world where consumption is king. The more we consume, the more we seem to thrive. However, as our planet struggles with the consequences of this lifestyle, it's becoming clear that the traditional linear economy of take-make-dispose is no longer sustainable. And customers are increasingly becoming aware of it. In fact, it is a growing pain for many consumers to deal with all the stuff they acquire. In B2B segments it is more a question of cost, of time to shift products and of a use-and-throw-away mentality. But since selling more new stuff is the backbone of manufacturing it is difficult to shift.

We also know that in many product categories, the utilization degree of products is not exhausting the potential. And furthermore, there is little support for customers that would like to get rid of, upgrade or shift a product to something else.

This is a huge untapped business opportunity. Try to focus on the opportunities of empowering more use of your products.

• What would it take?
• What services could you offer?
• What value could you create?

Take a look at the cost structure in your business across the life cycle of your product. I bet you have the majority of the cost pre-sale and that most value exchange stops at the point of sale. Look to sectors with a significant after-sales service (like many OEMs) or companies that remanufacture products for a living – it is a very different setup.

What could you do to increase the value after the point of sale? What would it take? What would it be worth to the customer? How could you monetize it? And what would it do for your environmental footprint if fewer products could deliver the same or more value?

Circular Economy

This thought process is a good example of what working in a circular business context means. It helps you to uncover new business opportunities that also contribute to making the world a better place. But allow me to unfold the concept a bit based on my 15 years of working with it.

Circular economy is a discipline with a focus on the flow and stock of objects and resources and a distinct focus on getting the most value out of the resources we use by keeping them in use or stock for as long as possible while maintaining their value and utility. We should ideally also be aiming to elevate their value to a higher level – this is often referred to as upcycling. It is a next step, or an extended version, of the work you have already done on optimizing your production processes. It is also another way of thinking about what, and how, to generate value.

Circular economy is another way of thinking about an economic system that far better matches both the fact that man exists as part of an ecosystem, not separated from it, and how we best create and deliver valuable solutions to our customers in an ever-changing world with increasing understanding of the range of the sustainability crisis we have brought ourselves and the planet into.

There are many things to say about circular economy. Many distinctions, details and models. Many dilemmas. Many cases. A lot has already been said and written and I will not try to cover it all here – just give you the essentials.

What you need to know

Circularity is the principle governing nature, and until a few generations ago, it was also the underlying concept of societies. Resources were used and then used again. In the big picture, nothing was waste. Resources came from nature, and after several cycles of use they went back to nature. Industrialization changed that and in as little as seventy-ish years, we have almost completely abandoned this way of thinking. Consequently, we now live in a very resource-inefficient world and billions of euros worth of materials are wasted every year.

If you think about it, it is difficult not to reach a conclusion that it is pretty stupid, and to perhaps even wonder what got us here. It is time to unlearn a few things and reconnect to the success formula for Homo sapiens through more than 99% of the time we have existed – but in an updated version matching today’s world. That updated version is called the circular economy. As the name indicates, it has its starting point in economic thinking and in many ways the correlation to a traditional business mindset is easy to see. In my experience it is quite easy to get businesspeople to buy into the circular business mindset once presented with it. It is a way of decoupling economic activity from the consumption of resources.

I differentiate between circular economy and circular business. The first is about working on a society (city, region, country, etc) to change the economy. The latter is about working on a specific business and utilizing the principles and thinking to develop and grow the business to flourish and impact the world in a positive way. There are several definitions of circular economy across the world. In Europe, the prevailing one is made by the Ellen MacArthur Foundation in the UK. I often build on their three core principles, but with a slight twist and some extensions, so I define it like this:

1.?Design out waste and pollution in all phases of the life cycle.

2.?Maximize value by keeping products and materials in use.

3.?Prevent degeneration and regenerate natural systems and biodiversity.

4.?Run everything on renewable energy.

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There are five disciplines with circular economy, that lend themselves to different types of business setups and problems to solve. It will take up to much space to describe them all here today. If you like to get a brief introduction to the five disciplines just let me know and I will be happy to write about them in a different newsletter.

Let me end by talking you back to the main thought here about moving from selling more stuff to empowering more use. I have borrowed this specific term from John Atcheson from The Circular Way in the UK. He is a great guy and building a very interesting circular business for textiles. If you like to hear more about that jump on my podcast tomorrow June 20 as he will be my guest on the next episode.

If you don’t follow the podcast already, just go to your favorite podcast app and search for “Green business with impact”.?