5 Principles of a sustainable business model
03 March 2023
A business model is the framework for how a company creates, delivers and captures value. Unlike traditional business models that focus on profit, sustainable business models are based on sustainable development principles. Business models framed within sustainability can help to solve ecological and social challenges whilst still capturing value.
Increases in sustainable regulations and changes in customer purchasing behaviour have led to sustainable business models becoming a tool for competitive advantage. By making your business model more sustainable, it gives you an opportunity to assess business performance, reduce costs and increase efficiency: boosting profits.
How to create a sustainable business model
1. Make sustainability a core business value
When designing or reviewing a business model, it’s essential to incorporate all aspects of sustainability (social, economic and environmental) into your business operation. By making sustainability a key goal, you will have the starting point to visualise your value proposition and market segment, which will help to build your business case. Understanding the sustainability values you want to pursue will help define your business' overall goal and shape the company values that will bring employees on board the sustainable journey.
2. Consider the value chain
A value chain refers to the consecutive steps that a business takes to provide a service or product, including everything from initial concepts to product delivery. A sustainable business model needs to evaluate the value chain within which the business is operating. Businesses should ensure responsible practises are embedded within their own company as well as any third-party vendors or suppliers. Reviewing the whole value chain will help to improve product quality and profit margins, as well as enhance the environmental and social impact of your business.
3. Engage stakeholders
It is important to involve internal and external stakeholders in the process of developing and implementing a sustainable business model. By engaging with stakeholders, including employees and customers, you’ll gain an understanding of their views and expectations. Taking into consideration the voices of relevant internal and external stakeholders while developing a sustainable business model will help to highlight new opportunities for business innovation as well as enhance employee engagement and company reputation.
4. Evaluate Technology
With technology becoming more accessible, business owners can use new and emerging technologies to streamline processes and make business models more sustainable. From AI and cloud computing to renewable energy and electric vehicles, emerging technologies can improve how we communicate with customers and suppliers, manage waste and reduce our carbon footprint. By evaluating technological processes, businesses can make their supply chains greener as well as more efficient.
Tip: It’s not just on-premise businesses that need to manage their environmental impact; when looking at digital suppliers or SaaS products, hold them to the same high ethical and environmental standards as bricks-and-mortar companies.
5. Explore sustainable business model examples
When designing your own sustainable business model, it’s helpful to research examples of existing businesses for inspiration. Some business models aim to maximise material and energy, and create value from waste by reusing, repairing or remaking. For example, Too Good to Go has incorporated a marketplace business model where cafes, restaurants and supermarkets can sell surplus food via an app which would otherwise go to waste.
Other companies have implemented a circular business model where the focus is on creating products with long life using materials that can be fully harvested. Philips Lighting for Circularity products use components that are easily upgradable and serviceable to prolong the shelf life of their units.
Some sustainable business models aim to fulfil a specific social mission, such as offering training and high-quality employment opportunities. For example, Radiant Cleaners employs a workforce who have previously faced barriers to employment. Many of Radiant Cleaners’ employees were long-term unemployed, and have faced challenges such as homelessness, domestic abuse and drug addiction.
By researching existing sustainable business models, you will learn more about revenue streams, essential resources, partners and cost structure which will help to inform your own business model.
Above everything, when designing or reviewing your business model, remember that sustainability is about maximising societal and environmental benefits rather than just prioritising profitability. That is the best guide for your task: It's not about changing the world alone but about joining the mission.
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