OVERVIEW
Whenever I talk with sustainability professionals I regularly hear people saying that what we really need is new technology to help us transform existing industries to be more sustainable because we usually associate an industry’s transformation with the adoption of a new technology or innovation.
But although new technologies are often major factors, they have never transformed an industry on their own. What does achieve such a transformation is a business model that can link a new technology to an emerging market need.
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- Consider the following:
Facebook is the world’s largest media company but creates no content; - Bitcoin is the world’s largest bank, with no actual cash;
- AirBNB is the world’s largest accommodation provider yet owns no real estate;
- AliBaba is world’s most valuable retailer but has no inventory of its own; and
- Uber is the world’s largest taxi company yet it owns no vehicles.
- Consider the following:
What allows these companies to achieve such large-scale transformation is not a new technology or innovation, it is the business models upon which they are built.
What is a business model
A business model is basically how a company creates value for itself while delivering products or services for its customers. Sustainable business models also capture economic, social, and environmental value for a wide range of stakeholders.
How to design a sustainable business model
Fortunately for us there is a concept that is used by millions of business professionals around the world that allows you to visualise and design changes to your existing business model to deliver scalable sustainability outcomes. It also allows you to design business models for new sustainable products and services.
This concept is called the Business Model Canvas and was developed by Dr Alexander Osterwalder.
With the nine boxes in the Business Model Canvas you can describe any company from the world’s largest to a two person startup starting working out of a garage.
For a sustainable business model we add two additional boxes.
This video from our Youtube channel explains the 11 key parts of the business model canvas.
THE SUSTAINABLE BUSINESS MODEL CANVAS
The Sustainable Business Model Canvas
Let’s take a look at each part.
The Value Proposition
The value proposition answers the question – what are you building and for who?
The value proposition is not about your idea or product. It’s about solving a problem or a need for a customer. That is what pain are you solving?
Customer segments
The next element is the customer segments to whom you deliver the value proposition. Various sets of customers are segmented based on their needs and characteristics. These segments could be mass market customers (sports fans) through to niche markets (fans of SlamBall which is a form of basketball played with four trampolines in front of each net and boards around the court edge – seriously this is a thing).
Channels
Channels describe the way you deliver your products and services to your customer segments.
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- There are two main types of channels
Physical like a brick and mortar store with sales people or physical distribution where you are delivering a physical product to a customer; and - Digital channels like the web, mobile, streaming services and so on.
- There are two main types of channels
Customer Relationships
The customer relationships box is asking you to think about three ket questions:
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- How do I get customers?
- How do I keep them?
- And how do I grow them?
Revenue streams
To be sustainable a business needs to understand how it makes income (captures value) from its customer segments.
This section actually has you think about :
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- What’s the strategy of how I’m going to capture value? – will it be through direct sales, licencing, franchise fees and so on.
- What pricing tactics are you going to use? – Is it a freemium model where I’m gonna give away the product for free and hope that some portion converts later, is it a subscription model or hourly rate?
Key Resources
The key resources to create value for the company. These resources/assets could be human, financial, physical and intellectual.
Key Partners
These are relationships with other organisations that support delivering your value proposition.
What exactly are we acquiring from partners? What key resources are they providing? What activities are they performing?
Key Activities
What are the most important things you need to do for the business to make the business model work?
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- Do you make things? Do you need to manage a supply chain? Do some R&D?
- What are the key activities you need to become expert at?
Cost Structure
Once we understand the key activities, resources, and partners we need, it is relatively easy now to understand the costs associated with delivering the business model.
Impact Driven or Sustainable Business Models
Now if you are building a purpose driven business that is looking to address environmental or social issues there are two additional sections we add to this diagram.
The first is beneficiaries – who else benefits from your business solution? This is where you think about the triple bottom line – what broader economic, social or environmental benefits does your solution deliver and to whom.
And finally we have the sustainability benefits – a bit like the revenue and cost sections, this is where your business model captures value in the form of impacts like reduced carbon emissions, less waste, improved biodiversity. It also considers the potential negative impacts of your new business model. This section should think about how you are going to measure these outcomes.
Click here to download a copy of the sustainable business model canvas.
Case Studies
Case Study - Project Turns Ghost Fishing Nets into Carpet
In this case study we will look at how a carpet manufacturer improved their business model to create multiple value streams for the business whilst helping clean the oceans.
Video
Interface Business Model Canvas
Interface make carpet for commercial buildings. But they also established their Mission Zero® promise to eliminate any negative impact the company has on the environment by 2020.
Using the business model canvas we can describe the key elements of Interface’s business.
Interface’s core business is manufacturing and selling carpet therefore the primary value proposition offered by Interface is fashionable carpet tiles in a range of designs.
Their customers are typically owners of commercial buildings like high rise office buildings. An interesting thing about these customers is that they have shareholders who expect some sustainability performance requirements of the buildings – but we’ll come back to these shareholders later.
Interface deliver their value proposition (channels) through skilled trades who install the carpet tiles in the buildings.
For customer relationships – this is how we find, keep and grow our customers, Interface use a conventional sales force but they also have a network of architects and designers who recommend their products to the building owners.
Next, we have revenue streams. Interface captures value from carpet sales.
We then need to consider what resources Interface need to deliver quality carpet products. Interface need manufacturing facilities, they need human resources like their sales force, and they also need materials like nylon yarn to manufacture the carpets.
Key activities include manufacturing of the carpet and the establishment of a supply chain for key components that go into making carpet. This includes their re-entry program that recovers and recycles used carpet.
Key partners include their supplier of nylon yarn.
Costs include the costs to operate the business, investment in key resources, costs of key activities and payment to key partners.
This is the business model for Interface’s core business. Now let’s look at how their sustainability strategy fits into this business model.
Interface's Net-Works Program Business Model
Net-Works® is an innovative, cross-sector initiative designed to tackle the growing environmental problem of discarded fishing nets in some of the world’s poorest coastal communities.
Interface partnered with the Zoological Society of London to buy discarded fishing nets from some of the poorest communities in the world.
The fisherman from these communities recover the ghost nets that are polluting to oceans and indiscriminately killing sea life therefore helping conserve and sustainably use the ocean.
Interface purchase these nets providing income to the community and the Zoological Society of London help the community establish banking services, provide education on sustainable fishery management and alternative income sources like seaweed farming.
The nets are recycled into new yarn for Interface’s carpet tiles by their yarn manufacturer.
This directly supports Interface’s Mission Zero goal to source 100% recycled material for its carpet tiles.
It reduces its supply chain risks for raw material as they now need less virgin nylon which is a product of crude oil.
It also allows Interface to deliver additional value to its customers through environmental product disclosures detailing the recycled content in the carpets.
Remember the shareholders we mentioned earlier – now Interface’s customers can report to their shareholders that they are sourcing sustainable products for their buildings.
Interface benefits from an enhanced brand reputation as a leader in sustainability which reinforces the customer relationships.
Which in turn leads to more sales and improved value capture for Interface.
The Net-Works programme has resulted in a reduction in the number of ghost nets in the ocean, less virgin materials and a new source of income for the communities.
The partnership has created an inclusive business model with positive outcomes for everyone involved.
The programme started in the Philippines and was expanded to Cameroon in 2015.
Conclusion
Using these eleven building blocks you can see how we have been able to describe how Interface’s Net-Works programme complements and directly supports Interfaces’ core business as a supplier of carpet tiles by delivering additional value to its customers, strengthening customer relationships, reducing supply chain risks and enhancing value capture whilst delivering a suite of positive economic, social, and environmental benefits.
We use the above technique with our clients to uncover and unlock new value from their sustainability strategy or sustainability projects. We also use this technique to design, discuss and communicate new sustainability initiatives for our clients.
If you think that business model innovation could help you deliver positive environmental or social impacts for your sustainability strategy then you may want to check out our Impact Business Builder Online Course which teaches you how to design, test, and launch sustainability solutions.
Attributions for Images
Turtle caught in ghost net – U.S. National Oceanic and Atmospheric Administration, public domain
How Michelin used Business Model Innovation to Create Profitable Sustainability Outcomes
Video
Michelin Business Model Canvas
Michelin New Sustainable Business Model
They bundled this service with a range of professional services to help their customers reduce fuel consumption and optimise vehicle performance. This allowed Michelin and its customers to extract the maximum value from their products.
Their superior technology meant they could get more kilometres per tyre compared with low cost competitors and therefore because they were charging per kilometre they could also maximise revenue per tyre.
Michelin was incentivised to produce less tyres because the more kilometres they got out of a tyre the more revenue they could generate per tyre which meant less material usage, lower supply chain risks, and reduced carbon emissions (not to mention the reduced carbon emission for their customers due to fuel efficiency improvements). They were also now able to take a product stewardship role and recover the used tyres for recycling and re-entry into their manufacturing process.
Michelin were also able to create new customer relationship pathways by creating a direct relationship, stronger intimacy and deeper roots within their customer’s business.
The community were beneficiaries of this business model through less waste to landfill and reduced air pollution. Michelin were also able to support the outcomes of a range of the UN Sustainable Development Goals.
Conclusion
We use the above technique with our clients to uncover and unlock new value from their sustainability strategy or sustainability projects. We also use this technique to design, discuss and communicate new sustainability initiatives for our clients.
Using the above eleven segments you can describe the infrastructure, offering, customers, and finances of any sustainable business model and you can now design, discuss, and communicate your sustainability programs in a language people will understand.
If you think that business model innovation could help you deliver positive environmental or social impacts for your sustainability strategy then you may want to check out our Impact Business Builder Online Course which teaches you how to design, test, and launch sustainability solutions.