5 circular business models (and how they can give you a competitive advantage)

Posted on: 17 January, 2024

Did you know that the built environment and construction industry is responsible for generating one-third of the world’s waste and at least 40% of its carbon dioxide emissions?

When compared to the 2-3% caused by aviation, these statistics will surprise many, given how much criticism that industry often receives. Not only that, but as a species, we take a staggering 100 billion tonnes of raw material every single year, and roughly half of what we extract goes into the world’s built environment.

As a result, the built environment has a pivotal role to play in the fight against climate change. But despite modern methods of construction (MMC) and innovative processes like adaptive reuse and prefabrication, the sector has its work cut out if the UK is to meet its 2050 net zero targets.

To achieve net zero and ensure the long-term prosperity of the built environment, we desperately need to innovate, adapt and shift from linear to circular business models.

What is a circular business model?

A circular business model is a system employed by businesses to increase efficiency and reduce environmental impact. These models are designed to save money, eliminate waste and achieve sustainability.

Though these strategies have been particularly popular with companies in manufacturing in the past, companies from every sector, particularly those in the built environment, have begun to recognise the need to move from a linear to a circular approach.

Linear versus circular business models – what’s the difference?

Traditional linear business models are formed around the very basic logic of:

• Get resources
• Make products
• Sell them to consumers
• Throw them away when they are no longer needed or usable

On the other hand, circular business models, as the name suggests, aim to go full circle. Instead of build, sell, throw away, this model looks to create products and strategies that design out waste and pollution altogether. This means that sustainable materials are sourced, products are made offering the best value to customers and when they are no longer needed, they can be reused, recycled or repurposed.

This model also leads to the selection of the most cost-effective and eco-friendly production methods to make products, subsequently increasing their lifespan and reducing the amount of waste produced.

5 different types of circular business model

Here are the five most popular circular business models being applied in today’s economy:

1. Circular inputs

The circular input model aims to use renewable, recycled or sustainable materials, in this case referred to as ‘inputs’. These are largely used in the production process to partially or even totally eliminate waste and pollution.

In these instances, waste can actually become an asset, not a liability that businesses must pay to dispose of correctly. For example, a silicon metal manufacturer can supply a construction company with the fly ash used to create ashcrete, a sustainable concrete alternative. Rather than having to pay to have the ash collected and disposed of in landfills, they’re actually able to make money and reduce carbon emissions.

2. Sharing economy concept

The concept behind the sharing economy is that businesses share industrial assets with other companies, particularly idle assets. For example, construction firms might share machinery like forklifts, excavators and bulldozers. This reduces the need for those businesses to buy their own assets and helps them spread and cut costs. This also leads to much higher utilisation of these often expensive assets.

3. Product-as-a-service

In this model, customers purchase products as a service for a limited time. The provider still has ownership of the products involved, which incentivizes them to maintain, upgrade and treat these products accordingly, increasing their lifecycle.

This maximises the use of products, gives companies better insights into how their products are being used and requires safer disposal at the end of life.

This is a favourable solution for a lot of tech. For example, businesses that can’t afford to make huge investments right away might rent laptops, cameras and other tech for their office.

4. Product use extension

In product use extension, the onus is no longer on making and selling as many goods as possible in a linear fashion.

Instead, the model is designed to have a continuous income stream throughout the product’s usage cycles. That’s why these goods are often made with repairability, upgradability, reusability, reconditioning and recyclability in mind.

For example, providers of construction tools will rescue and remanufacture existing tools and sell these on in order to compete with new products and keep costs low for customers.

5. Resource recovery

The resource recovery model focuses on the end stages of the usage cycle, and involves the recovery of built-in materials, energy and resources from products that are no longer functional.

This model takes a similar approach to the products-as-a-service model in order to incentivise users to return products, for example contractually, so they can be reclaimed and recycled.

A great example of this is phone companies. They offer trade-in services in which customers can hand in old phones in exchange for a discount on new devices.

These returned items can then be refurbished and resold or stripped for parts and recycled if they’re unable to fix them.

The benefits of adopting the circular model

Adopting these business models can have a range of environmental, social and operational benefits, including:

• Increasing efficiency, lowering costs and generating more revenue
• Sourcing less raw materials and therefore reducing procurement costs, making it possible to see goods for lower prices and improve the customer experience
• Improving customer relations, as they prefer to buy from responsible businesses that mirror their values
• Offering your business a new approach to marketing goods or services
• Encouraging the use of recycled or renewable materials for a more sustainable business model
• Increasing reliance on local businesses and suppliers, reducing the need for long and costly supply chains
• Giving companies more opportunities to be creative and innovative, helping to drive new ideas across the workforce
• Increasing stability and resilience within a corporate structure and offering a reliable procurement system

Learn more: Making a business case for sustainability: why now is the time to act

How the built environment can benefit from the circular model

The benefits of circular models can be felt for a range of sectors, especially the built environment. For one thing, when buildings reach the end of their life, currently only 40% of construction waste is recycled or reused. That means that 60% is being wasted, which is costly to both the company and the planet.

However, a circular business model that focuses on reusing, recycling and restoring can help to minimise (or even eliminate) waste and pollution from the industry, all whilst keeping structures and materials in use.

An example of this in the built environment could be retrofitting, which helps to avoid demolition and the need for more raw materials to replace these buildings.

Learn more: A guide to retrofitting (and how it could help us reach net zero)

This model also enables businesses in the construction industry to discover new revenue and profit pools within renewable and recycled materials. In real terms, this could result in growth of up to 30% per year for the business.

But the benefits of a circular model in the built environment go far beyond the ecological. They can also have important social gains, like boosting employee morale. In fact, using environmentally friendly construction materials has a positive impact on the well-being of workers and can increase productivity by up to 10%.

Embracing a circular business model can help organisations and remain competitive. What’s more, when you consider that there are lots of established players in the industry already diversifying, it may be a methodology that businesses can’t afford to ignore moving forward.