Integrating sustainable practices into the business model can be an excellent solution nowadays. But what exactly is meant by sustainable business model? Starting from the definition of Sustainable Business Model, this guide will lead you step by step to discover how to integrate sustainability into your company, transforming it from a cost to added value.
Sustainable business model: what it is and why it matters
The first stop on this journey to discover the sustainable business model and its advantages, as mentioned, takes us straight to its definition.
Definition and meaning of Sustainable Business Model
Compared to a traditional business model, a model is considered sustainable if it allows the startup or company to correctly integrate sustainability in every area of its action, starting from the definition of objectives and at any time when it finds itself carrying out its daily activities.
You must take into account that sustainability is understood here in its three dimensions: social, environmental, and economic. Let’s get to know them better.
The three dimensions: people, planet, profit (3P)
The three principles of sustainable business are: people, planet, and profit. These are elements that must necessarily coexist for a business model to be sustainable and successful.
The principle concerning people is related to the responsibility that startups and companies have in society and, more specifically, to the awareness that companies must have regarding the effects they can generate on individuals involved in their operations, both directly (such as employees) and indirectly.
The second “P,” that is, the one indicating the planet, refers to environmental protection and companies’ ability to embrace the green economy by adopting low-impact practices capable of promoting regeneration and circularity and eliminating waste. In this regard, remember the words of David Brower:
“There is no business to be done on a dead planet.”
Profit, finally, refers to the economic orientation of startups and companies: the challenge, in this sense, is to succeed in being sustainable and, simultaneously, in earning.
From classic canvas to sustainability business model canvas
To define and visualize their business model, companies usually adopt tools called canvas. There are several of them and some of them are particularly suitable for describing sustainable business models.
Integration of impacts and SDGs in canvas blocks
The classic Business Model Canvas is a visual scheme in which companies merge the salient features of their business model. The structure is based on 9 elements:
- value proposition;
- customer segments;
- distribution channels;
- customer relationships;
- revenue streams;
- key partnerships;
- key activities;
- key resources;
- cost structure.
The Lean Model Canvas is a framework that, while having the same structure as the Business Model Canvas, presents some different items, since it’s focused on visualizing the needs and problems of consumers that companies can intercept. Its 9 elements are:
- problem;
- customer segments;
- solution;
- value proposition;
- revenue streams;
- competitive advantage;
- channels;
- key metrics;
- costs.
However, the Sustainability Business Model Canvas is the most valid tool for defining and visualizing sustainable business models: this tool, in fact, integrates the Lean Model Canvas with the analysis of companies’ impact in relation to the three dimensions mentioned earlier.
The structure, therefore, includes 12 blocks: the 9 of the Lean model plus the 3 related to social, environmental, and economic impact. In these 3 last areas, the evaluation is carried out through some internationally recognized parameters, such as the SDGs (Sustainable Development Goals, the Sustainable Development Goals) of the UN.
Sustainable business model innovation
The process of creating a sustainable business model for an innovative startup involves five different phases.
Il processo di creazione di un business model sostenibile per una startup innovativa prevede cinque diverse fasi.
Phases: assessment, objectives, prototyping, validation, scaling
The first phase is the one commonly called assessment and includes the analysis of the internal and external context of the company, its business objectives, risks and opportunities, as well as the identification of impacts at environmental, social, and governance levels.
The second phase is the one in which clear and measurable sustainability objectives are established in environmental, social, and economic areas.
By prototyping we mean the creation of an initial business model, which will then have to be subjected to validation through the analysis of specific KPIs and stakeholder feedback.
The fifth and final phase is the one concerning scalability and involves the implementation and expansion of the sustainable business model on a large scale.
Governance and anti-greenwashing policy along the value chain
Creating a sustainable business model (following the 5 phases previously listed) won’t lead you to success if you don’t also plan the implementation of bodies, rules, and processes that can allow your startup to manage its environmental, social, and economic impact in a conscious (and more effective) way, intercepting and analyzing opportunities and risks and aligning company operations with them.
For example, it’s necessary to adopt “anti-greenwashing” policies (we’ll analyze this term better in a moment), which in practical terms translate, for example, into avoiding generic and unverifiable statements and maintaining a direct and continuous communication channel with all stakeholders, based on correctness and transparency.
Sustainable business models: types and levers
When you decide to create a sustainable business model, you have several options at your disposal.
Circular economy: reuse, recycling, product-as-a-service
That of circular economy is a sustainable business model that applies the concept of product reuse and recycling in order to reduce waste and scrap.
Within this area, the logic of product-as-a-service sees the product as a service, which remains the property of the producer but which can be used by the consumer in exchange for the payment of a subscription.
Sharing and rental as impact reduction
Other sustainable models are those focused on sharing and rental: just think of the car sharing phenomenon, which reduces environmental impact by reducing the number of vehicles on the road and, consequently, CO₂ emissions and air pollution, as well as traffic.
Social inclusion and responsible supply chains (stakeholders & communities)
Sustainability – by now it will be clear to you – doesn’t only concern the environment, but also people and communities. Social sustainability involves building a fair and inclusive model, capable of guaranteeing workers rights and decent working conditions and promoting access to work also for the most disadvantaged categories. Not only that: social sustainability also means creating initiatives, projects, and collaborations to operate in harmony with local communities and contribute to their development.
Sustainability model for business: tools and KPIs
We’ve already highlighted the importance of measuring performance and monitoring key performance indicators. Let’s see what the main environmental, social, and economic KPIs are and the metrics to keep under observation to measure a company’s progress and its impact from a sustainability perspective.
Environmental, social, and economic KPIs (ESG)
Environmental KPIs generally concern energy consumption and emissions. Among environmental sustainability indicators stands out, in this sense, the Carbon footprint, which estimates the amount of carbon emitted by an activity, service, or product throughout its entire life cycle. As for waste management, instead, among the main marketing KPIs are the percentage of waste recycled or reused and, more generally, recycling rates.
Social KPIs, in reference to employees, mainly concern the employee satisfaction index and attrition rate (or employee turnover rate), but also more specific aspects such as the workplace accident rate. As for the community, instead, indicators generally relate activities implemented and total investment in such projects.
Economic KPIs mainly refer to financial performance related to investments and initiatives in the area of sustainability and ESG risk management, measuring their returns. Another aspect to consider is the company’s competitive position: to measure a company’s success, it’s useful to monitor the percentage of products that meet sustainability criteria and the number of consumers who purchase such products.
Value capture model: costs, revenues, pricing, and risks
To understand how your startup creates and collects value, you can use the value capture model, which focuses on costs incurred to produce a product/service, revenues generated from sales, pricing strategy to set prices, and associated risks. A model of this type allows you to balance costs and define a price that allows you to remain competitive while minimizing risks.
Benefits and risks for the company
Before deciding to focus on a sustainable business model, you should know, in addition to the advantages, the risks. Let’s start with the former.
Advantages: innovation, long-term competitiveness, reputation
One of the main benefits ensured by a sustainable business model is related to the fact that adopting a sustainable approach allows seizing expansion and progress possibilities sooner and better. In simpler terms, sustainability is distinguished by its strong propensity for innovation and greater capacity to adapt to change, both within markets and in reference to laws.
An approach of this kind, moreover, allows proposing offers always in line with consumers’ new needs and therefore guarantees high long-term competitiveness.
Last, but certainly not least in importance, there’s the advantage of being able to benefit from better corporate reputation. Nowadays, more and more consumers (and more and more investors) choose companies that show a marked attention to the theme of sustainability and a concrete commitment to integrating environmental, social, and governance principles within their business decisions.
Risks: data quality, transition costs, greenwashing accusations
One of the main limits of sustainable business models is related to data quality and the consequent risk of adopting – in the absence of a precise and complete analysis – erroneous and expensive strategic decisions.
Transition costs, moreover, in a business model of this type, can be very high.
The third risk not to be underestimated is the one concerning possible accusations of doing greenwashing: with this term we mean the deceptive practice that certain companies implement to show an environmental commitment and attention to sustainability that, in reality, don’t correspond to the truth and o
Examples and use cases
There’s one last element to consider before putting the final word on this guide dedicated to creating a sustainable business model and it’s the example of those who preceded you in this adventure.
We chose to focus on two success cases in the fashion field: those of Napapijri Circular Series and H&M.
Circular fashion
That of Napapijri Circular Series is a success example of circular fashion: the company decided to launch jackets with a design adapted to the circular economy on the market and also associate a take-back program with this. The jackets – fully recyclable, as well as durable and high-performing – are made with a single material, Nylon 6, obtained through the recycling of fishing nets and other waste materials.
Fashion rental
H&M instead decided to move in the direction of Fashion rental, launching starting in 2019 from a Stockholm store a rental service for some items from its collections, in line with the brand’s sustainability strategy that aims to reduce its emissions to zero by 2040.
Do you want to read all the articles related to the stage your startup is in?
