Creating a circular economy startup
8 min read
May 10, 2022
Too often, when I say that I am in the circular economy business, people tell me “Oh great… what do you recycle?”.
Well… circular economy is not about recycling, it is way more beautiful than that. Here is a deep dive into the circular economy for entrepreneurs, investors, students and companies that want to have an impact on this world.
In our economy, most of the things we do are linear. We take from nature, we build things with what we take, and then we dispose of it once we don’t need it anymore (take, make, waste).
There are several problems to this. The first problem is that we live in a world with finite resources and currently need 1.75 earths to sustain our way of life. The second problem is that most of the waste that we create ends up in landfills or in the seas. If you take France as an example, out of the 5 million tonnes of plastic waste generated in 2016 in the country, 80 000 tonnes ended up polluting the environment, and very few tonnes ended up back into the economy.
Thus, if we do nothing about it, by 2040 there will more plastics than fish in the oceans (to such extent that it starts looking like new continents) and there will be not enough resources on earth to sustain our way of life.
We already start to experience this lack of resources: how is your PS5 going ? Oh wait… you didn’t receive it.
The biggest contributors to this mess are plastics, fashion and food. The answer to the plastic and waste pollution problem doesn’t lie in waste collection. It lies in preventing plastics and waste to arrive in nature in the first place. For this reason, circular economy might be the only solution that can match the scale of the plastic pollution problem, because it acts upstream.
The concept of circular economy is to rethink the way products are designed and used, with 3 principles in mind:
- Eliminating waste & pollution
- Circulating products & materials
- Regenerating natural systems
Through a better design of products, better circulation of resources and better recycling, less new natural resources will be required to sustain our way of life. Circular economy aims at designing products better so that:
- it requires less materials & packaging (reducing);
- it is made from recycled & sustainable materials (that we can’t run out of);
- it lasts longer (no planned obsolescence);
- it can be easily repaired;
- it can be reused once someone doesn’t want it anymore;
- and in the last case, it can be fully recycled into something else or composted.
More than 80% of a product’s environmental impact is determined at the design stage.
As you see, recycling is the very last step of the process and most of the work will need to happen at the design stage. The point of the circular economy is not to make products easily recyclable, “it is to conserve as long as possible the functionality and complexity of products, because this is where the value lies”. Plastics, for example, is one of the worst materials. Most of it is made from fossil fuels (a finite resource) and 95% of the value is lost after only one use. Often, recycled plastic cannot be recycled again.
Recycling a product or a material into something that cannot be recycled again is not circular economy.
Of course, plastics is needed. A circular economy approach to plastics would aim at:
- eliminating unnecessary plastic items (around fruits, single-use items, …);
- innovating to ensure that the plastics that we need are reusable, recyclable or compostable;
- circulating all the plastic items that we use to keep them within the economy and out of the environment.
Here are some examples of the circular economy applied to other fields:
- Mobile phones that are created in such a way that parts are easy to replace or repair to increase product durability;
- Shoes that are made from recycled materials coming from a collection of waste materials;
- A marketplace that helps people sell refurbished items to give them a second life;
- A collaboration platform on which neighbors can share rarely used items to increase usage rates (cars, gardening tools, household items, …).
- An industrial area that achieve symbiosis in which the waste of a company is used as a resource by another one, creating a closed loop.
Finally, for a company to be completely circular, its own ecosystem (suppliers, partners, …) must be circular as well. Often, we refer to this butterfly graphic to look at a circular company in a systemic way:
To sum up, circular economy is about keeping products and materials in use for as long as possible and about minimizing waste generation and raw materials intake. In a perfect circular economy, the natural resources that we need from earth are regenerated enough so that our way of life can be sustained for thousands of years. The circular economy will tremendously contribute to the fight against climate change and against biodiversity loss.
The 5 most common business models of the circular economy
To start, it might be important to recall that those business models can be used by startups but also by bigger companies and that those business models can be used together and are not exclusive.
1. Circular inputs
Circular inputs business models aim at using resources (energy, materials, …) that we can’t run out of and that can’t affect natural systems. Examples of circular inputs resources are renewable energies, bio-based materials or recycled materials.
More than 90% of biodiversity loss is due to to the extraction and processing of natural resources.
Use case #1: ReBlend creates new clothes from recycled old clothes.
Use case #2: Sulapac uses wood chips and natural binders as an alternative to petroleum-based plastic for its packaging.
Use case #3: A chain of shops that provide hot coffee has decided to give its customers discounts when they bring a reusable cup with them, rather than using a single-use takeaway cup.
2. Product use extension
Product use extension business models aim at extending the life of a product by facilitating repair, upgrading, reprocessing and resale. It lies in a standardization of products and a better choice in product materials so that they last longer and so that parts are easier to replace or repair if there is a problem.
Use case #1: Fairphone creates modular mobile phones. Parts are easy to replace to ensure phone reparability and durability.
Use case #2: Ikea’s “Second life for furniture” initiative lets customers from some countries exchange old items for a store voucher. This way, they can ensure that the items are reused or recycled.
Use case #3: BackMarket, Certideal, … offer refurbished tech items at an affordable price. Vinted, Ebay, Rakuten, … offer marketplaces in which you can sell second-hand items.
3. Sharing platforms
What lies behind sharing platforms business models is the fact that often what we buy is completely under-used. Think about gardening tools, household items, or cars… Those are things that you use once a week or few hours a day and are often very expensive.
Think about cars. It costs several thousands of dollars and you surely use it less than 2 hours a day. Also, the average occupancy rate of a car is 1.6 people… but it has 5 seats. It is completely under-used.
The aim of sharing platforms is to increase the usage rates of products through collaboration and exchange. This can also be used to cut costs: if several people buy a product together, then it becomes more affordable.
Use case #1: Co-working spaces diminishes the need for building spaces.
Use case #2: eRent provides a sharing platform for construction equipment and machinery management.
Use case #3: Blablacar provides a collaboration platform for sharing car rides.
4. Product as a Service
Product as a Service business models get its inspiration from Software as a Service (SaaS) models. Instead of selling a product, you lease it. While most companies do that for services (Netflix, internet subscriptions, bots, …), a Product as a Service approach makes sense because the company that leases the product will keep control of the product life’s cycle, maintenance and treatment after use. You can lease phones, clothes, cars, …
If you are a company that leases phones and if the phone of one of your customers is broken, you can simply take it back and give him a new one. But now, you own the resource from the previous phone or you can even repair it. In other words, you control where the phone ends up (not in landfills).
Use case #1: Rent the Runway is a US-based company that lease designer dress and accessories for special occasions. In the fast-paced fashion industry, it could make sense to create a clothing leasing business so that people can receive new clothes each month and send back their old ones to be recycled or reused.
Use case #2: Algramo and other companies offer zero-waste refill systems for detergents, liquids, food, …
5. Resource recovery
Resource recovery business models are what most people (before reading this article) called circular economy. It lies on the fact that what is waste for a company might be a resource for another one. Those business models aim at collecting resources or energy that are wasted and at finding the companies that could need those resources. In this area, reverse logistics is a growing field that allows those resources to be sent back into the economy efficiently.
Use case #1: Kalundborg is the world’s first industrial area to achieve a symbiosis in waste management. Companies exchange waste as resources (energy, water and materials), creating a closed ecosystem where no waste is generated.
Use case #2: Zack is an electronics recycling platform that helps people give a second life to their old computers, phones, cameras, …
Use case #3: A company collects used plastic packaging and uses a new technology, called pyrolysis, to turn the plastic back into oil, which is sold as fuel to transportation companies.
Funding a circular economy startup
Often, people think that environmentally-conscious businesses do not fit well with investors but I really think that it depends on the business model. While a business model that creates long-lasting products might not attract certain types of investors, we can clearly see from the use cases above that optimizing resources and products can be really valuable.
Just as an example, BackMarket has raised hundreds of millions of euros to sell refurbished items. In October 2019, BlackRock (an investing firm) has launched a circular economy public equity fund and similar funds appear everywhere (Ticket for change, Makesense, Generate Capital, BlackRock, …).
Over the last 18 months, funds that focus on environmental focused investments have outperformed almost all other forms of index, some people will call that a momentum investment I would call that a sea change, I would call that a recognition that we have to move forward fast.
Larry Fink, CEO, BlackRock
Of course, depending on the stage of your project, you will have access to different kind of funding. If you are interested to know more about what kind of funding you can get depending on your startup stage, you should definitely check this article from G. Ventures.