Business Model Innovation For Sustainability
Self-disrupt or die. Weaving sustainability into your core strategy is an imperative to build up resilience in your business. So, how can you innovate your business model for Sustainability?
First, let’s get back to the basics of business model Architecture. Then, let’s explore ways to adapt your business model for Sustainability.
Back to Basics: Business Model Architecture
A Definition
As a reminder, a Business Model is a model that describes how a business creates and shares value with stakeholders (suppliers, partners, distributors, employees, community, etc.) to deliver value to their customers. The goal is to determine how the business can best capture value to remain financially sustainable and to grow.
A framework: Haim’s house
When analyzing business models, I like the business model architecture framework developed by Professor Haim Mendelson from Stanford GSB School of Business [1]. It is summarized in the Haim’s House graphic below.
Why do I like that framework? First, because it puts as much emphasis on the Profit Model as on the Value Creation Model. The Profit Model invites you to think deeply on figures, sensitivities and Breakeven analysis, which makes the Business Model design more concrete, less theoretical and more resilient. Second, the emphasis on the Business Logic reminds us that this model requires continuous fine tuning to refine the business strategy in the light of external conditions.
PILARS FOR THE VALUE CREATION MODEL
- Combination of product and services (How do they address the customer’s unfulfilled need? How do they resolve an issue for your customer?)
- Differentiated Value (What makes your product stand out against the competition?)
- Value Chain Structure (What activities are retained by your business or externalized?)
- Go-To-Market Strategy (How do you position yourself in the market? Client Segment, Distribution Channels, Pricing Strategy)
PILARS FOR THE PROFIT MODEL
- Mix of Revenues Streams
- Revenues Models
- Cost Structure
- Drivers for Profitability (What Unit Economics is the driver of profitability for your business? What will bring you to your breakeven?)
A Checklist: Sustainable Business model canvas
- When analyzing business models, the business model canvas is a useful checklist of the elements when building the business logic. Here is a version adapted for sustainability from original business model canvas developed by Osterwalder and Pigneur.
Tweak your business model for Sustainability
Here is a 3-step approach.
Assess how Sustainability may generate opportunities for Value Creation
The objective is to see how solving unadressed sustainability issues may actually create value for your business.
- Look for “value uncaptured” (value missed, value surplus, value destroyed and value absent) with the triple bottom line lens (People, Planet, Profit) throughout the entire lifecycle of your product/service offering. [2]
- Be mindful of concepts of affordability, inclusion, other social considerations (mental health, public health), environmental damage, etc).
Identify new Value Streams for your Profit Model with a Circular Value Chain design
- Compare your value chain with the Circular Value Chain [3]
- Identify which untapped 6R activities (Repair, Reuse, Repurpose, Refurbish, Remanufacture, and Recycle) could be relevant to bring new value stream for your business. [4]
- Then, determine if you should integrate or outsource the new activities.
- Assess new partnerships opportunities.
Play with your Revenue Models
Assess how you can complement a plain ownership transactional model with:
- rental models (pay for use during a defined time period)
- “as a service model” (pay for use model shifting the burden of maintenance and end-of-life activities from the end-user to the business, creating “convenience” value to the end-user and an opportunity for recurring revenues over the product lifecycle)
- subsidy model (model that makes the product or service more affordable or free to the end-user thanks to cross-subsidy, partnership or trade-exchange)
Please reach out to me via LinkedIn if you’re interested in my white paper on Business Model Innovation for Sustainability.
RESOURCES
[1] Stanford LEAD online Business Program.
[2] Article. Creating and Capturing Value Through Sustainability. 2017. Miying Yang, Doroteya Vladimirova & Steve Evans. Also refer to the Cambridge Institute for Sustainability Leadership.
[3] Article on Medium. Circular Value Chain
[4] Article on Medium. See 6R graph in Weave Sustainability into your Core Strategy.