Creating a sustainable business model is a top priority for many companies. A sustainable business helps the planet and may prove more successful in the long run; customers want to work with companies that care about making a positive contribution to the world.
Sustainability isn’t just for large corporations. Businesses of any size can work toward a sustainable business model by following specific practices and adopting a sustainable strategy.
What is sustainability?
Sustainable means the ability to be maintained at a certain rate or level, and sustainable development meets current needs without compromising future generations’ ability to meet their own needs.
However, we must dig a little deeper to understand how the concept of sustainability is relevant to business development.
What is a sustainable business model?
To Rex Freiberger, president of Superlativ Media, a sustainable business model helps generate value for everyone involved, without draining the resources that help to create it.
“A business model meant to capitalize on a trend isn’t sustainable, for example, because the social resources that get it started won’t exist in years or even months,” Freiberger said.
Lia Colabello, managing principal of Plastic Pollution Solutions, noted that there’s a difference between a sustainable business model — a business that will likely achieve profitable growth — and a business model that prioritizes sustainability.
“A sustainable business model is what every business leader hopes to achieve — a business that will turn a profit quickly and stay afloat for the long term,” Colabello explained. “A business model that prioritizes sustainability is one that, at a minimum, considers all stakeholders, assesses and addresses environmental impacts, and is transparent and thorough in its reporting.”
Eco-friendly packaging practices are a way to commit to sustainability. Other methods include careful resource usage and donations to worthy organizations.
What makes a sustainable business model work?
There are four key elements of a sustainable business model.
1. A sustainable business model is commercially profitable.
You can make a profit and be socially responsible. No business can succeed or scale unless it attracts customers. What is your value proposition? Who are your target customers? Why is your business valuable, and what niche do you fill?
2. A sustainable business model can succeed far into the future.
A trendy business or one that relies on limited resources may be profitable for a few months, but how will it fare in a year or two? Resource availability and pricing are never guaranteed or fixed; you don’t want to build your castle on a sinking rock.
3. A sustainable business model uses resources it can utilize for the long term.
You can’t have a sustainable business model without sustainable resources. Many business activities are limited by finite resources or exceptionally high prices. On the other hand, some resources may be readily available yet environmentally harmful.
Palm oil is a famous example of a cheap and plentiful resource. However, farmers are razing acres of land and causing severe environmental destruction by cultivating the crop. Cheap resources may be tantalizing for business, but consider the big picture instead of taking a shortcut now.
4. A sustainable business model gives back.
One theory is that a truly sustainable business model is one that gives as much as it takes. This concept is called the cyclical borrow-use-return model.
Bob Willard, expert and author on quantifiable sustainability strategies, contrasts this model with the current “linear take-make-waste model” that so many modern businesses are built upon, which he said is “culpable for contributing to [this world’s] unsustainability.”
Instead of taking from the Earth, a sustainable business “borrows” resources with the intent to replenish them. This concept of responsible consumption is one that both businesses and consumers can promote and practice.
Reducing resource burn — wasted time, money and other resources — is another way a business can prioritize sustainability.
What is a sustainable strategy?
A sustainable strategy takes the big picture into account. “A sustainable strategy is one that understands the flow of ‘in’ and ‘out’ — not just cash flow, but again, the resources, both tangible and intangible, that are required to create the product or service,” Freiberger explained.
Colabello noted that the most effective sustainability strategies start with an organization’s purpose. She encouraged businesses to ask these questions, similar to what you’d ask when crafting a vision or mission statement:
- Why does the organization exist?
- What problem is it solving?
- How is it going to improve the world, environment and society?
“From there, a strategy can emerge that engages the entire brand ecosystem — internally, the supply chain, its communities and its industry,” Colabello said. “The approach is prioritized and diagrammed out, complete with goals, KPIs [key performance indicators] and a timeline. These are communicated both internally and externally, in keeping with transparency.”
Why do we need sustainable business models?
There are many ways to approach the issue of sustainability, but the simplest one, which can unite all stakeholders, is this: Kind businesses attract more customers. According to the 2022 Global Buying Green report, 86 percent of consumers under 45 were willing to pay more for sustainable packaging, and 68 percent purchased items in the past six months based on companies’ sustainability credentials.
It’s OK to be open about your sustainability goals and use your sustainability as a selling point. Customers will ask, and the friendlier you are about it, the more likely they will be to share that news with their friends.
But maybe you’re not motivated entirely by money. Perhaps you’re driven by the desire to be the change you’d like to see in the world.
After all, the larger a business grows, the greater its impact is on the world and the people around it. And it’s better to start sustainably than to make the switch 10 years down the line — or when stakeholders begin pushing back on unreasonable business practices.
Going green can boost business and profits. Businesses are marketing green innovation to show consumers they prioritize environmental concerns.
How can you start and maintain a sustainable business model?
Getting started with a sustainable business model can be straightforward. Consider the following guidelines.
1. Plan your resource usage.
Consider the resources your business requires to operate, and then do the following:
- Make a list of the raw materials you’ll need. This list will vary dramatically by business type. Software-as-a-service companies, for example, don’t require the raw resources that clothing brands do.
- Consider where your materials might be sourced. Who is making or harvesting your product materials? How are they being sold?
- Consider where the resources are coming from and how they are being transported. How far do they have to travel to arrive at your home or warehouse? How can you cut down on fuel miles? What are the riskiest resources on your list, and how can you increase their productivity while lessening your dependence on them?
After you address your resource usage, outline your manufacturing and business processes. Ask yourself these questions:
- Which manufacturing processes are the most wasteful? How can you mitigate the adverse effects of these processes?
- For physical materials, is it possible to source locally?
- How are you packaging your products? (Sustainable, biodegradable packaging can reduce the amount of trash stuck in landfills.)
- Which materials on your list are the riskiest or least sustainable? How might you replace them? Could you replace them now?
- What are the end products of these processes? How can you reuse waste material? Does it have to be thrown away?
- Can the produced waste be used as a resource or be fed into a different process to be used again? How can you reduce unusable waste?
- Where can you reduce waste? How can you stretch your raw materials? Can you lower the number of resources used to create a specific product while maintaining its quality?
- What are the labor conditions like? Are your laborers being paid fairly? Is their quality of life improving or worsening because of your business processes? Is their time being respected?
To make your business’s computing eco-friendly, implement cloud computing, allow your employees to work remotely, and eliminate paper from your workflow.
2. Consider alternative forms of company ownership.
The traditional top-down business model can create unreasonable wage gaps between those at the highest rungs of the ladder (CEO, other C-level executives, founders, managers) and those at the lowest (laborers tasked with creating raw materials or carrying out the manufacturing processes). Including everyone in your sustainability goals can help you keep your business on track and give those who are typically disadvantaged a larger say.
3. Engage your customers.
Going green can improve your brand reputation among consumers, but your dedication to sustainability may result in higher prices. But that’s OK; in a compelling blog post, series of posts or dedicated brand story page, tell your customers why they’re paying more for your products.
You might choose to engage customers by pledging a percentage of revenue to support a charity or by offering different shipping or packaging options. Customers who love your product can be converted into brand ambassadors when you create messaging that resonates with them.
If you involve your customers in your discussions about sustainability, they will become more invested in your company’s success and your products. You could also consider crowdsourcing sustainability ideas from consumers through a forum or online group.
Sustainable businesses must lead with transparency when dealing with customers and shareholders. This means sharing wins and being honest when things don’t work out as planned.
What roadblocks are there to a sustainable business model?
Building a sustainable business can be daunting. If your business is stuck, you may struggle with one or more of these issues:
1. You hold innovation meetings, but ideas don’t go anywhere.
Many good ideas arise when founders or leaders get together at a workshop or meeting. However, you must nurture these ideas and draft a plan of action.
2. Ideas are not implemented.
Another issue founders face is that the plans for change are never implemented. This could be because it seems too challenging to change the status quo or because the members of the company aren’t yet convinced of the need for a greener, kinder business model.
3. The implemented business models fail in the market.
Two of the most common reasons businesses fail to move toward sustainability include the wrong mindset and a reluctance to dedicate resources to change.
To address these issues, find your allies — those who believe sustainability is essential for the company’s bottom line and the larger world — and connect with them. Together, you can remove or alter harmful, outdated systems and encourage innovation.
Practicing and following through with your sustainability goals helps consumers feel closer to you and instills more trust in your brand. This is crucial at a time when customers expect more warmth and honesty from companies.
Why is sustainability important in business?
Shel Horowitz, an expert on green and transformative business profitability, raised three points about why sustainability is crucial in business:
- Sustainability allows you to be here decades from now because you’ve created something of lasting value.
- Sustainability makes you much more attractive in the eyes of customers, employees and other stakeholders who actively want to do business with companies that think beyond the single bottom line.
- Sustainability helps the planet and its creatures heal from the abuse humans have piled on it, especially in the past 250 years or so.
Aside from businesses’ immense environmental impact, Colabello noted these forces putting pressure on companies to build robust sustainability strategies:
How is a business sustainable?
Freiberger believes a business can make itself sustainable by focusing on the bare essentials it needs to survive and then growing from there. Make long-term projections, and keep an eye on the distant future instead of focusing on more immediate profits, he advised.
As part of making your business sustainable, consider these statistics from the SUMAS Sustainability Management School, and determine where you can cut back to reduce your business’s carbon footprint:
- An estimated 5 trillion plastic bags are used worldwide each year.
- 400 million tons of plastics are produced globally every year.
- Globally, only 9 percent of plastic ever produced has been recycled; 79 percent can now be found in landfills, dumps or the environment; and 12 percent has been incinerated.
- With rapid population growth and urbanization, annual waste generation is expected to increase by 70 percent from 2016 levels to 3.4 billion tons in 2050.
- If it continues at the same rate, the plastic industry will account for 20 percent of the world’s total oil consumption by 2050.
- The construction and later demolition of buildings produce 40 percent of all waste.
If you are thinking about implementing a sustainable business model, consider the short-term expenses you will incur. However, these costs are a small price to pay for a better future and a compelling brand value for increasingly eco-conscious consumers. In other words, sustainability sells.
Jamie Johnson contributed to this article.