How to Create a Sustainable Business Model

By Drew Hendricks,
business.com writer
| Updated
Jul 14, 2020
Image Credit: FLUKY FLUKY / Shutterstock

Why should your business be sustainable, and how can you achieve this model?

A growing movement against plastic products and irresponsible consumption is just one of the signs that sustainability is becoming more and more important to buyers. But what does that mean for your business, and how can you create – or shift to – a sustainable business model? 

Before you can make the switch, you need to fully understand what sustainability is, what a sustainable business model is, what makes a sustainable business model, why we need these models and more of the foundation around a sustainable model. Read on for details.

What is sustainability?

The dictionary definition for "sustainable" is "able to be maintained at a certain rate or level."  

Wikipedia is a bit more helpful: "Sustainable development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs." 

But we need to 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 and Gadget Review, a sustainable business model is one that generates value for everyone involved without being a drain on the resources that help 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," he added. 

Lia Colabello, managing principal of Plastic Pollution Solutions, raised the point that there's a difference between a sustainable business model and a business model that prioritizes sustainability. 

"A sustainable business model is what every business leader hopes to achieve: that the business will turn a profit quickly and stay afloat for the long term," she said. "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."

What makes a sustainable business model work?

There are four key elements of a sustainable business model.

1. It's commercially profitable.

No business can succeed or scale unless it attracts customers. What is your value proposition? Why is your business valuable, and what niche do you fill?

2. It 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? Resources' availability and pricing are never guaranteed or fixed – you don't want to build your castle on a sinking rock.

3. It uses resources that it can utilize for the long term.

Obviously, you can't have a sustainable business model without using sustainable resources. Many business activities are limited by finite resources or exceptionally high prices. On the other hand, some resources may be easily available yet environmentally harmful. Palm oil is a famous example of a cheap and plentiful resource, but farmers are razing acres of land and causing severe environmental destruction by cultivating the crop. Cheap resources may be tantalizing for business, but think about the big picture rather than taking a shortcut now. 

4. It 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 with the current "linear take-make-waste model" that so many modern businesses are built upon, which he states is "culpable for contributing to [this world's] unsustainability."

Rather than 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.

What is sustainable strategy?

"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," said Freiberger. 

Colabello noted that the most effective sustainability strategies start with an organization's purpose, encouraging businesses to ask themselves these questions: 

  • 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 diagramed out, complete with goals, KPIs and a timeline. These are communicated both internally and externally, in keeping with transparency."

Why do we need sustainable business models?

There are plenty of ways to approach the issue of sustainability, but the simplest one, which can unite all stakeholders, is this: Kinder businesses attract more customers. 

Use your sustainability as a selling point. A 2019 study found that telling online shoppers that other people were buying eco-friendly products led to a 65% increase in making at least one sustainable purchase

It's OK to be open about your sustainability goals. Customers will ask, and the friendlier you are about it, the more likely they are to share that news with their friends

But maybe you're not entirely motivated 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 on the world and 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. [Read related article: What Is Greenwashing?]

How can you start and maintain a sustainable business model?

1. Plan out your resource usage.

  • Make a list of the raw materials you'll need. This list will vary dramatically by business type. SaaS companies, for example, don't require the raw resources that clothing brands do.
  • Think about where your materials might be sourced. Who is making or harvesting them? How are they being sold?
  • Consider where they 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 also lessening your dependence on them?

Once you've created your materials list, outline your manufacturing and business processes. Ask yourself these questions:

  • Which manufacturing processes are the most wasteful? How can you mitigate the negative 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 fed into a different process to be used again? How can you reduce the unusable waste?
  • Where can you reduce? How can you stretch your raw materials? Can you lower the amount 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?

2. Consider alternative forms of company ownership.

The traditional top-down business model can create unreasonable wage gaps between those at the highest rungs at the ladder (the CEO, other C-level executives, founders, managers) and those at the lowest (the 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 normally disadvantaged a larger say.

3. Engage your customers.

Your dedication to sustainability may result in higher prices for your consumers, and that's OK. Let your customers know why they're paying more for your products in a compelling blog post, series of posts or dedicated brand story page. Including your customers in the decisions is one way of serving them and giving them more power over their dollars. Americans are willing to pay 17% more to do business with companies known for great customer service, and cause-based spending is also on the rise.

You might choose to engage customers by pledging a percentage of revenue to a certain charity or organization, for example, or offering different shipping or packaging options. Customers who love your product can be converted into evangelists when you create messaging that resonates with them. If you can involve your consumers 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.

What blockers are there to a sustainable business model?

Building a sustainable business can be daunting. If your business is stuck in its status quo, you may be struggling from one of three issues.

1. Innovation meetings are held, but ideas are not developed further.

Many good ideas arise when founders or leaders get together at a workshop or meeting, but to be implemented, they must be further developed and a plan of action drafted.

2. Ideas are not implemented.

The second issue founders face is that the plans for change are simply never implemented. This could be because it seems too difficult 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 are the wrong mindset and a reluctance to dedicate resources to change. To address these, find your allies – those who believe sustainability is important for the bottom line and for the larger world – and connect with them. Together, you can remove or alter harmful, outdated systems and encourage innovation.

A third of Americans have used social media to complain about a brand or its customer service. Practicing and following through with your sustainability goals helps consumers feel closer to you, allowing them to place more trust in your brand. This is crucial in a time when customers are expecting more warmth and honesty in the companies they shop from.

Why is sustainability important in business?

Shel Horowitz, expert on green and transformative business profitability, raised three points about why sustainability is important in business: 

  1. It allows you to still be here decades from now, having created something of lasting value. 
  1. It makes you much more attractive in the eyes of customers, employees, abutters and other stakeholders who actively want to do business with companies that think beyond the single bottom line
  1. It helps the planet and its creatures heal from the abuse humans have piled on it, especially in the last 250 years or so. 

Colabello said that aside from the immense impacts businesses have on the environment that a sustainability strategy should effectively address, these are some forces putting pressure on companies to build robust sustainability strategies: 

  • Employees
  • Customers
  • Investors
  • Retailers

How is a business sustainable?

Freiberger believes that a business can make itself sustainable by focusing on the bare essentials it needs to survive, then growing from there. It makes long-term projections, keeping an eye on the distant future, instead of focusing on more immediate profits.  

As part of making your business sustainable, consider these statistics from the Sustainability Management School of Switzerland and where your business can cut back to reduce its 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% of plastic ever produced has been recycled, while 79% can now be found in landfills, dumps, or the environment and 12% has been incinerated.
  • With rapid population growth and urbanization, annual waste generation is expected to increase by 70% from 2016 levels to 3.4 billion tons in 2050.
  • If it continues at the same rate, the plastic industry will account for 20% of the world's total oil consumption by 2050.
  • The construction and later demolition of buildings produces 40% of all waste.

If you are considering implementing a sustainable business model, keep in mind the short-term costs you will incur. However, it is not only for a better future, but also a compelling brand value for the increasingly ecologically conscious consumer. In other words, sustainability sells.

Marisa Sanfilippo contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.

Drew Hendricks is a tech, social media and environmental addict. He's written for many major publishers such as National Geographic and Technorati.
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