How to Create a Sustainable Business Model

What is sustainability?

In a business context, sustainability refers to operating in a way that preserves natural and social resources so they are available for future operations. Sustainable development addresses the ability to meet current needs without compromising future generations’ ability to meet their own needs — a principle that closely aligns with green business practices.

To understand the full picture, it’s helpful to explore how sustainability can drive innovation, reduce risk and strengthen long-term business resilience.

What is a sustainable business model?

According to Rex Freiberger, CEO of Superlativ Media, a sustainable business model is one that generates value for everyone involved without draining 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,” Freiberger explained.

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.”

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. In fact, financial viability is a prerequisite for impact, as a business can’t effect change if it ceases to exist. What is your value proposition? Who are your target audiences? 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? Long-term planning means thinking about supply chain disruptions and climate risks, not just current demand. 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 depend on 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. Meanwhile, some resources may be readily available yet environmentally harmful.

Palm oil is a famous example of a cheap and plentiful resource. However, unsustainably produced palm oil can drive deforestation and cause severe environmental destruction. Cheap resources may be tempting 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 describes as “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.

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 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 the following 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 explained. “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?

Businesses need sustainable business models for several reasons, from attracting customers to reducing long-term risk. Here’s what to consider:

• They attract more customers and drive sales. Kind businesses attract more customers. Research from PDI Technologies found that 80 percent of consumers are concerned about the environmental impact of the products they buy, and 80 percent are willing to pay more for sustainable products. Being open about your sustainability goals can be a selling point, and customers are more likely to share that information with others.
• They build trust and strengthen your brand. It’s OK to talk about your sustainability efforts. Transparency always helps customers feel more confident, and people increasingly prefer brands that align with their values.
• They reflect your values and mission. 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. A sustainable business model helps ensure your growth doesn’t come at the expense of the environment or society.
• They reduce risk as your business grows. The larger a business grows, the greater its impact on the world and the people around it. It’s better to start sustainably than to make the switch 10 years down the line — or when stakeholders begin pushing back on unsustainable business practices.

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 sourced and 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 reduce your dependence on them over time?

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 fed into a different process to be used again?
• 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?

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-suite 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.

Employee ownership or profit-sharing structures can also help align your team with your company’s long-term sustainability goals.

3. Engage your customers.

Going green can strengthen your company’s 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.

What roadblocks are there to a sustainable business model?

Building a sustainable business can feel 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 their plans for change are never implemented. This could be because changing the status quo seems too challenging or because the company’s members aren’t yet convinced of the need for a greener, kinder business model. Leadership should clearly explain the long-term risks of inaction alongside the benefits of going green.
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 more attractive to customers, employees and other stakeholders who 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’ environmental impact, Colabello noted several forces putting pressure on companies to build robust sustainability strategies:

• Employees: Workers increasingly want to join and stay with companies that align with their values. Employees may ask about sustainability commitments during the hiring process, expect ethical labor practices and push for greener workplace policies, such as remote work options or waste reduction initiatives.
• Customers: Consumers are paying closer attention to how products are made, packaged and shipped. Many customers actively seek sustainable brands, ask questions about sourcing and are willing to switch companies if they feel a brand’s practices don’t align with their values.
• Investors: Investors and lenders are factoring environmental, social and governance (ESG) criteria into funding decisions. Companies with clear sustainability strategies may find it easier to attract business investors, while those without them could face higher scrutiny or risk being overlooked.
• Retailers: Large retailers often set sustainability requirements for their suppliers, such as packaging standards, emissions disclosures or ethical sourcing policies. Businesses that can’t meet these requirements may lose distribution opportunities.

Building a sustainable business for the long term

Freiberger believes a business can become sustainable by focusing on the bare essentials it needs to survive and then growing from there. He advises making long-term projections and keeping an eye on the distant future instead of focusing on more immediate profits.

The urgency for sustainable business models is underscored by the global waste crisis:

• Humanity produces more than 400 million tons of plastic each year, much of which ends up in the environment, according to the United Nations Environment Programme (UNEP).
• An estimated 19 to 23 million tons of plastic waste leak into lakes, rivers and seas annually, polluting ecosystems and food chains, UNEP reports.

For businesses, packaging, shipping materials and product design choices all contribute to this waste stream — and represent opportunities to cut costs while reducing environmental impact.

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. Source articles were conducted for a previous version of this article.