What makes circular business models fail to scale? In this new four-part series, we’ll be exploring the common mistakes businesses make on their journey towards circularity. Based on the Ellen MacArthur Foundation’s new report: How not to fail: Avoiding 10 common pitfalls when scaling circular business models, Pippa is joined by Maddy Oliver and Ella Hedley, who led the research on the paper. You’ll hear about the experiences of pioneering companies, and learn about the practical steps that businesses can use to avoid common pitfalls and enable circular business models to reach transformative scale.
What makes circular business models fail to scale? In this new four-part series, we’ll be exploring the common mistakes businesses make on their journey towards circularity.
Based on the Ellen MacArthur Foundation’s new report: How not to fail: Avoiding 10 common pitfalls when scaling circular business models, Pippa is joined by Maddy Oliver and Ella Hedley, who led the research on the paper.
You’ll hear about the experiences of pioneering companies, and learn about the practical steps that businesses can use to avoid common pitfalls and enable circular business models to reach transformative scale.
In this episode, we explore:
If you enjoyed this episode, please leave us a review or a comment on Apple Podcasts, Spotify or YouTube. Your support helps us to spread the word about the circular economy.
[01:00:08.220] - Pippa Shawley
Hello and welcome to the Circular Economy Show. On this podcast, we often talk about the opportunities and the successes in a circular economy, but maybe we don't talk enough about the failures or the struggles that help us to get there. Over the next four episodes in a mini-series, we're going to be looking at why circular business models fail to scale. We've got 10 common pitfalls that have been identified through some research which has been brought together in a paper, and I'm delighted to be joined by Maddie and Ella who have led the research on that. We're going to break it down in four episodes because there's so much information in there to explore, but let's get into it with Part 1.
[01:00:48.640] - Pippa Shawley
Ella, could you recap very quickly on what we mean by circular business models?
[01:00:53.120] - Ella Hedley
Circular business models are about moving from the world in which there's a straight line from production to disposal towards models which are designed to keep products and materials in use for as long as possible and at their highest possible value. Ultimately, our goal with this is to decouple economic activity and economic growth from resource consumption. This might look like a resale model, using second-hand goods, selling them on again, or it could be rental…
[01:01:22.920] - Pippa Shawley
Repair, things like that.
[01:01:24.240] - Ella Hedley
Repair, exactly.
[01:01:25.140] - Pippa Shawley
There's a huge amount of creativity involved in that and lots of opportunity, isn't there, Maddie? What about scaling that?
[01:01:31.760] - Maddy Oliver
So much. There's so much noise and uncertainty for businesses at the moment, and it's really challenging. One of the great things that circular business models can offer is competitive advantage. There's so many top-line benefits. We're thinking about things like driving new sources of revenue, attracting new types of customers, and then also increasing customer loyalty and satisfaction once you have got those new customers. For the bottom line, we're thinking about things like cutting material costs, reducing risk of supply chain disruption, price volatility, supply gaps that we see a lot nowadays from climate change effects and other things, political instability, and then also really just reducing the risk of future policy changes as well, all while helping our climate and biodiversity goals.
[01:02:18.840] - Pippa Shawley
Yeah, addressing a lot of those issues. Something that we've heard Rachel O’Reilly from Accenture talk about is this pilot purgatory that people get stuck in with circular business models. What's holding people back from scaling these? Because you've talked about so many advantages that it has, but there must be something that's holding people back.
[01:02:36.740] - Maddy Oliver
It's so true. I couldn't agree more. But definitely in pilot purgatory, there's so many companies that have seen the advantage and really started to try out pilots and smaller scale projects from startups to huge corporations, and they've been quite visible. But what we haven't really seen is that translate into large scale. When we say scale in this paper, what we're really talking about is that shift to circular business models being a dominant source of revenue for a company, and eventually, hopefully replacing the linear side of their businesses. While we're seeing a lot of momentum towards these pilots, we're just not seeing that large scale takeover.
[01:03:16.400] - Pippa Shawley
We're really focusing on the failure part here, which feels inevitable to me that there must be some level of failure because with some of these organisations, you're asking them to really change the way they do business, aren't we?
[01:03:30.350] - Maddy Oliver
Absolutely. We're definitely not saying with this paper, "Don't fail." I mean, failure is such an important part of the innovation process. It's those sticky bits and the incremental steps along the way that really generate the most fascinating learnings. I think what we're really calling for here is just more transparency on that process. It's so hard for people to learn from those collective experiences if we don't talk about them. That's why we've really chosen to focus on that.
[01:03:54.980] - Maddy Oliver
We're really in a unique position to do that. We convene this large business network, and we have access to have conversations with so many pioneering businesses that are really leading the charge on circular business models. It felt really natural that we could have that conversation and really try and learn from the experiences that they're having.
[01:04:14.180] - Pippa Shawley
Tell us a little bit about the work that you did to get to this point. We're having four episodes exploring this, and I'm really glad that you're both here to talk us through that because when you first approach me with this idea, I looked at the work you did, and I thought, "There's so much in here, but there's no way that you can absorb all of that in one episode." I'm really happy we're splitting into four. But tell us about the work that's supporting this, Maddie.
[01:04:34.400] - Maddy Oliver
I guess the premise was to ask as many companies as possible about their experiences. We ended up speaking to 30 plus organisations in the network from a really broad range of industries and types of business, also types of circular business model that they tried. We've really tried to distil all of those learnings into the common things that we saw people struggling with that were universal across those industry and business model contexts. We've clustered them into four key areas, and that's what we'll explore in these episodes.
[01:05:07.400] - Pippa Shawley
There are 10 pitfalls you've identified overall, and then you've consolidated those into these four clusters. We're going to take a cluster per episode just to break it down a bit more.
[01:05:17.760] - Maddy Oliver
Exactly. What's really important to note as well is that one of the biggest things that we decided to focus on was internal barriers to scale. There's obviously so many external factors that can affect a company going to scale with the circular business model. But when we were having these conversations, we realised that the most common things were the internal challenges. That was a bit more exciting to us. It's very much within the agency of a lot of practitioners to think about what they can control in the organisational setup of the project or what stakeholders they work with and how the project is organised. Those are the things that we really chose to focus on.
[01:05:52.500] - Maddy Oliver
I was so surprised how excited people were to talk about this. I think that's been one of the most energising experiences that I've had at EMF. It was, I guess, cathartic for people to talk about what's not working. Actually, there was no negativity there at all. It's really about what can we collectively learn to move forward. It's really nice to be able to have those conversations. I was really, really grateful to everyone that chose to spoke to us and really excited to be able to share this.
[01:06:24.480] - Pippa Shawley
Ella, what was that first cluster that you identified?
[01:06:28.120] - Ella Hedley
The first thing was about thinking too small, how we categorised it, but it's essentially about mindset. What we really want to achieve, as Maddie said, is that transformative state in which circular business models are really generating high volumes of revenue for these organisations. What we found—and it feels like a very obvious learning but was by far and away perhaps the most common learning—is that whilst a lot of people saw these business models as innovative and exciting, they weren't necessarily looking at how that plays forward. Those design decisions you make early on can have a huge impact on whether you get to that later state.
[01:07:08.560] - Pippa Shawley
Let's dig into the pitfalls, Maddie. What was the first pitfall in that thinking-too-small category?
[01:07:14.240] - Maddy Oliver
Pitfall one was lacking a plan of scale from the outset, and it's really what it says on the tin. That common issue of so many companies just jumping at the opportunity to do a pilot for something, which is fantastic, and we love that momentum. But as Ella said, really lacking a future vision of what happens after that.
[01:07:33.700] - Maddy Oliver
Pilots generate some fantastic learning. We definitely saw that and heard that as a story. But what can happen is if you haven't got that vision for the longer term setup, the organisational setup, the stakeholders that are going to be involved internally, what departments are going to be, where, what goals. You're going to have all those things. The learnings that you generate from a pilot can sometimes not actually translate very well when you try and go to scale. I think that was the really big sticking point here was if you're going to use a pilot successfully to help you on that approach to scale, it needs to really have a lot of those elements already be in place. You need to have that vision from the outset for it to be effective.
[01:08:11.520] - Pippa Shawley
You said you spoke to 30 organisations. Ella, I wonder if you can give… Because I'm sure people are listening or watching and nodding along to this with their experiences. But what did you hear when you were speaking to these organisations?
[01:08:21.320] - Ella Hedley
Well, one example in particular, we know that with delivering circular business models, partnerships can be really useful. We're looking at how you… There's quite a lot of change if you're moving from a pure sales model into, for example, a rental model. We did speak to one organisation who chose to partner with an external delivery partner for the whole delivery of their pilot.
[01:08:44.440] - Ella Hedley
What they found was they had great success. There was a real customer conversion, great margins, and it was definitely… It made the case internally for why they should invest more in this model. However, what they had done was design this whole model around delivering with that specific provider. When they brought that model in-house to scale it up across their different geographies, and in that context of who they were as an organisation, they had to do things like change to a different product because they had to align with the premium brand they had. They had to use different geographic locations. All of these things meant they actually lost the customer excitement that they generated in that pilot. They didn't have the learnings from what had gone wrong, what had gone right, and how it had been amended in that pilot phase.
[01:09:32.440] - Ella Hedley
It was just fundamentally very different. They really lost that momentum that they gained in the pilot. Unfortunately, leadership then can dip.
[01:09:41.080] - Pippa Shawley
That's what you're saying because there were all those learnings, and they could have gone so much further. Maddie, what's the solution to that? How do we avoid that happening in organisations?
[01:09:50.180] - Maddy Oliver
Ultimately, be very specific to the context of the organisation. But I think what we're really saying is overall, treating scale as the goal from Day 1 is really what you want to be doing. Thinking about the stakeholders, the processes, the operational side of things, what that will look like in the future, and really almost building a roadmap backwards to try and get there. It's really important that you have buy-in along the way. Working with those people early on, and we'll talk a little bit more about partnerships in the fourth part of this series. But that's really one of the main things.
[01:10:24.520] - Maddy Oliver
I think also then really considering critically whether piloting is the right approach. I think for some business models, for all, there's probably going to be an element of viability, and you want to check what's going to work and what isn't. But I think for some things, if you already have a direction set, piloting wasn't always the most effective way for organisations to get there. Actually, a longer-term transition with that roadmap that we talked about with actually different testing and learning approaches along the way that maybe doesn't necessarily look like pilots can sometimes be a better option. Thinking just really critically about the best way to get from A to B and what's the best way to do that in your organisation.
[01:11:01.040] - Pippa Shawley
That it's a more holistic view than putting it into that corner, which you have the risk of falling into pilot purgatory.
[01:11:08.000] - Maddy Oliver
Absolutely. Then making sure that you've designed the partnerships to scale. Ella talked about that in the example, and that was a really common one that we heard. You've just got to make sure that those partnerships are set up in the right way. If you choose to pilot with one organisation, that's totally fine. But have that as a deliberate choice and choose what those learnings and what important data and things like that that you're going to get from the experience. Again, we'll talk a little bit more to that in the last episode.
[01:11:34.140] - Pippa Shawley
Great.
[01:11:38.000] - Pippa Shawley
Maddie, tell us about pitfall number 2.
[01:11:41.880] - Maddy Oliver
Pitfall number 2 is not aligning with the existing business strategy. Again, this sounds like quite an obvious thing, but I think what we commonly see is that because circularity has been borne out of many sustainability departments and a lot of organisations, it tends to get very narrowed into being a sustainability-only initiative. That means that we tend to think about it in terms of our climate goals or our sustainability goals, but actually not in how it relates to the rest of the business.
[01:12:13.340] - Maddy Oliver
We were saying earlier in the introduction, there's so many fantastic ways that circular business models can enhance what a business is doing. But actually, so many of those just relate to the core strategies and goals that an organisation has. It's much more powerful to be linking your circular business model goal to something that already exists in the business. I think the most common problem that we saw here is people creating circular business models as a separate strategic objective in their own right.
[01:12:44.400] - Pippa Shawley
Like doing it for the sake of doing it.
[01:12:46.560] - Maddy Oliver
Exactly. The problem is, there's just too much noise at the moment and too many other priorities that are coming up. Really, it's about linking to what you're already doing, the core parts of your identity that make you strong as a business, and thinking about the ways that circular business models can aid those existing strategies.
[01:13:02.420] - Pippa Shawley
Yeah, and staying focused on what your business actually is.
[01:13:05.690] - Maddy Oliver
Exactly.
[01:13:06.330] - Pippa Shawley
Ella, paint us that picture. What examples did you see of this in the organisations you surveyed?
[01:13:12.720] - Ella Hedley
Again, many. But particularly, a really interesting example was actually just the misconception around sustainability can be a real block. We saw with an electronics company, it's premium high-quality goods, what they produce. Their sustainability team brought forward this project, which was about introducing recycled content into their products and into their supply chain. They really made the sell around compliance and sustainability and waste reduction, which, of course, is really important. But they failed to bring forward the narrative around how this was relevant to their organisation.
[01:13:47.360] - Ella Hedley
They had a lot of pushback from their product teams who said, "Well, hang on a minute. This is not part of who we are. This is going to reduce quality. This is not playing into the perception we want to build." In fact, there was probably a really powerful story they could have told around how recycled materials could enhance what they were doing. By missing that, it trickled up to leadership, and it wasn't brought forward as a project.
[01:14:13.240] - Pippa Shawley
It's also thinking beyond the sustainability thing. Maddie, you were saying how these initiatives can come from sustainability teams, but you need that wider team buy-in as well. What are the solutions to that, Maddie? What did you discover?
[01:14:27.060] - Maddy Oliver
As we alluded to in the example, anchoring your business model objectives to the core objectives of your business, finding that hook. You might find that that's different for every team. You may even find that you don't need to use the term circular economy or circular business model. So many powerful pieces of identity that businesses have, you can link to circularity anyway. We have a really good example of this. I mean, Arc'teryx has always been about durability, and we see that their angle on circular business models, it talks very much to that. They're using their existing identity, and they're linking it to their core strategy, and that's what we need to see more businesses doing.
[01:15:03.400] - Maddy Oliver
That also links to targets and KPIs of each team. If you're not pushing in the same direction for common goals, then we know that's going to be a huge problem. Again, we'll talk more to working with other teams and partners in the last episode, but that's a really crucial part.
[01:15:19.340] - Maddy Oliver
I think, lastly, it's finding the right language to use. As I said at the beginning, you don't always need to use the term circular economy. But I think there's some really compelling and exciting ways to talk about circularity. Accenture did a brilliant piece of work called Our Human Moment, which really speaks to the way that circular experience has really resonate with people. That piece of work was about customers, but I think it can be applied really brilliantly internally in an organisation as well as a way to think about how to talk to different team members in different parts of the organisation and make sure that you're speaking the right language for them.
[01:15:53.900] - Pippa Shawley
Thanks, Maddie. Thanks, Ella. That was cluster number 1, which was thinking too small. We heard about the lacking a plan for scale from the outset and the missing link to core business objectives. We've got three more clusters to come over the next three episodes. Ella, what's next?
[01:16:09.680] - Ella Hedley
Next up, we'll be talking about strategic misalignment and then going into narrow business cases and going it alone.
[01:16:16.940] - Pippa Shawley
Fantastic. Well, if you can't wait till then, you can explore the paper we've been discussing. We'll put a link in the show notes. But if you enjoyed this episode, leave a review and come back next time. We'll see you then.