Circular business models often fail when they’re designed without factoring how the business works, what the customers want, and what the product requires. These need to be considered together, not in isolation, to ensure that delivery, adoption, and revenue generation are possible at scale. Thinking about fit might feel obvious, but in this episode, we hear how many businesses often overlook these elements.
Circular business models often fail when they’re designed without factoring how the business works, what the customers want, and what the product requires.
These need to be considered together, not in isolation, to ensure that delivery, adoption, and revenue generation are possible at scale.
Thinking about fit might feel obvious, but in this episode, we hear how many businesses often overlook these elements.
In the second part of our mini series exploring 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 three common pitfalls around strategic misalignment, and how to avoid them.
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.
[01:17:38.000] - Pippa Shawley
Welcome back to the Circular Economy Show and our Mini Series, exploring Why Circular Business Models Fail. I'm joined again by my colleagues Maddy and Ella. Welcome back.
[01:17:47.380] - Ella Hedley
Hello.
[01:17:48.240] - Maddy Oliver
Hi.
[01:17:48.820] - Pippa Shawley
Today, we're exploring Cluster number 2 from the work you did, which is Strategic Misalignment. Maddy, what does that mean?
[01:17:56.140] - Maddy Oliver
It sounds a bit funny, doesn't it? But I promise it's obvious when we start talking about it. Really, what we're looking at here is Circular business models can really struggle to get going if we're not factoring in how the business works, what the customer really wants, and also what the product requires for a particular business model. This might sound like a really obvious thing, but actually, it was a thing that companies really struggled with, and it was one thing that we often found was a major barrier. All these things really have to be considered together at the same time, and you really have to make sure that the operational delivery, the adoption, and the revenue generation makes sense for the context of the company.
[01:18:34.760] - Pippa Shawley
We've got three pitfalls.
[01:18:36.880] - Maddy Oliver
We have.
[01:18:37.720] - Pippa Shawley
What are they?
[01:18:38.440] - Maddy Oliver
They are: Pitfall 3 is, Mismatching The Business Model and The Organisation. Pitfall 4 is, Neglecting The Customer Experience, and Pitfall 5 is, Overlooking Product Alignment.
[01:18:50.500] - Pippa Shawley
Ella, Pitfall number 1 that we're talking about today and Pitfall number 3 from your work is Mismatch The Business Model and The Organisation. Tell me a bit about that.
[01:19:00.060] - Ella Hedley
When you're selecting your business model, you really want to be thinking, "How can we make the case for Circular business models within this organisation and really get some energy going behind them?" Quite fundamentally, what does the operational model of your business look like. If you're not considering how your organisation functions and the skills, capabilities, and systems that you have in-house, you can end up with a model that is so drastically different from what you're currently doing, that it takes a business a while to catch up. That really creates… you lose that energy, and it makes it much harder to make the case for the model being successful.
[01:19:39.620] - Ella Hedley
When you're thinking about that, that's not just internally, that's also your broader supply chain. Something that we found quite often was that organisations were looking at, externally, what was trending and doing really well, essentially. Particularly in the fashion space, we're seeing a lot of resale, for example. Using that as an example, as the rationale for operating that model, rather than really considering how that's going to work within the organisation.
[01:20:08.270] - Pippa Shawley
So, doing what everyone else is doing rather than thinking about what's right for your business?
[01:20:12.000] - Ella Hedley
Yeah, totally. I think because there is this real energy at the moment around certain models, there's a sense of FOMO, not wanting to miss out, but without doing maybe that foundational work.
[01:20:22.740] - Pippa Shawley
You don't want to just go in and say, "We want to be the vinted of car parts or something."
[01:20:27.560] - Ella Hedley
Totally. Yeah.
[01:20:28.340] - Pippa Shawley
Okay. What did you see when you were talking to these businesses, Maddy? Have you got any examples?
[01:20:32.510] - Maddy Oliver
I mean, so many examples of exactly that, the trend following. I think one of the best ones was really… We did look at high street fashion brand that had jumped for resale for the reasons that we spoke about. It was really exciting then, particularly because they were bringing in a new customer segment that they didn't really have access to. That generated a lot of excitement in the organisation, and leadership were really keen on that.
[01:20:57.220] - Maddy Oliver
But what we saw is that the setup that they had internally, they were very much optimised for a large volume, one-way flow, if you like. It really just wasn't from a logistical and a stock management perspective, something that was easy for them to operationalize. Because they had to do it in such a small way for the pilot for those reasons, they just didn't get the volume that they wanted. I think that the only negative thing to come from that learning was really that it really harmed the perception, I think, of how successful these models can be at scale in the leadership team.
[01:21:29.620] - Pippa Shawley
What is the solution, Ella, with this problem?
[01:21:33.880] - Ella Hedley
I think the first thing to say is there are so many different options with Circular business models. There are different entry points that you can consider. As I said, we really want to think about how you get the organisation on board. Can you see that there's an obvious way that you can implement a Circular business model that maybe requires a smaller change management in the short term that can get that trust, I guess, because we are asking organisations to do something quite different.
[01:22:05.680] - Pippa Shawley
Is there something there about not overthinking it too much and maybe not choosing the hardest and the best path? Is there a little bit of that there?
[01:22:15.280] - Ella Hedley
Possibly. I think something we saw with this is that there's not a consistent right way of doing it. I guess to Maddy's point in the previous episode, there are different ways you can manage these pilots, and sometimes "that could fail fast" approach is great. Maybe why not try lots of different things? But I think knowing who you are as an organisation, if you have a "fail fast" culture, by all means, try different things out. But if you know that you have a longer innovation cycle, you have more of a tradition of bigger upfront investments, I think that's when you need to be really strategic and just really take stock of where you're at and what's feasible for you to deliver as an organisation in the first instance.
[01:22:57.000] - Ella Hedley
To that point, there's definitely something around mapping capabilities. If you're going to deliver a rental model, do you need to consider cleaning? Do you need to consider what happens if there's any damage to parts? Really understanding, if you break this model down, what does that look like? What do you need? What skills do you have internally? Then maybe what do you need to outsource? Are there partnerships that you can create which will help you? You're not an expert in cleaning clothes with ozone technology. Who is? Bring them in.
[01:23:33.200] - Pippa Shawley
Ella, what's the next pitfall we're talking about?
[01:23:35.460] - Ella Hedley
This one is Neglecting Customer Experience. With Circular business models, we're quite often asking customers to interact differently with the organisation. Where in a linear economy, they buy something, the transaction is done, that's the interaction. With a circular business model, they might be sending something back for repair, they might be returning it so that it can be resold. There are numerous interaction points, and they can be unfamiliar, they can be different.
[01:24:05.300] - Ella Hedley
When organisations didn't really hone in on this and really get to grips with how that customer was going to engage throughout that journey, that's when we saw failure happening. There wasn't the uptake or conversion dropped. I think that's something that's really around how we can make these models clear, how we can make them compelling, but also making sure we don't disconnect them from the core of the organisation and what they offer already.
[01:24:34.080] - Pippa Shawley
Maddy, can we dive into those examples a bit more? What can you tell us there?
[01:24:38.000] - Maddy Oliver
Yeah, I think there is that sometimes a common misconception that the customers don't like Circular interactions, that they're more difficult, or they're harder. But actually, I think what we really saw here was that that actually wasn't really the point of failure. It was more about whether or not those experiences had been designed with that Circular business model in mind. Actually, when they had, there was a very different interaction.
[01:25:02.350] - Maddy Oliver
We had a really good example of a resale model where a brand had chosen to partner with an external provider for the experience part of it. They outsourced the entire online experience. Because they did that, because they wanted to do it very quickly, they created a separate online store for the resale version of that brand. It was branded to look the same, but it was a very different website. I think while they got to market quickly, and it was quite successful, what they found is that a lot of the benefits they would have had from customers of the old brand coming across to that new experience and trying refill for the first time, they really didn't have that cross-pollination because the sites were so separate.
[01:25:47.060] - Maddy Oliver
They also learned a lot about the customer who was using that new resale site, but a lot of those learnings couldn't be tracked then across back to their original experience because they were completely separate from the main channel, if you like, on the website.
[01:26:01.020] - Pippa Shawley
Separate silos, really.
[01:26:02.380] - Maddy Oliver
Exactly. A lot of those cross benefits just didn't come to fruition. Actually, eventually, they just ended up folding the external site.
[01:26:11.460] - Pippa Shawley
Which is a real shame, again.
[01:26:13.280] - Maddy Oliver
Again, it was very successful. That really wasn't the problem. The problem was they hadn't really nailed the customer experience.
[01:26:20.580] - Pippa Shawley
Nailing the customer experience is really important. What are those solutions to make that happen, Ella?
[01:26:26.400] - Ella Hedley
Designing for ease for customer adoption from the outset is going to be a huge one. At that very start point, think about what the process is going to be for the customer and how it's going to be a desirable experience for them as well and something they want to engage with. To Maddy's point on the example as well, there was a marketing spend that they had to be added to that pilot because they were sending customers in the wrong direction. Not the wrong direction, to another place.
[01:26:53.530] - Pippa Shawley
They're breaking up the journey.
[01:26:55.240] - Ella Hedley
They're breaking the journey, totally. If you can limit those areas where you need to make changes and really embed it into your core model, I think that's also really exciting for the customer. Also, selecting a high volume customer or a large customer base. Again, from the get go, how do you make sure that you're going to get conversion? Maybe not making it a niche customer space is a helpful one.
[01:27:24.640] - Pippa Shawley
Also, it probably speaks to what we were talking about last time about scaling these beyond the pilot.
[01:27:29.680] - Ella Hedley
Totally, yeah. What does that look like in the next iteration? How do you make sure that that volume grows? I think going for a target customer that can help make that path. Then there's also something about how you engage your customer management teams as well. We're not just asking more of the customer, we also need to ask more of our customer management teams and really think about how they're designing their interactions. If it's not just a "thank you for ordering" email, what does that flow look like?
[01:28:07.100] - Pippa Shawley
Our final pitfall today, Ella, what is it?
[01:28:09.700] - Ella Hedley
Overlooking Product Alignment. When usual innovation processes happen, there's a real focus on product-market fit. What we found when looking at Circular business model implementation was that there was such a deep focus on how to deliver the Circular business model. The product almost became a bit of an afterthought. The failures came down to two things. One, is the model desirable using that product? Do I want to rent a kettle? Maybe not. Would I be up for repairing it? That feels a bit more like something I'd like to do. So, really, does the customer want it.
[01:28:50.260] - Ella Hedley
Then the second point is around how the physical attributes lend themselves to the model. If you're going to be renting something, you want something that's going to be durable and that is going to require minimum maintenance because the more interactions that you have to have with that product, repairing it, et cetera, the more expensive that model is going to be. It's things like that. If you're going to resell, again, you want durability. If you want something to go through a repair business model, maybe designing it for modularity and thinking about how do those components easily become replaceable.
[01:29:24.080] - Pippa Shawley
Maddy, what other examples have we got there? Give us a deep dive into that.
[01:29:28.120] - Maddy Oliver
I mean, so many examples around durability of items and maybe not picking the right item for that particular model. I think that comes back to what we talked about a little bit in the first Pitfall this time around was also about following trends, so getting too excited about following a trend in resale, but actually not thinking about how your products best suit that. I think there's some really obvious ones there.
[01:29:50.760] - Maddy Oliver
I think one of the ones that was quite interesting to me was really around that "customer wants" piece. We had an example of a very large retailer that chose what they thought, I think, would be a really classic product for rental. They had a lot of backing for that. It really felt like there was momentum already in the business around rental as a really great revenue driver. But what happened is actually it was quite an unusual experience for the customer to rent that product. It was a high-cost product, and you would say probably that it was infrequently used. But people just weren't used to not owning that particular product.
[01:30:32.310] - Pippa Shawley
They weren't in the headspace to accept the rental idea.
[01:30:34.660] - Maddy Oliver
Exactly. Maybe that could have... When we spoke to the product team, they even said that maybe 10 years down the line, the conversation around that might change. Our culture and our mindset towards these things does shift over time. But at that particular point in time, customers just weren't ready to interact with that product in that way. Unfortunately, it didn't gather the momentum that it needed.
[01:30:55.440] - Pippa Shawley
That was a failure. Ellen, talk to us about the solutions for this one.
[01:31:01.020] - Ella Hedley
This one's really about testing the combination of product and model fit. Just doing a basic brainstorm mapping is quite interesting just considering what attributes you need and what's going to make something more desirable and against those different Circular business models. Just, again, taking the time upfront to really think about that.
[01:31:22.220] - Ella Hedley
There's also something about starting with a high potential product as well. I think we've seen it quite often where organisations have chosen something very specific, a new line or a line with a very specific story. Actually, maybe consider that perhaps your most popular product could be the most sensible place to start to really make that case for extending and applying Circular business models to other products.
[01:31:50.300] - Pippa Shawley
Because you know people are already invested in that product.
[01:31:52.380] - Ella Hedley
Totally, exactly. You don't have to, again, create any hype about that product. You know people love it. Would they love to rent it? Then there's also that piece around how do you just map the needs of the model against the product. Can you think about how maybe things could be designed slightly differently? Are there small evolutions that your design team can make in terms of the product so that they're more applicable for a circular business model?
[01:32:24.140] - Pippa Shawley
All great ideas. Thank you, Ella. Today, we've talked about Strategic Misalignment, and we've heard about the problems of Mismatching The Business Model and Organisation, Neglecting Customer Experience, and that last one there about Overlooking Product Alignment.
[01:32:37.400] - Pippa Shawley
Next week, we're talking about Relying On The Narrow Business Case. I hope you can join us then. If you can't wait till then, you can explore the paper, or if you want to find examples, they're also in there. Otherwise, we'll see you next time.