What Is Circular Economy & How Can It Benefit Startups' Profitability?

The path towards a sustainable business model for startups is the Circular Economy which drives them away from the make and waste model towards value creation and profitability.

Adoption of core principles of circular economy – reducing, reusing, refurbishing and recycling can help startups build a strong cash pool and minimize wastage.

With sustainability campaigns given more plus points across the world, the start-ups can now look at tapping huge opportunities in the circular economy. The environmentally conscious governments and consumers from all around the world are ready to put in more in the businesses adopting circular practices.

According to a report, In India, the opportunities in the circular economy are put at $500 billion in sectors like agriculture, food, beverages, metals, mining and electronics.

What is a Circular Economy?

The circular economy is a model of production and consumption which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended. In practice, in a Circular Economy, the waste is reduced to minimum. Afterwards, when the product reaches the end of its life, its parts are kept for re-use for as many times and in as many forms as possible.

This creates a true value chain for the startup and shows generosity towards depleting Earth’s finite resources.

Role of Startups in creating Circular Economy

Many startups are already playing a crucial role in creating a circular economy either through research, development, innovation or digitalization. The startups are coming up with sustainable products and valuable services with environmental concerns in focus.

Startups also play an important role in spreading awareness through their products, dissemination of ideas digitally or educating their larger counterparts by exerting social and moral pressure to come up with business models and products that care for the environment and society.

What are the challenges in taking Circular route?

According to the World Economic Forum, efforts to create new business models in accordance with completely circular processes, opposed to linear ones, have increased considerably in recent years. 

But while early-stage start-ups that prepare new business models according to circular processes try hard for this change, they have difficulty in creating enough impact.

Conversely, big corporate companies that have been working with a linear way of thinking for many years, tend to get stuck to the "limits" of linear processes in transforming all their processes and find it difficult to keep up with the change.

Also, any individual firm or startup cannot adopt Circular approach in isolation. The entire ecosystem needs to adopt similar practice in this interconnected world.

How is Circular Economy is Equal to Profitability for Startups?

For startups, its critical to create value chain and profitability. Circular economy will help startup move away from the linear economic model which works on the principle of buy – make – consume – throw and moves towards using materials for longer time and thus prevent entry of a plethora of products into waste stream. 

• In a circular economy, a startup can design and create a product using minimum resources which stay in usage for a longer period. After the primary purpose of the product is over, it can be recycled, refurbished and reused for some secondary purpose.
• This model relies on large quantities of cheap, easily accessible materials and energy.
• Startups can go for E-procurement of materials to reduce the turnaround time. This is not only saving time consumed in buying raw materials or services, but it will ensure seamless business and transparency.
• In a circular business model, the unused or unwanted product can be thrown back in circulation – either manufacturing or biological.
• The startups can have a high product longevity in a circular business model. Such startups can build products that can be repaired, refurbished, upgraded, recycled. This will ensure flow of money throughout the product’s life-cycle.
• Demand for Parts and Components will generate income for the startup.

Starting from the start

Startups have an option to build their businesses based on the principles of circular economy from the start of their journey.

With no expectations from the consumers, untapped markets, open options to explore second hand equipment, modern technologies, the startups have the potential to bring the change which their larger counterparts cannot. They can rent equipment, market their product using sustainability as their biggest USP and tap unexplored markets in this digitally connected global market.

Startups can have smart access rather than costly ownerships

The Ellen MacArthur Foundation has raised questions about the necessity to owning products the way we traditionally do. It is access to the service a product provides that is important, rather than the product itself. One can rent out equipment that performs a task to be undertaken with less frequency rather than use virgin equipment. Understanding this shift in mindset lays the groundwork to many of the practicalities of shifting a business model from linear to circular.

Circular Economy Vs Linear Economy

Linear Economy = Take, Make, Dispose
Circular Economy = Make, Use, Recycle

According the Gartner, transforming from a linear to a circular economy is a transformation that takes time, collaboration, a clear strategy, a holistic view.

According to researches, Circular economies will replace linear ones within the next ten years, leading to the statement that by 2029, the circular economy will be the only economy.