Sustainable Business Solutions

Sustainable Business Model Design

Module Instructions: Click on "+ Text" to expand and on links/buttons to access templates.

 
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Welcome

In this module, you will learn to design a sustainable business model

A business model is the way a company makes money. This is the cornerstone of every business and sets the stage for strategic and operational actions. Given the business model's centrality to a company’s DNA, sustainable and unsustainable systemic features can be introduced or removed at the start. A sustainable and profitable business model is therefore key to all business actions that take place afterwards.

+ Situation

Sustainable businesses are favoured by global markets that have rapidly become more competitive and transparent. Sustainable business models have been shown to be more resilient, more profitable over the long-term, more attractive to customers, investors, employees and business partners, and reduce operational risks. A majour reason for this is that sustainable business models are able to better account for important costs and benefits that societal and environmental factors bring to the business.

In contrast, old business models are being punished. Customers, investors, employees and business partners are leaving these stagnant, wasteful, harmful and/or short-sighted businesses for their more sustainable competitors. One of the main reasons for this trend is that outdated operations that fail to capture value and costs correctly. There is misalignment between their perceived and actual revenues and expenses. There is therefore an imperative to change to more sustainable business models and companies that fail to have sustainably designed cores are dying out as markets continue to evolve.

+ Question

The question, therefore, is: How do we create a sustainable business model? In other words, how to create a business model that:

  • embeds long-term profit generation into it - capturing actual full costs and benefits
  • benefits people and doesn’t harm the environment
  • increases its relevance and attractiveness to high-quality customers, investors, employees and business partners.

+ Solution

The answer to this question can be found in this module. The tools and guidance found here will help you carefully design a sustainable business model that will help you answer the following questions:

Who is the right customer to have? What unique value can I offer them? How can I sustainably deliver on this? How will I generate sustainable revenues? What will my full costs be? What will my profit formula look like? What benefits will my new business have on society and the environment? How will society and the environment pay for my actions (and how can I mitigate this)?

Module Benefits

 

#1

SUSTAINABLE FROM THE START

+ Sustainability is embedded into core business

A sustainable business model results that, from the beginning, the business is designed to create long-term profits that benefit people and don’t hurt the planet. All parties involved know what you’re doing and why you’re doing what you’re doing. This allows for better alignment and buy-in between stakeholders. This proactive approach also helps companies to have sustainability central to their competitive advantage. This allows them to have sustainability permeate throughout departments and functions, rather than have it as a reactionary, impotent and often disjointed factor that is largely seen as a checklist liability or irrelevant expense.

+ Activities are futureproofed by design

Risk mitigation process and innovation are built into the business by design. These measures both increase company resilience and longevity. Reduced risks result in a lower probability of stranded assets, negative impacts to brand equity and costly liabilities often associated with traditional business models. Innovation ensures constant value seeking, growth opportunity creation and company evolution to remain relevant.

+ Long-termism is central to the company operations

The company is better positioned to focus on long-term goals by design rather than stochastically react to short-term pressures and activist investors. All departments are created to have the company’s sustainable core central to their processes. This reduces costly operational misalignment and conflicts of interest from the start.

#2

INCREASE SUSTAINABLE PROFITS

+ Create sustainable revenues

Sustainable business models access previously untapped markets, focus on long-term sales and customer lifetime value. They hope to meet real needs and provide real and lasting value that are not subject to short-term trends. Furthermore, because they are geared to creating sustainable value (i.e. total cost < price < value) they have longer horizons.

+ Reduce costs without harming people or the environment

Sustainable business models consider a number of new and lasting ways to reduce costs without negatively impacting society or the planet. They optimize processes and look for new and better ways to design waste and harmful processes out of the businesses. This includes designing and creating powerful value chains to better meet customer needs. An example of this is circular economy thinking in which durable, renewable and reusable processes design costly waste out of the value chain. This reduced commodity risks, and societal and environmental impacts; whilst reducing operating costs, increasing competitiveness and fortifying stakeholder relations.

+ Increase company resilience

Sustainable business models move from short-term survivalist thinking to long-term growth and value generation. As a result, they are less exposed to short-term negative downside and pressures because they have both financial and non-financial margin and buffer built into them. This allows them to weather potentially catastrophic events.

#3

BE MORE ATTRACTIVE

+ Attract higher-quality customers

Sustainable businesses are desirable to customers that are either willing to pay more for sustainable products or are more loyal and have a higher customer lifetime value. Because the company has a clear and transparent vision that the customer buys into, they are more loyal and can become fans that in turn promote the products to their sphere of influence.

+ Attract higher-quality investors

Wealth managers are aware of the value of sustainable businesses bring to their portfolios and their ability to provide more consistent returns over the long term. Responsible investing is sharply on the rise. Investors in this space look not only at financial returns, but also at non-financial (e.g. environmental, governance and social) aspects of a business as a proxy for long-term financial returns. This is a deterrent to potentially harmful activist investors that aim forcing unsustainable measures to increase company performance in the short-term at the expense of their long-term health.

+ Attract high-quality business partners and employees

Suppliers want to work with sustainable businesses that have intelligent, profitable and resilient value chains. These suppliers act as business partners that help grow your business through smart cost savings, fostering better relationships with local communities and facilitating surety of supply of raw materials, goods and services through conserving the natural environment. Employees perform better over the long term in businesses that are more sustainable than those that aren’t. Companies with sustainable business models also have lower churn rates and higher employee satisfaction as employees feel a sense of purpose.

#4

IGNITE INNOVATION

+ Capitalise on the latest technology to meet customer needs

An evolving and sustainably innovative business is able to continually grow with its customer base to better meet their needs and extract more value from them over time. Companies with sustainable business models balance focus on value innovation over technological innovation to meet the sustainable needs of its most valuable customers to avoid obsolescence. This approach uses technology not as a means to itself, but rather to align the company with its customers’ true value perceptions

+ Reach untapped and previously unreachable markets

A sustainable business approach opens new avenues of value creation and access to new, previously untapped markets through value innovation. Better built products, new product offerings, entrance into new growing industries, platform creation, and many other evolutionary and revolutionary innovative growth models are available with thinking using the right tools.

+ Maintain a sustainable competitive advantage

By building validated learning processes into your business model you are able to gain meaningful insights that will help you add more value to your customer base. This will allow you to better anticipate your customer’s future needs as markets shift. Because of your sustainable and adaptive business model built on a long-term outlook, you are able to develop your business to proactively align yourself with your most valuable customer segments and in so doing maintain a competitive advantage.

Tool Overview

 

How to design a sustainable business model

The tools in this section will help you to design your sustainable business model. This will allow you to capitalise on the benefits described above. Therefore, it is recommended that you revisit these benefits while designing your business model to make sure you are capturing as much value as you can. The tools can be used when designing a new business model at a company or project level.

 

The Basic Elements

of your new sustainable business model will consider the following questions:

+ Who are you selling to?

  • What niche are you targeting?
  • Are they attractive?
  • What are their pains and gains?
  • Is this need sustainable?
  • Is solving this need valuable?

+ What will you do for them?

  • How do you aim to alleviate their pains and help them achieve their gains?
  • What is your value proposition?
  • For existing companies: Is the new value we’re creating similar to existing value that we already offer? The closer the better.
    • Ask: Does the new value we’re creating increase our margins, our transaction size and increase the market share we’re targeting?

+ How will you communicate?

  • How will you reach your customers?
    • What channels will you use?
  • How will they reach you?
    • What channels will they use?

+ What capabilities do you need to deliver?

  • Who will you partner with?
  • What processes will you use?
  • What resources do you need?

+ How will you make money?

  • What revenue model will you use?
  • What is your cost structure?

+ What societal costs and benefits will occur as a result of your activities?

  • How will others be impacted by this?
  • How will you be impacted by this?
  • How will others benefit from this?
  • How will you benefit from this?

+ What environmental costs and benefits will occur as a result of your activities?

  • How will the environment be impacted by this?
  • How will you be impacted by this?
  • How will the environment benefit from this?
  • How will you benefit from this?

In summary, a successful sustainable business model involves understanding and creating your capabilities (processes and resources) to address your priorities (value proposition that sustainably satisfies your customer’s need in a profitable way).

 

 

Tool 1

 

Sustainable Business Model Template

To design your sustainable business model, take the time to carefully answer the questions in the five steps below. You can write down you answers in a Sustainable Business Model Template. Work in your team with all the relevant decision-makers while doing this.

Method

+ Step 1: Target market

  • Who are you selling to?
  • What are their pains/gains?
  • Who are your most important customers?
  • What are they like?
  • Are they good for your business?
  • Do you foresee a long and sustainable relationship with them?

+ Step 2: Value proposition

  • What is your value proposition? Think of this in the context of alleviating their pains and/or helping them achieve their gains.
  • In other words, what job needs to be done?
  • Is it aligned to your customers’ needs?
  • Is it important to them?
  • What product and/or service bundles are you selling to each customer segment?
  • What is the minimum viable product that you need to make?

+ Step 3: Communication

  • What channels will you create to communicate to your customers?
  • In other words, what are the touchpoints you will have with them which channels will you use (to get, grow and retain customers)?

+ Step 4: Capabilities

  • What resources, processes and partnerships do you need to deliver on this value proposition?
  • In other words, what capabilities do you need? This will include:
    • Mapping the activities and resources that you need
      • What things do you need to deliver on your value proposition?
      • What things do you need to do to deliver on your value proposition?
      • Is this sustainable to all involved?
    • Mapping who your suppliers and distributors are
      • Seeing if their business models are sustainably aligned with yours
      • Seeing what will you be buying from them and selling through them.
      • Do you foresee a long and sustainable relationship with them?

+ Step 5: Sustainable Profits

Determine your profit formula by considering:

  • How you will create revenues?
  • What pricing tactics will you consider?
  • What are customers willing to pay for your value proposition?
  • What will your cost structure look like?
  • What are your most expensive resources and processes?
  • What societal benefits and costs are associated with your business model?
    • Benefits may increase revenues or reduce financial costs
    • Costs may reduce revenues or increase financial costs
  • What environmental benefits and costs are associate with your business model?
    • Benefits may increase revenues or reduce financial costs
    • Costs may reduce revenues or increase financial costs

Additional Tools

If you’re struggling to define your target market, you can use the Target Market Template as an example. If you’re struggling to define your value proposition, you can see the Value Offering Creator and Validator as an example.

 

 

Tool 2

 

Need-Work-Win Framework Checklist

The Need-Work-Win Framework acts as an error-checking process to determine if the business model you designed using the template above can be successful or not.

Again, take time to carefully go through the questions below with your team and fill out the summary of your session in a sheet like the Need-Work-Win Framework Template.

+ Need

This section checks if you are servicing an actual need. To understand this, you need to be able to answer the following questions:

  • Is there a real need for your value proposition?
  • Why does it matter?
  • Who does it matter to?
  • Are they the correct market?
  • Are they a big enough market?
  • Is the market need sustainable?

+ Work

This section considers whether you have the capabilities (resources and processes), alignment and sustainable value formula to meet the need. To understand this, you need to be able to answer the following questions:

  • Will your business model work?
  • Do you have the resources to sustainably service the market?
  • What is your operating model?
  • Do you have the sufficient financial, human, technological, social and natural capital to meet the need?
  • Will you get sufficient sustainable revenues to offset your costs and make a sustainable profit?
  • What elements of your business model are unsustainable and need to be revisited?
  • Is what you’re offering complimentary or aligned with you core competencies?

+ Win

This section considers if you can succeed in continuing to service the need through your capabilities. To understand this, you need to be able to answer the following questions:

  • Do you have a sustainable competitive advantage? List what differentiates you from others. To do this, consider:
  • What value differentiates you to your customer?
  • What do you do that others can’t?
  • What makes you in demand or rare to find?
  • How are you specially aligned to capture and capitalize on the value you create?
  • Do you have buy-in from your entire team?
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Summary

Sustainable business models equip companies to reap the benefits of sustainable business operations. These include, increased long-term profitability, resilience, brand equity, attractiveness to customers, investors, employees and business partners.

Designing a sustainable business model is a carefully thought through process that considers the following:

  • What are your priorities? 
    • What you’re doing?
      • What is your value proposition?
      • Why are you doing this?
  • What are your capabilities? 
    • What resources and processes do you have to deliver on your priorities?
  •  What are your benefits and costs to society and the environment and how will you benefit from/pay for these?

To do this, this toolkit provides you with a sustainable business design template and a need-work-win framework template.