What does a sustainable business look like?
So, you’ve decided to make the leap, to embrace sustainability and put it at the heart of your business strategy. You probably have a lot of questions now. “How do I do that? What does a sustainable business look like? What do I need to change?”
To answer these questions, you need to design a Sustainable Business Model that will:
- Improve your sustainability outcomes
- Create more value for your customers
- Generate more profit for your business
For the remainder of this article I’ll explore what a sustainable business model is, and what it looks like.
What is a business model?
Your business model is all of the elements of your business that create value for your customers and generate a revenue stream for your business. It’s the sum of all of the resources and systems you use to make a profit (or loss). In short, it’s the answer to the question “How does your business make money?”
All businesses have a business model, although not all have written it down, Business leaders, especially ones who are hands-on in the business, tend to have an excellent intuitive understanding of their business model. If they didn’t, they would struggle to run their business effectively. However, ask them to write down their business model or explain why they’ve chosen this particular model over the many others they could have chosen or to consider which elements of their business model they would like to improve, and many struggle to know where to start.
To answer these questions, we need a way to describe and document our business model that’s concise yet complete, that allows us to see the whole model on a single sheet yet is detailed enough to allow us to ask deep questions about it.
The best approach I have found for doing this is called the “Business Model Canvas” *.
The business model canvas breaks your business into 9 key elements that describe how you generate profit by creating value for your customers.
- Value Propositions: describes the value that you create for your customers
- Customer Segments: defines your key types/groups of customers
- Customer Relationships: states the type of relationship you have with each customer segment
- Channels: shows the methods by which you reach your customers
- Key Activities: lists what you need to do to deliver your value propositions
- Key Resources: lists the things you need to deliver your value propositions
- Key Partnerships: describes the 3rd parties you rely on to do key activities or provide resources
- Cost Structure: explains how the costs of your business are built up
- Revenue Streams: explains the amount and methods by which you generate income
I have modified the standard canvas to add 2 additional elements that capture the sustainability impact of your business model.
- Social Impacts: describes the impact on people of your business activities
- Environmental Impacts: describes the impact on the environment, ecology and natural resources of your business activities
The great advantages of this approach are that you can see the whole business model on a single sheet and that it allows you to look at each element of your business model to ask questions such as:
- Is there a more effective way to deliver value to my customers?
- Is there a more efficient way to run my business?
- How can we operate more sustainably?
You can then use the canvas to work through what impact these individual changes might have on your whole business model, helping to ensure you maintain a coherent model in which all the elements work together to deliver for your customers, your business and your partners.
What makes a business model sustainable?
Designing a sustainable business model involves looking at every part of the business and asking 3 questions:
- How can we improve our sustainability outcomes? (by either reducing our impact or doing more good)
- How can we create more value for our customers?
- How can we generate more profit for our business? (note the focus on profit, not margin)
A sustainable business model does all 3 of these at the same time. In an era of increasing resource scarcity**, if any one of these is missing then we will not be building a business that’s sustainable in the long-term.
The diagram above shows some example components of a sustainable business model that have the potential to answer all 3 of these questions. To discover which one(s) are right for your business we will need to generate ideas, prototype solutions, then test and refine them. In other words, we need to run a design process, which will be the subject of my next article, “Why should I ‘Design’ my sustainable business model?”.
A robustly designed sustainable business model can create more value for your customers, generate more profit for your business and safeguard the future for the next generation. What’s not to like?
* For more information about the Business Model Canvas I recommend reading “Business Model generation” Alexander Osterwalder and Yves Pigneur.
** Please read my article “I’m a business person, why should I bother about sustainability?” to learn more about why we are in an era of increasing resource scarcity why this matters to your business.