Long-term Value of Early Adoption
Early adoption of circular economy principles has many advantages that will put a company far ahead of the competition. And who isn’t looking for a sustainable competitive advantage? Capturing new revenue sources earlier than others will provide revenue streams that add to a company’s enterprise value. As cost savings are realized over a longer period of time, the long-term value becomes even more apparent. Early adopters also see greater long-term customer loyalty compared to those that follow.
Building sustainability and the circular economy into your long-term strategy is key to success. Uber Founder Eric Allison says:
“Strategic planning must consider who our future competitors will be, not only who is here today.”
This is good advice. It’s also critical in considering how to strengthen your strategy when thinking about the circular economy.
Investing in Sustainable Commodities and Processes
For manufacturing companies, early adoption is crucial to getting ahead of the curve on commodity prices. Most commodities have a limited supply. Simple supply and demand economics tells us that, eventually, we will see many commodity prices rise as resources are depleted. Recyclable materials have a much more limitless supply and are unlikely to increase in cost. However, companies will need to employ specific processes in order to adapt to using recyclable materials. Those that adopt these processes first will once again have a competitive advantage over other companies within their space.
Along with processes, using more environmentally sustainable resources often requires specialized equipment. The earlier you invest in equipment, the better the return on investment. One common example of this is that American cities that invested in mass transit earlier – such as New York, Chicago, and Boston – are more likely to have extensive networks and a higher ridership than those that waited, like Los Angeles and Seattle. In the long-term, companies that reduce costs through the materials they use will also benefit by buying equipment that helps them use circular economy methods.
Some say it’s risky to make these investments; others say it’s risky not to.
“If you’re not making mistakes, you’re not taking risks, and that means you’re not going anywhere,” says John W Holt, Jr. of Xochi, America’s leading manufacturer of table kitchen and linens. “The key is to make mistakes faster than the competition, so you have more chances to learn and win.”
The final piece of this equation is revenue generation. In my opinion, one of the biggest profit drivers of embracing the circular economy is revenue generation. Whether you’re selling products you used to throw away, creating consumer excitement, or developing the servitization of your product through a subscription or rental model, there are huge opportunities. Any and all of these have the capability to increase revenue dramatically and, in turn, generate even more gross margin. The sooner you can capture this revenue, the larger the impact it will have on your enterprise value.
As the global economy shifts to a circular model, early adoption will keep you ahead of your competition. And remember: competition teaches us big lessons and drives us to do our best. The ability to learn faster than your competitors may be the only sustainable competitive advantage.