Meet next year's (business) model

Sensemaking / Meet next year's (business) model

Some of the coolest companies on the planet are pioneering new ways of doing business which could just be the secret of a sustainable future. Martin Wright reports.

By Martin Wright / 10 Sep 2012

Some of the coolest companies on the planet are pioneering new ways of doing business which could just be the secret of a sustainable future. Martin Wright reports.

Question: what do these companies have in common?

Skype, Spotify, Marks and Spencer, Whipcar, Zopa, Zilok, Kiva, Patagonia, Kickstarter, Café Direct, Taskrabbit, Buzzcar and InterfaceFLOR.

Answer: they're all pioneering dramatically new approaches to doing business.

Some are household names making healthy profits; others are start-ups yet to post a surplus. But they are all living, breathing examples of what's fast becoming a 21st century cliché: disruptive innovation. And more than this, they're each in different ways giving the lie to the old idea that success in business means burning more energy to churn out more stuff to sell to more people.

So, how do they do it? Some, like Skype and Spotify, strip out a whole chunk of resources once seen as essential – like a plane to get you to a face-to-face meeting, or a bunch of CDs to listen to music. Others, like InterfaceFLOR, are adept at re-using resources which would otherwise lie idle – or worse, go to waste: in this case by recovering and remanufacturing flooring. Whipcar and its French equivalent, Buzzcar, allow people to rent their own cars out to others when not in use. Zilok extends the model to everything from drills to homes, baby buggies to fondue sets. Then there's Airbnb, which allows anyone with spare space to rent out accommodation to sofa surfers and guest house seekers alike.

Harvesting idle assets is at the heart of many new models

"Harvesting idle assets", as digital entrepreneur and venture capitalist Julie Meyer calls it, can be a highly effective way of stripping out a whole layer of resource use. Instead of making new kit to sell, just maximise the use of stuff already out there. Or, indeed, the people out there... Taskrabbit matches those with time (and in some cases, skills) on their hands with those needing help – whether it's running an errand or assembling flatpack furniture.

And then there's idle money, too. It may be stretching a point to describe the likes of Zopa, Kiva and Kickstarter – which allow individuals to make small loans or investments for specific people or causes – as harvesting unused assets. After all, the money would presumably otherwise be in a bank, where, in theory at least, it will be put to good use. But it wouldn't necessarily be doing what you wanted it to. Hence the appeal of making direct contributions to entrepreneurs who are acting on your own enthusiasms.

As with Whipcar or Airbnb, such schemes reflect the Facebook generation's yen for doing business peer-to-peer. There's not much fun to be had trailing round a DIY store or staying in an anonymous hotel. But borrow someone's drill or kip on their futon, and you might find a friendly face to brighten your day…

Many disruptive innovators succeed by being both (much) cheaper than the mainstream, and more sustainable, too. So, Skype and Spotify have brought the cost of communications and music down to a fraction of the price of international phone calls and CDs. It's a combination which can strike fear into incumbents – and even bring them crashing to the ground. EMI was, arguably, doomed when it failed to take the digital music revolution seriously – as, when it came to pictures, was Kodak.

Others, though, prosper by making a virtue of paying the price of sustainability. Take Fairtrade superstar Cafédirect, which has achieved a remarkably hefty slice of the market for something which started out as deeply, quirkily fringe. It's done so by combining catchy, personal stories: the farmers pictured on the jar really are the ones who grow the coffee, and they have names and life histories which people can relate to. But crucially, it tastes as good as its traditional rivals too – a far cry from the days of 'drink nasty coffee for Nicaragua'.

Disruptive innovation isn't always sustainable, of course – far from it. When Gillette persuaded men to swap old reliable razors for cheap disposable ones, it sent sustainability back a step. And sophisticated computer printers can only be sold for the price of a posh dinner because we're locked into paying a small fortune for proprietary ink cartridges every few months.

Even innovations which start off as more sustainable don't necessarily stay that way. With server farms on track to overtake aviation as a source of greenhouse gases, there's no room for complacency. And yet it's easier to have a sustainable server – powered and cooled by renewable energy – than a sustainable plane.

Not every incumbent is sitting on their heels waiting to be knocked over by a rush of disruptors. Some are experimenting with their own innovations. Marks and Spencer took inspiration from the clothes-swap craze, 'swishing', to launch its own version, 'Schwopping', which encourages customers to bring an old item of clothing for resale or donation to Oxfam. Whether it increases footfall and market share remains to be seen, but it fits neatly with the company's celebrated Plan A sustainability strategy, so at the very least, it can be seen as smart reputation management.

Outdoor clothes specialists Patagonia, meanwhile, went as far as running adverts headed "Don't buy this jacket" – value what you have, was the message, and only come to us when you really need a (by implication high quality and high priced) replacement. If it works, it could lead to Patagonia making more profits while net consumption of resources overall is reduced.

For retailers this trend for making the most of what's already out there, rather than relying solely on selling new stuff, could be high risk stuff. But as Mike Barry, Head of Sustainable Business at M&S, points out: "Sustainability demands disruption. It demands us to radically rethink our business models. Not just how we sell stuff in the future, but how we create value".

David Bent, Deputy Director, Sustainable Business at Forum for the Future, agrees. "Incremental progress isn't enough if we're still locked into a model of 'take-make-use-waste'." So when it comes to achieving seriously ambitious goals – such as Unilever's aim of doubling turnover while halving resource use – companies will find they have no choice but to adopt this sort of 'breakthrough innovation', characterised by Bent as "a product or service to customers which creates a new market or shifts an existing one to create superior sustainability outcomes".

It's a message which is starting to be heard by other mainstream players too. Forum for the Future's new Sustainable Business Model Group has already attracted Unilever, along with Bupa, Kingfisher, B&Q, O2 and TUI Travel, as well as M&S. Its ambitious aim: to help at least three companies decouple financial success from negative impacts. If it can do that, it will achieve one of the green movement's holy grails: reconciling growth with sustainable development.

To achieve the scale of change needed, says Bent, companies will have to do three things: "Have a balanced portfolio of activities, with at least some resources devoted to disruptive innovation for sustainability; embed it in their culture (for instance, in how staff are incentivised); and set up management structures that protect disruptive ideas from the grind of day-to-day [work]."

Goliath has to learn to dance with David

Julie Meyer adds that the major players should keep an eye out for disruptive start-ups, and look for ways to collaborate. Entrepreneurs who pick the right disruptive model can go from niche to mainstream at a bewildering speed – Facebook was only founded in 2004 – so there can sometimes be a very small window in which, as she puts it: "Goliath has to learn to dance with David."

"Every company has a business model with an underlying logic, and a strategy to apply it to particular markets", says Bent. And, perhaps more than many corporate leaders realise, he adds "that business model constrains their freedom of action." Which is fine as long as the world out there stays the same, he adds. "[But] the world is not likely to look the same coming out of the recession as it did falling into it. Which means the strategies and business models that have been delivering success and wealth over the past decades simply won't stack up."

Which means we can expect more casualties on a scale of EMI or Kodak. But equally, many more success stories on a Skype, Spotify or even Facebook scale. Disruptive innovation may be a daunting prospect, but get it right, says Bent, and "the rewards can be disproportionately huge".

Martin Wright is Editor in Chief, Green Futures.

Photo: Zipcar ; Kiva/John Briggs

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