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The tipping point for circular economy entrepreneurship

Oriol Alcoba

The circular economy is one of those concepts that emerge and thrive mainly because they sum up an entire philosophy or way of doing things or sometimes even a new paradigm in just a couple of words.

Another classic example is “open innovation”, a term coined by the Berkeley professor Henry Chesbrough in 2003, which became well known following the publication of his book by the same name. Suddenly, almost unconsciously, a string of companies, institutions, public authorities and academics began to use the “new” concept.

Of course what Chesbrough did so masterfully was to observe several specific companies doing things in unconventional ways. Instead of innovating on the basis of in-house knowledge and then putting these innovations on the market, these companies pinpointed assets that could benefit their businesses, regardless of whether they were inside or outside the company.

They also sought out alternative business models in conjunction with other companies and institutions in order to exploit latent in-house assets developed for other purposes. The now classic representation of open innovation – a permeable funnel of projects (the company) that technologies go through whilst they develop until they hit a target (a market) which is not always their traditional one – contributed to its success.

The onset of a new concept, as in the above case, not only identifies existing cases but also has a very interesting impact: other companies suddenly understand the new trend and try to apply it to their own landscape, with varying degrees of success. A vague phase of trial and error begins. Some companies achieve their aims, others (the majority) do not.

At the onset of a new concept, other companies suddenly understand the new trend and try to apply it to their own landscape, with varying degrees of success

This is quite normal. After all, adopting a new paradigm means substantial changes in all spheres related to management, operations, the business model and even corporate resources. For this very reason, typifying a new concept creates certain expectations that usually fail to materialise in the short term. Entrepreneurs might, for example, discover that open innovation exists whilst reading a book or trade journal or attending a training course, and think it is the answer to all their problems. But when they try to implement it, they run up against reality and, without really knowing why, end up back at square one.

Drawing an analogy with Gartner’s well-known hype cycle, which plots the evolution of technologies along the journey to mass market distribution, new management paradigms go through a trough of disillusionment when the first wave of early adopters fails to deliver. Concepts that have robust, academic, pragmatic foundations, however, finally take root, become widespread and are finally assimilated quite naturally by companies.

One concept that has survived this trough of disillusionment and is now becoming very widespread is the circular economy: a paradigm entrenched in solid, coherent trends related to sustainability and, more precisely, responsible, ethical and environmentally-friendly consumerism.

New management paradigms go through a trough of disillusionment when the first wave of early adopters fails to deliver

It is often linked to extensively researched areas such as the three Rs: reduce, reuse and recycle. The circular economy manages to sum up in two words far more than these three approaches to waste. In fact, if we adopted this new trend, we would try not to produce any waste at all. We would design products taking into account their life cycle from the procurement of the raw materials used in their manufacture to responsible waste management at the end of their useful life.

The complete overhaul a company must undertake in order to truly embrace this new concept is complex. As we mentioned earlier, it calls for a transformation of operations, catalogues of goods and services, marketing, etc.

Meanwhile, virtually in parallel, two interesting on-going phenomena confirm there is no turning back.

On the one hand, public authorities are adopting this concept and promoting it by means of schemes, grants, programmes and support for specific projects.

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The EU is aiming to become climate neutral by 2050, and to this end, it has drafted a scheme with an extraordinary budget: one trillion euros. In addition, the circular economy is an inherent part of such major policies as Next Generation EU funds totalling €750 billion, aimed at the recovery and transformation of the EU economy after the Covid-19 pandemic (37% of these funds must be used for projects related to energy and the green shift).

The reasons for the EU’s clear commitment to the circular economy and sustainability are not only environmental. They are also about the competiveness of the economy and a desire to share an obvious risk associated with the need for companies to change in order to adapt to this new paradigm. What the EU contemplates (and is putting into practice) is, as the economist Mariana Mazzucato would say, a veritable “mission of transformation” to mobilise, align and boost the creation of knowledge and drive a broad spectrum of sectors towards a common goal.

On the other hand, start-ups are springing up with the circular economy in their DNA. They have no prior circumstances or operations or commitments that are hard to adapt. Their legacy is virtually inexistent and they find it natural to apply the key principles of the circular economy to their business models, operations and products.

Circular economy is an inherent part of such major policies as Next Generation EU funds

In addition, other start-ups have pinpointed an emerging market of services to assist so-called traditional companies that understand the phenomenon but have difficulties implementing it. Thanks to digital technologies and convergence with other new concepts such as industry 4.0 and digital change, these start-ups are rapidly positioning themselves as agents providing transformation support.

Like all start-ups, including those that incorporate the circular economy into their very essence from the outset, they must deal with the “valley of death”, i.e. a lack of funding, mistakes when defining sustainable business models, etc, and a market as yet underdeveloped, because although the authorities offer incentives, most companies are still resistant to change.

We could end by saying that it is just a matter of time until this emerging market becomes firmly established and the circular economy is incorporated into the business world, as happened with open innovation. Time is undoubtedly on our side but in order to chart the way ahead, we must design support programmes to shape, complement and consolidate the projects under way. The economy will change in response to incentives (grants, information and training) and pressure (legal constraints). If we want the mouse to move, we must move the cheese!

Fortunately, in recent years, different policies, programs, resources and projects have been converging at the international level (the United Nations Sustainable Development Goals); across the EU (the Green New Deal, Next Generation EU funding, etc); nationwide (the “Spain Entrepreneurial Nation” strategy, the Spanish Circular Economy Strategy 2030, the “Spain Can” plan, etc); and also at regional and local levels (the “Circular Talent” program, the Circular Cataluña observatory, the Local Circular Economy Strategy of the Spanish Federation of Municipalities and Provinces, etc). Even the new president of the United States, Joe Biden, as revealed by some of the many urgent reforms he announced shortly after taking office, is firmly committed to this matter, re-joining the Paris Agreement and taking specific measures to safeguard the environment.

In other words, we have a unique opportunity. The EU wants to be the early adopter of the circular economy and in response to this “sophisticated demand” we may see a veritable avalanche of start-ups and companies which, with suitable support, may have an unprecedented impact on the environment, the economy and, all things considered, prosperity.

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