The successful business models of the future may be build on entirely new ways of creating value. The term circular economy is still quite difficult to grasp. Often, when speaking on the topic, I’m asked to define what “circular economy” actually means.

In these situations, I try to keep it simple: a circular economy is the opposite of a linear economy. In a circular economy, services and materials are produced in a way that minimizes the need for materials—especially non-renewable ones—maximizes the usage rate and lifespan of goods, and finally ensures that materials are returned to circulation.

Business models within the circular economy can roughly be divided into a few relevant categories: 

1. Product-as-a-service models 

Examples of these include clothing rental services, car sharing, and spectacles-as-a-service. The benefit of these models is usually a higher utilization rate for materials, and easier recycling when the product reaches the end of its life cycle. The challenges include people’s attitudes toward ownership—many still find it difficult to accept renting instead of owning. This model is also restricted by underdeveloped legislation. 

2. Repair-based business models 

This one is fairly self-explanatory. Examples include cobblers or businesses that offer clothing repairs. The benefit is the extended life cycle of products, which leads to avoiding purchasing a new equivalent. A major challenge is the deeply ingrained habit of not repairing items. An even bigger obstacle is the cost imbalance—often, repairing costs more than buying a new one. This again comes down to flawed legislation, where repairs are taxed similarly to new products. Furthermore, products are no longer designed to be repaired—though thankfully, EU-level guidance on this is expected in the coming years. 

3. Reuse-based business models 

In these models, the goal is to find a new life for a product or material that is no longer needed, ideally one that closely matches its original purpose. A good example would be online platforms for secondhand goods or traditional flea markets. The main challenge is the problem of matchmaking: how to find someone who needs exactly this kind of item at this exact moment—or how to find, secondhand, exactly what you need. 

4. Material recycling-based business models 

Recycling and circular economy are sometimes confused with each other. While material-circulation-based business models are a prerequisite for a functioning circular economy, they are lower on the hierarchy compared to the other models, because ideally, materials should be kept in use without needing to be recycled. Eventually, though, all products reach the end of their life cycle, and for the circular economy to function, those materials must re-enter the loop. Even though material recycling is likely the most advanced form of circular economy today, it still has a long way to go—globally, the material circularity rate is under 10%. The main challenge in developing this model is the slow pace of regulation—landfilling waste is still far too cheap in most parts of the world, making recycling solutions uncompetitive. 

5. Innovative new ways of creating value 

Based on the definition of the circular economy, many business models can still be developed—some we haven’t even thought of yet. Early examples might include virtual tourism or virtual events. As virtual reality technology improves, it may be entirely possible to experience some destinations nearly authentically, without having to travel physically at all. 

Preparing for change in time 

When transitioning your own business toward a circular economy, it’s worth considering which business model could provide the same—or even greater—value to your customers compared to the current linear model. 

Could you, instead of selling electricity, offer a service that ensures its optimal and timely use? How would you shift from selling a product to offering shared use of it? Instead of selling virgin materials, would it be possible for you to provide recycled materials—or ensure that your product has repair services available? 

The journey from a linear to a circular economy is long, with many hurdles—ranging from consumer attitudes to legislative barriers and technological shortcomings. 

However, it’s wise to start thinking about the future of your business early on. A circular economy innovator could very well disrupt even the most stable-seeming linear business model—quickly and unexpectedly. 

The author is Chief Operating Officer & Executive Vice President Industrial Waste Sevices at NG Nordic and Member of the Board of Directors at Tana. This column was published in the circular economy special issue of Uusiouutiset, issue 3/25. Please see original blog post in Finnish here.