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Navigating Unique Challenges: Strategies in Circular Start-Ups (CSUs)

Sustainable forms of production and consumption have gained prominence on the economic agendas of businesses and policymakers in many countries. They are grappling with the delicate balance between economic growth, societal responsibilities, and environmental stewardship in the face of rampant consumerism and resource overuse. The circular economy, advocated by the Ellen MacArthur Foundation, has emerged as a school of thought promoting sustainability and profit maximisation for businesses. In this context, a circular economy is defined as an economic system that replaces the ‘end-of-life’ concept with strategies such as reducing, reusing, recycling, and recovering materials in production, distribution, and consumption processes. However, despite the growing interest in sustainable practices, there remains a significant gap in the knowledge when it comes to the barriers faced by Circular Start-Ups (CSUs).

Sustainable entrepreneurship and start-ups have the potential to drive disruptive change, innovation, and transformation. They aim to balance the triple bottom line of business: financial, social, and environmental dimensions. Sustainable entrepreneurship connects various aspects, such as sustainability dimensions, venture formation processes, and barriers at different levels. Circular entrepreneurship, on the other hand, involves the exploration and exploitation of business opportunities within the circular economy domain. However, CSUs, focusing on circular strategies are still relatively under-researched, and there is a lack of awareness about the circular economy paradigm. This adds to the ambiguity surrounding the positioning and challenges of CSUs.

Circular and sustainable business models are essential components of the circular economy. Business models are based on value proposition, creation, and delivery. Start-ups and incumbents differ in their flexibility and radical innovations, with start-ups being more inclined towards innovation. Business model innovation is considered crucial for business success in the circular economy, but the specific types of innovations leading to “born circular” firms or CSUs remain unclear.

A CSU is characterised by a business model that incorporates at least one of the circular economy strategies, such as reducing, reusing, recycling, recovering, and regenerating. CSUs can be categorised into various types, such as design-based, waste-based, platform-based, service-based, and nature-based start-ups. They embrace higher degrees of circularity compared to incumbents adopting circular business models. CSUs possess resource efficiency strategies and are capable of disrupting traditional markets and institutions. The differences and similarities between a start-up and a CSU are discussed in detail.

Barriers to achieving circularity in supply chains include a lack of transparency, conflicts between suppliers, low traceability of waste, and a lack of awareness among consumers about take-back systems. Organisational barriers related to the circular economy include departmental conflicts, misalignment between environmental and financial goals, difficulty in finding a skilled workforce, employee resistance, unfavourable policies, and a lack of innovation culture. High upfront costs and malicious usage of new technologies also hinder circular economy implementation.

Other major barriers include a lack of willingness to share information among businesses, conflicts between various stakeholders, and barriers imposed by local municipal authorities. Unfavourable and incoherent central and state environmental policies, tedious administrative procedures, bureaucracy, and unnecessary taxes on circular businesses are additional hurdles. These barriers are often classified based on various archetypes, but there is no one-size-fits-all framework to explain all the barriers faced by circular economy businesses.

We see the interconnections and overlaps between barriers, making it substantially unique in the context of the circular economy. Different types of CSUs face varying numbers of barriers and the most probable sequence of anticipated barriers that a CSU might encounter at different stages of its development and growth. CSUs represent a unique and rapidly evolving sector within the circular economy, facing a combination of common and distinctive barriers.

Insights by: Dr Jay Wasim