Summary: Sustainable Business Model Design – 45 Patterns by Florian Lüdeke-Freund, Henning Breuer and Lorenzo Massa

• The book presents 45 business model solutions to ecological, social, and economic challenges, based on the authors’ research and analysis of hundreds of cases of sustainable businesses from different sectors and regions.
• The book introduces a framework for sustainable business model design, which consists of four dimensions: value proposition, value creation, value delivery, and value capture. The book then explains how each of the 45 patterns can be applied to these dimensions to create sustainable value for different stakeholders.
• The book provides examples, tools, and exercises to help readers apply the patterns to their own contexts. The book also encourages readers to think creatively and critically about their own business models and how they can improve them for sustainability.

Recommendation

A trio of expert authors – Florian Lüdeke-Freund, Henning Breuer and Lorenzo Massa – offer insights into how to effectively implement sustainable business model design, a key lever for companies’ ability to contribute to sustainable value creation. The authors showcase 45 “patterns” – proven solutions to sustainability challenges – organized into 11 groups that can help propel next-generation business model design. They outline examples of how companies use these patterns to solve sustainability challenges, illustrate how the patterns work and show how they can be combined or blended.

Take-Aways

• ​​​​​​Sustainable business model design creates long-term value for companies and society. Forty-five solutions – “patterns” – are organized into 11 groups to help businesses address sustainability challenges.
• Pricing patterns and revenue patterns help firms set prices and generate earnings from sustainable business offerings.
• Financing patterns provide methods for obtaining equity, debt and operating capital to fund sustainable business models.
• Eco-design patterns enhance business models’ sustainability through designing activities, processes and offerings.
• Closing-the-loop patterns integrate circular material and energy flows into business model design.
• Supply chain patterns determine where resources come from and how to reach target markets in the supply chain.
• Giving patterns facilitate your contributions of products or services.
• Access provision patterns create markets and offerings for overlooked social groups.
• Social mission patterns empower social groups to become productive partners and transform their needs into demand.
• Service patterns and performance patterns facilitate the transition from physical products to functions, services and results.

Summary

Sustainable business model design creates long-term value for companies and society. Forty-five solutions – “patterns” – are organized into 11 groups to help businesses address sustainability challenges.

To embrace sustainable business model design, you must overhaul the design of your current business model. Companies need blueprints to create new models or modify existing ones with the goal of generating sustainable value through innovation. Proven patterns of business model innovation offer companies shortcuts to sustainability. These patterns emerged from decades of experience gained by the pioneers who first developed sustainable business practices.

“This is a book for sustainability and not about sustainability. At its core, it is about designing next-generation business models for sustainability, that is, business models designed to maintain and create value in ecological, social and economic terms.”

Sustainable business model design creates value for all stakeholders while minimizing negative environmental and social impacts. Apply these sustainable business model design patterns – design templates that provide repeatable solutions to recurring challenges – to address environmental, social and economic challenges.

Each organization must adapt these patterns to fit its particular needs. Business model innovation redefines the logic of value creation and may disrupt an industry, as seen, for example, in Xerox’s copier leasing model, Interface’s circular service business model and in business model innovations from Unilever, Grameen Bank and Fairphone.

“A pattern for sustainable business model design is a repeatable solution to enduring environmental, social and economic challenges that arise when an organization aims to create, deliver or capture value in a sustainability-oriented manner.”

These patterns fall into three types:

1. Overarching patterns apply major design principles to any aspect of business.
2. Prototypical patterns redesign the entire business model.
3. Modular patterns target specific modules.

Each of the 45 patterns described relates to one or more other patterns; combine them as needed. These patterns are organized into 11 groups, where every group addresses an overarching challenge businesses face in sustainable value creation, such as finding the right pricing model, closing material and energy loops, or being more inclusive toward overlooked stakeholders.

Two main ways of using the 45 patterns are proposed: the problem-solving approach and the generative approach. In the problem-solving approach, business designers are aware of an existing sustainability problem they want to address, while in the generative approach the recognition of a new business opportunity serves as a starting point for sustainable business model design.

Pricing patterns and revenue patterns help firms set prices and generate earnings from sustainable business offerings.

Pricing and revenue models come in several variations. Differentiated pricing calls for charging different prices to different target groups. This increases accessibility to sustainable products and services for those with limited purchasing power. The Social Freemium pattern overcomes market barriers by offering free basic services or products alongside paid offerings. The Subscription pattern generates reliable revenue streams by charging customers a recurring fee. It proves most useful for securing revenue streams for green and social start-ups that sell consumables.

The Customer Financing pattern offers leasing, renting or progressive purchasing schemes to render sustainable goods or services more affordable. For example, PosiGen, a United States provider of solar power and energy efficiency solutions, offers 20-year leases for solar power systems through its Solar for All program, which targets low- to middle-income households.

Financing patterns provide methods for obtaining equity, debt and operating capital to fund sustainable business models.

Crowdfunding can raise capital for ecological and social challenges, finance projects and develop relationships with potential customers. Microfinance provides small loans and financial services to low-income groups that lack traditional financial services.

Profit reinvestment prioritizes solving social problems above securing financial returns for investors. It calls for reinvesting gains to expand outreach and improve product and service quality.

Eco-design patterns enhance business models’ sustainability through designing activities, processes and offerings.

The Green Razor and Blade pattern separates durable products from short-lived consumables to reduce resource consumption and generate new revenue streams.

“The motivation to contribute to a more sustainable world often begins with a review of our values and ‘systems of priorities’.”

The Resource Efficiency and Productivity pattern leverages the 5Rs – “refuse, reduce, reuse, repair and recycle” – by harnessing whole-system thinking and new technologies. Sustainable product design integrates sustainability into the product design process to develop eco-friendly products. The Renewable Resources and Natural Processes model emphasizes using renewable resources and nature-inspired processes to produce environmentally friendly products and services.

Closing-the-loop patterns integrate circular material and energy flows into business model design.

By-Product Synergy, Industrial Symbiosis, and Online Waste Exchange Platforms transform waste into valuable resources, generating new revenue streams and cutting production costs. The Product Recycling, Reusing and Remanufacturing model extends a product’s lifespan, retains its value and creates environmental benefits. For example, Nike’s Reuse-A-Shoe program collects worn-out shoes and processes them into Nike Grind, a material for athletic field surfaces such as tennis and basketball courts, tracks, playgrounds and fields.

Cat Reman utilizes advanced technologies and original replacement parts to salvage and remanufacture used components. Cat Reman makes more than 7,600 products available and offers parts for 40% less than new items.

“Remanufacturing offers value to your customers by lowering the price of like-new products. It can be a way for you to create new revenue streams.”

Take-back Management and Upgrading programs ease the process by which customers return unwanted products and upgrade existing ones. Manufacturers may preserve a product’s functionalities and give it a longer life by substituting critical parts.

Supply chain patterns determine where resources come from and how to reach target markets in the supply chain.

Supply chains are responsible for a large portion of a company’s environmental and social impact. Hazardous waste and social injustices can occur even within companies that claim to follow high environmental standards. Green supply chain management promotes sustainable practices, such as careful supplier selection, close relationships and shared long-term goals between client companies and manufacturers, especially in countries with lax regulations.

Green Supply Chain Management and Inclusive Sourcing models can make global supply chains more sustainable and inclusive. However, supply chain complexity and lack of transparency can limit their effectiveness. The Short Supply Chain pattern increases transparency and traceability by reducing supply chain complexity in terms of geographic scope, number of partners and relationship management.

Inclusive Sourcing helps improve the livelihoods of low-income suppliers, including small, local enterprises and women-owned businesses, by contracting with them as employees, producers and business owners. This pattern promotes human rights, decent working conditions and capability building. The Micro Distribution and Retail model addresses supply gaps in food deserts by adapting distribution and sales to small outlets and low-income customers by using socially inclusive business models.

“The desire of humans to congregate and share their experiences in physical places may prevail and lead to a post-digital era of retailing that benefits from the advantages of the integration of digital and physical.”

Augmented and virtual reality, along with AI, can replace brick-and-mortar stores in new customer channel designs. The Virtual Sales and Distribution pattern enables retail innovations such as augmented and virtual reality and AI, chatbot and voice-assisted customer support for predicting consumer behavior.

Overproduction and overstocking due to traditional ways of supplying goods can result in excessive material consumption and inefficient use of resources. The fast fashion industry, for example, exacerbates the clothing industry’s waste problem. One solution is the Produce-on-Demand pattern, which aligns supply and demand to avoid unnecessary resource consumption.

Giving patterns facilitate your contributions of products or services.

The Buy One, Give One pattern involves donating goods or services in a fixed ratio to regular sales, thus creating commercial and social value. This adds social responsibility to the company’s value proposition and allows regular customers to express their commitment to social justice through their purchases.

“A free offering attracts a targeted social group, which becomes a ‘data resource’ for a second, paying target group. This allows revenues to be generated on a self-sustaining multi-sided platform.”

The Data for Social Good pattern provides free offerings to a social group while earning revenues from a second, commercial target group. This attracts users from the social group, who become a “data resource” benefiting the commercial target group. This pattern can generate social impact and financial benefits for the company.

Access provision patterns create markets and offerings for overlooked social groups.

The Market Maker pattern creates new marketing systems for neglected customer segments through tailored and inclusive approaches. E-Transaction Platforms offer financially excluded customers flexible and secure management of their finances at low costs. For example, Fino PayTech Ltd. provides a range of financial services, including bank accounts, microfinance loans, insurance and government subsidies to millions of customers in rural and semi-urban India. It uses biometric smart cards for secure transactions.

“Nearly 90% of those over the age of 15 and living in developed economies have an account at a financial institution, whereas this figure is only around 43% in developing economies.”

Experience-Based Customer Credit offers credit to trusted customers, reducing costs through standardization. The Last-Mile Grid Service pattern aims to provide utilities to low-income and remote households, while the Value-for-Money Education pattern makes higher education affordable and accessible to lower-income students. The Value-for-Money Housing pattern makes homeownership possible for low-income individuals through affordability, financing and support initiatives.

Social mission patterns empower social groups to become productive partners and transform their needs into demand.

The Expertise Broker and Employing Minority Talent patterns generate value for social groups and employers, addressing special needs and high unemployment rates while creating commercial value.

“Fostering entrepreneurship among the poor is a fundamental approach to alleviating economic inequality.”

The Soup Kitchen pattern utilizes donor resources to address consumption needs, while Socio-Economic Empowerment models provide new business opportunities and co-ownership for low-income entrepreneurs. The Two-Sided Social Business pattern matches social groups to establish a self-sustaining system of value creation.

Service patterns and performance patterns facilitate the transition from physical products to functions, services and results.

The Pay for Success pattern links payment to outcomes, thus promoting sustainable approaches while reassuring donors. Product-Oriented Services improve eco-efficiency and eco-effectiveness, generate revenue from services and support the uptake of sustainable products. The Use-Oriented Service pattern centers around the product, which the company owns and maintains for customer use. The Result-Oriented Service pattern brokers agreement between providers and clients about a targeted end result. It has high potential for repeatability and long-range sustainability.

“The Cooperative Ownership pattern turns stakeholders into decision-makers, helping them to realize their economic and social needs and aspirations as well as environmental goals.”

Cooperative Ownership prioritizes equal benefits and opportunities for stakeholders who become owners and decision-makers. The Sharing pattern calls for collaborative consumption through platform-enabled matching of supply and demand, which reduces risks, liabilities, costs and resource consumption while promoting access to resources and collaborative consumption.

About the Authors

Florian Lüdeke-Freund is a professor of corporate sustainability and academic director of the Sustainability Transformation & Applied Research Center at ESCP Business School Berlin. Henning Breuer teaches business and media psychology at HMKW Berlin. Lorenzo Massa is managing director of the Business Design Lab and professor for strategy, innovation and sustainability at Aalborg University Business School.

Review

The book presents 45 business model solutions to ecological, social, and economic challenges. These solutions are based on the authors’ research and analysis of hundreds of cases of sustainable businesses from different sectors and regions. The book introduces a framework for sustainable business model design, which consists of four dimensions: value proposition, value creation, value delivery, and value capture. The book then explains how each of the 45 patterns can be applied to these dimensions to create sustainable value for different stakeholders. The book also provides examples, tools, and exercises to help readers apply the patterns to their own contexts.

The book is a valuable resource for managers, entrepreneurs, consultants, researchers, and students who are interested in sustainable business model design. The book is well-written, clear, and engaging. The authors use a consistent and systematic approach to present the patterns and their applications. The book is also rich in examples and illustrations that make the concepts easy to understand and relate to. The book is not only informative, but also inspiring and practical. It offers a comprehensive and diverse set of solutions that can help address various sustainability challenges in different industries and markets. The book also encourages readers to think creatively and critically about their own business models and how they can improve them for sustainability. The book is a must-read for anyone who wants to learn more about sustainable business model design and how to make it work.