In one of our recent issues, ("What does the private sector understand from the circular economy?") we examined what the private sector understands from the concepts of circular economy and sustainability, and talked about how each company adapts circular economy to its own needs and does not utilize the true potential of the concept sufficiently.
In order to understand the circular economy correctly, the duties and responsibilities of all stakeholders that make up the system, which we share in our articles as Circular Economy 101 every week, need to be determined. So, do stakeholders with clear roles and responsibilities carry out the transition to circular economy easily and smoothly?
We will take the research conducted in the article "The impact of internal company dynamics on sustainable circular business development: Insights from circular startups" as a reference in our article where we will discuss the internal obstacles faced by startups that play an important role in the circular economy transition process thanks to their agile structures.
Challenges facing startups
1- Not taking risks
The transition to a circular economy requires a complete overhaul of entire systems. While this is a situation that can be adapted relatively faster for startups, especially corporate customers of startups remain undecided in the process of transitioning to products and services created with circular economy principles.
While the linear processes that make up the existing structures cause inefficient resource use and waste generation, especially corporate customers' unwillingness to use second-hand or recycled/upcycled products or services makes it difficult for startups to transition to circular business processes.
We can say that risk aversion is not only valid for the circular economy in general, but in fact for all change and innovation. For this reason, sending only a small amount of waste for recycling instead of making systemic changes to prevent waste generation is considered sufficient to be a "circular" company today. This is of course due to the fact that circular economy is not considered as a way of thinking and doing business, but as an innovative waste management system.
Motivation is a must-have for startups, especially for founders during the challenging business development process. Relatively small startups that run the entire value chain - from raw material procurement to logistics, from production to distribution, from consumer relations to finance and accounting - are strongly motivated by a specific purpose. But of course, every startup needs to attract the attention of investors in order to thrive financially. But circular economy or sustainability-related business models are still not on the radar of investors today.
You may think of "green finance", "sustainable investment" funds or investors. Unfortunately, the first thing these investors look at is not sustainability or circular economy principles. This, of course, negatively affects the motivation for startups to spend time and effort on circular/sustainable business models that "won't bring in cash".
3- Financial barriers
We have discussed the main reason for the motivational barrier we mentioned above in terms of getting investment. However, when we talk about financial barriers, the subject covers financial barriers related to business processes. As consumers also encounter in the markets, while a normal product is X dollars, the organic version of the same product is sold for 2X dollars. This unfortunately causes the budget to be allocated to circular business models to create problems.
Another financial barrier, also related to investment, is that circular or sustainable business models are just being implemented and their profitability has not yet been proven in the market. Innovative business models require a change in habits not only for producers but also for consumers. Therefore, while circular business models may seem innovative, ethical and appealing to consumers in theory, in societies where the "circular mindset" has not been established, this remains only theoretical.
4- Establishment phase
Contrary to popular belief, the founding process of a startup is much more challenging and more important than any other process. It can be a very challenging process for the founding partners to establish a team with the same enthusiasm and motivation for an idea and to determine the vision of the venture. It is inevitable that a venture that is not properly structured will face problems in the transition to circular economy, especially in the vision and decision-making processes in line with this vision.
Differences of opinion between co-founders, insufficient interest of customers in circular business models may cause startups to change their internal operations and unfortunately move away from circular business models.
The transition to a circular economy requires a total change not only in environmental but also in social issues. The most important proof of this is the insufficiency of circular talents, people with expertise in circular economy principles. The lack of employees who can apply circular economy principles not only in theory but also in the entire value chain such as design, production, procurement and purchasing is an obstacle to the transformation process of all stakeholders, especially enterprises.
In order to accelerate the transition to the circular economy, not only waste management needs to be improved, but also the education system needs to be changed from top to bottom, vocational trainings with technical competence need to be widespread and the culture of innovation needs to be adopted by all individuals.
6- Organizational barriers
The main reason why startups have an important role to play in the transition to a circular economy is that they are agile and adaptable, as mentioned in the introduction. However, this agility and rapid adaptation decreases in proportion to growth due to the "limits" imposed by linear processes. Once an early-stage startup starts to grow, it has to adapt to the conditions imposed by the existing linear system. This leads to a slow decline in change and innovation, and innovative business models and sustainability gradually fall off the main agenda.
Growing operationally can also be seen as a critical obstacle for startups, especially in the transition to a circular economy. Growing business volume, increasing customer demands for existing products and services, financial resource constraints, and problems such as raw material supply, which increase with the expansion of the value chain, can disrupt or completely stop the startups' transition to the circular economy.
How can obstacles be overcome?
The barriers mentioned above can of course be encountered not only in the transition to a circular economy, but in all innovative systemic transformation processes. In order to overcome these obstacles, it will be important to take some strategic steps not only for the initiatives but also for all stakeholders facing obstacles.
➡️ People-oriented vision
Almost all of the aforementioned obstacles are due to the mindset of the linear economy. In order to prevent this, it is especially important that startups are led and staffed by people who can take risks, who can demonstrate their skills outside linear structures, and who are open to change and innovation. Although teams formed with people who are aware of the circular economy and open to using their skills for change will be in a constant battle with the linear economy on the outside, vision and goal-oriented work can always be managed correctly in internal processes.
➡️ Circularity at the management level
This strategic approach, which is directly related to motivation, requires the management teams of startups, especially the founders, to work entirely with a circular economy focus. Since startups operate with a smaller team and less hierarchical structure than corporate firms, the influence of managers on employees at all levels is much greater. This influence will allow the entire team to remain motivated, especially in the face of any negativity due to the limitations of the linear economy, as managers will not give up their vision and focus.
➡️ Circular capabilities
One of the most critical features of the circular economy that is often overlooked is the "circular" capabilities mentioned above. When enterprises and all other companies that are in the process of transition to circular economy, or other stakeholders that make up the society, lack experts with technical or theoretical knowledge in the field of circular economy, the transformation process is disrupted. For this reason, it can be seen as another strategic step for all stakeholders, especially enterprises, to first train their internal talents according to the requirements of the circular economy, develop their skills, and then work on talent acquisition from outside.
In conclusion, the transition to the circular economy is a process that needs to be managed differently for each stakeholder. This process has to vary depending on location, level of awareness, sector of activity or sphere of influence. This necessity stems from the fact that the circular economy, unlike the linear economy, is a way of thinking and doing business that has no boundaries, is not set in a specific framework, and is based on innovation. Therefore, while there is no clear roadmap for the transition to the circular economy, the obstacles posed by the linear economy in this transformation process are similar for most stakeholders.
🔎 Circular Economy 101's take: Although there is no clear roadmap for the transition to circular economy, the duties and responsibilities of stakeholders are clear. But in general, the most important task is of course the holistic approach to the circular economy and the correct understanding of it. Not only startups, but also corporations, government agencies and even consumers can overcome these obstacles with a circular economy mindset and make the necessary contribution to the transformation process.