WHAT IF... you reduced production or delivery costs by tapping into resources that are abundantly available?
Sometimes you cannot see the wood for the trees, but in fact, the solution lies straight in front of you and you just have to grasp it. This innovation strategy is about using resources that are abundantly available and therefore (almost) available to you for free. They can be used as key inputs to develop products or deliver on your value proposition. While this seems tempting and fairly easy to build a business model around on the surface, to apply this strategy it is also important to keep in mind the implications on other parts of the business model that create value and a competitive advantage.
Turning challenges into opportunities
Providing affordable but at the same time sustainable and safe products or services is a key challenge for many social businesses. This is often due to the staggering costs for production materials and inputs, especially if these are to be ethically sourced.
At the same time, a lot of valuable resources are wasted; while 1/9 of the global population is undernourished, more than 1 billion tons of the produced food is lost or wasted and so are the resources used for its production (FAO, 2019). This and other types of waste also increase environmental damage, overburden natural ecosystems and create hazardous living conditions. In many contexts, plenty of valuable resources remain unused because their value is not seen or recognised and they are immediately circumvented to landfills for ease of processing. This can be the case for wasted food, but also faecal sludge, sewage or other types of waste. In other cases, (initially) unskilled labour force is also widely available but underestimated and not valued. Another example of overlooked resources are often abundantly available indigenous plants that can be “re-discovered”.
So, if there are abundant resources available on the one side and high demand on the other side, innovative ideas are needed to bridge the gap. For some entrepreneurs and business models this can be a game-changing opportunity to reduce costs for production inputs, to create tangible social and environmental impact and to position their products or services.
Moving towards a strategy
As an innovation strategy you can reduce or eliminate costs for production materials by finding substitute inputs that can be acquired (almost) for free. The innovation lies in discovering and making use of inputs that are abundantly available and that have not been ‘discovered’ as a valuable resource by competitors yet. This could be because these inputs (such as indigenous plants or even food waste) have been underestimated or even neglected in the past, depending on context and culture.
One of the main benefits of this strategy is the reduction of input costs. If your business model can draw upon inputs that are abundantly available at a very low cost, this approach can help you break even. In some cases, depending on scale and the type of input, you might also have to adjust your business model to reduce storage and/or maintenance requirements, thus also lowering the related costs. This applies, for example, if you decide to use and process expired or wasted food as your main input: Instead of storing it, you will have to directly process or redistribute it. This minimises your storage costs but forces you to come up with a business model that allows you to act quickly. When your main inputs are native (and resilient) plants that just grow naturally and do not need any special or expensive treatment, this minimises your maintenance costs.
Reducing the costs linked to the inputs you need to create your products or services is a great opportunity; it gives you more flexibility in using your revenues for the development of human resources and skills, as well as marketing activities or customer services. At the same time, when key inputs are (almost) for free, it is even more important to be aware and to take care of the effects of changing to free or cheap substitute inputs on other parts of the business model that are needed to create value. Also, abundantly available resources can easily be accessed by competitors, making it easier for them to replicate your business model. It is therefore crucial to build a competitive advantage along the value chain at an early stage.
Ask yourself how you can create an impact to position your service and avoid that others force you out of the market, as it has been the case with recycling business models in many contexts.
Besides delivering to underprivileged groups, your social business could also actively integrate them in your value chain and make them a key resource to realise an inclusive business model.
Inclusive business models are sustainable businesses that include low-income people along their value chains. While retaining a for-profit nature, inclusive business models drive development and poverty reduction through the private sector. As employees and suppliers, low-income people can earn a living, gain access to formal economies, and undergo valuable training. As consumers, they benefit from products and services that are accessible, affordable, and tailored to their needs.
The valorisation of abundant inputs (e.g. collecting crops or transforming food) often relies on a lot of manpower, which presents an opportunity for inclusive businesses. Investing in human resources and skills (such as how to transfer waste into high-end buffets in the case example below) is especially important to create added value for your customers. Managing unskilled labour as a key activity can have positive knock-on effects when it comes to positioning your service as impactful and sustainable.
It is also crucial to develop (and maintain) a good partnership management when it comes to suppliers / sources of the inputs – eventually this is also about building good personal relationships. Your strategy highly depends on keeping this type of supply alive which is why it is important to build up loyalty. You want to avoid your supplier to turn against you and start charging you excessively as soon as they realise the value you see in what they consider waste.
Social businesses reducing waste and increasing local value added might be appreciated in some contexts, but in others you might face prejudices and mistrust, especially when it comes to food- and sanitation-based approaches. People may (understandably) be hesitant to consider a product created from waste as safe and on equal footing with virgin material. In any case, strong customer relationships are important to create and communicate the social added value of your product or service. Apart from that, it might make sense to combine your service with educational awareness raising activities. This depends on the context you are operating in as well as your customer segments. You should keep in mind that you have to calculate and plan resources for these activities as well.
Regardless of the benefits of this strategy, you should make some key considerations when assessing using free inputs. The strategy is tempting but it increases other costs because you need to e.g. invest into processing inputs or cleverly positioning your product or service in the market.
In addition, you are highly dependent on the (free and continuous) supply of your key inputs, and the quality of these inputs will impact the sustainability and profitability of your business. Especially when focusing on niche high-end customers, you need to be able to ensure high quality. In the case of food, the quality can vary greatly, and you should make sure to check all health requirements and regulations, as well as communicating your compliance to them clearly. Coming up with a variety (of dishes) is also essential for the success. Also, when scaling up, costs could become much higher than initially anticipated. Supplying and distributing food bears high logistical costs, even when there is little storage needed because of direct supply. Nevertheless, although you might not necessarily reduce your overall costs, this strategy could be worthwhile for you because it generates additional environmental (and social) impact and increases your value proposition
Case Study 1
Approximately 1/3 of the food produced for human consumption is wasted every year while at the same time, 1/3 of the population in Lebanon faces hunger (www.tgtw.me) – a number expected to rise with ongoing economic and financial crises in the country.
To close this gap, ‘Too Good to Waste’ collects surplus food from wholesalers and supermarkets and organizes high-quality buffets for underprivileged people as well as for public and private institutions. By doing so, the business reduces hunger and tackles the problem of food loss and waste (also, a lot of resources are wasted for the production of food). At the same time, it creates an environmental and social impact. The environmental damage is reduced, and the business creates value through raising public awareness for sustainable nutrition.
Founder Philippe Rahbé understood early on that ‘food is gold’. He has since taken his business model to the next level by processing surplus food into shelf products that can be sold back to distributors. By doing so, he turns unwanted or surplus food into profit by transforming it into dishes people will pay premium prices for. The added value of ‘Too Good to Waste’ lies not only in saving food that would have been lost but also in providing healthy, sustainable and nutritious high-end buffets from food waste that is often neglected in the Lebanese context and elsewhere. Staff is equipped with the necessary qualifications and culinary skills to keep the promise of continuous, diverse and high-quality meals. This is complemented by awareness raising campaigns addressing the challenge of food waste – e.g. through webinars or Disco Soups, which are community events to cook, eat and dance together, demonstrating the fun way to save food while thinking seriously about the amount that goes to waste.
‘Too Good to Waste’ is aware of the need of combining different revenue streams to reduce risks. It mainly generates revenues from companies that sponsor buffets through annual subscriptions, while keeping the costs for inputs low by using expired but safe-to-eat food from supermarkets. The company is also developing an app as an additional revenue source and to increase its educational programs.
Recently, TGTW started to buy (for a fair price) "ugly" fruits and vegetables directly from local producers in Lebanon. The double objective is to reduce post-harvest loss as well as helping local farmers to generate a better revenue out of their work. They transform those raw products into nutritious and healthy end-products that are donated, through partners, to underprivileged families. This activity relies on funds and subsidies. While hopefully keeping this humanitarian initiative as long as it's needed, the start-up also aims to sell the same products online to other customer segments as well as scale-up and adapt the business model to other countries.