Challenges of Start-Ups Developing Circular Business Models

The circular economy aims for an effective and efficient resource use. Thus, application of the concept can benefit the sustainability performance of companies. Specifically, business modelling is a key enabler for the transition to a circular economy. However, the related research is dominated by a focus on incumbent companies and their transition from linear to circular business models. This focus risks missing out on actors such as start-ups who can experiment with and develop potentially more radical circular business models. Thus, using interviews with 37 start-ups developing circular business models, we analyzed their characteristics and challenges. Our findings reveal that, such firms encounter general challenges related to circular business modelling and new venture development. Furthermore, such start-ups are often dependent on an ecosystem of actors to create, deliver and capture value based on circular principles. Thus, they encounter challenges to scale up their business based on their liabilities of smallness and dependency. Altogether, these challenges of “circular start-ups” call for a holistic approach to understanding their development process.