Building Circular Ecosystems
Infrastructure for the Circular Future
As transformations go, circularity is distinct in one critical way: it treats negative externalities at the same level as internal ones. That is its vulnerability and its strength; the benefits can’t be captured in any other way, but they defy easy measurement.
That’s one reason ecosystem development is important. In this letter, I’ll cover what it will take to build the infrastructure for the circular future.
⸻
The Infrastructure Ethos
In 2018, Jeff Bezos explained to a group of space entrepreneurs the nature of capital allocation to resource-hungry start-ups:
You cannot make a giant space company in your dorm room. Not today. And the reason is that the heavy lifting infrastructure isn’t in place. When I started Amazon, I didn’t have to build a payment system, it existed. It was the credit card. I didn’t have to build a transportation network. That existed—it was called Deutsche Post, Royal Mail, UPS, FedEx, and so on. And likewise, I didn’t have to get a computer on every desk. It was already done, Microsoft will work on that, lay that type of infrastructure along with IBM, and Intel and Apple, with a bunch of others…
And then all those things would [substitute for] multiple tens of billions and in some cases, hundreds of billions of dollars worth of CAPX, that no 20 year-old in their dorm would get to deploy. That’s what it is right now to be a space entrepreneur. You get millions of dollars, not billions of dollars. The thing you want to do currently requires billions of dollars. [We] need to change that, make it more like the last 20 years of internet, and bring that unbelievable dynamism…
So my role [with Blue Origin], and it’s important, the most important work I’m doing, is crucial. My role is to help build that heavy lifting infrastructure [for space] because I have the financial assets to do that. And that will set things up for this dynamic entrepreneurial explosion that will lead to this [futuristic vision].
I listened to his speech from the cheap seats that day. Two parts of his logic were striking.
First, that he would credit a mix of low- and high-tech infrastructure elements with making Amazon possible. He thought about credit cards and mail trucks the same way he thought about the internet.
Second, that he viewed his career in these terms: in the beginning, there was the taking, benefiting from the second-order returns on the investments others had made. At the end, there was the making of the next generation of investments.
He was making a point about intergenerational symbiosis between today’s entrepreneur and yesterday’s investor: the source of the big dynamism enabling major change.
And that day I came to understand that, when it comes to strategy for shifting economic paradigms, the magic is as much in the recipe as in the ingredients.
⸻
Aggregators, Not Inventors
Bezos reminded me of Henry Ford in that way. Amazon aggregated logistics, payments, and cloud computing to make ecommerce in the way Ford aggregated steel, combustion, and interchangeable parts to make the assembly line.
They formed ecosystems as infrastructure. This permitted them to capture value outside their core business: Ford benefitted from Firestone's synthetic rubber like Amazon did from Intel's x86.
Their infrastructure changed the economy, not the other way around.
⸻
Network Effects in Circularity
It is easier for a firm to measure its own flows of capital and materials than anybody else’s. The return on a linear investment designed to capture value within an enterprise will enjoy a measurability advantage over a circular one that captures value across an ecosystem.
For circularity to work, the ecosystem has to be functionally as hard-wired as the individual enterprise.
The advantage of the circular investment, on the other hand, is that it scales much more quickly. That is for two reasons: the baseline on the return is set at the level of the ecosystem (larger than the sole enterprise), and it compounds with every flow. Linear investments scale at a rate that is, well, linear.
The more participants in the ecosystem, the larger it becomes. The more they participate in the system, the more flows.
⸻
Sustaining vs. Disruptive Inputs
Bezos’ invocation of low- and high-tech inputs to the Amazon infrastructure ecosystem brought to mind a nuance of Christensen’s disruption theory that hadn’t occurred to me before. By the time Amazon came along, the "disruptiveness" of UPS and Mastercard were in the past.
But combining them in new ways with new bedfellows brought forth something incredibly disruptive.
I was reminded of the story of the original iPod. The enabling technology in that device was a shrunken hard drive from Samsung: a sustaining innovation, designed to make laptops smaller and more efficient.
But combining it with an online store, a payments processor, and some lovely product design, Apple used that little hard disk to do to the music industry what Amazon did to retail.
We are taught to look at technology as the lever of disruption. But technology alone seldom achieves it. The true disruptors are the ecosystem builders.
⸻
Ecosystem Design as Strategic Discipline
Ecosystem design is the frame for circular transformation. Individual technologies, methods, and materials will play their part. But as we have seen over and over, “sustainability” initiatives in isolation seldom scale.
When circularity leaders like Ellen MacArthur speak of “system change,” this is my version of what that means. To put it in terms of Martin’s Strategy Choice Cascade, ecosystem is a Where To Play and not a Capability or Management System.
Examples already exist: Tesla’s Supercharger network redefined what it meant to be a carmaker. Apple’s iTunes ecosystem turned a sustaining technology into a disruptive juggernaut. Both show that the “recipe” is decisive.
⸻
The Emotional Catalysts of Paradigm Shifts
The 1939 World’s Fair showed families, crushed by the Great Depression, a plausible abundance they could emotionally invest in. The juxtaposition of its wonders was one of its winning elements, making each one feel related to the others. In isolation and at the time, did cars and TV and the Interstate and air conditioning have any correlation? Hindsight gives us perspective. They were part of the same thing: the 20th-century American Dream. At the time, they were attractions on a park map.
Circularity must do the same today for citizens living with climate anxiety and cultural malaise. The map is important. It is the moral of the show.
⸻
The Pioneer’s Reward
History rewards the builders of rails. Ford was synonymous with mobility. Amazon captured the rents of digital commerce. Tesla is now known not just for EVs but for the network that sustains them.
The proof of the ecosystem is when it addresses the tensions of the prevailing cultural mythology in a way that creates and captures value beyond the ability of any one player to do so.
Circular pioneers who build cooperation networks and infrastructure will secure influence that outlasts any single product.
⸻
Who Builds the Future?
The real disruption won’t come from recycling widgets or efficiency tweaks. It will come from those bold enough to weave sustaining innovations into ecosystems of regeneration. Just as the World’s Fair catalyzed the American Century, today’s pioneers have the chance to catalyze the Circular Century.
This is good context to invoke Steve Jobs’ signature observation:
“When you grow up, you tend to get told that the world is the way it is and your life is just to live your life inside the world, try not to bash into the walls too much, try to have a nice family, have fun, save a little money. That’s a very limited life. Life can be much broader, once you discover one simple fact, and that is that everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use. Once you learn that, you’ll never be the same again.”
Jobs’s point was that the systems we inherit were built by regular people like us. Circular ecosystems will be no different. They will exist because someone chooses to build them.
⸻
Before we close, I’ll leave you with one provocation:
- What if your greatest legacy won’t be the products you made, but the infrastructures you built?
💬 Discuss this post: mention @christian@circudyne.com on Mastodon or your favorite fediverse app.
[Read on for the full set of catalytic questions reserved for practitioners who want to apply these insights directly.]
Subscribe to continue reading
