The Circular Edge: 5 Steps to a Better Business for SMEs

If you ask most SMEs what their circular economy strategy is, they start talking about recycling. Recycling is often the easiest circular action a company can take. Unfortunately, it doesn’t move the needle much. You would think that by now most companies would be making more impactful circular transitions, but as much as circularity is about awareness, it is about actionability too.

You can see this in the data as well. A survey of over 10,000 SMEs across EU member states found that waste minimisation through recycling is the most commonly adopted circular economy practice, while redesigning products to reduce material use has the highest adoption barrier of any measure tested [1]. In Finland specifically, a circular economy barometer found that when companies were asked what circular economy means to them, the most frequently mentioned word was “recycle” [2]. Meanwhile, 69% of Finnish companies had not commissioned emissions calculations, material reviews, or lifecycle assessments — which would all help in guiding their circular efforts [3].

Not all loops are equal

What loops are we talking about then? In circularity, principles are often organised as an R cascade — ranked from most to least impactful. The most widely cited version, developed by Kirchherr et al. (2017), runs from R0 to R9 across three loop lengths [4]:

Short loops eliminate or reduce material consumption before it happens:

• Refuse (R0) — make the product redundant
• Rethink (R1) — make use more intensive, for example through sharing
• Reduce (R2) — increase efficiency so fewer materials are needed
• Medium loops keep products and components in use for longer:
• Reuse (R3) — use the product again for the same purpose
• Repair (R4) — fix faults so the product can keep functioning
• Refurbish (R5) — restore to working condition, often upgrading components
• Remanufacture (R6) — disassemble and rebuild to original specification
• Repurpose (R7) — use the product or its parts for a different function
• Long loops recover material value when a product can no longer be kept in use:
• Recycle (R8) — break down materials and reprocess them into new inputs
• Recover (R9) — incinerate with energy recovery

Recycling (the default strategy for most companies), sits near the bottom — which is not where you want to focus your efforts. Right now, the major force pushing businesses up the hierarchy is European regulation. The EU’s Ecodesign for Sustainable Products Regulation (ESPR) covers 16 product requirements that map almost directly onto these Rs — a sign that product law itself is getting more circular.

Climbing the hierarchy

Which brings us back to actionability — what it actually takes for an SME to move up the hierarchy, not just understand it. This is where DesignMod comes in. Through the DesignMod project [5], which is co-funded by the EU and run by Novia, VAMK and Centria, we have been working with manufacturing SMEs in Ostrobothnia to help them move up the hierarchy. As a product of this work, a practical framework is also being developed. The framework maps circular development across five areas: product design, material choices, production, business models, and collaboration. The rest of this article introduces the framework.

1. Product (re)design is where circularity starts

Circularity starts at the drawing board. In the DesignMod framework we are focusing on two design principles that strongly impact how many Rs will ever be available throughout a product’s lifecycle.

Design for disassembly means favouring reversible fastenings over permanent ones — screws and snap-fits instead of adhesives and welds — so products can be taken apart cleanly for repair, reuse, or recycling. Fairphone is a good example of this: in their smartphones, components such as the battery, screen, camera and speakers are held in place with standard screws and can easily be replaced by the user. Fairphone supports its devices with spare parts and software updates longer than industry standards. The result is a product that stays in active use far longer than a conventionally assembled device, with components that can be cleanly separated and recycled at end of life. This principle activates both short and medium loops — and it makes the long loop of Recycling (R8) output far cleaner.

Modularity takes this further: building a product from separate, interchangeable, compatible parts so that each module can be upgraded or reused independently — not just repaired. Continuing on the example of Fairphone: when a new camera module becomes available, the user can swap it in without replacing the whole phone. The same device serves longer, with fewer total components manufactured over its lifetime. Modularity activates the short loop Reduce (R2) and deepens access to the medium loops. Modularity can also lock in a long-term customer relationship in a way that one-off product sales usually don’t.

2. Material choices determine what loops remain open

During the design or redesign phase, material decisions determine what goes into the product (short loops), how well it withstands one or several use cycles (medium loops), and what comes out at the end of the lifecycle (long loops).

We focus on three main material principles in the DesignMod framework. The first is straightforward: use recycled or renewable materials whenever you can — provided that quality, performance and financial requirements still are met. This is where you can significantly Reduce the consumption of virgin materials (R2). A good example is mycelium-based packaging — grown from organic residues bound together by fungal networks. It uses agricultural waste streams as input, can be shaped to specification, and composts fully at end of life. It is not yet a mainstream packaging solution, but it is a great example of circular innovation.

The second principle is to simplify composition. When a product has fewer material types, it is generally easier to repair (R4) and better set up for recycling (R8). Generally we recommend mono-materials whenever possible, and mixed materials when they genuinely add value. As a rule of thumb, the fewer materials, the easier you can separate or reuse the material at end of life, the better.

The third is cascade use. This means to start a material in its highest-value, longest-life application before moving it down the cascade. This reduces the risk of value leaking out of a material prematurely. Timber is a good example — the best way to start using timber is for something like a solid beam in a house, then reclaiming the wood and making furniture, after which the wood can be shredded and made into particleboard, after which you can still make pellets for energy. The point is not to skip straight to the low-value application but to extract as much value as possible from what has already been produced.

3. Production generates losses — and opportunities

Even with circular product design and material choices in place, production processes generate losses. In the DesignMod framework we cover two main principles focusing on turning these losses into opportunities and providing the flexibility of production certain SMEs benefit from.

Side-stream utilisation means treating excess material and energy from production as resources rather than waste — whether by reincorporating it into the main process, creating a secondary product from it, or selling it to another company that can use it as input material or energy. The business case depends on volume, consistency, and proximity to potential buyers. Within the first year of the DesignMod project, this topic of side-stream utilisation has been of high interest to SMEs in the region, showing once again a tendency to start lower on the R cascade than with the (re)design of the primary product. However, all circular action is still action in the right direction, and an ecosystem that supports and enables circular material flow can be a real competitive advantage at a regional level. For the individual SME, the starting point is to map what material flows are actually being generated and ideate around what excess output could become. When done right, side-stream utilisation can indeed have meaningful impact across the R cascade.

Modular production means building production systems from flexible, reconfigurable workstations rather than fixed linear lines. Instead of a conveyor belt that is built for one product flow and expensive to change, you have stations that can be rearranged, added, or removed as your products and volumes shift. When you want to produce a new product, it becomes a question of reconfiguration, rather than having to build a new linear production line. Modular production is good for flexibility, while linear production is good for stable product output i.e. the same product is sold at the same volume over time.

The DesignMod project is building a modular production line at Centria’s campus in Pietarsaari so that manufacturing SMEs in Ostrobothnia can test and develop modular production configurations at small scale to understand if it might make a beneficial business case for them to invest in.

4. Circular business models are where the commercial logic takes shape

The first three steps create the conditions for circular value creation. Step 4 is where the commercial model is built around them.

A business model asks how value can be created, delivered, and captured [6], while a circular business model asks how this can be done in a way that keeps materials and products in use for longer. There are three typical circular business model groups that complement the design, material, and production principles we’ve just gone through.

Access models are one of the most common circular business model patterns. They shift the transaction from ownership to use, which is central for the short loops of the R cascade in Rethinking (R1) how products are distributed and used — under an access model, one product serves more users and sits idle less, which raises its utilisation rate — as well as Reducing (R2) the overall products needed. As an example, Signify, formerly Philips Lighting, sells light as a service: customers pay for illuminated environments, Signify maintains the hardware, and the business has a direct financial incentive to design for durability: systems that last, perform efficiently, and can be recovered at end of life. Because Signify also operates the system, it can continuously optimise and automate energy use — e.g. sensors and controls that dim or switch lighting in response to daylight and occupancy — which saves energy for the customer and, in the end, for the environment. With access models the manufacturer can often build a long-term relationship that is not possible with a one-time transaction.

Product lifecycle extension works with the medium loops in the R cascade by building revenue around keeping products in use longer — through reuse, repair, refurbishment, or remanufacture. These are the services made possible by good product design and material choices. Wärtsilä is a good example of a company that has built a significant part of its business around this. They offer lifecycle services that keep engines running for decades. This includes maintenance contracts, component reconditioning, upgrades that bring older systems up to current performance standards, and full remanufacture of parts to original specification. The principle also scales down to SMEs — any manufacturer that designs a product for durability and repairability has the foundation to build lifecycle extension services around it.

Resource recovery targets Repurposing (R7) and the long loop Recycling (R8) by looping in end-of-life products, components and material into the beginning of a new lifecycle. An interesting example is The Royal Mint, best known for producing coins in the UK, that has broadened their business into running what could be called an urban mining service — they extract gold and other precious metals from the circuit boards of discarded electronics, materials that would otherwise be lost to landfill or low-grade processing. This material is then used as their own input material as well as sold to customers as raw material.

When circularity is the profitable choice

Taken together, the three business model patterns span the entire Rs hierarchy — short, medium, and long loops — each with a commercial logic for how value is captured. Generally, circular business models are commercially viable in three broad ways:

•           They can reduce costs when the circular choice is the cheaper one — for example, through reduced consumption of expensive virgin materials.

•           They can build longer customer relationships, creating opportunities for multiple revenue streams across a product’s — now extended — lifecycle.

•           They can unlock hidden value in end-of-life material, bringing it into new cycles rather than writing it off.

5. Circular systems require collaboration

The fifth step is practical rather than technical. Circular systems are more interconnected than linear ones by design. Small side streams need to be added up to make a business case, take-back schemes require reverse logistics providers to function, repair and refurbishment operations need service providers to work and so on. You’re not meant to do everything by yourself.

For manufacturing SMEs, this means identifying where partnerships unlock circular opportunities that are not viable alone — with suppliers, customers, waste handlers, research institutions, or other companies in the same region generating complementary material streams. Collaboration is a foundational condition for circularity to function.

This is also where DesignMod comes in: creating a meeting point for SMEs and stakeholders across the region to build circular strategies, climb the R cascade, and co-create solutions with real regional impact.

Want to get involved?

DesignMod is open to manufacturing SMEs in Ostrobothnia. Sign up to get notified about upcoming events: Sign up here.

Sources

[1] Tritto, N., Dias, J.G. & Bassi, F. (2024). SMEs Circular Economy Practices in the European Union: Multilevel Implications for Sustainability. Social Indicators Research, 175(3), 965–988. Based on a survey of more than 10,000 SMEs across EU member states. https://doi.org/10.1007/s11205-023-03191-w

[2] Lê, U.V. (2025). Circular economy in Finnish SMEs: Challenges and Opportunities in Scaling Up. Bachelor’s thesis, Aalto University. https://aaltodoc.aalto.fi/bitstreams/bd3564fe-ebef-4f48-af6f-8b133ccd9212/download — cites Finnish Circular Economy Barometer (2023).

[3] European Environment Agency (2024). Circular Economy Country Profile: Finland. EEA. https://www.eea.europa.eu/en/topics/in-depth/circular-economy/country-profiles-on-circular-economy/circular-economy-country-profiles-2024/finland_2024-ce-country-profile_final.pdf/@@download/file

[4] Potting, J., Hekkert, M.P., Worrell, E. & Hanemaaijer, A. (2017). Circular Economy: Measuring Innovation in the Product Chain. PBL Netherlands Environmental Assessment Agency, Report 2544. https://www.pbl.nl/downloads/pbl-2016-circular-economy-measuring-innovation-in-product-chains-2544pdf

[5] DesignMod project — EU co-funded project, VAMK/Muova, Novia and Centria, Österbotten. https://www.novia.fi/en/rdi/our-projects/designmod-kestava-modulaarinen-tuotantoymparisto

[6] Osterwalder, A. & Pigneur, Y. (2010). Business Model Generation. John Wiley & Sons.

Artikeln har godkänts för publicering av Novias redaktionsråd 26.10.2026.

ISSN: 1799-4187