How family offices can lead the circular economy and generate substantial profits

For multiple generations, the Berolzheimer family has played a significant role in the pencil industry, through companies like the Berol Corporation and especially CalCedar. But, if you’ve ever used a Duraflame® firelog, you’ve experienced firsthand how waste from their core business was converted into a tremendous growth opportunity, while also advancing a circular economy. 

For in 1969, the “first ever wood-wax blend extruded firelog was developed to make the best possible use of cedar waste from slat production thus inventing a whole new category of consumer hearth product.”

I’ve long known of this story because the Berolzheimers were significant benefactors of the boarding school from which I graduated, and it was easy to appreciate their ingenuity while taking classes in a building that bore their name. 

But, they weren’t the first family to convert a manufacturing byproduct into an entirely new business opportunity. Another, even more famous, example was Kingsford, a leading charcoal brand. Kingsford was created by Henry Ford as a way to better use the immense wood waste from manufacturing Model Ts. Ford was an outdoors enthusiast who reportedly lived by the motto: “reduce, reuse, and recycle.”

Like Ford, today’s leading family businesses are well-positioned to both advance the circular economy and benefit from it financially. The Ellen MacArthur Foundation defines a circular economy as “a systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution.” In this regard, family-controlled businesses can rapidly deploy the requisite innovation and agility to turn waste into profits, usually much faster than large, bureaucratic companies.

Here’s how to best approach it.

Assemble the right team

It’s critical that you have the right people helping you capitalize on new opportunities. This is a mistake that was made when I first served as the chief innovation officer of a mid-sized food company that was controlled by a family office. 

A team had already been assembled to test a new growth concept that stemmed from excess capacity; however, none of them had any entrepreneurial experience, and several felt that being on the team was additional work without extra compensation. We ultimately had to disband the team and start all over again with a handful of people who were both capable and excited to be involved.

If you’re assembling the team internally, consider holding open tryouts instead of assigning people to the task. However, keep in mind that you may need the fresh perspective of an outsider or someone with particular expertise. As The New York Times Magazine reported, Henry Ford relied on a University of Oregon chemist, Orin Stafford, to invent the charcoal’s production process. Ford also put his cousin-in-law, Edward Kingsford, in charge of running the operation, which was later named after him.

Ensure proper incentivisation

In his book, The Science of Success: How Market-Based Management Built the World’s Largest Private Company, billionaire Charles Koch, details the five dimensions of the corporate culture that has created Koch Industries, Inc. The fifth dimension is “Incentives—Rewarding people according to the value they create for the organization.” Simply put, be sure that your team is hungry to help you convert excesses into new business opportunities.

As Charlie Munger said, “Show me the incentives and I will show you the outcome.” However, giving people a chance to combat climate change can be a uniquely purposeful motivator, in addition to monetary incentives. 

This was the case for me when I recently served as the co-president and chief marketing officer for a Nasdaq-listed company focused on decarbonizing existing buildings. Becoming a father for the first time instantly gave me a new perspective on climate change and the need to improve the planet for future generations, so I’ve been more motivated than ever to help advance such endeavours. Any family office trying to further a circular economy is likely to find many talented people looking to help.

Start small & don’t be afraid to fail

An impoverished immigrant, “Sam the Banana Man” Zemurry started out by reselling ripe bananas from a boxcar before they rotted; he went on to run the most dominant fruit company of its time, better known today as Chiquita Brands International. As Amazon’s Jeff Bezos said, “Big things start small. The biggest oak starts from an acorn. You’ve got to be willing to let that acorn grow into a little sapling, and then finally into a small tree and then maybe one day it’ll be a big business on its own.” 

With these things in mind, family offices are primed to lead a circular economy and turn their business byproducts into future growth that the planet desperately needs.

Kai Sato is the founder of Kaizen Reserve, Inc., a venture capital advisory firm for corporations and family offices, helping align their existing assets with synergistic startups.