When a business fractionates a natural resource, its attention usually follows the fraction with the clearest market. The remaining streams receive less commercial attention, even though they also contain material the business has paid to source, handle, and process.
Fractionation separates a material into components with different properties. It creates multiple streams; it does not automatically create multiple profitable products. The leadership opportunity is to investigate what each stream could become before accepting its current destination as its best use.
At Nexture, our view is straightforward: evaluating secondary streams should be a recurring business discipline. R&D gives that discipline substance by connecting what a material can do with what a customer will pay for.
Treat secondary streams as commercial questions
The terms co-product, by-product, and waste carry different technical and accounting meanings. Here, secondary streams means the outputs beyond the business’s primary target fraction. Some already have customers. Others require further development or have no viable application today.
Their current selling price is useful evidence, but it is not a complete measure of their potential. A low-value outlet may reflect limited characterization, inconsistent quality, or a lack of customer development rather than an inherent lack of usefulness.
Ivey Business School’s Circular Economy Lab studies how firms recognize opportunities in underused materials and develop exchanges between businesses. Its work emphasizes the product, process, and supply-chain innovation needed to capture that value. Recognizing a possible application is only the beginning. [1]
For leadership teams, the implication is practical: give significant secondary streams an owner, a development question, and a place in the innovation portfolio.
R&D turns a stream into a credible product proposition
An available stream is not yet a product. A customer needs a defined function, an acceptable specification, a reliable supply, and evidence that the material performs in the intended application.
An effective R&D programme should answer three connected questions. What properties does the stream contain, and how much do they vary? Which separation, stabilization, or processing steps preserve useful functionality? Can the resulting material meet a customer requirement consistently at a viable cost?
This work should begin alongside market research. Customer requirements can guide experiments, preventing a team from optimizing a property that buyers do not value. Technical results, in turn, help commercial teams distinguish a defensible value proposition from an attractive hypothesis.
Nexture’s perspective is that R&D deserves investment as a mechanism for reducing commercial uncertainty. A useful experiment changes a decision: it supports a pilot, redirects the application, narrows a specification, or closes an unpromising route.
Optimize the economics of the whole process
Harvard Business School researcher Deishin Lee’s working paper, Turning Waste into By-Product, models how converting a secondary stream into a saleable output can change the economics of jointly produced products. The analysis connects value capture to process innovation, market conditions, and operating decisions. It is an analytical model, rather than evidence that every recovery project will succeed. [2]
The management lesson is to assess the whole production system. A new fractionation step might improve a secondary product while reducing primary-product recovery, increasing energy use, or limiting plant throughput. A higher selling price alone cannot establish whether the investment creates value.
Compare incremental revenue and genuinely avoidable disposal costs against added processing, quality assurance, storage, logistics, selling costs, and capital requirements. Include any effect on the primary business and test the result against realistic variability in yield, demand, and price.
Measure contribution and cash generation across the system. Otherwise, an apparently successful co-product can conceal a weaker overall business.
Develop the customer and the operating model together
Co-product commercialization requires more than a successful laboratory result. Buyers need confidence in batch consistency, traceability, volumes, delivery, and the supplier’s ability to handle deviations.
R&D, operations, finance, and commercial teams should therefore review opportunities together. Establish the target application, the evidence required for customer qualification, and the conditions under which production can scale. A positive sample evaluation is progress; it is not a purchase commitment.
The business also needs to choose its role. It may develop the product internally, sell an intermediate stream to a specialist, or collaborate with a partner that already has the required technology and customer access. The right route depends on capability, investment, risk, and the share of value the business can retain.
Test the environmental case separately
The Ellen MacArthur Foundation frames circular value creation around eliminating waste, circulating materials at their highest value, and regenerating nature. [3] That provides a useful direction, but a recovery project still needs its own evidence.
Additional processing, transport, water, and energy can change the environmental balance. Compare the proposed route with the stream’s actual existing use, including any product it already replaces. Selling a stream into a higher-priced market does not, by itself, demonstrate a lower environmental impact.
Commercial and environmental assessments should inform each other without substituting for one another.
Make co-product innovation a repeatable leadership practice
Start with an inventory of secondary streams: volumes, composition, variability, current destination, revenue, and handling cost. Rank opportunities by credible customer need, technical feasibility, investment, and fit with the business.
Fund a small number of focused investigations. Set explicit milestones for material characterization, customer validation, pilot performance, and commercial economics. Each review should produce a decision to proceed, revise, partner, or stop.
The objective is not to force a premium application onto every output. It is to ensure that valuable possibilities are examined systematically and that capital follows evidence.
For businesses processing natural resources, the primary product should not define the limit of commercial ambition. A disciplined co-product strategy connects resource efficiency, R&D investment, and business growth by asking a better question: what value remains in the streams we already produce, and what would it take to realize it?
Sources and further reading
[1] Ivey Business School, Centre for Building Sustainable Value: Circular Economy Lab.
[2] Deishin Lee, Harvard Business School: Turning Waste into By-Product, Working Paper 07-098, revised July 2011.
[3] Ellen MacArthur Foundation: How does the circular economy create value?, February 2023.
The leadership recommendations are Nexture’s interpretation of these sources and the commercial questions discussed here. They do not imply endorsement by the cited organizations.