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© HWTK 2017
Relevance of the business model for start-up success
Prof. Dr. Christian Schultz [email protected]
© HWTK 2017
1. Key questions
Questions
Relevance of thebusiness model
for start-upsuccess
§ What are viable definitions of thebusiness model?
§ Is the business model relevant forstart-up success?
§ What elements of the businessmodel are very success sensitive in the start-up context?
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Different perspectives on the business model
TheIntrapreneurà Focus:Helpexploitthelatesttechno-logicaldevelopmentswith the rightbusiness models
TheSeniorExecutiveà Focus:Establishanewbusinessmodelinanold industry
The Entrepreneurà Focus: Addressunsatisfied customerneeds and build new business models
TheInvestorà Focus:Investincompanieswiththemost competitivebusiness models
TheConsultantà Focus:Helpclientsquestiontheirbusinessmodels,andenvisionandbuild new ones
TheDesignerà Focus:Findtherightbusinessmodeltolaunchaninnovativeproduct
TheConscientiousEntrepreneurà Focus:Bringaboutpositivesocialandeconomic changethrough
Source: Osterwalder & Pigneur, 2004, 11.
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Business model definitions (examples)
Article Definition
Timmers (1998): Business Models for electronic markets, Electronic Markets, p. 2.
The business model is an architecture of the product, service andinformation flows, including a description of the various business actors andtheir roles; a description of the potential benefits for the various businessactors; a description of the sources of revenue.
Amitt & Zott (2001): Value creation in e-business, SMJ, p. 511.
A business model depicts the content, structure and governance oftransactions designed so as to create value through the exploitation ofbusiness opportunities.
Chesbrough & Rosenbloom (2002): The role of the business model in capturing value from innovation: Evidence from Xerox corporation’s technology spin-off companies, Industrial and Corporate Change, p. 529.
The business model is the heuristic model that connects technicalpotential with the realization of economic value.
Magretta (2002): Why business modelsmatter, HBR, p. 87.
Business models are stories that explain how enterprises work. A goodbusiness model answers Peter Drucker´s age old questions: Who is thecustomer? And what does the customer value? It also answers thefundamental questions every manager must ask: How do we makemoney in this business? What is the underlying economic logic thatexplains how we can deliver value to the customers at an appropriate cost?
George & Bock (2011): The business model is the design of organizational structures to enact a commercial opportunity, p. 99.
A business model is the design of organizational structures to enact acommercial opportunity.
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The evolution of the business model concept
Startingpoint:MichaelE.Porter’sworkonthegenericvaluechainin1985.
Perceivedstandard:Osterwalder &Pigneur’s businessmodelcanvaspublishedin2004.
Furtherrefinements:ThesophisticatedframeworkofBerndWirtzin2010.
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Key Activities
Key Partners
Key Ressources
Value
Creation Offer
Value Proposition
CustomerRelationship
Channels
Customer Segments
CustomerInterface
Revenue Streams
Cost Structure Finance
Source: Osterwalder & Pigneur, 2004, 43. 6
The business modelcanvas
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The business model lifecycleEntrepreneurial
Mode Adaptive Mode Planning Mode
Time
Rev
enue
Introduction Growth Maturity Stagnation/Degeneration
Adaptive Mode/Planning Mode
Business Model 1 Business
Model 2
Sou
rce:
Wirt
z, 2
010,
215
„The fact is, no matter how bulletproof your firm’s current business model, it will be challenged by new business models.[…] You must constantly attempt to discover new business models if your company hopes to survive and grow.“ Source: Tucker, 2001, 23.
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§ Success for start-ups can be captured by looking at the pure survival of the organization (at a very early stage) and the economic success e.g. revenue and profit (at a later stage).
§ Success will always not solely depend of the business model but also on management execution and contextual factors (market, country, customer values, competition).
§ Technology by itself has no single objectice value. The economic value ofa technology remains latent until it is commercialized in some way via a business model.
„Having a well-thought-out business model is important for severalreasons. While some models are better than others, it isdangerous to link the performance of a firm solely to the
configuration of its business model. In most cases, performanceis a choice of a business model and how effectively a firm uses
its chosen model.“– Barringer & Ireland, 2006, 102.“ ”
Relevance of thebusiness model
8
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Key Activities
Key Partners
Key Ressources
Value
Creation Offer
Value Proposition
CustomerRelationship
Channels
Customer Segments
CustomerInterface
Revenue Streams
Cost Structure Finance
Source: Osterwalder, 2004, 43.
Business model canvas: Twocrucial areas for start-up success
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Meet Maurice Stanszus
§ Maurice holds master degrees in sustainability and innovation management by HTW Berlin and University of Potsdam.
§ When Maurice wrote his master thesis he discovered a lack of viability of sustainability measurements.
§ With more than 400 available measurements it’s nearly impossible to make balanced “sustainable” purchase decision.
§ He developed the “Nachhaltigkeitsampel” as a meta-ranking for sustainability measurement and to help the customer making informed buying decisions.
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His startup Wegreenin 2011
§ Thesocialrankinglistsofotherorganizationsareused(Greenpeace,greenbrands,greenleaksetc.)tocreateameta-ranking.
§ In2011www.wegreen.deisasearchenginetoclassifyven-turesinregardtotheirsocialresponsibility.
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Evolved business model: Wegreen in April 2012
§ Wegreen offers new functions and services.§ The consumer can engage in the discussion on
sustainability and sustainable products.§ Wegreen has the vision of becoming the market
leader for sustainability information on the web. § Wegreen pays especially attention to the
challenge of preserving their high reputation in the community.
New brandingNew functionalities
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The new Wegreen(since 2013)
§ Wegreen added strong revenue potential to their business model by incorporating product search on their site.
§ Wegreen has evolved into a sustainable product search engine for sustainable-conscious customers. There is a clear revenue model now.
§ Now, Wegreen enables consumers to act socially responsible in an instant. Their value proposition has clearly risen.
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Conclusion 1. What are viable definitions of the business model?
§ There are many definitions, which mostly depend on the perspective of thepractitioner or academic.
§ A timeline of the business model concept can be identified.2. Is the business model relevant for start-up success?
§ The business model is of high relevance for start-up success. But it is never thesingle relevant success factor.
§ Don‘t forget that business models (have to) change over the company‘s life cycle.§ Especially the elements of capturing the value proposition and developing a clear
revenue model are of crucial importance.3. What elements of the business model are very success sensitive in the start-up
context?§ Value proposition remains unclear or low. For example in the case of wegreen in
2010. Tools to enhance the value proposition is the value proposition map byAlexander Osterwalder.
§ Revenue streams are underdeveloped. Wegreen has evolved into a sustainableproduct search engine… so far.
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LiteratureBucherer, E. et al. (2012): Towards systematic business model innovation: Lessons
from product innovation management, in: Creativity and Innovation Management, 183-192.
Barringer, B. & Ireland, D. (2006): Successfully launching new ventures, . Osterwalder, A. & Pigneur, Y. (2004): Business model generation, Lausanne.Porter, M. E. (1985): Competitive advantage, Free Press: New York. Tucker, J. (2001): Driving growth through innovation, Berret Publishers: New York. Wirtz, B. (2010): Business model management, Wiesbaden: Gabler.
Further ReadingLean start-up initiative: www.theleanstartup.comBook on the basics of business models by Prof. Christian Nielsen & Morten Lund (Aalborg University, Denmark): http://bookboon.com/en/the-basics-of-business-models-ebookBlog on Business Model Research: http://www.affarsmodeller.se/
Literature and further reading
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Your Future. Your Success.
Prof. Dr. Christian Schultz Head of Distance Learning at HWTK
