WORKSHOP – RESEARCH METHOD COURSE - 2010

Abstract—The popularity of the business model concept contrasts with the controversial academic research findings on its relationship with early-stage entrepreneurial venture survivability. This research aims to find support on complementary business model components that would better fit to entrepreneurs, investors, and stakeholders’ needs when assessing entrepreneurial opportunities.

Index Terms—Business Models, Entrepreneurship, Grounded Theroy, Value Proposal.

I. INTRODUCTION

definition of a business model should give answers to basic, but key, questions such as: How is value

created? Who do we create value for? How is value captured? How are we going to be competitive? [1,2] Business models are popular in entrepreneurial settings; they are used by entrepreneurs to communicate their business ideas and by investors and stakeholders to assess the attractiveness of the proposed business venture [3]. However, there is a limited evidence of its relationship to entrepreneurial venture survival options and recent studies are controversial to the adequacy of the business model concept to entrepreneurial opportunities identification [4,5].

A

Entrepreneurial settings combine high levels of uncertainty on both the entrepreneurs’ ability to exploit the opportunity and the market opportunity itself. In addition early-stage venture evolution is driven by the use of trial-and-error approaches, the development of dynamic capabilities, and the reconfiguration of value proposal to best fit with the market [6]. Moreover the experimental and discovery character can be hardly reconciled with the conventional nature of the business model. Scholars have indicated the need for a revisited business model concept that would merge the conventional components with these new market trends, mainly based on experimental and discovery traits [2,6,7,8].

This work in progress aims to shed some light on the suitability of introducing complementary components in the business model concept that would better fit with entrepreneurs, investors, and stakeholders’ needs in the assessment of early-stage entrepreneurial opportunities.

F. Giones is with Innova Institute La Salle – Ramon Llull University, c/ Lluçanes, 41 08022 Barcelona, Spain (phone: (+34) 932902404 e-mail: fgiones@salle.url.edu).

F. Miralles is the Innova Institute Director La Salle – Ramon Llull University, c/ Lluçanes, 41 08022 Barcelona, Spain (e-mail: fmiralles@salle.url.edu).

II.LITERATURE REVIEW

A. Entrepreneurs

Entrepreneurs are able to organize heterogeneous resources to create incremental wealth exploiting market opportunities [9]. Entrepreneurs promote growth and foster technological innovation, bringing new products and/or services to market [8]. The relevant contribution of entrepreneurship in the economic development, justifies the interest of institutions and academic educations in fostering entrepreneurial initiatives. On the other hand, efforts from institutions to promote the use of tools and instruments to improve the survival rate of entrepreneurial ventures, receive very limited support [10]; only finding evidence for more general insights such as that ventures that used business planning tools had less chances to end up disbanded shortly after their constitution [11].

The lack of clear models or tools for organizing early-stage ventures, puts both entrepreneurs and institutions under pressure. While current entrepreneurship education curriculums are build upon in-use business models, studies show none or limited use of detailed business plans by successful start-ups [4]. This apparent contradiction, is justified in the literature review as the origins of the instrument and the current reality of entrepreneurs are understood.

B. Business Model

The emergence of the business model concept was linked to the disruption of the dotcom's. Internet based ventures became business models best known users, at some times being the most valuable asset of the company [3]. A definition of a business model should give answers to few basic, but key questions to understand how a business makes money [1], such as: How is value created? Who do we create value for? How is value captured? How are we going to be competitive?[2].

Extant literature provides definitions and taxonomies of the business model concept, authors converge in placing the value proposal or unit of business as the central element of the business model definition. In a second level of detail, the list of key four components is completed with customer interface, infrastructure management or activity configuration, financial aspects (cost and revenue) [12].

Despite the concept of the business model is abstract and simple enough: how do we plan to make money? There are different usage patterns, one is the business model as a market device or instrument [3], and the more abstract or related to strategic planning of business model as a concept

Do entrepreneurs need to enrich their value proposition? Revisiting business models for

early-stage ventures

F. Giones, F. Miralles

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WORKSHOP – RESEARCH METHOD COURSE - 2010

[1].

C. Early-stage ventures in emerging sectors

In an entrepreneurial setting, the definition of the business model is unarguably a significant and prominent issue [13], but its usage as an instrument to assess the value of the venture fails to deliver either its communicative or ceremonial function [14]. In dynamic, complex and uncertain markets of emerging sectors, organizations are forces to frequently re-evaluate their value delivery and capture proposal in order to sustain its market fit [15].

Entrepreneurs develop mechanisms and practices such as: trial and error, effectuation [16], heuristics decisions-making [17], sense-making processes [18], to successfully navigate this environments. At the same time, entrepreneurs in early-stage ventures are influenced by cognitive abilities that current literature describes as: entrepreneurial cognition , positive affect [19] , optimism , self-efficacy and motivation [20].

In the early-stages of the venture entrepreneurs interaction with the market is therefore driven by experimentation, not exploitation, in an uncertain environment.

D. Research Question

This work-in-progress aims to get a better understanding on whether the business models are adequate instruments to assess the value of early-stage entrepreneurial ventures in emerging sectors.

III. RESEARCH DESIGN

The authors are using a qualitative research method, following a grounded theory approach. In-depth interviews are being conducted with a group of entrepreneurs and data is being studied and encoded by a team of three researchers.

The selection of a grounded theory approach is based on both the subject and objective of the research [21]. The aim of the authors is to better understand how actors interpret a reality [22] and to gain insights in the way they organize their transition from a business idea into a venture. Aiming to uncover theories and frameworks from the data collected, following iteration of theory review and further data collection.

IV. EXPECTED OUTCOMES

What this research posits is that the usual structure of a business model is not enough to represent all the tenets that should be considered to assess, in their early-stages, the survivability of an entrepreneurial venture in today’s global dynamic environment.

The authors expect to get some clues to propose an enriched business model concept that better acknowledges the assessment complexity of the viability of a new entrepreneurial venture.

REFERENCES

 

[1] J. Magretta, "Why business models matter," Harvard Business Review, vol. 80, 2002, p. 86–93.

[2] M. Morris, M. Schindehutte, and J. Allen, "The entrepreneur's business model: toward a unified perspective," Journal of Business Research, vol. 58, 2005, pp. 726-735.

[3] L. Doganova and M. Eyquem-Renault, "What do business models do?Innovation devices in technology entrepreneurship," Research Policy, vol. 38, 2009, pp. 1559-1570.

[4] B. Honig, "Entrepreneurship education: Toward a model of contingency-based business planning," Academy of Management Learning and Education, vol. 3, 2004, p. 258–273.

[5] B. Honig and T. Karlsson, "Institutional forces and the written business plan," Journal of Management, vol. 30, 2004, pp. 29-48.

[6] D.J. Teece, "Business Models, Business Strategy and Innovation," Long Range Planning, 2009.

[7] R.G. McGrath, "Business Models: A Discovery Driven Approach," Long Range Planning, 2009, pp. 1-15.

[8] H. Chesbrough, "Business Model Innovation: Opportunities and Barriers," Long Range Planning, 2009.

[9] R.D. Ireland, M.A. Hitt, S.M. Camp, and D.L. Sexton, "Integrating entrepreneurship and strategic management actions to create firm wealth," The Academy of Management Executive, vol. 15, 2001, p. 4963.

[10] S.N. Kaplan, B.A. Sensoy, and P. Stromberg, "Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies," The Journal of Finance, vol. LXIV, 2009, pp. 75-116.

[11] F. Delmar and S. Shane, "Legitimating first: Organizing activities and the survival of new ventures," Journal of Business Venturing, vol. 19, 2004, p. 385–410.

[12] A. Osterwalder, "The Business Model Ontology a proposition in a design science approach," Academic Dissertation, Universite de Lausanne, Ecole des Hautes Etudes Commerciales, 2004, pp. 1-169.

[13] C. Zott and R. Amit, "Business Model Design and the Performance of Entrepreneurial Firms," Organization Science, vol. 18, 2007, pp. 181-199.

[14] D. Kirsch, B. Goldfarb, and A. Gera, "Form or substance: the role of business plans in venture capital decision making," Strategic Management Journal, vol. 515, 2009, pp. 487-515.

[15] R.E. Miles, G. Miles, C.C. Snow, K. Blomqvist, and H. Rocha, "The I-Form Organization," California Management Review, vol. 51, 2009, pp. 61-77.

[16] S.D. Sarasvathy, "Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency," The Academy of Management Review, vol. 26, 2001, pp. 243-263.

[17] S.A. Alvarez and L.W. Busenitz, "The entrepreneurship of resource-based theory," Journal of Management, vol. 27, 2001, p. 755.

[18] K.E. Weick, K.M. Sutcliffe, and D. Obstfeld, "Organizing and the process of sensemaking," Organization science, vol. 16, 2005, p. 409.

[19] R.A. Baron, "The role of affect in the entrepreneurial process," The Academy of Management Review, vol. 33, 2008, p. 328–340.

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WORKSHOP – RESEARCH METHOD COURSE - 2010

[20] R.A. Baron and T.B. Ward, "Expanding Entrepreneurial Cognition's Toolbox: Potential Contributions from the Field of Cognitive Science," Entrepreneurship Theory and Practice, vol. 28, 2004, pp. 553-573.

[21] Eisenhardt and K. M, "Building theories from case study research," Academy of Management Review, vol. 14, 1989, pp. 532-550.

[22] R. Suddaby, "What grounded theory is not," Academy of Management Journal, vol. 49, 2006, pp. 633-642.

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