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Practicing Business Model Management in New Ventures Journal of Business Models (2017), Vol. 5, No. 1, pp. 1-13 Practicing Business Model Management in New Ventures Malin Malmström1 and Jeaneth Johansson2 Abstract Purpose: The purpose of this paper is to enhance the knowledge of business modeling in the early phases by exploring its core components and the management of those components. This will be achieved by answering the following exploratory questions: What aspects of business model components do entrepreneurs process in the early stages? How do entrepreneurs process those aspects? Design/Methodology/Approach: In this qualitative study, data was collected during semi-structured inter- views with six entrepreneurs. Findings: The fi ndings support the argument that when studying the early stages of business model manage- ment, to gain a richer understanding of the entrepreneurial process, acknowledging the resource activities is important. Our fi ndings highlight that cash and competence appear to be essential focus in managing busi- ness model components in early stage. We also found that entrepreneurs may create resource slack that al- lows businesses to carve out a competitive position in the marketplace by focusing on business model design and management. Originality/Value: Although business model research is developing rapidly, one prominent gap in the fi eld is how entrepreneurs manage their business models in the early start-up stages. In particular, there is a lack of knowledge about what entrepreneurs focus on in their business model management in early start-up stages and how they manage these aspects, an area to which this research contributes. Keywords: Business model management, practice, new venture, start-up, management Please cite this paper as: Malmström et al. (2017), Practicing business model management in new ventures, Journal of Business Models, Vol. 5, No. 1, pp. 1-13 1-2 Luleå University of Technology 1 Article_5_1_rev.indd 1 5/26/2017 9:38:40 PM Journal of Business Models (2017), Vol. 5, No. 1, pp. 1-13 Introduction is able to carve out clear aspects of the components When a business is founded, it either explicitly or (advancing the model) and develops resource stocks implicitly takes on a particular business model that and fl ows that guide operations and ongoing growth. describes the design or architecture of the value crea- Despite these insights, there is still a lack of a clear tion and the delivery of value (Teece, 1988). Without a understanding of what entrepreneurs focus on in their well-developed business model, entrepreneurs will fail business model management during the early start-up to deliver or capture value from their business. Accord- stages. Although business model research is devel- ingly, researchers have suggested that business models oping rapidly, one prominent gap in the fi eld is how are critical constructs for understanding value creation entrepreneurs manage their business models in the (e.g., Amit and Zott, 2001; Chesbrough and Rosen- early start-up stages (Mitchell et al., 2002; Morris et al., bloom, 2002; Mahadevan, 2000). The business model 2005) and, in particular, what entrepreneurs focus on, a can be understood as the underlying knowledge or core gap this study aims to address. By building on Penrose’s logic for generating value with a venture (Chesbrough (1959) work on resource acquisition and organization and Rosenbloom, 2002; Shafer et al., 2005). Design- process, this study addresses previous shortcomings ing a business properly, and fi guring out, implement- by acknowledging entrepreneurs’ resource activities in ing and refi ning a commercially viable architecture for early-stage business model management. In doing so, revenue and for costs are critical to business success. we adopt an orientation toward the practicing of busi- This is essential when the business is fi rst created; but ness models. keeping the business model viable is also likely to be a continuing management task. As such, the aim of this paper is to enhance the knowledge of business modeling in the early phases To profi t from entrepreneurship, entrepreneurs embark- by exploring the core components and the manage- ing in the business world need to excel not only at prod- ment of those components. This will be achieved by uct innovation but also at business model design and answering the following exploratory questions: What management, including how to manage stock and the aspects of business model components do entrepre- fl ow of resources (Malmström et al., 2013). Developing neurs process in early stages? How do entrepreneurs a business model that yields profi ts means developing process those aspects? The study is based on data a di erentiated and di cult-to-imitate model that is from interviews with six entrepreneurs in the creative compelling to customers, achieves advantageous cost industry in Sweden. The paper begins with a review of and risk structures and enables signifi cant value captur- the business model literature to anchor this research ing by generating and delivering products and services. in its specifi c context. The methodology adopted is Business model design and management can be a path- depicted followed by the empirical fi ndings. Finally, way to competitive advantage if the model is su ciently fi ndings, limitations and future avenues for research di erentiated and hard to replicate for competitors are discussed. (Croneer et al., 2015; Malmström and Johansson, 2015). Although some entrepreneurs have a clearly formu- Business models at work lated business model when they start a business, In noticing that business models are often poorly com- many start with partially formed and incomplete mod- municated, Morris et al. (2005, p. 727) considered a els. Researchers agree that creating a business model business model “a concise representation of how an involves experimentation. Entrepreneurs learn through interrelated set of…areas of venture strategy, architec- this process what is required to make money on a sus- ture, and economics are addressed to create sustaina- tainable basis. A business model thus might evolve ble competitive advantage in defi ned markets.” A busi- from the foundation to a more complete articulation. ness model is a map of how value can be generated. It Initially, the entrepreneur may have a clearer view of represents how a business is organized to discover and some aspects of the business model and management exploit opportunities. The business model provides a of it and limited notions about other aspects. As the framework that assists the entrepreneur in assessing fi rm develops and the entrepreneur learns, he or she consistencies and recognizing trade-o s among deci- 2 Article_5_1_rev.indd 2 5/26/2017 9:38:42 PM Journal of Business Models (2017), Vol. 5, No. 1, pp. 1-13 sions, for example, about what to do (e.g., what o er- Onetti et al., 2012), and many have endeavored to cap- ings to launch). At the proprietary level, unique con- ture the essence of business models (e.g., Chesbrough, fi gurations are produced and compiled in competitive 2010; Linder and Cantrell 2000; McGrath, 2010; Oster- resources that can result in a sustainable advantage. walder and Pigneur, 2010; Sosna et al., 2010), there is a This suggests that the business model and manage- lack of knowledge about the dynamic side of business ment of the business model may serve as a unique, models, particularly how they are created and man- inimitable, non-copyable, non-tradeable resource, in aged in practice, despite the implicit assumption of a line with the Penrose’s logic of the resource based the- process approach in the business model concept. Mor- ory (Penrose, 1959; Barney, 1991). The resource based ris et al. (2005) importantly pinpoint that the busi- theory thus links business models to resource acqui- ness model is never static. It is continuously develop- sition and allocation (Garnsey et al., 2008). Although ing through specifi cation, refi nement, adaptation and some entrepreneurs start their ventures with clearly revision. Thus, when adopting or building a business formulated business models, many start with partially model, not only the content (i.e., the stock) but also formed models and incomplete business models. Ini- the process (i.e., the fl ow of stock) of the business tially, the entrepreneur may have a clear view of some become important (Ahokangas and Myllykoski, 2014; aspects of the business model and management of it Zott et al., 2011). and limited notions about other aspects of the busi- ness model. Drawing on the idea of business models embedded process approach, we adopt an orientation toward the A business model may facilitate entrepreneurs’ man- practicing of business models, where action (Tikkanen agement of strategic-orientated decisions (Johansson et al., 2005), business setting (Teece, 2010), and expe- and Abrahamsson, 2014; Osterwalder and Pigneur, riential learning (Sosna et al., 2010) are important 2013; Pateli and Giaglis, 2004) and help develop the aspects of creating and managing business models in business logic of the venture as the venture develop new ventures start-up phase. In practicing a business (Osterwalder et al., 2005). Chesborough and Rosen- model, an entrepreneur of a new venture will face sev- bloom (2002) position a business model as providing eral cross-roads that require processing to decide on a holistic perspective of the venture that outlines the trade-o s between ways of doing business and thus venture’s internal functions and structures and its creates the business model (Markides, 2006). Choosing relations and interactions with the external surround- one direction over another constrains future choices ings. The business model could thus be the pathway to and fi lters out possibilities that are non-competitive. competitive advantage for ventures (Malmström et al., An e ective business model holds unique combina- 2015; Penrose, 1959). tions that lead to superior value creation and produce superior returns for the venture (Morris et al., 2005).
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