Academic journal article Research-Technology Management

The Innovation Pivot Framework: Fostering Business Model Innovation in Startups. A New Tool Helps Entrepreneurs Design Business Models by Identifying the Sources of Competitive Advantage Embedded in an Innovation

Academic journal article Research-Technology Management

The Innovation Pivot Framework: Fostering Business Model Innovation in Startups. A New Tool Helps Entrepreneurs Design Business Models by Identifying the Sources of Competitive Advantage Embedded in an Innovation

Article excerpt

Some of today's most successful companies have built their success on business model innovation. In fact, various studies show that most executives believe business model innovation is becoming even more important for success than product or service innovation (Johnson, Christensen, and Kagermann 2008; Amit and Zott 2012). However, business model design remains little developed and poorly understood. Even as executives acknowledge the increasing importance of business model innovation, and academic researchers explore its conceptual foundations, the field is still developing (Wirtz et al. 2016). Indeed, there is not a generally accepted definition even for the concept of the business model itself (Zott, Amit, and Massa 2011). This leaves practitioners with little guidance in how to design innovative business models.

This ambiguity is particularly troublesome for innovation-based startups, and in other contexts--such as the debut of a radically new innovation--where a business model must be designed from the ground up. The key issue in these instances is how to design a business model that can unlock the potential value embedded in the innovation for all stakeholders. This issue may be exacerbated by the fact that the founders of such startups are often specialists in the technical area of the innovation, not in business design or management. These new entrepreneurs need a tool that can help them understand the key elements of a business model and envision how they can construct those elements to create a successful, sustainable enterprise.

To address this issue, we developed the Innovation Pivot Framework, a systematic method for developing and analyzing the various possibilities for bringing an innovation to market. The framework guides innovators in identifying alternative uses of their innovations and choosing which applications and target markets they will pursue first. The process leads to a formulation of the source of competitive advantage provided by the innovation and delivers useful insight for business model design and innovation. While the method emerges from our experience supporting entrepreneurial activity at the Science Park of Carlos III University of Madrid, we believe it can be applied both at startups that need to build a new business model and in corporations exploring business model innovation to support a new product or service concept.

Business Model Design for Startups

There are two types of business model innovation: business model reconfiguration and business model design. The first corresponds to the modification of an existing company business model, and the second relates to the design of novel business models for newly formed organizations (Massa and Tucci 2014). New organizations are built from scratch, and thus do not have problems related to management change or organizational inertia, but they face their own challenges, including a high level of uncertainty with regard to the market and other aspects of the business model; lack of knowledge about challenges in areas such as law, technology, marketing, and finance; difficulties related to professionalizing administrative processes; and trouble attracting sufficient financial and human capital (Cavalcante, Nesting, and Ulhoi 2011). Technology-based firms in particular face an extraordinary level of uncertainty, as new technologies are characterized by their volatile and unpredictable nature (Trimi and Berbegal-Mirabent 2012).

Thus, a startup must pursue a particular set of activities, which differ substantially from those of a well-established company; Eric Ries's (2011) Lean Startup framework offers one approach to identify and structure those activities. As Ries defines it, a startup is a human institution designed to create new products and services under conditions of extreme uncertainty. In the Lean Startup model, entrepreneurs reduce this uncertainty by engaging in a process of validated learning, running frequent market-based experiments to test each element of their vision. …

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