Academic journal article Journal of Small Business Strategy

Is the Business Model a Useful Strategic Concept? Conceptual, Theoretical, and Empirical Insights

Academic journal article Journal of Small Business Strategy

Is the Business Model a Useful Strategic Concept? Conceptual, Theoretical, and Empirical Insights

Article excerpt

ABSTRACT

Although a widely used managerial concept, the notion of a "business model" has only recently begun to receive serious attention from researchers. While disparate opinions exist regarding its nature, the business model holds promise as a focal point for the development of theory in entrepreneurship. Realizing this promise requires progress not only in how to conceptualize the business model but, also, in how to measure a firm's model and draw comparisons across model types. Utilizing a six-component framework published earlier by the authors, a methodology for measuring the business model is demonstrated with a random sample of high-growth firms. Cluster analysis indicates the existence of four generic models. Suggestions are made and implications drawn for ongoing theory development and entrepreneurial practice.

INTRODUCTION

Entrepreneurs are increasingly asked by investors and others to describe their business models. While it is commonplace for entrepreneurs to produce business plans, they may be less certain regarding how to characterize a business model (Shafer et al., 2005). Does it represent a strategy, a concept, a pattern, a method, an assumption, a statement, a design, or a type of architecture? Is it concerned with how the firm will create value or how it will make money? While one might posit that the business model provides a template around which a company is built, the nature of this template is not well understood.

For their part., academic researchers have only recently begun to address critical questions surrounding the business model (see Markides & Charitou, 2004; Mitchell & Coles, 2004; Voelpel, Leipold, & Tekie, 2005). The lack of research can be traced to conceptual, theoretical, and empirical challenges. Conceptually, the business model Is a fairly recent concept, popularized as a function of the dot.com boom. As a result, there is neither an agreed upon definition nor a generally accepted framework for capturing the entrepreneur's model. Further, the theoretical foundation for the design and application of business models remains unclear. No single theory captures the varied elements that contribute to a model. These conceptual and theoretical limitations have hindered the ability of researchers to conduct empirical work. As a result, much of the extant research relies on case studies. This lack of empirical work represents a major obstacle to the advancement of our knowledge. Specifically, without the ability to measure a business model, fundamental insights regarding the identification of generic business models, the characteristics of successful business models, whether certain components of models are more important than others, how components interact, and the dynamics of model evolution, remain elusive.

The current research seeks to address some of the more vexing conceptual, theoretical, and empirical challenges. Specifically, we argue for a more strategic conceptualization of the entrepreneur's business model, as reflected in our recently introduced framework (Morris, Schindehutte, & Alien, 2005). Theoretical foundations for such a framework are examined. We then describe a potential measurement approach based on an adaptation of this framework. The empirical possibilities are demonstrated by characterizing the business models of a representative sample of high-growth entrepreneurial firms and, then, using cluster analysis to identify underlying patterns in the models employed by these firms. Inferences are drawn concerning the existence of generic models. A dynamic perspective on business model development over time is introduced. Implications of the findings for entrepreneurial practice are discussed and priorities are established for ongoing research.

DEFINITIONAL ISSUES

A model is a simplified abstraction of a real situation. It is a structure which purports to represent something else. Our interest in this article is with descriptive models, which describe a current or proposed situation and afford the user with an ability to explore various scenarios and ask "what if questions (Caine & Robson, 1993). …

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