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Relevance of the business model for startup success

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This presentation answers three questions: (1) What are viable definitions of the business model? (2) Is the business model relevant for start-up success? (3) What elements of the business model are very success sensitive in the start-up context? The short case study of wegreen is used to exemplify the main arguments of the presentation.

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Relevance of the business model for startup success

  1. 1. © HWTK 2017 Relevance of the business model for start-up success Prof. Dr. Christian Schultz christian.schultz@hwtk.de
  2. 2. © HWTK 2017 1. Key questions Questions Relevance of the business model for start-up success § What are viable definitions of the business model? § Is the business model relevant for start-up success? § What elements of the business model are very success sensitive in the start-up context?
  3. 3. © HWTK 2017 Different perspectives on the business model The Intrapreneur à Focus: Help exploit the latest techno- logical developments with the right business models The Senior Executive à Focus: Establish a new business model in an old industry The Entrepreneur à Focus: Address unsatisfied customer needs and build new business models The Investor à Focus: Invest in companies with the most competitive business models The Consultant à Focus: Help clients question their business models, and envision and build new ones The Designer à Focus: Find the right business model to launch an innovative product The Conscientious Entrepreneur à Focus: Bring about positive social and economic change through Source: Osterwalder & Pigneur, 2004, 11.
  4. 4. © HWTK 2017 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 and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; 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 of transactions designed so as to create value through the exploitation of business 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 technical potential with the realization of economic value. Magretta (2002): Why business models matter, HBR, p. 87. Business models are stories that explain how enterprises work. A good business model answers Peter Drucker´s age old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains 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 a commercial opportunity.
  5. 5. © HWTK 2017 The evolution of the business model concept Starting point: Michael E. Porter’s work on the generic value chain in 1985. Perceived standard: Osterwalder & Pigneur’s business model canvas published in 2004. Further refinements: The sophisticated framework of Bernd Wirtz in 2010. For a timeline of the business model concept go to: http://www.affarsmodeller.se/Business-Model-Timeline.gif
  6. 6. © HWTK 2017 Key Activities Key Partners Key Ressources Value Creation Offer Value Proposition Customer Relationship Channels Customer Segments Customer Interface Revenue Streams Cost Structure Finance Source: Osterwalder & Pigneur, 2004, 43. 6 The business model canvas
  7. 7. © HWTK 2017 The business model lifecycle Entrepreneurial Mode Adaptive Mode Planning Mode Time Revenue Introduction Growth Maturity Stagnation/ Degeneration Adaptive Mode/ Planning Mode Business Model 1 Business Model 2 Source:Wirtz,2010,215 „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.
  8. 8. © HWTK 2017 § 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 of a technology remains latent until it is commercialized in some way via a business model. „Having a well-thought-out business model is important for several reasons. While some models are better than others, it is dangerous to link the performance of a firm solely to the configuration of its business model. In most cases, performance is a choice of a business model and how effectively a firm uses its chosen model.“ – Barringer & Ireland, 2006, 102. “ ” Relevance of the business model 8
  9. 9. © HWTK 2017 Key Activities Key Partners Key Ressources Value Creation Offer Value Proposition Customer Relationship Channels Customer Segments Customer Interface Revenue Streams Cost Structure Finance Source: Osterwalder, 2004, 43. Business model canvas: Two crucial areas for start-up success
  10. 10. © HWTK 2017 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.
  11. 11. © HWTK 2017 His startup Wegreen in 2011 § The social ranking lists of other organizations are used (Greenpeace, greenbrands, greenleaks etc.) to create a meta-ranking. § In 2011 www.wegreen.de is a search engine to classify ven- tures in regard to their social responsibility.
  12. 12. © HWTK 2017 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 branding New functionalities
  13. 13. © HWTK 2017 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.
  14. 14. © HWTK 2017 Conclusion 1. What are viable definitions of the business model? § There are many definitions, which mostly depend on the perspective of the practitioner 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 the single 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 by Alexander Osterwalder. § Revenue streams are underdeveloped. Wegreen has evolved into a sustainable product search engine… so far.
  15. 15. © HWTK 2017 Literature Bucherer, 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 Reading Lean start-up initiative: www.theleanstartup.com Book on the basics of business models by Prof. Christian Nielsen & Morten Lund (Aalborg University, Denmark): http://bookboon.com/en/the-basics-of-business-models-ebook Blog on Business Model Research: http://www.affarsmodeller.se/ Literature and further reading
  16. 16. © HWTK, 2015© HWTK, 2015 © HWTK 2016 Your Future. Your Success. Prof. Dr. Christian Schultz Head of Distance Learning at HWTK christian.schultz@hwtk.de

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