Business model evolution and the growth drivers of high-tech new ventures

Few businesses other than high-tech new ventures (HTNVs), with their unique combination of entrepreneurial spirit and pursuit of innovation, have captured the public imagination. Politicians, citizens and entrepre- neurs worldwide see new technology ventures as engines of economic development and as the most effective vehicle for promoting growth and creating jobs (Hathaway, 2013). Such firms are also expected to contribute to a massive transfer of knowledge from scientific fields to markets and to the implementation of positive social changes and advancements. Despite the popularity of innovative new ventures, a growing body of literature highlights their relatively low success rate (Song et al., 2008). Several studies supported by empirical evidence find that, although a handful of such firms achieve amazing performance in a short time, the vast majority of HTNVs reach only low rates of growth, if at all, have a limited impact on employment and deliver poor economic performance in general (OECD, 2015). This evidence contradicts the general belief that new technologies will automatically find their market and achieve superior performance. Indeed, this pro-innovation bias ignores several factors that influence the success rates of HTNVs (Cooper et al., 1994) and the key role of entrepreneurial decisions, as reflected in new firms’ business models (BMs), in turning technological innovations into established, successful ventures (Chesbrough and Rosenbloom, 2002; Baden-Fuller and Morgan, 2010). In this study, it is posited that the BM, which represents a broad set of strategic and organizational elements (Massa and Tucci, 2013), plays a central role in explaining new firm survival and growth (Zott and Amit, 2007). The management literature on BMs presents two relevant research streams. The first is focused on the identification and description of BMs’ core components (Morris et al., 2005) and the assessment of their overall fit and coherence (Baden-Fuller and Morgan, 2010). This approach aims to highlight the different drivers of BM design (Amit and Zott, 2001) and to describe how organizations create and capture value through the design of their core components (Zott et al., 2011). The stream also investigates the novelty of the overall BM design and logic compared to existing BMs and assesses its potential to shake up whole industries (Casadesus- Masanell and Zhu, 2013). The second stream of research focuses on BM evolution by tracing the various interactions between the BM building blocks over time (Demil and Lecocq, 2010; Sosna et al., 2010). In this approach, the BM follows a process of ‘evolution toward fit’ (Siggelkow, 2002), or a continuous developmental process aimed at designing the firm’s core organizational and strategic elements. The evolutionary nature of BMs is considered consistent with and appropriate for the study of HTNVs. However, gaps in research on BM evolution undermine the applicability of the construct to new ventures. First, although several studies employ the BM concept to analyse manage- rial decisions connected to BM changes (Demil and Lecocq, 2010; Sosna et al., 2010), they pay surprisingly little explicit attention to HTNVs, despite the obvious importance of BM evolution in a new venture’s early stages (Cavalcante et al., 2011). Second, the rare articles that adopt an evolutionary view of BM tend to focus on specific components rather than overall BM design. For instance, Raff (2000) focuses on the evolution of firms’ internal capabilities, Winter and Szulanski (2001) emphasize the role of routines, and Johnson et al. (2008) describe the changes in firms’ value propositions. Overall, only little emphasis is given to the drivers and themes of the evolution of BM components, with some notable exceptions (Amit and Zott, 2001). This study aims to provide novel insights to the BM literature by adopt- ing an explicitly evolutionary approach and focusing on innovative new ventures. The goal of this study is to explore the dynamics of new ventures’ BMs, highlighting the drivers of change in the configuration and interrela- tionships of the BM building blocks. This chapter is structured as follows. In Section 11.2, the BM literature on which the research is based is introduced. In Section 11.3, the research methodology is described. In Sections 11.4 and 11.5, the selected cases and their BM evolution are presented. In Section 11.6, the results are discussed comparatively, and a number of common evolutionary patterns among HTNVs are identified. In Section 11.7, the conclusions are drawn, avenues for future research are proposed, and a set of practical implications for entrepreneurs and managers is outlined.