Clarifying the Business Model Construct

Abstract

Principal Topic: Choice of an appropriate business model is essential to the nascent entrepreneurial firm. The term 'business model' describes the collective of the strategies and tactics the firm uses to make money and outlines the underlying economic logic that explains how the firm creates value and delivers that value to the customer at a reasonable cost. Despite the widespread use of the term ''business model'' there is still much confusion over what the term actually represents. The theoretical foundations of the business model are not fully developed (Amit & Zott, 2001) and its application remains unclear (Morris et al., 2006). However, since the emergence of the dot.com businesses, the discussion of business models has gained more attention from business scholars as well as practitioners. Due to the importance of having a clearly articulated business model as early as possible in the new venture creation process (Barringer & Ireland, 2006), the business model concept is now being emphasized in the entrepreneurship literature. Much of the research on business models has focused on defining the term and proposing various typologies. While several of these share similar components, none have become generally accepted. Consequently, there is a significant need to empirically test the various dimensions proposed in the literature in order to clarify the components of the business model and uncover the key dimensions. Methodology/Key Propositions: This study is the first empirical study that we are aware of to investigate the underlying dimensions and components of the firm's business model. In order to identify the various components we first conducted a thorough review of the literature on business models, which uncovered more than a dozen papers dealing with business model definitions and the components of the business model construct. After considering this literature we compiled a comprehensive list of around 50 different components or elements specified as being unique to the firm's business model. From this list a survey questionnaire has been developed with a Likert scale response to the relevant importance of the components to the firm's business model. The survey instrument for the research is completed and the pilot testing using a web based survey instrument and a sample of intending entrepreneurs is currently underway. Once this is completed we will be conducting a similar web base survey on small business owners from a previously identified database. We plan to use exploratory factor analysis to analyse the data to identify the key components comprising the business model. Results and Implications: Prior business model research has been theoretically based, or with only casual empiricism (e.g. Morris et al. 2005), and has resulted in a number of different definitions and typologies of the business model. This research aims to be the first empirical study to investigate the underlying structure of the key elements of the firm's business model. In doing so we believe this research will make a valuable contribution to the research on business models and a guide for entrepreneurs wishing a craft more effective strategies to create and capture value.