Business Model Choice Matters: How Business Models Impact Different Performance Measures of Startups

Abstract

Determining the influencing factors of business performance is an important topic in theory and practice. This applies especially to the entrepreneurship context, characterized by extreme uncertainty and high failure rates. Existing research, which is mainly qualitative, has identified business models (BM) as a performance determinant. This paper empirically examines the relationship between BMs and startup performance. The analysis follows an industry-and region-independent approach and is based on a dataset of 121 startups. The findings reveal that some BM patterns outperform others, but on different performance measures. More specifically, the contractor pattern enhances revenue, add-on highly influences growth, customer lock-in boosts valuation, and advertising enhances funding. On the theoretical level, this paper enriches the qualitative research with statistical evidence. On the practical level, it adds value to both entrepreneurs and investors by identifying successful patterns. The findings guide entrepreneurs in BM design and support investors when considering potential investment opportunities.

The Moderating Effect of Entrepreneurial Leadership and Competitive Advantage on the Relationship Bbetween Business Model Innovation and Startup Performance

“…Studies showed that business model innovation, in particular, became the success and a valuable capability of a firm (Aspara et al 2010;Lindgardt et al 2009;Chesbrough 2010;Amit and Zott 2012). In terms of the start-up, some business model patterns found to outperform others on different performance measures to the success of start-up (Haddad, et al, 2020). The contractor pattern seems to enhance revenue and cash flow, while add-on patterns influence growth.…”

“…The business model canvas comprises nine basic building blocks, namely; the customer segment, value proposition, channel distribution, customer relationships, key resources, key activities, key partnerships, revenue streams, and cost structure. According to Haddad et al (2020), there are existed business model patterns that can represent the aspects of the business model innovation. These business model patterns are subscription, advertising, pay per use, freemium, add-on, premium, contractor, long tail, data as a service, cross-selling, e-shop, crowdsourcing, multi-sided platform, ultimate luxury, and customer lock-in.…”

“…As measurements of firm performance, financial indicators are taken as the most important measure of firm performance, as stated by Wiklund and Shepherd (2005); Turulja and Bajgoric (2018); and Chen, Tsou and Huang (2009). For measurements of start-up performance, the two recommended financial indicators are total revenue, and the total amount of funds available (Haddad et al, 2020). Another factor that may indicate start-up success is the number of employees.…”

“…Start-up is the early stage in an entrepreneurial venture where entrepreneurs are still searching for its replicable and scalable business model (Blank, 2013;Bruyat and Julien, 2001). Previous studies showed that entrepreneur ventures in this stage were facing extreme uncertainty and a high failure rate (Haddad, et al, 2020). The probability of a startup to fail is very high (Cambridge Associates, 2017;Griffin, 2017).…”

Exploring business model innovation for competitive advantage: a lesson from an emerging market

“…The concept of business model has attracted increasing attention from practitioners and scholars in micromanagement research (Foss and Saebi, 2017;(Haddad et al, 2020;Wieland et al, 2017;Zott et al, 2011). However, it lacks an established definition and clear theoretical foundation (Wieland et al, 2017).…”