Understanding business model innovation in start-ups – a dynamic managerial capabilities perspective

Abstract

Although start-ups and incumbent firms both engage in business model innovation, the research literature on business model innovation has largely focused on incumbent firms. Start-ups play an important role in the growth of an economy, and with their failure rate being high, the need for an adequate business model and continuously innovating it, is crucial for financial performance and competitive advantage. Underpinning this study is the understanding that a business model represents how a firm creates, delivers, and captures value. Moreover, business model innovation involves reconfiguring components or the architecture of a business model for the benefit of the firm, which requires capabilities. The importance of the dynamic capabilities of a firm, and the need to quickly identify and respond to opportunities, and consequently innovate business models has previously been noted. However, gaps still exist in how business model innovation is understood with respect to dynamic managerial capabilities in start-ups. This study contributes to the body of knowledge by exploring the influence of capabilities on business model innovation in start-ups. Based on the theory of dynamic managerial capabilities, the following research question was examined: What capabilities allow managers (e.g. founders, decision makers) in start-ups to innovate their business models? This study was situated within the critical realism paradigm and used multiple explorative cross-sectional case studies on start-ups. The primary source of data was the subjective experience of managers, who were recruited through purposive sampling. Semi-structured interviews were used to elicit the data, which was recorded and transcribed verbatim. The transcripts were analysed using thematic analysis, and documentary evidence was used for triangulation. The findings highlight two main dimensions of capabilities that enable start-up managers to innovate their business models. These are collaboration capabilities (comprising of networking, commitment, and internal cooperation) and capitalization capabilities (comprising of experience, searching, and maximizing resources). This study draws attention to the need for managers to foster these capabilities, and the implications for professional managerial practises and the research literature are delineated.