Linking effectuation logic with business model innovation. An investigation in the context of Swiss startups

Abstract

Over the last decades, business model innovation and effectuation have been widely discussed in the literature. While effectuation represents a behavioural approach for entrepreneurs using available means for founding a start-up, business model innovation represents an approach to creating a business model with long-term competitive advantages. Designing a business model requires to focus on four dimensions: customer, value proposition, value chain and revenue mechanism. A business model innovation is referred to when an innovative characteristic can be attributed to two of the four dimensions. Both effectuation and business model innovation are valuable for entrepreneurs who are pursuing growth in dynamic and uncertain business environments. This paper elaborates on effectuation and its potential effects on business model innovation. The addressed research questions are: Is the effectuation logic a facilitating aspect of business model innovation? And to what extent do entrepreneurs apply effectuation logic and design innovative business models? The underlying data consists of business plans of 25 finalists of a Swiss innovation competition with more than 100 startups from different business sectors every year. First, the chosen sample is reviewed on the extent of the application of effectuation based on selected behavioural criteria. Second, the sample is analysed for evidence of business model innovation based on the above-mentioned business model dimensions and their innovative potential. Third, the link between the two approaches is highlighted to gain insights into the potential influence of the applied decision logic to develop innovative business models, thus providing an understanding of how entrepreneurs could leverage the advantages of effectuation in the context of innovating the business model. Further research will focus on examining critical success factors of entrepreneurial behaviour in the applied business model types and their correlations with business performance.