Development of Market-Driven Business Models in the IT Industry. How Firms Experiment with Their Business Models?

Abstract

Purpose: The purpose of this research is to explore the role of markets in the development of young entrepreneurial startups business models and their subsequent experimentation with business models. We focus on the demand-side to analyze how the market and (potential) customers can influence decisions to develop or innovate a firm’s business model.

Design: Data were gathered from firms through interviews with open-ended questions about the evolution of their business model over time. Data were analyzed using the grounded theory method.

Findings: Two themes emerged, one regarding engaging with the market and another concerning experimentation with business models and changes made after reviewing the situation on the market (firm’s responsiveness). Taken together, rm responsiveness and market engagement were used to establish four categories of rm types: passive, active, unfocused, and focused firms. We observe that experimenting with business models is high initially and diminishes over time.

Practical Implications: Changing the business model is essential for success and survival. Firms will be able to take advantage of new opportunities and expand their products and services. Other firms may pivot into different market spaces than originally intended but by doing so rapidly decrease the time to market.

Originality / Value: Our research fills a gap in the literature by exploring the role of markets in the development of young entrepreneurial IT startups’ business models over time. We propose a framework allowing an analysis of business model innovation in different stages of a firm’s development.