Business models matter

Originally posted on LinkedIn

Sustainable business models as the holy grail of entrepreneurship

Business models are imbued within the very fabric of every enterprise, whether known or not. Often enterprises display several business models at once (think Amazon, Google etc.). Unfortunately, often enterprises are not aware or clear what their business model is. Somewhat of an ill-defined term, with a multitude of definitions, a business model is best thought of as an abstract construct that provides a holistic, systems-level view of the business logic, i.e. how an enterprise goes about its business (Zott & Amit 2011, Teece 2017, Magretta 2002). It seeks to explain what the value proposition is, how value is created, captured, delivered (Lüdeke-Freund et al. 2016) and destroyed (Yang et al. 2017)

This week it was reported the mass culling of  Business models describe how an enterprise generates value. Some scholars argue this is akin to strategy and indeed represents the ‘other side of the same coin‘ (Braun et al. 2019). Others disagree, stating that business models fail to capture the effects of competition (Porter 1996), or that strategy entails a choice in the business model (Casadesus-Masan 2010). In essence, business models are seen as inward-facing, whereas strategy is outward-facing. I propose that business models, as a unit of analysis, should do both in its service to society and the environment. Importantly, business models should capture both the supply and value delivery chain, and thus explain the positioning of the enterprise within the greater sustainable value network (Evans et al. 2017). Here again, a number of approaches exist and tools have been developed to describe business models and categorize the same. Descriptive tools include the business model canvas (BMC) (Osterwalder & Pigneur 2010) and the flourishing business canvas (FBC) (Upward & Jones 2016).

Given the vastness of datasets requiring interpretation and sense-making and the complexity and wickedness of the real-life challenges we face, a sophisticated simulation system with backcasting targets is paramount. Antony Upward, Acting Director of Practice and Research for the Planetary-wide FEI Network, sees this as necessary to avoid the ‘dangerous over-simplification‘ problems faced by many traditional business modeling systems. One thing we do know is that there is no sustainable enterprise in an unsustainable world (Baue & Thurm 2018), thus the future of successful entrepreneurship must include a deliberate emphasis on positive social and environmental impact over and above economic profitability.

As a result of being a serial entrepreneur in the innovation space for thirty years, I am often asked what is the next big thing: the next innovation. My feeling is that all enterprises should be social enterprises engaging in, or transforming to business models with a track record of success (Fedeli 2019). So if you are a new entrepreneur, what business model should you consider for your industry? Based on future backcast targets and all the available data worldwide, which business models are deemed to be more successful than others? Such an answer could well represent the “holy-grail” of business entrepreneurship. Drop-in at THRIVE project and find out for yourself.