Business Modelling with Business Model Canvas

in Early-Stage Technology Start-Ups

Tadas Labudis

Student ID: 1005087

Supervised by Prof Marian Jones

Submitted in support of the degree of MA (Hons) Business & Management

24 April 2014

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Abstract

Technology start-ups are operating in an increasingly uncertain and fast-moving

environment where ever-increasing consumer expectations force these ventures to innovate

fast, leading to short product cycles and a need for large investments. Finding the correct

business model is critical to success, but it extremely difficult to do, especially in the early

stages of start-up development. A range of business planning tools and frameworks such as

the Business Model Canvas has been developed to guide entrepreneurs through business

model discovery in an efficient way. However, so far, little empirical research has been

carried out measuring the effectiveness of such tools.

This study has employed a multiple-case study method to explore a process of business

model discovery with the Business Model Canvas (BMC) in six early-stage technology

start-ups, and to see what impact the use of the tool has on these new ventures.

The findings of this study strengthen the claims in existing literature about BMC’s unique

ability to structure the business model discovery process and offer entrepreneurs focus and

clarity. It has also empirically demonstrated that an iterative discovery-driven process and

obtaining customer feedback in the early stage of a start-up development can advance an

entrepreneur’s understanding of their own business, lead to real improvements in the

business model, and offer time and resource savings.

This study uncovered several important issues with BMC. The tool suffers from

incompatibility with external stakeholders such as investors and advisors, entrepreneurs

tend to abandon the tool after several uses and usefulness of the tool appears to be

decreasing over time. Based on these discoveries, several concrete suggestions for future

research are recommended.

Keywords: business models, business model canvas, business model discovery, technology

start-ups.

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Acknowledgements

Writing this dissertation was a thought-provoking and challenging experience, which

brought me a great deal of learning. I would like to acknowledge my supervisor Professor

Marian Jones who guided me through this new experience and was both understanding and

supportive. I would also like to thank entrepreneurs who have kindly devoted their time and

contributed to this research through sharing their experiences. Finally, I would like to thank

Renata Pilikinaite for her emotional support and friends Priyanka Rajan, Chris Van, Evita

Dace and Natacha Ribeiro for acting as a sounding board for my ideas.

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Table of Contents

ABSTRACT .......................................................................................................................... 2  

ACKNOWLEDGEMENTS ................................................................................................. 3  

LIST OF FIGURES ............................................................................................................. 6  

LIST OF TABLES ............................................................................................................... 6  

INTRODUCTION ................................................................................................................ 7  

Background ........................................................................................................................ 7  

Research aim and research questions ................................................................................. 8  

Structure of the dissertation ............................................................................................... 8  

LITERATURE REVIEW .................................................................................................. 10  

Business models ............................................................................................................... 10  

Business planning in technology start-ups ....................................................................... 10  

Approaches to planning in new technology start-ups ...................................................... 11  Traditional approach .................................................................................................................. 11  Discovery-driven approach ....................................................................................................... 12  

Visual planning tools ........................................................................................................ 15  Balanced Scorecard ................................................................................................................... 15  Business Model Canvas (BMC) ................................................................................................ 16  

Evaluation of BMC .......................................................................................................... 18  

Strengths of BMC ...................................................................................................................... 18  Shortcomings of BMC ............................................................................................................... 19  Variations of BMC .................................................................................................................... 21  

METHODOLOGY ............................................................................................................. 23  

Research philosophy ........................................................................................................ 23  

Research approach ........................................................................................................... 23  

Research design ................................................................................................................ 24  

Time horizon .................................................................................................................... 24  

Methods of data collection ............................................................................................... 25  Instrumentation .......................................................................................................................... 25  Participant recruitment .............................................................................................................. 25  

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Data collection ........................................................................................................................... 25  Methods of data analysis .................................................................................................. 26  

Cross-case analysis .................................................................................................................... 26  Coding ....................................................................................................................................... 26  

Limitations and ethical issues .......................................................................................... 27  Subject and observer bias .......................................................................................................... 27  Generalisability .......................................................................................................................... 27  Ethical issues ............................................................................................................................. 27  

FINDINGS .......................................................................................................................... 29  

Overview of cases ............................................................................................................ 29  

BMC usage ....................................................................................................................... 30  The process ................................................................................................................................ 30  Iteration ...................................................................................................................................... 34  Focus on customers ................................................................................................................... 34  

Outcomes from BMC usage ............................................................................................. 35  Structure, clarity and focus ........................................................................................................ 35  Improved business model .......................................................................................................... 36  Saved time and resources .......................................................................................................... 36  

Issues in BMC usage ........................................................................................................ 37  

External incompatibility ............................................................................................................ 37  Value reduces with time ............................................................................................................ 38  Inconsistency with the literature ................................................................................................ 38  

CONCLUSIONS ................................................................................................................ 39  

Summary of findings ........................................................................................................ 39  

Implications of findings ................................................................................................... 39  

Implications for practitioners .................................................................................................... 39  Implications for researchers ...................................................................................................... 40  

Limitations ....................................................................................................................... 40  

Suggestions for future research ........................................................................................ 41  

REFERENCES ................................................................................................................... 42  

APPENDICES .................................................................................................................... 48  

Appendix 1 – Interview Schedule .................................................................................... 48  

Appendix 2 – Plain Language Statement ......................................................................... 49  

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Appendix 3 – Consent Form ............................................................................................ 51  

Appendix 4 – Ethics Committee Approval ...................................................................... 52  

List of figures

Figure 1: Customer Development Model (Source: Blank, 2006) ........................................ 13  

Figure 2: Build Measure Learn loop (Source: The Lean Startup, 2014) ............................. 15  

Figure 3: Business Model Canvas (Business Model Generation, 2014) .............................. 17  

Figure 4: Lean Canvas (Maurya, 2012) ............................................................................... 21  

Figure 5: The Business Model Framework (Thulme, 2010) ................................................ 22  

Figure 6: Flowchart of BMC use in early-stage technology start-ups ................................. 31  

List of tables

Table 1: Case sampling criteria ............................................................................................ 24  

Table 2: Matrix of case attributes ......................................................................................... 30  

Table 3: Matrix of outcomes arising from BMC usage ....................................................... 35  

Table 4: Matrix of emerging BMC issues ............................................................................ 37  

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Introduction

Background

Technology start-ups are operating in an increasingly uncertain and fast-moving

environment where ever-increasing consumer expectations force technology start-ups to

innovate fast, leading to short product cycles and a need for large investments (Trimi and

Berbegal-Mirabent, 2012). Finding the correct business model is seen as a critical factor to

enterprise success (Teece, 2010), however, for early-stage technology start-ups it is

extremely difficult to do so.

Business planning can help reduce the uncertainties surrounding business model discovery.

Trimi and Berbegal-Mirabent (2012) argue that future research should empirically

investigate the potential connections between business model design and firm performance

and have raised several important questions:

[…] Is there any connection between firm performance and how the

business model is designed? Does an accurate business modelling design

process make a new venture more robust or more successful? How start-

ups, from their early stages of the life cycle, can have a greater impact in

the marketplace? How new technology-based firms can improve the fit

between their value proposition and customer demands? (2012, p.462).

Although a traditional approach of writing a formal business plan used to be the norm, the

effectiveness of such a linear approach is questionable (Blank, 2013). Increasingly

innovative start-ups are opting for a discovery-driven approach and lean methodology,

which promote an iterative approach to business modelling in the aim of saving time and

money. A range of frameworks such as the Customer Development Model (Blank, 2006)

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and Build-Measure-Learn (Ries, 2012) as well as visual tools such as BMC (Osterwalder &

Pigneur, 2010) were developed to support this approach. Despite a high take-up of BMC

amongst practitioners, there is little academic research on how such tools can be integrated

in the workflow of a start-up and what impact it has on the business model discovery.

Research aim and research questions

The overall aim of this research is to explore a process of business model discovery with

BMC in early-stage technology start-ups. The following research questions will guide this

study:

Central question: What impact does the use of BMC have on early-stage technology start-

ups?

Sub-questions:

• How do entrepreneurs in early-stage technology start-ups use BMC to design the

business model of their venture?

• How does BMC integrate in the business planning process of an early-stage

technology start-up?

• What are the outcomes of using BMC in early-stage technology start-ups?

• What issues do entrepreneurs encounter in using BMC?

Structure of the dissertation

This dissertation will be structured as follows. Firstly, literature on business models,

business planning and planning tools will be critically reviewed in the context of early-

stage technology start-ups.

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Secondly, the research philosophy, approach and design of the study will be explained and

justified, methods of data collection and data analysis will be described, and limitations and

ethical concerns will be addressed.

Thirdly, the findings of the study will be reported, related to the literature and discussed.

Concluding this research, the findings will be summarised and their impact evaluated,

research limitations identified and suggestions for future research to overcome those

limitations will be made.

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Literature Review

Business models

All businesses employ a particular business model, either explicitly or implicitly (Teece,

2010). Designing the correct business model is seen as a critical factor to enterprise success.

However, there is no single definition of the concept and the literature on the subject

appears to be developing in silos (Zott et al., 2011).

According to Teece (2010), a business model describes how a business creates and delivers

value to customers and captures payment for value provided with the aim of making the

business profitable. Such activity perspective can be found in numerous scholar

conceptualisations of the business model (Alt & Zimmerman, 2001; Hedman & Kalling,

2003; Afuah, 2004; Seddon et al., 2004; Morris et al., 2005; Johnson et al., 2008; McGrath,

2010 and Zott & Amit, 2010).

However, there are also a significant number of researchers who see business models as a

source of innovation (Ireland, Hitt, Camp, & Sexton 2001; Johnson, Christensen, &

Kagermann, 2008; Demil & Lecocq, 2010 and Chesbrough, 2010). This perspective sees

business model design as a never-ending process that involves experimentation,

prototyping and modelling (McGrath, 2010).

Business planning in technology start-ups

An uncertain and evolving environment makes it especially hard for technology start-ups to

succeed due to ever-increasing speed of innovation, rising consumer expectations, the need

for large investments and short product cycles (Trimi and Berbegal-Mirabent, 2012).

Multiple aspects requiring implementation, such as product development, financial

architecture and commercialisation, make the job of starting up of a new firm very complex.

Blank (2013, p.67) defined a start-up as a “temporary organization designed to search for a

repeatable and scalable business model”. This definition assumes that in the early stages of

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company development the focus is on finding the right business model above anything else.

Therefore, for technology start-ups business, modelling and business planning are essential

constructs that aid competitive positioning and value creation (Onetti et al., 2010).

According to Delmar (2003), planning research largely focuses on strategic planning,

however, start-ups, unlike mature organisations, are more likely to engage in business

planning than strategic planning. Strategic planning differs from business planning in that it

is mainly used to implement and manage strategic decisions of an existing company, while

the latter is used to set a vision for a new business. Business planning is more effective for

start-ups than established companies because new ventures base their development on self-

set goals, such as organising a company or completing product development, unlike mature

companies, which focus on relative performance goals such as profit maximisation. Also,

the time period between business planning and feedback is much shorter in start-ups

therefore founders are more motivated to plan, hence increasing the effectiveness of the

planning efforts.

Approaches to planning in new technology start-ups

Smith (1998) carried out a study and found that small firms, which effectively employ

strategic planning, perform better than start-ups that prefer to leave things to chance and

deal with problems in a reactive way as they inevitably occur. McGrath and MacMillan

(1999) argue that companies must have an ability to plan in a way that minimises expenses

and maximises learning. Many start-ups, however, prefer not to plan and run their

businesses on a “wing and a prayer” (Smith, 1998). Although many authors encourage

business planning, there are mixed opinions from various scholars when it comes to the

question of how start-up businesses should plan.

Traditional approach

In a traditional approach, an entrepreneur creates a business plan – a document that

explains how an organisation will be created to exploit a business opportunity (Stevenson

and Van Slyke, 1985). This implies that majority decisions about how the business will be

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set up, what products will be produced and how they will be sold are based on the

entrepreneur’s assumptions.

In a study amongst 223 new ventures, Delmar and Shane (2003) found that entrepreneurs

who engage in business planning do not only enhance their start-up survival chances, but

also facilitate important activities such as product development and organisation of the

venture. They quantitatively tested whether writing a business plan before talking to

customers reduces the failure of start-ups and found that it does by 46%. Other scholars

also found a positive relationship between business plans and start-up survival (Perry,

2001; Liao & Gartner, 2006).

However, McGrath (2010) argues that in a high-uncertainty environment this approach

does not work due to difficulty in accurately predicting what is going to happen in the

future. If everyone could do that, then very little competitive advantage would be gained

and this is clearly not the case when looking at vast differences in terms of performance

across various companies.

Blank (2013, p.67) has a similar view and claims that “start-ups are not smaller versions of

large companies” and therefore must iterate on their ideas by continuously learning from

customers in order to succeed, as they do not unfold based on “master plans” like large

companies do. Business plans usually fail after first contact with customers because they

are typically produced on the assumption that it is possible to forecast the business

unknowns before raising money and executing the idea. After product launch,

entrepreneurs often discover that customers do not want nor need the majority of the

product's features and months or years of product development go to waste.

Discovery-driven approach

McGrath (2010) suggests implementing a discovery-driven planning approach where the

goal is to maximise learning and minimum cost through experimentation. The author

argues that the advantage of using this approach is that entrepreneurs can experiment with

business models at a conceptual level before investing money or resources. Such an

approach resembles the ‘rapid prototyping’ technique and involves frequently thinking

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about new business models and varying units of business and their key drivers (McGrath,

2010).

There is a range of tools, models and frameworks that technology entrepreneurs can use in

iteratively shaping their business and business models.

Customer Development Model

Blank (2006) has developed the Customer Development model, which is highly compatible

with the discovery-driven approach. The Customer Development Model (see Figure 1) is a

four-step iterative process, i.e. the customer discovery, customer validation, customer

creation and company building stages. This approach allows technology entrepreneurs to

simultaneously explore market and product developments (Trimi and Berbegal-Mirabent,

2012).

Figure 1: Customer Development Model (Source: Blank, 2006)

The first two stages – customer discovery and customer validation – are the most relevant

to this study as the focus is on early-stage start-ups that are searching for their business

model (Blank, 2006).

The customer discovery element consists of four phases:

• Phase 1 - capturing hypotheses or assumptions about the business model

• Phase 2 - qualifying those assumptions by testing them with potential customers

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• Phase 3 – testing revised assumptions with customers

• Phase 4 – verifying assumptions

After successfully completing these four phases, an entrepreneur can move on to the

customer validation part that focuses on testing the validity of a business model – whether

or not the product addresses customer needs, a concept also known as “product/ market fit”.

• Phase 1 – getting ready to sell

• Phase 2 – selling to visionary customers

• Phase 3 – developing product and company positioning

• Phase 4 – verifying the business model

It can be seen that various stages of this model involve a lot of experimentation and contact

with customers in an attempt to find out exactly what needs customers have and how a new

venture can deliver that value in the most efficient way.

“Build, Measure, Learn” Model

According to Trimi and Berbegal-Mirabent (2012), technology-based start-ups, due to their

shorter life cycles, usually embark on less long-term planning than other firms. A highly

competitive environment forces entrepreneurs to make rapid decisions and process

information quickly in order to stay ahead of the competitors. In such environments, a

flexible, lean and agile process is required to enable entrepreneurs to meet customer

demands quickly and effectively. The term “lean start-up” was coined by Eric Ries who has

developed an approach that unites principles of customer development, agile methodologies

and lean practices with an aim to minimise costs, waste and time to market (Gehrich, 2012).

Ries’s (2011) “Build, Measure, Learn” method (see Figure 2) allows entrepreneurs to build

efficient start-ups by following short and frequent cycles for tests and corrections, which

make it easier to recognise when it is necessary to change direction for a company i.e.

“pivot”.

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Figure 2: Build Measure Learn loop (Source: The Lean Startup, 2014)

Visual planning tools

According to Rode (2000), however, human ability to process complex information is

limited and theoretical and empirical studies have shown that visual systems can

substantially increase the level of complexity that can be handled. Fortunately a range of

visual business planning tools has been developed, two of which will be described in more

detail below.

Balanced Scorecard

Kaplan and Norton (1992) have introduced The Balanced Scorecard that allows managers

to get a view of the overall business from four important perspectives: customer, internal,

innovation and learning and financial perspective. Its strength is that it forces managers to

concentrate on only the most critical measures. However, this tool appears to be more

applicable to established companies that have found a business model to execute and are in

a position to focus on performance. It is not very applicable to early-stage technology start-

ups that are focusing on finding a replicable business model. A more suitable business-

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modelling tool called BMC, which this research will focus on, is described and evaluated

below.

Business Model Canvas (BMC)

The BMC is a strategic management template developed by Alexander Osterwalder and

Yves Pigneur in 2006, building on Osterwalder’s (2004) Ph.D. dissertation on the topic of

business model innovation. It is designed for developing new or documenting existing

business models that describe the business model through nine basic building blocks

(Osterwalder and Pigneur, 2010). These nine “building blocks” describe the four main

business areas such as customers, offer, infrastructure, and financial viability, and are

visually represented as interconnecting sections consisting of the following segments as

shown in Figure 3:

1. Customer segments

2. Value propositions

3. Channels

4. Customer relationships

5. Revenue streams

6. Key resources

7. Key activities

8. Key partnerships

9. Cost structure

Blank (2013) argues that instead of engaging in months of research and writing a business

plan, entrepreneurs should summarise their untested hypotheses in BMC. This will be

investigated in more detail later in this dissertation.

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Figure 3: Business Model Canvas (Business Model Generation, 2014)

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Evaluation of BMC

BMC has received significant attention from practitioners (Chesbrough, 2010) but even

though the tool is widely practised by entrepreneurs and managers alike, there is not much

theoretical discussion of it. A search for scholarly articles on the term “business model

canvas” returned 40 results (University of Glasgow, 2013), however, a majority of these

articles simply mention or just briefly describe the tool rather than critically analyse it. The

majority of studies simply employ the tool to facilitate the business model analysis of a

particular enterprise (Pigneur Fischer, 2010; Alzarooni et al., 2011; Eschenbächer, 2011).

Some criticisms have appeared over the last couple of years (Fielt, 2011; Jesus, 2012;

Kraaijenbrink, 2013; Treister, 2013). A number of modified variations of BMC have also

emerged as attempts to address BMC’s shortcomings (King, 2010; Hulme, 2011; Maurya,

2012; Osterwalder, 2013). Although every attempt has been made to locate and present an

overview of relevant scholarly articles and books that discuss BMC, this will be mainly

based on non-scholarly sources such as blogs and websites due to a lack of academic

research done on this particular tool. In this literature review, strengths and weaknesses of

BMC will be discussed followed by an overview of BMC variations.

Strengths of BMC

A visual tool

BMC is oriented towards design and innovation (Fielt, 2011). The tool addresses a number

of design practices and tools such as customer insights, ideation, prototyping, storytelling,

scenarios and visual thinking. Visual thinking is the most prominent technique and it

involves using Post-it notes, pictures, sketches, diagrams for constructing and discussing

meaning. Since businesses are interconnected systems, such visualisation allows us to

capture the whole business model on one canvas. According to Hulme (2011), the visual

aspect of BMC encourages business creativity and innovation. It makes it easier to bring

stakeholders to brainstorming sessions and in turn inspires creative developments grounded

in the needs of customers.

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Offers a holistic view of the business

England et al. (2010) praise the tool’s unique ability to describe the company’s business

logic on one page. Even though the individual elements of BMC are not new to most

business people, the simple and yet complete look of a business plotted on a single page is

surprisingly new. This gives BMC an advantage over other business design tools such as

Johnson’s Four-Box Business Model, which does not make use of a visualisation template

(Fielt, 2011). In a study carried out by Wallin et al. (2013), researchers concluded that the

intuitive and easy-to-use nature of BMC, as well as the fact that the value proposition is

positioned in the middle of BMC, allows for rapid analysis of the company by having an

overall view of the “what” and “how” of the business model. Entrepreneurs tend to ignore

some of the key components by focusing on specific parts of the business and BMC

encourages entrepreneurs to consider all elements of the business individually but also as a

whole (Hulme, 2011).

Facilitates communication

BMC can be used as a starting point for creative discussion amongst various business

stakeholders such as entrepreneurs, employees, customers, executives and competitors to

develop a shared understanding of a business. This can lead to new business opportunities,

alignment of activities and identification of risks (Trimi and Berbegal-Mirabent, 2012).

However, Heijden (2010) argues that based on best practices identified by specialists in the

market, it appears that this model is actually intended for internal use within a company and

suggests that further research in this area should be carried out.

Shortcomings of BMC

Despite all the benefits that BMC offers, various practitioners and scholars have identified

several shortcomings of the tool.

Lack of strategic analysis

One of the criticisms presented by Fauvel (2013) is that BMC excludes the strategic

purpose of the organisation such as mission, vision, and strategic objectives. Businesses

have come under increasing pressure to be involved in corporate social responsibility

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(CSR) activities, such as education, and in the governance of communities (Jenkins, 2009).

The author stresses that in order to implement CSR successfully, it has to be integrated into

all aspects of the business rather than being looked at as a costly externality. Therefore, it

has to be considered when designing a business model and currently BMC does not allow

that.

No consideration of competition

Another criticism of BMC is that it lacks consideration of competition, making it an

incomplete strategic tool (Kraaijenbrink, 2013). According to Abraham (2013), it is not

possible to configure or analyse strategies such as differentiation, low-cost leadership, focus,

acquisition, merger, being acquired, and liquidation when using BMC. It further does not

allow for the competitive advantage assessment that is a key part of any strategic analysis.

In BMC, strategy and external entities are considered in the partners’ building block, which

is inadequate considering the importance of strategic issues in a business (Jesus, 2012). It is

important because “strategy analysis is […] an essential step in designing a competitively

sustainable business model” (Teece, 2010, p.180). However, authors Chesbrough and

Rosenbloom (2002, as cited in Fielt, 2011) explicitly argue the business model and strategy

are different in that the business model highlights value creation while the strategy

emphasises value capture.

No measure of success or failure

Another shortcoming of BMC is the fact that it does not allow for quantification of

individual business model elements (Jesus, 2012). The author argues that it is important to

quantify the elements in order to understand the significance of every element when

designing a business model. For example, when considering the customer segments

building block, the number of people that the business is planning to reach should be

identified. Treister (2013) further builds on this argument by explaining that quantification

of success allows managers to better understand where to spend resources.

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Variations of BMC

A number of variations to the original BMC have been developed in an attempt to address

some of the tool’s shortcomings and to develop tailored tools for different use cases. The

most popular variations are discussed below.

Lean Canvas

Ash Maurya (2012found some of Osterwalder’s BMC elements too general and has

developed the Lean Canvas for the specific audience of start-up founders, start-up

accelerators, investors and large companies. The main objective of the adapted version is to

make it as actionable as possible by identifying the most uncertain and risky areas of the

business model. To achieve that, Maurya has traded the Partners box for Problem, Key

Resources for Solution, Key Activities for Key Metrics, Value Propositions for Unique

Value Proposition, and Customer Relationships for Unfair Advantage. The Lean Canvas

addresses the aforementioned measurability issue. In contrast to BMC, which offers several

ways of sketching an initial canvas, Lean Canvas has a customer-centric approach and

offers a prescribed order to filling in a canvas as illustrated in Figure 4.

Figure 4: Lean Canvas (Maurya, 2012)

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Business Model Framework

Another variation to BMC, which Trimi and Berbegal-Mirabent (2012) contend has

“generated greatest interest”, is Tom Hulme’s Business Model Framework (BMF) (see

Figure 5). It consists of two additional complementary blocks that consider the competitive

advantage of the business and planning and assessment of growth. Therefore, it addresses

two of the three previously discussed BMC shortcomings.

Figure 5: The Business Model Framework (Thulme, 2010)

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Methodology

Research philosophy

This study employed an interpretivist philosophy because this epistemological stance

allowed the researcher to understand the differences between people and their role as social

actors, in this case the role of entrepreneur in shaping their business model through

planning. This approach is commonly used in social sciences because unlike in natural

sciences, it is difficult to frame business and management practices within strict theories

and laws (Saunders et al., 2009). The assumptions that entrepreneurs form in regard to their

business model are based on their understanding of the environment – their social reality.

To appreciate the meanings that entrepreneurs attach to their actions in business planning,

constructivism was chosen as the ontological position of this study. The foundation of this

view is the social construction of reality (Searle, 1995) and it stresses that people are social

actors who constantly shape the meanings of social phenomena (Bryman, 2012).

Research approach

An inductive research approach was used in this study as it allowed for a better

understanding of the meanings that entrepreneurs attach to the activity of business

modelling and a closer understanding of the research context of early-stage technology

start-up development (Saunders et al., 2009). This study is exploratory because its aim is to

gain a better understanding of how entrepreneurs use BMC in developing their business

models and assessing the critical issues and problems in this process. According to Sreejesh

et al. (2014), exploratory research is carried out in order to structure a working hypothesis

from an operational viewpoint and the typical reasons behind conducting such studies are to

analyse a problem situation, discover new ideas and to evaluate alternatives. The language

and hypotheses generated from this exploratory research will be subject to subsequent

quantitative validation (Baker and Foy, 2008).

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Research design

A multiple case study research design was employed in this dissertation for its usefulness in

answering “how” and “why” questions. It is commonly used when the research aim is to

explore areas in which little theory or measurement is available (Yin, 2008; Kohn, 1997).

The common issue with this design is that researchers tend to answer research questions

that are too broad or have an excessive amount of objectives. A solution to this problem is

to set boundaries by defining aspects of the cases to be studied that directly connect to the

research question and within the limits of the researcher’s time and means (Miles et al.,

2012). Therefore, a multiple-case sampling technique that involved looking at sets of

similar and contrasting cases was used in this study in order to increase the confidence of

the findings. Sampling helps to bind the cases by considering four factors: settings, people,

events and social processes. The case (unit of analysis) in this study is an entrepreneur who

is a current or former founder of an early-stage technology start-up and who has used the

BMC template for business planning at least once. The sampling criteria is visualised in

Table 1. As per Miles et al.’s (2014) recommendation, six cases have been selected and

researched.

Table 1: Case sampling criteria

Sampling parameters Choices

Setting Early-stage technology start-up

Actor Entrepreneur (founder of above start-up)

Event Use of BMC for business planning

Process Completing the BMC template

Time horizon

A cross-sectional research time horizon was chosen due to the exploratory nature of the

study. This means that the primary data was gathered once during a period of five weeks.

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Methods of data collection

Instrumentation

The data for this study was collected through semi-structured interviews, as they are the

best fit for exploratory studies (Saunders et al., 2009). It is impossible to forecast the social

setting in exploratory studies, therefore close-ended instruments such as structured

interviews are not appropriate (Miles et al., 2012). Six face-to-face interviews were carried

out with entrepreneurs in order to obtain the case studies required to gain deeper insights

into the practices of business modelling and in particular the usefulness of BMC. The

interview schedule is attached in Appendix 1.

Participant recruitment

The interview participants were recruited in Glasgow and Edinburgh due to the high

concentration of technology start-ups in these cities and close proximity to the researcher.

In order to recruit participants, the researcher used his personal and professional networks,

links to business incubators TechCube, Entrepreneurial-Spark and Digital Enterprise

Glasgow, as well as social media channels Twitter, Facebook and LinkedIn. Firstly,

potential participants were invited to complete a brief electronic form hosted on Google

Docs that contained the qualifying questions and captured the participants’ contact details.

Secondly, the qualified participants were contacted and asked to select a suitable meeting

time via the Doodle scheduling platform.

Data collection

Six interviews were arranged in public places in Glasgow and Edinburgh. Each interview

lasted between 30 and 50 minutes and was audio recorded with the participant’s consent

using a tablet computer. The recordings were transcribed using a combination of word

processing and audio playback software in preparation for data analysis.

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Methods of data analysis

Cross-case analysis

A qualitative researcher “concentrates on the instance, trying to pull it apart and put it back

together more meaningfully” (Stake, 1995, p.75) and choice of data analysis techniques can

dramatically impact research findings. A cross-case analysis technique was employed in

this study due to its suitability for analysing multiple-case study data. This technique

involved the aggregation of findings across six different cases and spotting interesting

emerging patterns and themes (Yin, 2008). According to Miles et al. (2012), this type of

analysis enhances generalisability of the study and allows the findings to be transferred into

different contexts. This aspect is important because the aim of this study is not only to

explore the actions and outcomes of entrepreneurs using BMC, but also to find general best

practices that can be further studied and hopefully employed by other entrepreneurs in

similar contexts.

Coding

The researcher was presented with a choice of two approaches to cross-case analysis: case-

oriented and variable-oriented. The case-oriented approach allows us to look at

configurations and patterns within the case while the variable-oriented approach is more

theory centred and allow us to see how elements that make up the cases compare across

those cases. The variable-oriented approach was chosen due to its usefulness in finding

broad patterns across cases. The variables were extracted during the First Cycle coding that

involved categorising similar chunks of data in the transcripts. Second Cycle coding was

then carried out in order to group the variables into pattern codes that indicate emerging

themes across the cases (Miles et al., 2012). The NVivo software package was used to aid

the coding process.

27

Limitations and ethical issues

According to Ghauri and Gronhaug (2002, p.20) “reporting results objectively and honestly

is the most important aspect of ethics”. This research project is subject to a number of

potential limitations and ethical concerns that will be addressed in this section.

Subject and observer bias

One of the potential limitations of this study is a threat to the reliability of the research

findings due to subject bias (Saunders et al., 2009). This means that participants might give

distorted answers in order to shed a more positive light on their business, their actions or

events in relation to the business modelling process to appear more successful. However,

this problem has been addressed by offering research participants complete anonymity so

they could feel safe sharing details without worrying about embarrassment or other

unwanted consequences.

Another potential issue that might have arisen is observer bias. Due to the semi-structured

nature of the interviews, the researcher’s personal beliefs or opinions might have been

naturally imposed when interpreting the findings.

Generalisability

Generalisability could have also affected this study as the relatively small sample size could

lead to findings that might not necessarily represent the whole population. However, the

semi-structured nature of interviews allowed probing for clarifications and opportunity to

deviate from interview questions to discuss new angles in more detail when appropriate

(Ghauri and Gronhaung, 2002).

Ethical issues

An application was made to the Ethics Committee before the data collection began to

ensure that it is safe to proceed and none of the participants will be harmed in any way. The

Ethics Committee classified this research as low-risk and approved it on 28 November

2013 (confirmation is attached in Appendix 4). Below is an overview of measures taken by

the researcher to avoid any potential ethical issues:

28

• This study did not involve any vulnerable groups such as children or people with

illness or disabilities, therefore it carries a relatively low level of risk;

• Participation in this study was completely voluntary and all participants were

briefed through a Plain Language Statement (see Appendix 2) and signed consent

forms (see Appendix 3);

• All data collected during the interviews was kept completely confidential and

participants’ names have not been disclosed in this dissertation. Participants are

anonymised, i.e. entrepreneur A, entrepreneur B and so on;

• After the hand-in of this dissertation, all results will be permanently destroyed;

• Every attempt was made to ensure that the findings are presented in a way that

protects the participants from embarrassment and harm of any kind.

29

Findings

In this section the research findings will be presented and discussed in relation to the

literature with the aim of answering the research questions of the dissertation. Firstly, the

cases will be described to give the context to the research findings. Secondly, the usage of

BMC will be described and analysed in relation to the literature. Thirdly, the outcomes and

issues arising from BMC usage will be analysed.

Overview of cases

All six cases that were selected for interviewing met two criteria as described in the

methodology section – all were entrepreneurs who considered themselves founders of an

early-stage technology start-up and all had used BMC at least once. However, the interview

data revealed a range of differences and similarities among different cases in terms of the

development of their business model and various attributes. These are displayed in Table 2

and are explained below.

In terms of age, interviewed start-ups were incorporated for 2 years on average ranging

between 0 and 5 years. The start-ups typically had 2 founders (ranging from 1 to 3) and 2

employees (ranging from 0 to 4). In terms of product development, 5 out of 6 start-ups had

some level of product developed with 5 being software-based and 1 hardware-based; 5 out

of 6 start-ups reported having customers using their products but only 3 claimed having

found the product-market fit. In terms of revenue, only half of the interviewed companies

were receiving any revenue in the range of £10,000 and £300,000 with the average being

£60,000. In addition, 3 start-ups reported having received some form of external funding.

30

Table 2: Matrix of case attributes

Attributes Cases Mean

(n = 6) A B C D E F

Incorporated

(years) 2 2 - 5 1 3 2

Founders 1 2 2 3 3 2 2

Employees 0 2 0 4 3 4 2

Product

developed? Yes Yes No Yes Yes Yes 5

Type of

product Hardware Software Software Software Software Software

5 software

1 hardware

Customers? Yes Yes No Yes Yes Yes 5

Product-

market fit? Yes No No Yes No Yes 3

Revenue

(£/annum) 10,000 - - 300,000 - 50,000 60,000

External

funding Yes No No No Yes Yes 3

BMC usage

One of the questions this research aims to answer is how do entrepreneurs in early-stage

technology start-ups use BMC to design the business model of their venture. Another

important question asks how the tool integrates in the overall business planning process of

an early-stage technology start-up.

The process

All interviewed entrepreneurs were asked to describe their usage of BMC in detail. After

producing several cognitive maps and holding confirmatory conversations, an aggregate

flowchart emerged, as pictured in Figure 6. It visualises the thought process of

31

entrepreneurs and places the actual act of completing the BMC template in the overall

activity stream of an early-stage technology start-up.

Figure 6: Flowchart of BMC use in early-stage technology start-ups

32

Step 0 – Business Idea

Each case is different in terms of progress made with the business model prior to using

BMC. Since the focus of this study is to examine the process of business modelling rather

than measuring the comparable performance of the ventures, all entrepreneurs start at the

“Business Idea” stage in the flowchart. This places all entrepreneurs on the same level so

BMC usage can be examined.

Step 1 – complete BMC

If there is a solo founder in the company, he completes the BMC by himself. If there are

multiple founders, each founder takes a blank BMC and fills it in separately based on their

own personal assumptions about the business. The team then collates the individual BMCs

and creates a single collaborative BMC with the help of a discussion.

“Everyone retrieved to their, sort of, corner, built their idea, brought

it all together and talked about it.” (Entrepreneur F).

Step 2 – Build product/concept

After completing the BMC, entrepreneurs gain clarity of their business and focus. Based on

this new understanding a product or prototype is developed.

“The canvas translated into what should the product be and the

business model, in the room.” (Entrepreneur F)

“It’s all about how can you validate your MVP and for us our MVP

was basically a deck, which was kind of our customer problem

presentation, which was basically saying: ‘Ok, this is what we are

thinking of building. What do you think?’ ” (Entrepreneur C)

Step 3 – Gain feedback

The entrepreneurs then take the developed product prototype to potential customers to gain

feedback.

33

“I just went and showed the product to the golf professionals around

50 golf courses. So we had 30 who were interested and 2 who actually

tried the prototype” (Entrepreneur A).

Step 3 – Evaluate feedback

The customer feedback is then evaluated in terms of whether or not there is a fit between a

product and a market.

“This is all based on the market feedback, that’s how we arrived at

these models, we asked people: ‘How would you like to do that?’.

Surprisingly, people love answering that question. The difficulty is

that you get so much information, you have to look for

commonalities and develop then and go back ask again, etc.”

(Entrepreneur F)

Step 4.1 – Continue building product

If there is a product-market fit, the entrepreneur goes back to further developing the product

and testing it in the market.

“The product has actually been through 2 or 3 revisions and I’ve

actually decided to revise it one more time” (Entrepreneur A)

Step 4.2 – Cease operation

If there is no fit, however, entrepreneur is faced with a tough decision of whether to further

iterate the idea or cease operation.

We don’t have a product that fits the market, so we don’t have

anything to sell, we don’t have anything to develop, so let’s kill it.”

(Entrepreneur C)

34

Step 4.3 - Iterate

If entrepreneur decides to further iterate the business, this process is repeated multiple times

in an attempt to find a repeatable business model or in other words find a “product-market

fit”.

“We went through more iterations just to finalise.” (Entrepreneur E)

Iteration

All six interviewed entrepreneurs described their efforts to find the right business model for

their venture as highly iterative. On average, entrepreneurs reported having gone through

two to three major iterations of their business model before settling on one that appeared to

have a product-market fit. Entrepreneur C described their experience of business modelling

with BMC: “for us it was very much iterate, iterate all the time, and at least once a week if

not twice a week”. This leads to an assumption that smaller, intermediate iterations might

have also been developed.

Even though the majority of participants did not explicitly state that they were using

Blank’s (2006) Customer Development model or Ries’s (2012) Build-Measure-Learn

model, as referred to above, the iterative aspects and steps in the flowchart drawn from the

primary data closely resembled these frameworks.

Focus on customers

All entrepreneurs described filling in the Customers building block on the BMC first, and

only then filling in the rest of the canvas. Osterwalder and Pigneur (2010) describe the

approach as the Customer-driven epicentre. This means that entrepreneurs place a lot of

focus on customer needs, aim to facilitate access to their products and increase convenience.

Decisions made in the customers block affect other blocks but this approach appears to be

in line with the arguments by Blank (2006) and McGrath (2010) on the importance of

understanding and serving customer needs. Entrepreneur F stressed the importance of

consulting potential customers in their product development by stating the fact that their

product was built to “satisfy genuine real needs which we have learned from hard

feedback”.

35

Outcomes from BMC usage

Another question this study aims to address is the identification of the outcomes in early-

stage technology start-ups that resulted from the usage of BMC. As can be seen in Table 3,

there is a wide range of outcomes

Table 3: Matrix of outcomes arising from BMC usage

Codes Cases Mean

(n = 6) A B C D E F

Gave structure No Yes Yes Yes Yes Yes 5

Gave clarity Yes Yes Yes Yes No Yes 5

Gave focus Yes Yes Yes Yes No Yes 5

Improved

business model Yes No Yes Yes Yes Yes 5

Saved

time/resources Yes No Yes No Yes Yes 4

Team alignment No No No Yes No Yes 2

Highlighted

problems No Yes No Yes No No 2

Stopped

operating No No Yes No No No 1

Structure, clarity and focus

The majority of participants stated that BMC allowed them to better structure their thoughts,

gave clarity and focus. BMC made the process of business model discovery more

systematic. Entrepreneurs stressed that “it gave a structure to work within” (Entrepreneur

D) and that it “helps to explore in a methodical way” (Entrepreneur C).

The holistic view of the canvas or “being able to see the full picture – all in the one page”

as Entrepreneur A put it, gave entrepreneurs more clarity and better focus. Participants

36

reported having more focus and clarity in terms of markets, customer problems, product

roadmap, and resource deficiencies. In the highly uncertain environment in which

technology ventures are operating and where there is an abundance of information,

knowing what to do, what product to build and which customers to target are of paramount

importance.

These findings confirm and strengthen the claims in the existing literature that BMC

structures thoughts, offers clarity and focus.

Improved business model

Five out of six entrepreneurs mentioned making improvements to their business model as a

result of BMC usage. Improvements mentioned were mainly in relation to two BMC

building blocks – customer segments and value proposition. However, some entrepreneurs

also mentioned identifying and tackling problems in relation to the partnerships and key

resources building blocks.

Although small iterations and improvements in the right direction might lead to finding the

product-market fit (Blank, 2006), none of the entrepreneurs attributed discovery of the

product-market fit to the usage of BMC. This might be due to the fact that the entrepreneurs

have not used the tool long enough or used it in combination with other tools and could not

directly attribute the usage of the tool to this outcome.

It is also worth noting that the improvements made to the business model are closely related

to the aforementioned increase in clarity and focus. Increased clarity points to areas within

the business model that can be improved, but it is up to the entrepreneur to take action and

actually carry out the necessary changes.

Saved time and resources

Four out of six entrepreneurs identified saving time and resources because of using BMC.

In one exceptional case, an entrepreneur made a decision to stop the development of the

business based on the insights learned from using BMC. However, instead of being

disappointed by this experience, the entrepreneur embraced it by stressing that the time and

37

resources saved by avoiding the development of an undesired product greatly outweighed

the loss of what was initially perceived to be a great business opportunity.

This finding confirms that a discovery-driven planning approach, as proposed by McGrath

(2010), can indeed minimise costs through time savings and cutting down on resource costs.

Issues in BMC usage

This research also aims to identify the issues that entrepreneurs encounter in using BMC.

There was no strong agreement between the participants in terms of the issues associated

with BMC and interestingly two participants did not highlight any issues at all. However,

several common issues were identified as seen in Table 4.

Table 4: Matrix of emerging BMC issues

Codes Cases Mean

(n = 6) A B C D E F

Stopped

using BMC Yes Yes No No Yes Yes 4

Externally

incompatible Yes Yes No No Yes No 3

Loses value

over time Yes Yes No No Yes Yes 4

Unfamiliar

language No Yes No No No Yes 2

External incompatibility

Half of the entrepreneurs claimed that external advisors and potential investors do not

accept BMC as a summary of a business model and demand formal business plans. This

presents a challenge in that preparation of business plans is time-consuming and cannot be

iterated to the same extent as BMC if changes to the business model are necessary.

38

Currently entrepreneurs use BMC as an intermediary towards preparing a formal business

plan by iteratively designing their business model and translating it into a business plan

when they are happy with the business model. However, this detachment between the

planning process and the presentation of the plans points to inefficiencies, which could be

investigated in future research among investors and business advisors.

Value reduces with time

Despite the benefits of BMC usage reported by the entrepreneurs, four out of six

participants have stopped using BMC after several iterations citing reasons related to lack

of time, and lack of usefulness after the right business model was discovered.

Three out of six entrepreneurs cited a time-consuming process as the reason for stopping to

use BMC. It appears to contradict the aforementioned findings, which show that the BMC

actually saves time. It might be that time savings decrease when the entrepreneurs find the

right business model for their venture.

Inconsistency with the literature

The majority of the issues discovered in the case studies do not align with the issues

identified in the literature review. This could suggest that the study participants might not

have had the appropriate level of training or did not use the tool enough to become aware of

the underlying issues. Another possibility is that the issues identified by scholars might not

be affecting practitioners to the anticipated extent.

39

Conclusions

Summary of findings

Several important findings were discovered in this study. Firstly, this study has empirically

demonstrated that business modelling with BMC is a highly iterative process where

entrepreneurs constantly modify their business model with the help of customer feedback.

BMC adds structure to the business modelling process and gives clarity and focus, which

guide entrepreneurs towards the product-market fit.

Secondly, this study has found that as a result of using BMC entrepreneurs have made

improvements to business models of their ventures and saved money and resources.

Thirdly, this study has uncovered that despite BMC’s usefulness in business model

discovery, it is not a widely accepted document outside the organisation with external

stakeholders such as investors or support agencies.

Finally, the findings show that the value entrepreneurs get from using BMC appears to

diminish over time, which results in eventual abandonment of the tool.

Implications of findings

The overall aim of this research was to explore a process of business model discovery with

BMC in early-stage technology start-ups and to see what impact the use of the tool has on a

venture. This study has implications for practitioners and researchers alike.

Implications for practitioners

This study strongly supports existing claims in the literature about BMC’s strengths as a

structured visual tool that offers entrepreneurs structure and clarity. It has empirically

demonstrated that an iterative discovery-driven process can actually advance an

40

entrepreneur’s understanding of their own business and lead to tangible progress such as

improvements in the business model and time and resource savings.

Furthermore, no negative outcomes from using the tool were found in this study.

The benefits of using BMC combined with an apparent lack of drawback is encouraging for

entrepreneurs who are considering implementing BMC in their own start-up.

Implications for researchers

In addition to strengthening the claims in the existing literature, this study uncovered two

new themes that were not previously discussed in the literature.

Firstly, although BMC is a highly visual tool, it appears that it is not in itself a sufficient

way to communicate with external stakeholders such as investors and business advisors.

Secondly, the empirical data has shown that entrepreneurs have a tendency of abandoning

BMC after a period of time due to the reduced value that the tool offers.

These two emerging themes offer researchers guidance into areas that could be studied

further in future research. Several concrete suggestions for future research will be proposed

after highlighting the limitations of this study below.

Limitations

Although this study has confirmed and strengthened several aspects of academic literature

and uncovered new themes, it was not intended to be a prescriptive guide that defines

causes and effects of BMC usage in business model planning. Due to the exploratory nature

of the study and the small sample size of six case studies, the findings of the study are not

generalisable. The findings and implications of this study should be considered only as

recommendations for further research.

41

Suggestions for future research

Despite the limitations of this study, it has uncovered several topics that could be further

investigated by researchers in the field.

Firstly, researchers could investigate whether start-ups using a discovery-driven approach

are more successful than those employing a traditional approach using quantitative methods.

Secondly, a study could potentially be launched investigating whether the usefulness of

BMC varies during various stages of start-up development and at which stages the tool is

most useful.

Thirdly, a longitudinal study could investigate whether the prolonged usage of BMC saves

time and resources.

Moreover, the aggregate flowchart displaying how BMC integrates in the organisation’s

workflow, as developed in this study, could be further developed and quantitatively tested

to potentially offer entrepreneurs a prescriptive guide on maximising BMC’s usefulness.

Finally, exploratory research amongst investors and support agencies could be carried out

to explore BMC’s suitability as a tool to communicate business models.

42

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Appendices

Appendix 1 – Interview Schedule

1. About you

a. Tell me about your background.

b. Describe your start-up.

c. What is the status of your start-up [Probes: product, revenue, funding,

number of employees].

2. Business models

a. How would you define the concept of a business model?

b. What is your current business model and how have you arrived at it?

c. Have you implemented different business models before?

d. How often do you revaluate your business model?

3. Use of Business Model Canvas

a. When did you first use the BMC and why?

b. Are you still using the BMC? If not, why?

c. How do you use the BMC [Probes: how often, with whom, in what

situations]?

d. Could you please quickly walk me through your thinking process when

using BMC? [Probes: ask to demonstrate on BMC template]

e. How would you compare BMC to other business model generation tools?

f. What features do you like about BMC?

g. What features do you dislike about BMC?

4. Business Model Canvas effect on innovation

a. What impact did using the BMC have on your company?

b. Is there anything you would like to add to this interview?

49

Appendix 2 – Plain Language Statement

1. Study title and Researcher Details

• Study title: Business Model Canvas and its’ effect on innovation in early-stage technology start-ups

• Researcher: Tadas Labudis (1005087l@student.gla.ac.uk)

2. Invitation paragraph You are being invited to take part in a research study. Before you decide it is important for you to understand why the research is being done and what it will involve. Please take time to read the following information carefully and discuss it with others if you wish. Ask us if there is anything that is not clear or if you would like more information. Take time to decide whether or not you wish to take part.

3. What is the purpose of the study?

The purpose of this study is to investigate the effectiveness of the business model canvas in encouraging innovation and generation of more creative business models giving technology start-ups a better competitive advantage.

4. Why have I been chosen? You have been chosen because you are a founder or a co-founder of an early-stage technology start-up.

5. Do I have to take part? Participation is completely voluntary.

6. What will happen to me if I take part?

By taking part you agree to discuss your business and your use of the Business Model Canvas in developing the business model for your start-up.

7. Will my taking part in this study be kept confidential?

Your interview answers will be kept completely confidential and your name will not be disclosed in any publication resulting from this research.

8. What will happen to the results of the research study?

Once the study is complete, all results will be permanently destroyed.

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9. Who is organising and funding the research? (If relevant)

This research is for an MA Business & Management dissertation.

10. Who has reviewed the study? Supervisor Dr Marian Jones.

11. Contact for further Information

If you have any questions regarding this research please feel free to contact me at 1005087l@student.gla.ac.uk.

If you have any concerns regarding the conduct of the research project you can contact the College of Social Sciences Ethics Officer Dr Valentina Bold at Valentina.Bold@glasgow.ac.uk.

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Appendix 3 – Consent Form

Title of Project: Business Model Canvas and its effect on innovation in early-stage

technology start-ups

Name of Researcher: Tadas Labudis

1. I confirm that I have read and understand the Plain Language Statement for the

above study and have had the opportunity to ask questions.

2. I understand that my participation is voluntary and that I am free to withdraw at any

time, without giving any reason.

3. I consent to interview being audio-taped.

4. I understand that my name will not be revealed in any publications arising from this

research.

5. I agree / do not agree (delete as applicable) to take part in the above study.

Participant Date Signature

Researcher Date Signature

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Appendix 4 – Ethics Committee Approval

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