First Ideas Matter: A Selection Loop Process for Business Model Adaptation

Abstract

Experimentation plays a vital role in firms’ activities and strategies. Yet, we still have a scant understanding of the processes underpinning experimentation for business modelling in startups. Through a qualitative longitudinal case, we investigate how a startup reshapes its value proposition and engages with external market stakeholders – in this case end customers – when their heterogeneity could not be catered by the first business model designed by the entrepreneur. We look at cases where a business model, originally envisioned with a single value proposition, needs to cater different groups of customers (i.e., product users, buyers, and beneficiaries) with diverse expectations in terms of value and engagement. Our study identifies a ‘selection loop’ process formed of three different experimentation phases – environment-based stress, cognitive-driven adaptation, and stakeholder-led evolution. This process contributes to better understand how managerial cognition drives business model design and experimentation towards a “fit” between the entrepreneur’s cognitive model and the stakeholders in the external environment. We also advance the cognitive perspective on business models as we take a cognitive lens to explore experimentation as a process to identify and adapt a business model to emerging evidence about a startup’s customers.