How optimal distinctiveness in business model affects SMEs performance? A contingency perspective

Abstract

In recent years, the question about how business models contribute to competitive advantage and improve firm performance, has been fully discussed by strategic scholars. However, there coexist two controversial forces for SMEs in business model design: legitimacy and competitive pressure. How SMEs balance the tension between legitimacy and competitive pressures in business model design is an important issue which is less appreciated in prior work. In this article, we apply the concept of optimal distinctiveness to test how distinctiveness in business model affects SMEs performance. We apply the topic model methodology to the texts of business model sections in 2943 annual reports of SMEs listing on National Equities Exchange and Quotations (NEEQ) market in China, to measure the distinctiveness in each SME’s business model relative to industry average. Results show an inverted U-shape between distinctiveness in business model and SMEs performance. Further, this U-shaped effect is attenuated by firm age, whereas category heterogeneity (as well as nascent market) and subcategory distinctiveness strengthen the relevance of optimal distinctiveness in business model. These findings inject fresh insights into both business model literatures and the optimal distinctiveness perspective.