Mechanisms for Business Model Innovation: A Role for Cooperation and Industry Associations

Abstract

Business models have been shown to be important for a firm’s survival and competitiveness. But because business models encompass interfirm relationships, they also have the potential to affect the survival and performance of whole industries or ecosystems. This paper uses an historical case to examine business model innovations—where they come from and how they spread. We study the rise of venture capital, which underwent decades of business model experimentation, starting in the 1950s, before becoming an overnight success in the 1980s. We document a number of surprising and almost forgotten aspects of the experimentation period in California’s Silicon Valley, including cooperation among the venture capitalists there, and their formation of an industry association, the Western Association of Venture Capital (WAVC), which helped to rapidly develop and establish the successful model we know today. We argue that these mechanisms of cooperation can be applicable to firms in other industries, especially those that benefit from variety.