The role of costs in business model design for early-stage technology startups

Abstract

Beginning in their early stages, technology start-ups (TSUs) develop several business models. Costs are often perceived as a constraint to business model innovation. Challenging this assumption, we question the role that costs play in business model design. We analyzed twelve TSU case studies from Switzerland, France, and the USA. The results indicate that TSUs develop three types of business models that are technology-driven, market-driven, and exit-driven. Costs act as enablers, moderators, and mediators. With a portfolio of business models, costs play a mediating role. Finally, the role costs play in the business model design phase changes firm value capture mechanisms, potentially enhancing the firm's value. This research makes the following contributions: (1) Technology-, market-, and exit-driven business model portfolios appear to be heterogeneous among TSUs. (2) Costs play enabler and mediator roles in addition to the traditional moderator role. We add to the literature by focusing on the new economy (rather than Porter's cost leadership strategies) through an optimistic and investment-driven approach.