The impact of customer ties and industry segment maturity on business model adaptation in an emerging industry

Abstract

Research Summary: Why do some young firms change their business models while others do not? Why do some firms make small changes, while others make more substantial changes? And does industry context matter? Drawing on organizational learning theory and utilizing a unique data-base tracking 187 young firms through the first decade of the mobile health industry, we examine the role of customers in young firms' business model adaptation. We find a positive impact of customer portfolio breadth (capturing the number and diversity of customers) on both the likelihood and degree of business model change. Importantly, industry segment maturity moderates this relation: customer effects are strongest in the earliest, most uncertain stages. Our study provides a rare view into how a new industry and its young ventures co-evolve. Managerial Summary: Customers have been viewed as critical in a start-up venture's search for an initial business model, but their role in young firms' business model adaptation has not been examined. In this study, we show that a young firm's customer portfolio breadth is an important driver of business model change, especially at the earliest, most uncertain stages of an industry. Our results highlight the value of customers as sources of knowledge in emerging industries, and suggest that when making decisions about establishing and fostering customer ties, entrepreneurs should consider the number and diversity of those ties in the context of the maturity of the young firm's industry segment. the question of what leads some firms to experiment with their business models while others do not, and why some firms make small changes to their business models while others opt for more substantial ones. Our results show that broader (i.e., larger and more diverse) customer portfolios make business model change both more likely and more substantial. Further, these effects are negatively dependent variables. We further also control for alliance portfolio diversity . This variable measures the diversity of the firm's alliance portfolio, including R&D, outside investor, manufacturing, supply, and marketing ties. This control captures the potential diversity and breadth of knowledge brought forth by these alliance partners; we expect that it will have a positive impact on likelihood and degree of business model change. Alliance portfolio