Abstract
Building on cognitive theories and business model literature, the object of this paper is to analyze to what extent entrepreneurs rely on heuristics to develop startups and innovation business models. While recent research has referred to a cognitive view on business modeling, it is still unclear how the cognitive foundations of such modeling happens. Despite the constraining effects that management and entrepreneurship literature has attributed to these cognitive tools, we argue that in making sense of uncertainty, “fast and frugal” heuristics provides entrepreneurs with robust strategies to connect the dots that give rise to startups and their business models. The paper makes two main contributions. First, we introduce the heuristic of similarity into the business modeling literature. Second, through the results of a qualitative survey, we conceptualize and theorize on the cognitive activity of business modeling, presenting it as an iterative process of configuring heuristics.
References
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Hauser J.R. (2014). Consideration-set heuristics. Journal of Business Research, 67(8): 1688-1699.
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Manimala, M.J. (1992). Entrepreneurial heuristics: A comparison between high PL (pioneering-innovative) and low PI ventures. Journal of Business Venturing, 7, 6, 477-504.
Markides, C. (2013). Business model innovation: What can ambidexterity literature teach us? Academy of Management Perspectives, 27, 4, 313-323.
Martins, L.L., Rindova, V.P. and Greenbaum, B.E. (2015). Unlocking the hidden value of concepts: A cognitive approach to business model innovation, Strategic Entrepreneurship Journal, 9, 1, 99-117.
Morgan M.S. (2012). The world in the model. Cambridge Books.
Mousavi, S., and Gigerenzer, G. (2014). Risk, uncertainty, and heuristics, Journal of Business Research, 67, 8, 1671-1678.
Polya, G. (1954). Mathematics and plausible reasoning: vol 1: Induction and analogy in mathematics. Oxford University Press.
Prahalad, C.K. and Bettis, R.A. (1986) The dominant logic: A new linkage between diversity and performance, Strategic Management Journal, 7, 6: 485-501.
Reijers, H.A., and Mansar, S.L. (2005). Best practices in business process redesign: an overview and qualitative evaluation of successful redesign heuristics. Omega, 33, 4, 283-306.
Shafer, S.M., Smith, H.J., and Linder, J.C. (2005). The power of business models, Business Horizons, 48, 3, 199-207.
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Simon, H.A. (1955). A behavioral model of rational choice. The Quarterly Journal of Economics, 99-118.
Simon, H. (1976). From substantive to procedural rationality. In Latsis S.J (ed.) Method and Appraisal in Economics, Cambridge, Cambridge University Press, reprinted in Models of Bounded Rationality, 2 vols., Cambridge, Mass: MIT Press, 1982.
Teece, D.J. (2010). Business models, business strategy and innovation, Long Range Planning, 43, 2, 172-194.
Tikkanen, H., Lamberg, J.A., Parvinen, P., and Kallunki, J.P. (2005). Managerial cognition, action and the business model of the firm, Management Decision, 43, 6, 789-809.
Todd, P.M. and Gigerenzer, G. (2012). Ecological rationality: Intelligence in the world. Oxford University Press.
Vaara, E. and Whittington, R. (2012). Strategy-as-practice: taking social practices seriously. The Academy of Management Annals, 6, 1, 285-336.
Westphal, J. D., Stern, I. (2007). Flattery will get you everywhere (especially if you are a male Caucasian): How ingratiation, boardroom behavior, and demographic minority status affect additional board appointments at US companies. Academy of Management Journal, 50(2), 267-288.
Zacharakis, A.L., and Shepherd, D.A. (2001). The nature of information and overconfidence on venture capitalists' decision making, Journal of Business Venturing, 16, 4, 311-332.
Zott, C., Amit, R., Massa, L. (2011). The business model: Recent developments and future research, Journal of Management, 37, 4, 1019-1042
Amit, R. and Zott, C. (2001). Value creation in e-business, Strategic Management Journal, 22, 6–7, p. 493–520.
Artinger, F., Petersen, M., Gigerenzer, G. and Weibler, J. (2014). Heuristics as adaptive decision strategies in management. Journal of Organizational Behavior.
Baden-Fuller, C., and Morgan, M.S. (2010). Business models as models, Long Range Planning, 43, 2, p. 156-171
Baden-Fuller, C. and Mangematin, V. (2013). Business models: A challenging agenda, Strategic Organization, 11, 4, 418-427
Bingham, C.B., and Eisenhardt, K.M. (2011). Rational heuristics: the ‘simple rules’ that strategists learn from process experience, Strategic Management Journal, 32, 13, 1437-1464.
Bingham C.B. & Haleblian J.J. (2012). How firms learn heuristics: Uncovering missing components of organizational learning. Strategic Entrepreneurship Journal, 6(2): 152-177.
Björkdahl, J. (2009). Technology cross-fertilization and the business model: The case of integrating ICTs in mechanical engineering products, Research Policy, 38, 9, 1468-1477.
Calia, R.C., Guerrini, F.M. and Moura, G.L. (2007). Innovation networks: From technological development to business model reconfiguration, Technovation, 27, 8, 426-432.
Casadesus-Masanell, R., and Ricart, J.E. (2010). From strategy to business models and onto tactics. Long Range Planning, 43(2), 195-215.
Czerlinski J., Gigerenzer G. & Goldstein D.G. (1999). How good are simple heuristics? In G. Gigerenzer, P. Todd & A. R. Group (Eds.), Simple heuristics that make us smart: 97–118. New York: Oxford University Press.
Chesbrough, H. and Rosenbloom, R.S. (2002). The role of the business model in capturing value from innovation: Evidence from Xerox Corporation's technology spin‐off companies, Industrial and Corporate Change, 11, 3, 529-555.
Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long Range Planning, 43, 2, 354-363.
Christensen, C.M. (2001). The past and future of competitive advantage, Sloan Management Review, 42, 2, 105-109.
Coleman, L., Maheswaran, K., & Pinder, S. (2010). Narratives in managers’ corporate finance decisions. Accounting & Finance, 50, 3, 605-633.
DeMiguel V., Garlappi L. & Uppal R. (2009). Optimal versus naive diversification: How inefficient is the 1/N portfolio strategy? Review of Financial Studies, 22(5): 1915.
Demil, B.; Lecocq, X., Ricart, J.E. and Zott, C. (2015). Introduction to the SEJ special issue on business models: Business models within the domain of strategic entrepreneurship, Strategic Entrepreneurship Journal, 9, 1, 1-11.
Doz, Y.L. and Kosonen, M. (2010). Embedding strategic agility: A leadership agenda for accelerating business model renewal, Long Range Planning, 43, 2, 370-382.
Eggers J.P. & Kaplan S. (2013). Cognition and Capabilities: A Multi-Level Perspective. The Academy of Management Annals, 7(1): 295-340.
Eisenhardt K.M., Furr N.R. & Bingham C.B. (2010). Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments. Organization Science, 21(6): 1263-1273.
Fowler Jr, F. J. (2013). Survey research methods. Sage publications.
Kaplan, S. (2011). Research in cognition and strategy: reflections on two decades of progress and a look to the future. Journal of Management Studies, 48, 3, 665-695.
Katsikopoulos, K. V. (2011). Psychological heuristics for making inferences: Definition, performance, and the emerging theory and practice. Decision Analysis, 8, 1, 10-29.
Katsikopoulos, K. V. (2014). Bounded rationality: the two cultures, Journal of Economic Methodology, 1-14
Kunda, Z. (1999). Social cognition: Making sense of people, Cambridge, Mass: MIT Press.
Finch, J. (1987). The vignette technique in survey research. Sociology, 21, 105–114.
Gavetti G., Greve H.R., Levinthal D.A. & Ocasio W. (2012). The Behavioral Theory of the Firm: Assessment and Prospects. The Academy of Management Annals, 6(1): 1-40.
Gavetti G., Levinthal D. & Ocasio W. (2007). Perspective--Neo-Carnegie: The Carnegie School's Past, Present, and Reconstructing for the Future. Organization Science, 18(3): 523-536.
Gavetti, G. and Rivkin, J. W. (2005). How strategists really think, Harvard Business Review, 83, 4, 54-63.
Gavetti, G., and Rivkin, J.W. (2007). On the origin of strategy: Action and cognition over time, Organization Science, 18, 3, 420-439.
Gigerenzer, G., and Gaissmaier, W. (2011). Heuristic decision making. Annual Review of Psychology, 62, 451-482.
Gigerenzer, G., Todd, P.M. and the ABC Research Group (eds) (1999). Simple heuristics that make us smart, Oxford University Press, New York
Goldstein D.G. & Gigerenzer G. (2002). Models of ecological rationality: The recognition heuristic. Psychological Review, 109(1): 75-90.
Groner, R., Groner, M., and Bischof, W.F. (eds). (2014). Methods of heuristics. Routledge.
Guercini, S. (2012). New approaches to heuristic processes and entrepreneurial cognition of the market, Journal of Research in Marketing and Entrepreneurship, 14, 2, 199-213.
Gupta, V. K., Goktan, A. B., Gunay, G. (2014). Gender differences in evaluation of new business opportunity: A stereotype threat perspective. Journal of Business Venturing, 29(2), 273-288.
Hauser J.R. (2014). Consideration-set heuristics. Journal of Business Research, 67(8): 1688-1699.
Hu Z. & Wang X.T. (2014). Trust or not: Heuristics for making trust-based choices in HR management. Journal of Business Research, 67(8): 1710-1716.
Manimala, M.J. (1992). Entrepreneurial heuristics: A comparison between high PL (pioneering-innovative) and low PI ventures. Journal of Business Venturing, 7, 6, 477-504.
Markides, C. (2013). Business model innovation: What can ambidexterity literature teach us? Academy of Management Perspectives, 27, 4, 313-323.
Martins, L.L., Rindova, V.P. and Greenbaum, B.E. (2015). Unlocking the hidden value of concepts: A cognitive approach to business model innovation, Strategic Entrepreneurship Journal, 9, 1, 99-117.
Morgan M.S. (2012). The world in the model. Cambridge Books.
Mousavi, S., and Gigerenzer, G. (2014). Risk, uncertainty, and heuristics, Journal of Business Research, 67, 8, 1671-1678.
Polya, G. (1954). Mathematics and plausible reasoning: vol 1: Induction and analogy in mathematics. Oxford University Press.
Prahalad, C.K. and Bettis, R.A. (1986) The dominant logic: A new linkage between diversity and performance, Strategic Management Journal, 7, 6: 485-501.
Reijers, H.A., and Mansar, S.L. (2005). Best practices in business process redesign: an overview and qualitative evaluation of successful redesign heuristics. Omega, 33, 4, 283-306.
Shafer, S.M., Smith, H.J., and Linder, J.C. (2005). The power of business models, Business Horizons, 48, 3, 199-207.
Shepherd, D.A., Williams, T.A. and Patzelt, H. (2015). Thinking about entrepreneurial decision making review and research agenda. Journal of Management, 41, 1, 11-46.
Simon, H.A. (1955). A behavioral model of rational choice. The Quarterly Journal of Economics, 99-118.
Simon, H. (1976). From substantive to procedural rationality. In Latsis S.J (ed.) Method and Appraisal in Economics, Cambridge, Cambridge University Press, reprinted in Models of Bounded Rationality, 2 vols., Cambridge, Mass: MIT Press, 1982.
Teece, D.J. (2010). Business models, business strategy and innovation, Long Range Planning, 43, 2, 172-194.
Tikkanen, H., Lamberg, J.A., Parvinen, P., and Kallunki, J.P. (2005). Managerial cognition, action and the business model of the firm, Management Decision, 43, 6, 789-809.
Todd, P.M. and Gigerenzer, G. (2012). Ecological rationality: Intelligence in the world. Oxford University Press.
Vaara, E. and Whittington, R. (2012). Strategy-as-practice: taking social practices seriously. The Academy of Management Annals, 6, 1, 285-336.
Westphal, J. D., Stern, I. (2007). Flattery will get you everywhere (especially if you are a male Caucasian): How ingratiation, boardroom behavior, and demographic minority status affect additional board appointments at US companies. Academy of Management Journal, 50(2), 267-288.
Zacharakis, A.L., and Shepherd, D.A. (2001). The nature of information and overconfidence on venture capitalists' decision making, Journal of Business Venturing, 16, 4, 311-332.
Zott, C., Amit, R., Massa, L. (2011). The business model: Recent developments and future research, Journal of Management, 37, 4, 1019-1042
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