Innovative companies rely on experimentation to develop their business models. However, this approach can be quite costly and the risks are underappreciated. Two GEM researchers recently analyzed the experiences of startups in the connected health sector. This article of Valérie Sabatier, Corine Genet and Neva Bojovic is the subject of the 42nd Executive summary by Grenoble Ecole de Management.
The two startups in the study used experimentation to test and validate their business models. This approach enabled them to eliminate models that did not fit their ecosystem and validate other models. Thanks to these examples, the researchers demonstrated how and why startups experiment with business models.
From the article
Learning, signaling, and convincing: The role of experimentation in the business modeling process. Long Range Planning (2017)
Neva Bojovic, Corine Genet, Valérie Sabatier
Small scale tests and pilot projects
For both startups, experimentation took on two forms. First, small scale tests were carried out by initiating exchanges with clients, partners or experts in order to test hypotheses concerning various components of a business model.
The second type of experimentation was a pilot project. The business model and solution were implemented in a real life situation at larger scales. The entire value chain was involved in these pilot projects.
Through these experiments, the startups expanded their knowledge of the ecosystem and were able to test hypotheses with their clients and partners. The entire process helped validate, modify or eliminate a business model.
Experimentation is not only about learning
Experimentation provides additional benefits. It increases the visibility of a business model and turns the idea into a concrete object that is easier to understand. It also can help convince clients and partners to join forces with the company.
The conclusion is that experimentation is not only about learning, but also about convincing, earning recognition and launching an activity.
This is an important factor as experimentation is costly and the effort has to match the company's situation. During their creation phase, startups can rely on small scale experimentations to better understand their environment and as a result, create, improve, and fine-tune their business model.
For startups that have already raised capital for the first or second time, pilot projects can be beneficial. These enable them to engage with client and partners. They can learn from the experience, communicate their goals and provide legitimacy for the business model.
- Business models can be experimented with in two manners:
- small scale exchanges with individual actors, clients or partners;
- pilot projects on a larger scale in order to involve all concerned parties.
- Experimentation helps develop a startup's knowledge and increase its visibility and legitimacy. It can also help convince partners to support the activity.