Abstract
"This paper addresses the evolution of business model trajectories in young high-growth firms from inception throughout the business development stage. Because the business model concept can be associated with strategic renewal and change, we use the concepts of exploration and exploitation and more specifically their interplay and dynamics to understand the evolution of business model trajectories. We argue that exploration and exploitation activities build, develop and renew capabilities over time, which in turn design, transform and/or create new business models. However, using this approach is far from straightforward. Indeed, while the concepts of exploration and exploitation have been widely used in organization theory, very few is known about what drives and influences firms’ engagement in exploration or exploitation activities. Answering the call from researchers to bring a more dynamic view to ambidexterity, we draw on a longitudinal multi-case design to bring new contributions to the literature. Our research focused on the specific context of young high-growth firms. Observation took place over an average of 7 years after founding using a mix of retrospective and current data. This context was chosen because we new it would be appropriate to capture multiple phenomena, as young high-growth firms typically go through episodes of accelerated change. Because very few is known on exploration and exploitation dynamics, we used grounded theory techniques to uncover what type of internal and external factors trigger changes towards exploration or exploitation activities or both at the same time which in turn will impact capability building and renewal, and finally business model trajectories. First, we found two overarching dimensions that are critical to understand the dynamics of exploration and exploitation in young high-growth firms: the phase the firms are in (early-stage or business development phase) and the founders’ or CEOs’ personal drivers (“exploration oriented” or “growth oriented”), drivers that give rise to two different types of firms. Second, taking into account these dimensions, we found that internal factors such as firm ownership structure and risk of dependency, and external factors such as market characteristics may determine firms’ exploration and exploitation activities over time, which in turn affect how firms build or renew their capabilities and consequently influence their business model trajectories. In sum, we found two types of business model trajectories that lead firms to successful growth during our observation period. First, firms led by so called growth oriented CEO’s will tend to exploit their current business model as much as possible while under-developing exploratory capabilities until they face market factors that constrain them to develop a new business model, while using firm acquisition to do so. These firms tend to grow very quickly but experiment growth plateaus while engaging in their new business model (and keeping the old one). Second, firms led by exploration oriented CEO’s tend to both explore and exploit simultaneously and constantly, thus building a stock of explorative capabilities, high levels of absorptive capacity and managing a portfolio of business models. These firms will tend to have a slow initial growth but seem to accelerate and catch-up later on. We conclude our article with a discussion section where theoretical implications will be presented, followed by limits and possible avenues for future research."