As part of a startup voucher project sponsored by the State of Baden-Württemberg and the European Social Fund, an enterprise in the Steinbeis Network called bwcon is helping businesses develop and implement innovation concepts. When developing a new business, there is often a conceptual gap between two central management models: the business plan and business model. The venture development model used by bwcon provides a holistic template to pull the two concepts together.
Management innovations explain many of the major variations witnessed in the ability of companies to innovate properly (Volberda, Van Den Bosch and Heij, 2013). The diffusion of concepts like ABC analysis, balanced scorecard and service engineering were disseminated over certain networks in the “management” innovation system, spreading out like waves (Ax and Bjørnenak, 2005; Free and Qu, 2011). Most concepts are a mixture of variation, selection and replication, resulting in the perception that management innovation develops over time (O’Mahoney, 2007). It is a similar story with the concepts of business planning and business models.
Because there is no general or official definition of the term “business model,” startup teams without detailed management training are often confronted by conceptual constraints when it comes to their subsequent business planning. This conceptual gap is a particular problem when different innovation intermediaries (such as coaches or mentors, but also other team members from different areas) try to provide support. If the parties involved cannot create a common framework, the different conceptual approaches result in discussion on a purely conceptual level when doubts arise, rather than getting down to the specific content (Doganova and Eyquem-Renault, 2009; Teece, 2010).
Current literature only partially explains the differences between concepts and any overlaps that may exist. The concepts of business planning and business models already have certain overlaps in the management literature, simply because they both contain the word “business,” although this overlap is still highly skewed.
To support the new business developments of entrepreneurial teams (ventures) and make this support as holistic as possible, bwcon uses the venture development model (VDM). It was developed after analyzing relevant business planning concepts and the most common business models. It also took into consideration experience from over 50 manyears of management coaching, experience arranging over 280 million euros of venture capital, and experience supporting teams of entrepreneurs with the development of over 900 business plans. The theoretical foundations for the model were laid by Marc König (bwcon) in a variety of scientific publications. These revolve around a concept of entrepreneurship already developed in 1800 by the French economist Jean-Baptiste Say (Carpenter, 2011). The VDM recommends a three-phase process, starting with the business idea, followed by the business model and then finishing with the business plan to ensure that the venture is based on a coherent concept. This allows entrepreneurial teams to base discussion of their venture on a holistic interpretation of business and keep developing it. The venture development model shows that an entrepreneurial team can pull together available resources from low levels of production in a way such that, from the customer’s point of view, the new combination of services answers a specific need significantly better than the alternatives provided by the competition.
Driven by the vision of the team of entrepreneurs, a business idea is derived to describe a product or service that answers a specific need of the potential client. This may be – but doesn’t yet have to be – known by the client. If there is an exact definition of customers and their needs have been determined, it is possible to estimate the potential turnover, the possible market share and the general market. If the subjective opinion of the customer is that combination of product and need is addressed better that alternatives already available on the market, it is felt that this is an innovative business idea. The business idea is thus also central to any description of a business.
The business concept outlines in simple terms how the company functions. Differentiation from the competition and derivation of a USP provide a starting point for defining the unique benefits the company delivers versus the competition from the subjective view of customers. The next step is to determine which management team is going to share this promise to deliver in the market. This then dictates the market entry or marketing strategy in the next step and how the product should be positioned and launched for the target market. One of the things this involves is the definition of the marketing mix based on price, place, promotion, people, physical evidence and process, which all help make the product marketable. Afterwards, the business organization is defined. This includes all arrangements for conducting ongoing activities efficiently. A distinction is made at this point between procedures (business processes and procedures) and the organizational structure (business divisions, offices, departments, etc.).
Planning sets the activity of translating the model into a reality within a timeframe. This timeframe is typically an evolutionary part of the business model. It is never static, instead it moves step by step and develops over time. The implementation plan defines what the previous output of the company was and the milestones that should be reached in the future. These milestones make it possible to derive production plans from the turnover plan and then use these for procurement plans. This step-by-step planning is based on the value chain, providing a basis for financial planning. Afterwards, it is possible to plan the profit and loss, plan balance sheets and plan cash flows. Cumulative liquidity calculations are primarily just the most important key performance indicators during the early phases, but they do show when the company will need financial support from third parties, and in what form this might be. The model is rounded off by an analysis of the opportunities and threats of the venture. It is especially important to assess threats at this point, as previous work already involved going through opportunities in detail.
The venture development model provides a conceptual foundation for the bwcon venture development system. It comprises a venture development toolkit, a methods toolkit to go with the venture development model, venture development coaching from the bwcon Management Coaching Group and a kind of planning networking tool called the venture development platform. To monitor progress of ventures in the venture development system, supporting research is being carried out, headed up by Prof.-Dr. Ing. Guido Baltes, the director of the Institute for Strategic Innovation and Technology Management (IST) at Constance University of Applied Sciences, with the support of the well-known Kauffmann Foundation. Use of the concept is also being tested within companies as part of an “excubation” project backed by the State of Baden-Württemberg and the system is being used with entrepreneurs as part of a startup voucher project backed by the State of Baden-Württemberg and the European Social Fund (ESF).
Marc König, Martin Cremer
bwcon GmbH (Stuttgart)
koenig@bwcon.de