SUSTAINABLE BUSINESS MODELS IN START-UPS

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SUSTAINABLE BUSINESS MODELS IN START-UPS

The process of creating and

implementing SBMs successfully

Agnes Sandsjö, Emelie Wiklund

Department of Business Administration

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[Page Left Intentionally Blank]

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Abstract

Sustainability issues have been a popular and important topic on the world’s agenda the recent years, which has caused businesses to follow the policies of operating more sustainable. One of the latest introduced guidelines is the Global Goals imposed by the United Nations to be met by 2030. In light of these goals, awareness regarding sustainability issues among consumers and other stakeholders has increased, leading to that change is inevitable for businesses to start operating sustainably. The concept of sustainable business model innovation therefore becomes relevant. There is a lot of research regarding sustainable business model innovation. However, the research is heavily focusing on theoretical aspects of it, and less is given to the practical creation and implementation of sustainable business models. Further, less focus is given to start-up companies specifically. Due to the identified research gap, this study aims to answer the research question:

“How can start-ups successfully create and implement sustainable business models to become an established actor on its specific market?”

The purpose of this study is to create an understanding and contribute with extended knowledge of how sustainability is practiced in start-ups. More specifically, how sustainable business models are created and implemented in start-ups. A qualitative abductive approach was used to fulfill this purpose. Additionally, six semi-structured interviews were conducted with founders of start-ups and business coaches from Swedish incubators, which were structured based on the themes from the Lean Start-up Framework (LSF). This framework, along with the Triple Layered Business Model Canvas (TLBMC) showed to be of importance after the theoretical review. The key findings retrieved displayed that the LSF is suitable to describe the sustainable start-up process as well. Yet, the TLBMC needs to be integrated to fulfill the purpose of sustainability. Further, the benefit versus impact is shown to be of great importance whereas the framework’s components were modified in that sense as well in those cases needed. This study theoretically contributes to extended knowledge and additional components of the Lean Start-up framework that are advocated to be crucial to create a sustainable business model. These additional components are further of value for the existing field of research.

Practically, by the extended and modified framework, it offers valuable insight for entrepreneurs with a business idea where the purpose is to offer a sustainable value proposition. Lastly, this study contributes to a social level by providing guidelines on the implementation of sustainability in the business model, leading to the encouragement to operate sustainably and towards a better environment and society.

Keywords: Sustainability, Start-ups, The Lean Start-up Framework, Triple Layered Business Model Canvas, Sustainable Business Model.

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Acknowledgements

We would like to express our gratitude towards our supervisor Nils Wåhlin, for the support throughout this research process. Thank you for all the time given, the

encouragement, and providing us with valuable material when needed.

The authors would also like to thank Petter Edholm for his time and sharing of personal reflections of his start-up which inspired the authors to write about the chosen topic.

Further, we would like to thank the respondents for their time and sharing of their professional reflections which contributed to this study. Lastly, we would like to raise appraisal to each other for dedicated and rewarding teamwork during the past months of

hard work.

May 19^th, 2020

Umeå School of Business, Economics and Statistics Umeå University

Agnes Sandsjö Emelie Wiklund

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List of Table

Table 1. Overview of Coded Data Set. ... 33

List of Figures

Figure 1. Illustration of Research Purpose ... 5

Figure 2. Overview of Scientific Methodology ... 14

Figure 3. The Lean Start-Up Framework ... 21

Figure 4. The Lean Start-Up Framework with TLBMC integrated. ... 23

Figure 5. Overview of Practical Methodology ... 32

Figure 6. The Sustainable Lean Start-up Framework. ... 57

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1. Introduction

The following chapter gives insight into the subject by outlining the theoretical and practical background to the identified problem, as well as the identified research gap.

Additionally, the purpose of the study will be presented, followed by the study’s focus and delimitations.

1.1 Problem Background

“[...] we cannot save the world by playing by the rules. Because the rules have to be changed.”

Greta Thunberg, speech to UN Secretary-General in Katowice, December 3rd, 2018.

The environmental debate has been an increasing topic of importance in recent years and has created a greater awareness among the world’s population, leading to extended pressure on organizations’ sustainability policies (Joyce & Paquin, 2016, p. 1474). About 25 years ago, businesses did not take their environmental footprint into much consideration, nor sustainability (Bocken et al., 2014, p. 42; Joyce & Paquin, 2016, p.

1474). However, there have been questions regarding corporations’ impacts on the global economy, environment, and society lately, which have caused a turnaround in the area (Schaltegger et al., 2016, p. 4). This has also established concepts within business management connected to sustainability, such as corporate sustainability and sustainable innovation. The concept of sustainability implies that organizations transform in a manner where increased focus is given to economic-, environmental- and social aspects and where the actions taken today are not affecting future generations. This might be seen as a critical challenge for organizations. On the other hand, due to the increased pressure on organizations to integrate sustainability in their operations, opportunities have arisen for the companies to gain competitive advantage by engaging in sustainability-related issues (Joyce & Paquin, 2016, p. 1474). The increased focus on sustainability has engaged scholars to investigate how to develop existing business models and to create new business models to fulfill the sustainability criteria (Schaltegger et al., 2016, p. 4). This implies that rules are about to be changed within the business area, a step towards Greta Thunberg’s request.

1.1.1 Driving forces for change towards sustainability

The awareness of the term sustainability has increased significantly during the last years and consumers are becoming more concerned as well as conscious regarding sustainability issues (Einarsdottir et al., 2014; The Nielsen Company A, 2015; Unilever, 2017). An example of how much the awareness has increased among institutions and not only consumers can be described by the 17 Global Goals that were established by world leaders in 2015 (Landin et al., 2018, p. 32). These goals aim to solve both environmentally and socially related issues existing in the world today (Landin et al., 2018, p. 33). These goals have further resulted in that companies are seen as important actors in the process of reaching these goals (UNDP, 2015b). Moreover, previous literature emphasizes that the role of environmental and social aspects has come to take a greater place in consumers’ purchase decisions (Christmann, 2004, p. 750). The role of these aspects in consumers’ decisions has noticeably gained momentum based on more recent literature

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that is to be presented below, which further argues for increased awareness amongst consumers regarding sustainability issues. For instance, the demand for knowledge when making purchase decisions has increased (Goryńska-Goldmann & Gazdecki, 2018, p.

318). This especially applies to the knowledge that informs how the consumer can cause the least possible impact on the environment. In other words, awareness and a changed behavior regarding social and environmental issues amongst consumers have become subjects of relevance and they continue to gain importance, which is further acknowledged by Galbreth & Ghosh (2013, p. 127). Additionally, sustainable and responsible consumption has become a crucial trend in today’s society which accordingly puts pressure on companies to respond with offers that align with these demands (Goryńska-Goldmann & Gazdecki, 2018, p. 318).

Moreover, the term consumer awareness is considered a determining factor regarding responsible consumer behavior (Buerke et al., 2017, p. 962). It is a vital requirement for changes in consumers’ behavior in terms of consumption (Goryńska-Goldmann &

Gazdecki, 2018, p. 316). Because of increased awareness, consumers are also putting more pressure on companies to act sustainably by choosing brands that live up to the consumer's expectations of social and environmental impact (Unilever, 2017). In other words, by actively looking for and choosing alternatives they perceive as more sustainable, consumers have gained the power to influence companies and their behavior (Tang & Zhou, 2012, p. 585). Also, the increased awareness among consumers has been argued to be rooted in the development of technology, meaning that more people have access to information and therefore can educate themselves further (The Next Scoop, n.d).

Because of these reasons, consumers are now considered as an important factor in driving the development of sustainability, that companies take into consideration when doing business (Farla et al., 2012, p. 995; Henriques & Sadorsky, 1996, p. 381). This pressure from consumers has been proved to cause organizations to go after an internal design that addresses initiatives related to sustainability (Zhu et al., 2013, p. 106). A similar argument regarding the effect of consumers’ awareness on sustainability is brought up by Galbreth

& Ghosh (2013). They argue that companies’ sustainability initiatives are highly affected and controlled by the consumer’s general beliefs regarding sustainability (Galbreth &

Ghosh, 2013, p. 130). In combination with the Global Goals mentioned earlier, this proves for pressure on organizations, which has increased during the last years and eventually emerged into actions that are being taken by today’s companies to improve their social and environmental impact.

However, some studies argue for a contradictory theory regarding consumer’s awareness of their consumption. In other words, consumers might not be aware of the subject to the extent that is argued in previous research. For instance, in the paper by McGregor (2006, p. 165), it is stated that immoral consumption can be reflected through several actions made by consumers. One of these actions is buying products that are produced with non- renewable sources. Another argument that is reflected upon is that the consumers do not recognize their behavior regarding consumption is affecting people and other parts of the ecosystem negatively. Continuing, the consumption behavior is further discussed by Buerke et al. (2017, p. 961) where attention is given to that even though consumers might possess certain values, this does not always translate into behavior. To explain this further, Buerke et al. (2017) state other factors must be involved for consumers to change their consumption behavior, such as believing their actions do make a difference (Buerke et al., 2017, p. 962). Therefore,

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“[...], motivating consumers to make use of their economic “vote” and change their consumption behavior is considered as an important policy and also a business

opportunity” (Buerke et al., 2017, p. 960).

In conclusion, companies are affected by the sustainability concept both through increased pressure from consumers to operate sustainably (Buerke et al., 2017, p. 960) as well as the other way around, to act as a driver of changing consumer behavior (UNDP, 2015b). Responsible corporate behavior towards all stakeholders and responsible consumption are, therefore, “two sides of the same coin” (Buerke et al., 2017, p. 960).

1.1.2 Sustainable Business Model Innovation

As mentioned previously, the questions of corporations’ impact on environmental and social issues have increased, which has caused firms to change the way they operate. This can further be related to changes in their current business models and therefore, the concept of sustainable business model innovation becomes relevant (Sosna et al., 2010, p .384). Before defining the concept, it is of importance to clarify the definition of a business model and business model innovation. Foss & Saebi (2015, p. 201) defines a business model as:

“[...] the content, structure, and governance of transactions inside the company and between the company and its external partners in support of the company’s creation,

delivery and capture of value”

The concept of business model innovation is quite ambiguous but can be explained as a change in the organization’s value proposition (Bocken et al., 2014, p. 44). Yet, it goes beyond the company’s product or service offering and has an increased focus on how business is being done. Also, it implies that business models are transformed where the focus is to capture value for all stakeholders involved, not only the company, creating a value-network. Hence, sustainable business model innovation focus to capture environmental, social, and economic value for the organization’s value-network. Bocken et al. (2014, p. 44) further define the concept as:

“[...] innovations that create significant positive and/or significantly reduced negative impacts for the environment and/or society, through changes in the way the organization and its value-network create, deliver value and capture value or change

their value propositions.”

To handle unsustainability, organizations need to integrate sustainability in the core of the organization through sustainable business model innovation (Bocken et al., 2014, p.

44, Joyce & Paquin, 2016, p. 1474). By accommodating the sustainable values into the core, sustainability will be a natural way of operating rather than a counter-act to the organization’s unsustainable behavior. However, it might be easier said than done since many businesses fail to innovate their business models (Geissdoerfer et al., 2018, p. 402).

This challenge will be explained further in the next section.

1.1.3 Outcomes of Business Model Changes

Although companies are putting much effort into being responsive towards the demand the stakeholders put on them to be more sustainable, it is not always that these positive intentions seem to pay out well. For instance, in the paper by Sosna et al. (2010, p. 384) it is stated:

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“[...] business model changes are among the most sustainable forms of innovation, and while great and winning business models often appear to have gone straight from drawing board into implementation leading the firm to glory and success, in reality,

new business models rarely work the first time around, since decision-makers face difficulties at both exploratory and implementation stages”.

More specifically, even if changes in the business model are considered to have the best effect to improve and innovate the way a firm is doing business, not all changes contribute to success. This applies to both new firms as well as established firms (Sosna et al., 2010, p. 384). Even though challenges can differ in the sense that new firms may have trouble with designing an initial business model while established firms may have trouble renewing their current business model, both are considered to have one major challenge in common. This common challenge is fast-evolving markets which Sosna et al. (2010, p. 384) argue can cause any business model to become out-of-date. Therefore, if firms do not have the internal capabilities to address changes in the market, it does not matter how great a new business model may seem in the moment. It is therefore important that businesses know how to create as well as implement business models from a fast-evolving market-perspective.

1.2 Research Gap

The global debate has had an increased focus on the environmental and social aspects recent years, which has caused changes within companies ways of doing business, i.e.

business model innovation (Bocken et al., 2014, p. 42-43; Joyce & Paquin, 2016, p. 1474;

Schaltegger et al., 2016, p. 4). Extensive research has been done on sustainable business models (Bocken et al., 2014, p. 43), however, research regarding sustainable business model innovation is not as extensive (Geissdoerfer et al., 2018, p. 410). Furthermore, by a theoretical review, we have found that the majority of research regarding the subject is focused on theoretical aspects of sustainable business model innovation. This is in line with Geissdoerfer et al. (2018, p. 408) statement, where they argue that less focus is given to the implementation of the business model process and what challenges that may arise.

Yet, the authors are only contributing a review of previous research, leaving a research gap of testing the research empirically. Additionally, Bocken et al., (2014, p. 54) contribute with a categorization of eight different business model archetypes which is both connected to theoretical and practical aspects of how a business can be sustainable.

However, the research is not focusing on the practical aspects in terms of the implementation of the business models. Hence, that also strengthens the argument that there is a need for exploring how sustainable business models should be implemented successfully.

Moreover, through our review of previous research, we argue that there is a lack of focus on start-ups specifically. Start-ups are strongly connected to entrepreneurship, and one scholar that targets sustainable entrepreneurship is Stål (2018, p. 154), who states that it is a concept describing individuals who create market opportunities by alleviating sustainable challenges. However, Stål’s research is not explicitly centered on the implementation of business models, that is created through sustainable entrepreneurship, which yet again argues for the need of research within the area of creating sustainable business models. Yet, there is existing research within the field of the implementation process of traditional business models in start-ups. For instance, there is an extensive framework on the start-up process called: The Lean Start-up Framework (Blank, 2013).

However, this framework has not been applied to sustainable business models which call

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for further research within this area (Shepherd & Gruber, 2020, p. 20). Further, Shepherd

& Gruber (2020, p. 2) argue for the importance of start-ups but the difficulty to research on. Therefore, the field of start-ups becomes a relevant research target.

Altogether, the research gaps stated above calls for further research within the area of how to implement sustainable business models as well as the creation of sustainable business models in start-ups. As stated by Geissdoerfer et al. (2018, p. 402), many business model innovations fail. Therefore, it is of interest to contribute with empirical advancement of the critical success factors for the implementation of a sustainable business model (Schaltegger et al., 2016, p. 8), within the start-up process (Shepherd &

Gruber, 2020, p. 20).

1.3 Research Question

Based on the outlined research gap, the following research question has been formulated:

“How can start-ups successfully create and implement sustainable business models to become an established actor on its specific market?”

1.4 Purpose

This thesis aims to provide extended knowledge and practical tools, based on previous knowledge but also empirical findings, on how start-ups can create and implement sustainable business models that result in an establishment on its specific market. It will also be of interest to create an understanding of what challenges may arise when implementing. Further, we aim that this study will result in an extended framework that can be used by entrepreneurs and start-up owners in practice when developing sustainable business models. We do so by interviewing well-established start-ups and incubators that have a sustainability focus, to find similarities and connections, helping us to conduct research that is transferable to other start-ups.

Figure 1. Illustration of Research Purpose

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1.5 Focus & Delimitations

Based on the statements in the research gap, one delimitation for this thesis becomes to put a focus on start-ups. As argued in the research gap, it does not exist extensive research on business model innovation as well as sustainable business models that are connected to start-ups. Additionally, our second delimitation for this study becomes analyzing start- ups with a core purpose to provide a clearly defined social and/or environmental value to its stakeholders. To make the research area even more specific, the decision to study established Swedish start-ups was made. In the case of this study, established start-ups will be considered as those who only have little or no contact with the incubator and are operating individually. Furthermore, we have chosen companies that have an extensive focus on sustainability, have taken part in a program or had contact with a business advisor at an incubator, have implemented a sustainable business model, and have become established actors in their specific markets. Since this study aims to contribute to extended knowledge about how to create and implement sustainable business models for start-ups successfully, it will be of importance to find the right people to interview. We define the right individuals as persons which are in the position and possess the required knowledge to respond questions related to business models and how these contributed to a successful creation and implementation of a start-up’s sustainable business model.

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2. Scientific Methodology

In the following chapter, the choice of subject as well as preunderstandings, ontological and epistemological considerations will be outlined. Thereafter, a relevant research strategy and design related to the study are defined. Finally, it is clarified how the process of finding literature has been conducted.

2.1 Choice of Subject

The study field of Sustainable Business Models in Start-ups was chosen by the authors based on previous experience with start-ups but also from a shared interest in the area of sustainability. Specifically, one of the authors has practical experience from working as a consultant with a start-up that started with an initial business model that had to be adjusted for the business to provide value to its stakeholders. Continuing, as the business model did not work out as planned, it forced the entrepreneur to rethink and adjust the design of the current model. This process sparked an interest to gain a deeper understanding of the process of how the start-up went from a malfunctioning business model to a functioning one. To get a better understanding of the pitfalls of the previous model a pilot interview was conducted. Through this interview, the authors gained knowledge of how the entrepreneur had changed the parts of which the business model consists of. For instance, key activities and customer relationship were two perspectives which had to be developed. The initial thought was for the key activities to be automatic through the website platform. However, it had to be transformed into activities manually handled by the entrepreneur. Accordingly, the value created through customer relationship changed by the increased personalized interaction with the customer.

The shared interest in sustainability further led the authors into the field of combining the two concepts, business models in start-ups, with sustainability. Further, based on the knowledge gained from conducting the pilot interview, the field of research expanded towards a process and implementation-oriented area. In other words, how the process of implementing sustainable business models can be conducted by start-ups. Continuing, the lack of research on processes of implementing sustainable business models in start-ups was further acknowledged by previous studies, which aided the decision-making process of choosing the direction of research. Further, in the process of familiarizing oneself with the literature of the chosen subject, the use of recent work from Gruber & Shepherd (2020), provided the authors with inspiration on how to structure the study with the Lean Start-up Framework. The same applies to the work by Joyce & Paquin (2016) which provided the authors with additional material, such as the Triple Layered Business Model Canvas, to further build the research on.

2.2 Preunderstandings

The preunderstanding concept is a quality measure, especially for qualitative studies, that explains what knowledge, experience, and insights the author brings into the research (Stenbacka, 2001, p. 553–554). By being a transparent and reflective researcher, one facilitates the reader’s ability to make a judgment of the quality and trustworthiness of the study.

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Within the area of Sustainable Business Models in start-ups, the authors have some preunderstandings. As mentioned in the choice of subject, the research area derives from previous experience of a start-up that failed to implement the initial business model. One of the authors has been a part of this start-up as a business consultant for a year, implying that initial knowledge and experience from working in a start-up context exists. However, this study is not based on that specific start-up, rather it is based on start-ups from a broader perspective. Moreover, both authors have a general knowledge of business models from studying at Umeå School of Business Economics and Statistics. Especially one of the authors has great knowledge of business models and sustainable business models from a specialization in Business Development.

The authors used our preunderstandings as an entry to the chosen subject but have striven for objectivity throughout the process of conducting the research, by carefully evaluating our sources and put previous knowledge and experience aside.

2.3 Defining Philosophical Assumption

The philosophical assumptions underpin the structure and methods of the research and reflect how the researchers perceive the world and reality (Saunders et al., 2012, p. 128).

There are three main assumptions to consider within the research philosophy:

Ontological, Epistemological, and Axiological. These strive to describe the researcher’s view of; the reality (Ontological), what knowledge that is acceptable (Epistemological), and how own values affect the research (Axiological) (Saunders et al., 2012, p. 129).

2.3.1 Ontological

As previously mentioned, ontological assumptions concern how researchers perceive reality. Within the ontological assumption exist two contradictory theories where one argues that reality is a social construct built from knowledge and behavior derived from social actors, while the other views reality as external from social actors (Bryman & Bell, 2015, p. 32). The latter is referred to as objectivism (Saunders et al., 2012, p. 132), while the former is described as constructionism, also called subjectivism.

To explain the objectivism perspective further, Bryman & Bell (2015) view this alternative as a social phenomenon that affects the researcher’s perception of the reality with external facts that are not possible to influence in any way (Bryman & Bell, 2015, p. 32). The perceived reality is therefore considered completely external and objective to the individual, thereof the name of the perspective (Collis & Hussey, 2014, p. 47). Furthermore, the concept can be defined as having a tangible truth, completely separated from the actor, in this case, the researcher. Constructionism, however, considers the reality of a chosen subject to be built up through interactions that are not external to the individuals (Bryman

& Bell, 2015, p. 34). The perspective is considered subjective because of the perception that reality is socially constructed, and therefore, the perceived reality differs (Collis &

Hussey, 2014, p. 47).

Due to the purpose of studying organizations in their natural environment, it becomes appropriate to adopt the subjective perspective within the ontological approach for this study. The chosen field of research in this thesis is built upon interactions with the entrepreneurs of each organization as well as with incubators, wherefore the objective criterion within the objectivism perspective is not fulfilled. Furthermore, this study was affected by the start-up’s perspectives and social interpretations of the creation and

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implementation of sustainable business models. Again, this implies that the objectivism perspective will not be a suitable option for this study.

2.3.2 Epistemological

The epistemological assumption refers to what knowledge the authors accept as legitimate in the study (Collis & Hussey, 2014, p. 46; Saunders et al., 2012, p. 132). With a philosophy of positivism, the authors have an objective view of the environment and strive for finding causal relationships in the studied data, while being external to the study (Collis & Hussey, 2014, p. 47; Saunders et al., 2012, p. 134). Furthermore, positivist researchers argue that knowledge is valid when it is measurable and observable (Collis &

Hussey, 2014, p. 47). On the contrary, the interpretivist philosophy believes in a diminished separation of the researcher and the study. This is in some studies crucial for the researcher to understand the complex social environment, which is lost due to generalizations within the positivist philosophy (Saunders et al., 2012, p. 137). The philosophy embraces understanding and explanation of social actions, rather than including external causes without any connection to the studied social context in the explanation of the phenomena (Bryman & Bell, 2015, p. 28-29). Yet, there is a challenge to understand the social environment from their perspective (Saunders et al., 2012, p.

137).

Since this thesis views reality through a constructivist point of view, an interpretivist philosophy falls as a natural continuation. Business situations are often complex and unique, due to individuals affected by the situation and the circumstances of why a situation occur (Saunders et al., 2012, p. 137). Accordingly, an interpretivist approach is thereby desirable within the area of Business Development to understand these unique circumstances and to this chosen field study.

2.3.3 Axiological

As mentioned in the introduction of this section (2.3), Axiological philosophy refers to how values affect the research process (Collis & Hussey, 2014, p. 48; Saunders et al., 2012, p. 137). Positivist researchers exclude values completely from the study conducted and views the researched subjects objectively (Collis & Hussey, 2014, p. 48). Also, the philosophy recognizes the studied objects as unaffected by the research. Moreover, the interpretivist philosophy is value-based, and the researcher is engaged in what is being researched. By being transparent in the research about one’s values, the reader is invited to make an own judgment of the trustworthiness of the study, which is desirable (Saunders et al., 2012, p. 139).

To continue on the chosen approaches of constructionism and interpretivism for this study, it is reasonable to argue for an interpretivist philosophy in this aspect as well. The researched topic is highly influenced by the authors’ interests. Therefore, it has been of importance throughout the thesis to maintain this awareness for the study to not be biased, nor influenced by own interests. Since the authors of this thesis have been highly engaged in the research area by conducting interviews and interacted with respondents, it demonstrates that values have been as well (Saunders et al., 2012, p. 139).

2.4 Research Approach

When conducting research, the researcher needs to be able to clarify the nature as well as the relation between theoretical standpoints and the research (Bryman & Bell, 2015, p.

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23). There are three approaches of theory researchers can adopt in this context, deductive and inductive theory. The third is considered a dynamic interplay of both these research approaches, called an abductive approach. It is important to acknowledge that each approach can be equally good and that the most appropriate one depends on the context of the study and its purpose. The ability to explain the nature of the research again becomes important, as stated earlier by Bryman & Bell (2015, p. 23). Furthermore, a deductive approach is when theory is the base of any assumption made from observations and when hypotheses are created and then examined (Polsa, 2013, p. 289). The intent behind this approach is to find proof for the hypotheses through the theory (Thomas, 2006, p. 238).

In comparison to a deductive approach, an inductive strategy is built on conducting observations and analyses of reality within a specific field of research (Collis & Hussey, 2014, p. 7; Saunders et al., 2012, p. 48; Williams, 2007, p. 67). Based on the observations, theories as well as hypotheses are developed (Collis & Hussey, 2014, p. 7; Saunders et al., 2012, p. 48). When conducting such research there is no set framework, which further aids the theory development process (Thomas, 2006, p. 238). In other words, with the inductive approach, the researcher has more room for and is allowed to interpret unexpected happenings regarding a phenomenon. Additionally, since the theory generation process can be facilitated via interviews, this is a suitable approach for studies with qualitative methods (Bryman & Bell, 2015, p. 25). After all, this thesis aims to contribute with extended knowledge and understanding if a specific framework is applicable in other types of contexts than it is initially used for. This translates to an observation of empirical reality and through the findings, develop theoretical contributions. Therefore, an inductive research strategy could be argued to be a suitable approach for this study. However, there is yet another strategy to explore which has to be taken into consideration.

To begin, it has been discussed among researchers if it is possible to practice one pure form of a research strategy or if deductive and inductive approaches can both be used throughout the research (Mason, 2002, p. 181). While a deductive strategy moves from theory to data and an inductive approach from data to theory, an abductive research strategy does both (Mason, 2002, p. 147). Therefore, the abductive research strategy becomes of relevance in the context of explaining the possibility to practice a dynamic interplay of the previously mentioned approaches. This research strategy is further explained as a process of continuously switching between the researcher’s own produced data, their experiences, and larger and more inclusive concepts (Mason, 2002, p. 180).

Saunders et al. (2012, p. 665) define the abductive strategy as the gathering and usage of data to examine a chosen topic as well as pinpoint and explain its distinctive themes, to either come up with a new theory or rework an already existing one. Additionally, existing theories are also integrated when considered appropriate, to produce the same outcome, either a new or a modified theory. The patterns and identified themes are thereafter placed in a framework that is later tested by collecting more data (Mason, 2002, p. 144).

Regarding this thesis, there are clear connections to the abductive research strategy. The authors have been collecting own data derived from interviews to produce extended knowledge about a topic that has not yet been conducted much research on. However, these interviews are based on existing knowledge, but within other research areas with frameworks included, which further has been incorporated into this thesis to answer our research question. In other words, both own data and existing theory are used in parallel

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to modify existing frameworks, which argues that an abductive research strategy has been used throughout this thesis.

2.5 Research Design

When designing a study, one of the first steps is to define the reason why the study is conducted, deriving from the purpose of the study (Collis & Hussey, 2014, p. 3).

Depending on the aim of the study, it can be answered through exploratory, descriptive, analytical, or predictive studies. An exploratory study is appropriate when the purpose is to clarify and understand a problem (Saunders et al., 2012, p. 171). More specifically, exploratory studies are useful when little or no previous studies exist, and there is an interest in developing the research area rather than testing the phenomena through hypothesis-testing (Collis & Hussey, 2014, p. 4). Descriptive research, however, goes further into the examination of a problem and strives to describe existing phenomenon and their characteristics. The research questions usually start with “How” and “What”, since they aim to describe an issue or a problem. Furthermore, an analytical study evolves on the descriptive perspective by seeking causal relationships between variables and hence analyzing why and/or how the phenomena occur (Collis & Hussey, 2014, p. 5;

Saunders et al., 2012, p. 172). Lastly, predictive research is an advancement of the latter perspective, which is forecasting the probability that a similar situation will happen elsewhere (Collis & Hussey, 2014, p. 5). On the contrary, predictive research ambition is to generalize the outcome of the study, so it can be applied to similar problems in other contexts.

To answer the purpose of this study, the research has been outlined from a combination of exploratory and descriptive research. The study aims to describe the phenomenon of sustainable business model creation in start-ups hence it has a descriptive approach.

However, the authors have found a research gap by combining sustainable business models and the start-up process. Thus, the study has an exploratory purpose due to the ambition to contribute with an extended understanding within this research gap. Since the aim is not to find any causal relationships between variables nor to generalize the result of the study, the authors do not consider either analytical or predictive approach as a suitable research design.

2.5.1 Data Collection Method

After deciding on what type of research being conducted, one has to further design the research by determining how data will be collected and analyzed (Collis & Hussey, 2014, p. 3). The two available options for data collection are either to conduct a qualitative or a quantitative study. Further, one important aspect to consider is to design the research based on the research question (Collis & Hussey, 2014, p. 2; Mason, 2002, p. 19), i.e.

choose the method that is most appropriate when investigating the research question and exclude the author’s preferences (Mason, 2002, p. 26).

Qualitative research emphasizes respondents in their natural environment (Daniel, 2016, p. 92). Often, qualitative research is appropriate when the aim is to answer a research question that is too socially complex for a quantitative study to acknowledge (Eisenhardt

& Graebner, 2007, p. 26). On the contrary, quantitative research is based on statistics and numbers, rather than observations and interviews, which saves time and effort for the researcher (Daniel, 2016, p. 94). Additionally, hypothesis testing is the point of departure within the study. Also, the result of a quantitative study is generalizable and repeatable due to the researcher’s objective standpoint.

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After evaluating the two methods, the authors reached the conclusion to proceed with a qualitative research method. Due to the aim of the thesis, to answer the question of how sustainable business models are implemented in start-ups, an understanding of the start- up environment and choices made by people need to be deeply investigated. Thus, objective and non-flexible approaches are not appropriate (Daniel, 2016, p. 94). However, by using qualitative methods the result will not be generalizable, as it would in a quantitative study. Yet, it will contribute with a deeper understanding of the sustainable business model creation in start-ups and be transferable to similar contexts. Since the research area is relatively unexplored, it is also of interest to have a range of different options when conducting the research, which is given by having a qualitative approach (Mason, 2002, p. 3). Also, qualitative studies are highly related to the interpretivist philosophy (Collis & Hussey, 2014, p. 130), which is the philosophical approach of this thesis.

2.6 Literature Search

According to Vom Brocke et al. (2009), the outcome and quality of a researcher’s literature review are highly based on how well and thoroughly the literature search process is executed (Vom Brocke et al, 2009, p. 1). By conducting a literature search, the researcher can get a perspective of approximately how many studies there are within a specific research field. Also, it enables the researcher to get an overview of the chosen domain and find out if there are any potential research gaps. A literature search is further of importance since it contributes to the construction of the study as well as creates support for the chosen research question (Bryman & Bell, 2015, p. 100; Collis & Hussey, 2014, p. 76; Saunders et al., 2012, p. 70).

Regarding this study, the area of research on sustainability, business models, and start- ups, have gained attention and grown excessively during the last decades. This has further resulted in a great amount of literature in each respective area, but also collectively in some cases. The literature search process was mainly done through several databases such as the Umeå University Library database, Business Source Premier, Academic Search Premier, and Google Scholar. Considering some databases were provided through the University, the authors considered these as valid, where it would be possible to find credible literature to base the research on. To further determine the literature’s credibility and relevance in the field, the number of citations was used as an indication. To clarify, the greater number of citations could imply that the article is criticized by others and is of importance in the area it is writing (Umeå University, n.d.). Though, an exception was made when an article was relatively new but was based on previous research that had a great number of citations. On the contrary, when provided the option to search only among peer-reviewed articles, as were the case with all databases except Google Scholar, this was a preferable indication to determine relevance and credibility. With these criteria being set for the literature search, it aided the process of sorting out less credible research, such as unpublished material.

When conducting the literature search, several keywords were used. Business Models, Sustainability, Start-ups, Innovation and Consumer awareness of sustainability. To get the study as cohesive as possible, to make sure the literature provided relevant knowledge for this study’s domain, and to assure there was an existing gap that had not yet been researched, several keywords were combined when searching for literature. Lastly, during the literature search process, the chosen field of study expanded in some areas and diminished in others with the inspiration retrieved from other studies reference lists.

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2.7 Source Criticism

When conducting the literature search, criticism of the literature sources was required. In this specific case, there were four central principles taken into consideration, argued to be of relevance according to Thurén (2013, p. 7-8). These principles were (1) how authentic the source appeared to be, (2) its relationship in time, (3) its interdependence and, (4) freedom of tendency.

As mentioned, the first principle to follow regarding source criticism is that the researcher makes sure the source used can be assessed as authentic (Thurén, 2013, p. 7).

Accordingly, this entails the researcher to be critical towards the information retrieved from the source by determining if there are any noticeable paradoxes (Thurén, 2013, p.

7). This can be done by examining the background of the source, such as the publishing company behind it. To ensure high quality for this study, the authors adopted the requirements of being critical towards each source by ensuring that the chosen literature had been peer-reviewed or often cited in other papers. Yet, not all databases offered the opportunity to control if the article had been peer-reviewed, in this case referring to Google scholar. This was solved through the actions of searching for the same article but in other databases, which offered the opportunity to control if an article was peer- reviewed. Also, searching for the origin of the literature, where it was published, was another action taken by the authors to assure the literature had gone through a critical assessment before withdrawing information and using it for this study.

The second principle, relationship in time, argues for the relevance that a source is close to the current date since it enables credibility (Thurén, 2013, p. 17). Meaning there is a greater risk that valuable perspectives and knowledge are forgotten if too much time has passed between the source and the conducting of the research (Thurén, 2013, p. 31). Since the research area on sustainable business models and the Lean Start-up Framework is relatively new, as well as their components, the authors of this study did not experience any problems finding new research. Although, older research has been used to some extent and the use of these can be justified by the fact that they often lay as the foundation of more recent studies. For instance, the Brundtland report from 1987 which is the oldest source of the thesis that suggests a definition of sustainability. Many current studies on sustainability adopt this suggested definition when researching the topic. Therefore, the authors of this thesis do not consider sources like these to diminish the quality of the thesis.

Moreover, the third principle emphasizes the importance of a literature source being able to stay independent of other sources (Thurén, 2013, p. 8). Accordingly, it is not desirable that the literature is similar to another source when searching for suitable theories to base the research on. Also, another aspect relating to the interdependency principle is to select sources that are primary before those who are secondary (Thurén, 2013, p. 45). In the case of this study, to ensure quality but also avoidance of using another author’s interpretations of a concept, the authors have not included any secondary data.

The last principle, freedom of tendency, puts emphasis on the interpretation process of sources. Meaning that when interpreting a source, it should not purposely be based on the interpreter’s personal beliefs (Thurén, 2013, p. 8). Continuing, this could cause the reader to believe the presented interpretation in the paper is the correct one. To avoid this pitfall,

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the authors strived to include at least two sources that argued for a similar conclusion of a specific subject (Thurén, 2013, p. 65).

2.3 Overview of Scientific Methodology

Throughout this chapter, the scientific methodologies have been discussed and argued for. Therefore, an overview of the chosen methodologies is outlined in Figure 2.

Figure 2. Overview of Scientific Methodology

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3. Theoretical Framework

In the following section, the theoretical point of departure for this study will be outlined based on existing research in the field. The key concepts of sustainable business model innovation and start-up processes will be systematically presented through relevant concepts, definitions, and theories in each specific area. Finally, the key concepts are merged to get a cohesive understanding of the study at hand and to fulfill the purpose of the study; To explore how sustainable business models are created and implemented in start-up companies.

3.1 Sustainability in Business

Never before has the world and humanity faced such tremendous changes and transformation as it is doing right now (Landin et al., 2018, p. 25). The living standard around the globe is higher than ever before and more people have access to education and medical treatment, which has led to decreased mortality and suffering. Yet, the happening development also implies challenges that need to be considered, so that the planet with all its living is not negatively affected. Sustainability has been on the agenda among the world leaders since 2000 when the first eight global goals were stated, which intended to be met by 2015 (Landin et al., 2018, p. 26). However, the sustainability concept was defined 13 years earlier by Gro Harlem Brundtland (WCED) (1987, p. 43) as:

“A development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

The Millenium goals were a step in the direction of Brundtland’s view of sustainability and were further developed in 2015, where the world leaders adopted the most ambitious sustainability goals ever faced in the world history (Landin et al., 2018, p. 32). 17 goals were established, named “The Global Goals”, with the focus to solve the climate crisis, abolish extreme poverty, reduce inequalities and promote peace and justice until 2030 (Landin et al., 2018, p. 33). The United Nations has established a development program (UNDP) to meet the goals in time (UNDP, 2015a). Additionally, UNDP promotes businesses to take responsibility and argues that they have a fundamental role in the work progress of reaching the goals set (UNDP, 2015b). Moreover, the prospect is that technology will continue to evolve, and several new entrepreneurs will probably come forward due to that development, where innovations are getting spread faster (Landin et al., 2018, p. 90). Furthermore, diminishing poverty implies that living standards increase tremendously. Altogether, some aspects evince changes in the environment which are putting pressure on businesses to change their way of operating to meet the Global Goals by 2030.

Elaborating on the concept of sustainability in business, Savitz & Weber (2014, p. 2) define a sustainable corporation as an organization that intersects the business interest of profits and growth, with the interests of the society and the environment with whom the organization interacts. Sustainability comprises interdependency between human values, economic growth, living beings in their natural environment and social aspects, etc.

(Savitz & Weber, 2014, p. 3). Furthermore, the authors argue that because of the interdependency in today’s world, sustainability is essential to succeed as a business today. To oversee the sustainable accomplishments, businesses can measure their success

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using the Triple Bottom Line (TBL), which is a concept developed by John Elkington (1999) (Savitz & Weber, 2014, p. 5). In a review by Jeurissen (2000, p. 229) of Elkington’s book “Cannibals with Forks: The Triple Bottom Line of 21st Century Business”, he describes the concept as:

“Business is sustainable when it lives up to “the Triple Bottom Line” of economic prosperity, environmental equality and social justice”

The Triple Bottom Line concept builds upon the measurements of the economic-, environmental- and social bottom lines (Elkington, 1999, p. 72) and for a business to be sustainable, it needs to change the performance according to these (Elkington, 1999, p.

70). For an organization to be sustainable in the economic aspect the firm’s competitiveness, as well as the profit margins, needs to be sustainable (Elkington, 1999, p. 74-75). It refers to a sustainable profit model that keeps the business floating. However, the environmental and social aspects are to be included for it to be sustainable in the long run. Environmental sustainability implies supporting the natural environment, which can be applied in two forms: “Critical natural capital” and renewable, substitutable, or replaceable natural capital (Elkington, 1999, p. 79). The critical form refers to resources that are essential for ecosystems and life. The latter form, renewable, substitutable, or replaceable natural capital, implies resources that can be renewed, repaired, or substituted through, for instance, breeding and renewed ecosystems or man-made substitutes (e.g.

solar panels). Elkington (1999, p. 80), states that organizations need to ask themselves;

how does our business affect the environment and how will it affect the environment in the future? The last bottom line to cover is the social bottom line. It encompasses wealth- creation potential, public health, education, and the health of society (Elkington, 1999, p.

85). This causes questions for organizations and how they can promote social welfare through their business (Elkington, 1999. p. 86). Moreover, Savitz & Weber (2014, p. 5) summarize the concept by stating that a functioning TBL captures value within the social and environmental aspects, as well as the traditional financial aspects such as shareholder value and profits.

3.2 The Concept of a Business Model

The concept of business models had its emergence during the mid-1990s, with the arrival and usage of the Internet, the growth of new markets as well as increased use of new technologies by growing industries and organizations (Zott et al., 2011, p. 1022). Since then, for more than two decades, there has been a continuous growth of research on business models. However, the area still lacks a clear definition (Foss & Saebi, 2018, p.

9). Despite disagreements in the conceptualization of the field (Zott et al., 2011, p. 1019), scholars have agreed on some parts of what defines a business model and what it does (Zott et al., 2011, p. 1020).

To begin with, every company today has a business model, even if it is not specifically expressed by the company itself (Chesbrough et al., 2007, p. 12). This is rooted in the explanation of the function of the business model, which is defined as to create, deliver and to capture value (Chesbrough et al., 2007, p. 12; Foss & Saebi, 2018, p. 9; Teece, 2010, p. 172-173). With this as the core performance of a business model, it continues to be defined as an underlying set of activities which together, form the process of how value is captured and created (Chesbrough et al., 2007, p. 12). These activities go from acquiring raw materials and ends with the satisfaction of the consumer who is using the product or service produced by the company. Through these activities, value is to be

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created. These arguments are further strengthened by Foss & Saebi (2015) who, based on disparate definitions of the subject from 1998-2009, emphasizes a unified view that business models stand for the creation and capturing of value by defining (1) the value proposition of the firm; (2) its markets segments; (3) the formation of its value chain; and (4) which tools that are used to capture value (Foss & Saebi, 2015, p. 204). The bottom line of these four aspects is the notion that they define the process of how the firm delivers value to customers, attract customers to pay for the value and lastly, turn these payments into profit (Teece, 2010, p. 172).

In conclusion, conforming to previous literature, a business model is to be defined as the content, construction, and control of transactions within the firm as well as between external stakeholders that specifically aid the value creation, delivery, and capture within the company (Foss & Saebi, 2015, p. 204)

3.3 Sustainable Business Models

Sustainable business models go beyond the traditional business model concept of capturing economic value, by adding the focus of creating value for the environment and society as well (Bocken et al., 2013, p. 3; Schaltegger et al., 2016, p. 4). Hence, sustainable business models create a competitive advantage from benefiting the environment and society, which it is operating in (Bocken et al., 2013, p. 3; 2014, p. 44).

Yet, the firm’s capturing of economic value still needs to be considered for it to be sustainable in the long run (Bocken et al., 2013, p. 4). More specifically, economic success is essential and should be the effect of operating sustainable, and thereby a sustainable business case is created (Schaltegger et al., 2011, p. 23). Further, Schaltegger et al. (2016, p. 4) argue that sustainable business models cannot be established if it only creates value for customers. Rather, it needs to go beyond customers and shareholders, creating value for the environment and the organization’s network of stakeholders. And will be the definition of sustainable business models in this thesis.

3.3.1 Sustainable Business Model Innovation

The lives of products and services are becoming shorter due to an acceleration of the development of technologies (Chesbrough, 2007, p. 12). Accordingly, to earn profits, companies can no longer rely on R&D and technologies they are currently using to the same extent as before. Instead, to continue to be profitable and to obtain a competitive advantage, a different mindset has to be adopted, which would include business models and the innovation of these (Chesbrough, 2007, p. 12; Doll & Eisert, 2014, p. 7). In other words, the increased development of technology has put pressure on companies to differentiate, stay up to date, and be responsive toward changes in their surroundings.

However, Doll & Eisert (2014) identifies a difference among companies in the recognition of relevance regarding business model innovation and the implementation of these (Doll & Eisert, 2014, p. 7). Chesbrough (2007, p. 12) exemplifies the first step on how to develop a firm’s business model from a perspective which relates to innovation:

“To innovate your business model, you must first understand what it is, and then examine what paths exist for you to improve upon it”

Continuing, a second aspect relevant to the concept of business model innovation is the need for a systematic approach that aids for stable development as well as an improvement (Doll & Eisert, 2014, p. 7).

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Sustainable business model innovation and the tools for it are argued to be a somewhat new area of research and therefore give room for further research (Geissdorfer et al., 2018, p. 410). Despite the sparse research of the field, the concept has been addressed as the process an organization undergoes when moving into sustainable business models.

This definition further applies to business models within this thesis desired field of research, start-ups. Other definitions made by scholars throughout the last two decades, combines elements found in business model innovation while integrating sustainability perspectives. For instance, the sustainable version borrows definitions described as the process of redesigning, improving, adapting, adjusting, creating, and transforming a business model (Geissdoerfer et al., 2018, p. 406). The process further meets the requirement of sustainability when the outcome of the business model provides value for the environment and society such as reducing negative impacts.

3.4 Triple Layered Business Model Canvas

To support the creation and innovation of sustainable business models, Joyce & Paquin (2016) developed a framework called Triple Layered Business Model Canvas (TLBMC).

The framework is a development of Osterwalder & Pigneur (2010) Business Model Canvas (BMC), with an added focus on environmental and social issues, inspired by Elkington's (1999) Triple Bottom Line (Joyce & Paquin, 2016, p. 1476). The origin Business Model Canvas, with its 9 building blocks, has been criticized to not support the creation of sustainable business models, and that the main focus is to gain profits and the economic aspect of a business model. Therefore, the TLBMC is a helpful tool when creating sustainable business models, due to the aspects of integrating social and environmental aspects into the business model. The three layers, as well as how they are used together, are explained in the following sections and each canvas with explanations is attached in Appendix 1.

3.4.1 The Economic Layer

The economic layer of the TLBMC derives from the Business Model Canvas developed by Osterwalder and Pigneur (2010) (Joyce & Paquin, 2016, p. 1476). The BMC consists of 9 components: Customer Segment, Value Proposition, Distribution Channels, Customer Relations, Revenue streams, Key Resources, Key Activities, Key Partners, and Cost Structure. Each of the components needs consideration to create a successful business model.

3.4.2 The Environmental Layer

The environmental layer is, as the economic perspective of the canvas, built upon 9 components; Functional Value, Materials, Production, Supplies and Outsourcing, Distribution, Use Phase, End-of-life, Environmental Impacts, and Environmental Benefits (Joyce & Paquin, 2016, p. 1479). In the same way as the origin Business Model Canvas portraits how costs are overweight by revenues, the environmental layer supposed to portrait how the environmental benefits of the business overweigh the environmental impacts (Joyce & Paquin, 2016, p. 1477). By using the canvas, the organization can see where to put focus to create maximum environmental value and to decrease the negative impact on the environment. The environmental layer builds upon a life cycle analysis, which is a concept that measures a product or service’s environmental impact during its life cycle.

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3.4.3 The Social Layer

The social layer extends on the original Business Model Canvas but considers the stakeholders and thus focuses on the organization’s social impact (Joyce & Paquin, 2016, p. 1477). The idea is to combine the interest of the firm with stakeholders such as;

employees, suppliers, community, customers, etc. To provide a better understanding, the canvas seeks to find the key social impacts of the organization so they can be improved and hence create social value (Joyce & Paquin, 2016, p. 1479-1480). The social layer is, as the former layers, build upon 9 components; Social Value, Employee, Governance, Communities, Societal culture, Scale of outreach, End users, Social Impacts and Social Benefits. The components should be used cohesively to create a business model with a positive social impact.

3.4.4 The Integration of the Three Layers

The Triple Layered Business Model Canvas is a tool for exploring new sustainable business models as well as understanding existing business models (Joyce & Paquin, 2016, p. 1482). The layers have coherence in both horizontal and vertical manner from the economic, environmental, and social perspectives. Horizontal coherence implies that the 9 perspectives of each layer are interrelated through key activities, based on one of the TBL aspects. By considering all components in each layer, an environmental, economic, and social business model is created. However, since the 9 perspectives of the individual TLBMC is a cohesive framework that integrates the environmental, economic, and social perspectives, and thereby simplifies the creation of a sustainable business model.

The TLBMC is one framework among others within the research area of sustainable business models. For example, Bocken et al., (2014, p. 55) have developed 8 archetypes that describe how business models can evolve into sustainable business models and how businesses can use archetypes to innovate their business models further. For this study, we believe that the TLBMC is the most appropriate framework to proceed with, due to its overarching perspective of business model creation. In comparison with the 8 archetypes, which are intended for inspiration and somehow benchmarking, the TLBMC is a start from scratch and hence, possible to adapt to the organization’s own business.

Since this thesis aims to explain the business model creation in start-ups, we argue that TLBMC is the most interesting framework in this context. Additionally, the origin Business Model Canvas is the most widely used framework within the start-up process (Shepherd & Gruber, 2020, p. 7), meaning that the developed version of the framework (TLBMC) would be of interest as well.

3.5 Start-ups

As mentioned in the introduction chapter, the focus of this study will be on established start-ups, and the process of implementing the business model. Since the literature that has been reviewed in this theoretical framework has had an “all- firms” perspective, and not specifically start-ups, that point of view becomes relevant.

The literature on start-ups has shown inconsistency when presenting the definition of start-ups (Luger & Koo, 2005, p. 17). Therefore, Luger & Koo reviewed and unified previous research to come up with a general definition of the concept. Start-ups can be explained through three criteria, which all need to be fulfilled for a business to be classified as a start-up. The business needs to be New, Active, and Independent, to be classified as such. The New criterion refers to that the business needs to be new and is

SUSTAINABLE BUSINESS MODELS IN START-UPS