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To extract value from an innovation, a start-up (or any firm for that matter) needs
an appropriate business model. Business models convert new technology to
economic value.
For some start-ups, familiar business models cannot be applied, so a new model
must be devised. Not only is the business model important, in some cases the
innovation rests not in the product or service but in the business model itself.
In their paper, The Role of the Business Model in Capturing Value from Innovation,
Henry Chesbrough and Richard S. Rosenbloom present a basic framework
describing the elements of a business model.
Given the complexities of products, markets, and the environment in which the firm
operates, very few individuals, if any, fully understand the organization's tasks in
their entirety. The technical experts know their domain and the business experts
know theirs. The business model serves to connect these two domains as shown
in the following diagram:
Role of the Business Model
Technical
Inputs
Business
Model
Economic
Outputs
relatively low cost and then charged a per copy fee for copies in excess of 2000
copies per month. At that time, the average business copier produced an average
of only 15-20 copies per day. For this model to be profitable to Xerox, the use of
copies would have to increase substantially.
Fortunately for Xerox, the quality and convenience of the new copy technology
proved itself and companies began to make thousands of copies per day. As a
result, Xerox sustained a compound annual growth rate of 41% over a 12 year
period. Without this business model, Xerox might not have been successful in
commercializing the innovation.