## 4.2 Business models

Business models show "the logic of the firm, the way it operates, and how it creates and captures value for its stakeholders" (Casadesus-Masanell and Ricart, 2010). The term business models becomes popular with the rise of the internet since the 1990s, but it mirrors the interest in so-called model farms and model factories more than a century ago. In recent times, the term business models is often mixed up with value configuration, capabilities, business propositions, and revenues models. Managers en mass picked up the business model concept when Osterwalder & Pigneur (2010) published their pursuasive yet challenging Business model canvas. Business models are not only recipes, not merely role models, not a product-market strategy, and not the contracts or the incentive mechanisms of a firm. "In short, a business model defines how the enterprise creates and delivers value to customers, and then converts payments received into profits" (Teece, 2010). As so-called ideal types, based on both observations and systematic analysis, they play different roles for different purposes.

From an internal study the Rabobank concluded that during the economic crisis roughly half of all the companies had a business plan, but that number was only a quarter for the group that had to stop.

One should distinguish between three groups of business models. First, business models oriented at innovation management to better understand innovation-driven collaborative networks, and the connection between techologies and customers. Second, business models oriented at e-commerce, that focusses on pricing, revenues mechanisms, network formats and market dominance, driven by technologies. Third, business models that look at activity system-based value creation mechanisms, entrepreneurship, and sources of competitive advantages, resulting in firm performance (Zott, et al 2011). Biobased business is typically related to the first and third groups of business models, as it has activities based on materials that must processed/transformed, often in several steps.

Business models boil down to the following 4 components. One, the ambitions of the entrepreneur or firms. What drives them, what do they expect to realise out of their business? This is often called the mission and vision of the company. For example, do they want to change the world by a research and time-intensive, impactful biobased innovation, or are they up for sale once patents and market tests show positive potentials?

Two, the value proposition; what is offered, and how is it projected customer relation? What a firm can do (its capability), how the firm can help a customer segment’s needs, and at what cost, that trade off must overlap with the trade off between perceiced benefits versus perceived costs to the customer. Quite some biobased customers want exact replacements of fossils-based inputs, so-called drop-ins. Thus, they are not willing to pay a green premium, as they do not perceive additional benefits. Here, (lack of) openness for experimentation and hysteresis are important. For example, vegetables-fiber enriched paper production turned out to lower the problem of flocking, causing interesting savings on process-chemicals. This specific benefit was not sought for, but it was evidently welcomed. Give it a try!

Third, the actual value creation and delivery: the way resources and activities are organised to produce value. So who in the value chain is doing what; how do firms coordinate their daily operations; and how are relationships (governance) formalised? Problems may surface due to a fundamental lack of mutual understanding by agri and industry. For example, industry typically expects delivery on volume, quality, and timing of delivery to maximize processing efficiency or responsively fulfill customer demands. Biomass suppliers, however, are used to weather impact on available biomass, quality variations, and seasonality in harvesting. Composition of resources, activities and linkages are critical. For such reasons, large biobased innovations require real transitions, creating new sectors. Firms better able to include the characteristics and interests of the connected sectors may create synergies, and/or reduce overall costs, bringing competitive advantages to that value chain (IBIS, 2017). This is what synergy parks, and eco-industrial parks, are up to.

Fourth, the value capture, or the earnings model: For what, how much and how does the final customer pay; and how it is the pay divided amongst the value chain partners? (Chesbrough and Rosenbloom, 2002). Firms should address revenues streams, cost structures, and value appropriation tactics, to maximize their interests. Here e-commerce may teach biobased business on pricing tactics: next to the common market-based sale of produce, one may use utilisation fees (like pay per view), membership fees (like pay for the right for prompt repairs), subscription for regular delivery, obligations (like biofuels –coblending), licencies (pay for using a patent, brand name, etc), or one may prefer more dynamic pricing such as auctions (by competitive bidding), real time pricing (follow demand and supply changes), and yield management (inventory and time till usage, like airline tickets) (Osterwalder & Pigneur, 2010).

In recent decades one has moved from closed business models to open business models that explicitly include collaborations, and that specify social and environmental layers to the business model. Traditionally, so-called business plans started with formulating a firm-specific mission, vision and related success factors to detail the why? Next, one would look at the resources (human, materials sourcing, finances, etc), the how? (detail organisation and processes), the what? (product-market combinations) and the results (financial performance). This was very much an isolated, top down approach to new business development. The business model canvas explicitly opend up that box, especially by identifying the key partnerships, and customer segments that a firm may be after to optimise the use of own and external resources for max benefits.

In the 2010s, it became clear that more encompassing sustainable business models were sought for, explicating and relating the environmental, the social and the business aspects. The triple layered business models canvas (3LBMC) may help users to overcome barriers to sustainability-oriented change within organizations (Joyce and Paquin, 2016), by assessing biobased business on their related activities. Using the triple bottom line-approach, one initially details the entries of the individual three layers people (social), planet (environment), and prosperity (business). The environmental layer may build on Life Cycle Assessments. The social layer may benefit from social cost-benefit-analysis, and social impact assesments, taking a stakeholder orientation. Subsequently, one looks at the linages between the triple layers; the parallels to value proposition are functional values and social values. Outsourcing and local communities are the parallels for business partners, etc. One may thereby, for example, learn that the local farmers communities are often enphasized as important (social layer), but they are not key economic partners to coffee brand owners (economic layer). Firms that reduces fringes and create synergies between the three layers, will benefit most from the more coherent business model, performing better for its stakeholders .

What used to work in the past may not be optimal in the future, when dealing with more diverse companies, from categorically different economic sectors. One is in need of business model innovations, a commercial approach to transforming companies into more sustainable activities and businesses (Karlsson et al, 2018). It is not in deep-seated habits and routines, but in innovative business models, coherently depicted, new trajectories that biobased business can find potential for promising business models.

(Autor: Emiel Wubben, Wageningen University)

Innovatieprijs Symbra Biofoam https://youtu.be/o8VcdKHU-yU

Business model canvas

References for Chapter 4.2:

Casadesus-Masanell, R. & J.E. Ricart (2010) From strategy to business models and onto tactics, Long Range Planning, Vol.43, nr 2-3; 195-215.

Chesbrough, H. and R.S. Rosenbloom, (2002). The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin‐off companies. Industrial and Corporate Change, Vol. 11, nr 3, 529–555. https://doi.org/10.1093/icc/11.3.529

Joyce, A., and R.L. Paquin (2016) The triple layered business model canvas: A tool to design more sustainable business models. Journal of Cleaner Production. Vol. 135, 1474-1486 http://dx.doi.org/10.1016/j.jclepro.2013.11.039

IBIS (2017) Inclusive Biobased Innovation: Securing sustainability and supply through farmers’ involvement (IBIS) https://www.nwo.nl/en/research-and-results/research-projects/i/66/28066.html

Karlsson, N.P.E., M. Hoveskog, F. Halila, Fawzi, and M. Mattsson (2018) Early phases of the business model innovation process for sustainability: Addressing the status quo of a Swedish biogas-producing farm cooperative. Journal of Cleaner Production. Vol. 172, 2759-2772 DOI 0.1016/j.jclepro.2017.11.136

Osterwalder, A. and Y. Pigneur (2010) Business Model Generation. A Handbook for Visionaries, Game Changers, and Challengers. Publisher John Wiley. 288pp. Also Osterwalder, A., G. Bernarda, and Y. Pigneur (2014) Value Proposition Design: How to Create Products and Services Customers Want. Publisher: John Wiley.

Teece D.J. (2010) Business Models, Business Strategy and Innovation, Long Range Planning, vol. 43, nr 2-3; 172-194.

Zott, Ch., R.Amit, and L.Massa (2011) The Business Model: Recent Developments and Future Research, Journal of Management, Vol. 37 No. 4, July 2011 1019-1042, DOI: 10.1177/0149206311406265