Comments for Innovation typology: beyond new products

Chen Mark, d'Argent Thibault, Marta Matteo, Vercruysse Alvin (Group 5)

Kurt Matzler Franz Bailom Stephan Friedrich von den Eichen Thomas Kohler, (2013),"Business model innovation: coffee triumphs for Nespresso", Journal of Business Strategy, Vol. 34 Iss 2 pp. 30 - 37

Executive Summary Key insights The paper published, by K.Matzler, F. Bailom, S. Friedrich von den Eichen and T. Kohler in 2013, depicts the key success factors of an innovative business model that generates a sustainable competitive advantage. The article focuses more specifically on the case of Nespresso. As stated by the authors, product innovation is no longer sufficient to maintain a sustainable…
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Executive Summary

Key insights
The paper published, by K.Matzler, F. Bailom, S. Friedrich von den Eichen and T. Kohler in 2013, depicts the key success factors of an innovative business model that generates a sustainable competitive advantage. The article focuses more specifically on the case of Nespresso. As stated by the authors, product innovation is no longer sufficient to maintain a sustainable competitive advantage as the competition will become intense very quickly. Therefore, building a business model innovation is a solution to this crucial concern. A relevant example of a company which implemented an efficient business model is Nespresso. Indeed, it created value for customer based on individualization. On top of selling individual coffee capsules, it proposes a wide range of coffee tastes based on consumer preferences. As a result, customers can find a very individualized offer focusing on making every experience unique. Regarding its value capture model, Nespresso based its strategy on the razor-blade model (HARFORD, 2017). This implies that the company will not make high profit on coffee machines (because it is sold at a very economic price) but it earns a 85% gross margin on individual coffee capsules (LEVINE, 2011).

Implications
– Consequently, if managers from other companies wish to improve its current business models what should they learn from Nespresso? What makes Nespresso so successful and allows it to differentiate from its competitors is mainly the focus on individualization. If Nespresso (a coffee company) can propose a very individualized offer for a commoditized product, other companies, in different industries, can propose similar type of customized offers.
– In addition, since Nespresso is always one step ahead of its competitors, the R&D department already developed two solutions to avoid imitation from competitors and maintain its competitive advantage. Consequently, being proactive and keep developing its innovative business model is a solution to maintain its competitive advantage.
– Moreover, it is good to note that Nespresso probably benefited from a first-mover advantage with its “innovative concept that offers consumers individual portions of freshly-ground coffee” (MATZLER, 2013). Ultimately, Nespresso probably also acquired a long-term brand recognition advantage compared to its competitors.

Limitations
– As explained above, Nespresso’s business model is based on a unique positioning strategy and on the coherence around its core business (coffee capsules) (MATZLER, 2013). However, one concern not covered by the paper is whether it should extend its core business (diversification strategy) in order to beat potential future imitators.
– The sustainability of Nespresso is not very clear. Indeed, the company is not fully transparent when it comes to the recycling process of its capsules. Moreover, the single-served aluminium pod is not the least impactful way of drinking coffee (GUNTHER, 2015).

Further References
– Nespresso’s business model has shown a high level of value creation. Nespresso’s intellectual property for many parts of its system is no longer protected; the patents have either already expired or will soon do so. This issue is tackled by the following article: BREM, A., MAIER, M., WIMSCHNEIDER, C., Competitive advantage through innovation: the case of Nespresso, European Journal of Innovation Management, 2016, 19(1), pp. 133-148.
– The second article concerns the Internet of Things (IoT). The new internet wave has given rise to a new digital business model patterns. IoT will provide possible hybrid solutions that merge physical products and digital services for Nespresso’s business model. this article wonders how Nespresso will adapt its business to this (r)evolution: FLEISCH, E., WEINBERGER, M., WORTMANN, F., Business models and the internet of things, Interoperability and Open-Source Solutions for the Internet of Things, Springer, Cham, 2015: pp 6-10.

Bibliography
HARFORD, T., How a razor revolutionised the way we pay for stuff, https://www.bbc.com/news/business-39132802, 10th April 2017, consulted on 7th October 2018.
LEVINE, J., Pod og Gold, http://content.time.com/time/magazine/article/0,9171,2053573,00.html, the 7th March 2011, consulted on 7th October 2018.
MATZLER, K., BAILOM, F., FRIEDRICH, S., KOHLER, T., Business model innovation: coffee triumphs for Nespresso, Journal of Business Strategy, vol. 34, n°2, 2013, pp. 30-37.
BREM, A., MAIER, M., WIMSCHNEIDER, C., Competitive advantage through innovation: the case of Nespresso, European Journal of Innovation Management, 2016, 19(1), pp. 133-148.
FLEISCH, E., WEINBERGER, M., WORTMANN, F., Business models and the internet of things, Interoperability and Open-Source Solutions for the Internet of Things, Springer, Cham, 2015: pp 6-10.
GUNTHER, M., The good, the bad and the ugly: sustainability at Nespresso, https://www.theguardian.com/sustainable-business/2015/may/27/nespresso-sustainability-transparency-recycling-coffee-pods-values-aluminium, consulted on 6th October 2018.

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Byrska Milena, de Corswarem, Maïté, Delatte Lionel & Li Jiamin (Group 1)

(Article) Ansari, S.S., Garud, R., & Kumaraswamy, A. (2016). The disruptor’s dilemma: TiVo and the US television ecosystem. Strategic Management Journal, 37(9), 1829-1853.

Executive Summary The paper published in 2016 in the Strategic Management Journal by Shahzad (Shaz) Ansari, Raghu Garud and Arun Kumaraswamy aims to provide new findings about the “disruptor dilemma” which can be briefly described as: how can firms that are introducing disruptive innovations in an ecosystem gain the support of the incumbent firms that are actually disrupted by their…
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Executive Summary

The paper published in 2016 in the Strategic Management Journal by Shahzad (Shaz) Ansari, Raghu Garud and Arun Kumaraswamy aims to provide new findings about the “disruptor dilemma” which can be briefly described as: how can firms that are introducing disruptive innovations in an ecosystem gain the support of the incumbent firms that are actually disrupted by their innovation. In order to address this issue, the authors realised a longitudinal study of TiVo, a company that pioneered the Digital Video Recorder and disrupted the U.S. television ecosystem in the late 1990’s.

Key insights:

The paper provides key insights about the nature of the tensions that new entrants may have to face as a result of the disruptive innovations they introduce among the existing ecosystem. According to the authors, these tensions can be classified into three categories: intertemporal co-opetition, dyadic co-opetition and multilateral co-opetition.

Based on TiVo’s case, the paper highlights how a company can successfully introduce a disruptive product despite the numerous tensions by implementing a strategy that is focused on continual adjustments and which aims to find a dynamic workable balance between competing and cooperating namely co-opetition. The authors thereby lay stress on the importance of continuously adapting its technology in order to have a product that matches its offer with its relational positioning within the ecosystem.

Managerial implications:

The key takeaways in a managerial context can be classified into two categories: On the one and, incumbent firms should never underestimate new entrants and must always be ready to counter-mobilize the new offer. Besides, in order to avoid being disrupted by new innovations, incumbents should also act as disruptors.

On the other hand, new entrants should invest in a strong value network. They should also not underestimate the importance of data and intellectual property (patents). On top of that, implementing a continual adjustments strategy is fitted for a coopetitive environment.

Limitations:

Nevertheless, managers should be aware that some limitations can still apply as demonstrated in TiVo’s case over its introduction on the Australian market (Meese et al., 2015). Even if gaining success, a new entrant should never forget to analyze the macro-environmental factors which can differ from one country to another. Besides, an innovator must also attach great importance to accurately determine the demand of the customers. This task is relatively difficult due to the innovative nature of the product but can have serious consequences as highlighted in the Pebble’s case (Forbes, 2016).

Further references:

Shin, D.-H., Lee, C.-W. (2011). Disruptive innovation for social change: How technology innovation can be best managed in social context. Telematics and Informatics, 28(2), 86-100.

Duening, T., Hisrich, R., & Lechter, M. (2014). Technology entrepreneurship : Taking innovation to the marketplace (2nd Ed.). Academic Press.

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Charlotte Boonen, Heloise de Villenfagne, Mayank Deora, Arun Baskaran

(Article) Bower, J. &, Christensen C. (1995).Disruptive Technologies: Catching the Wave. Harvard Business Review.

The following paper will review the main points discussed during the presentation of the article entitled “Disruptive Technologies: Catching the Wave” written by Joseph L. Bower and Clayton M. Christensen and issued in a Harvard Business Review of 1995. The main key insights of the paper are that big companies usually lose out to disruptive technologies because they are focusing too…
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The following paper will review the main points discussed during the presentation of the article entitled “Disruptive Technologies: Catching the Wave” written by Joseph L. Bower and Clayton M. Christensen and issued in a Harvard Business Review of 1995.

The main key insights of the paper are that big companies usually lose out to disruptive technologies because they are focusing too much only on their existing customers. However, when big company still manage to master such technologies, these tend to be considered as inferior products with unattractive revenues. Therefore, those are generally rejected whereas it is the firms with championed disruptive technologies that are succeeding.

There is a method developed through this article to spot and cultivate disruptive technologies because only a few companies are able to overcome the difficulties of disruptive technologies. Firstly, there is a need to differentiate sustaining and disruptive technologies. Companies have well understood how to track and identify sustaining technologies whereas there is no standard processes for disruptive technologies. Secondly, the organization needs to define the strategic significance of the disruptive technology. This means, managers need to think differently and realize that a technology could address the needs of a customer tomorrow, without interest today. Thirdly, the company has to locate the initial market, for disruptive technology it does not exist yet, thus focusing on mainstream customers is a mistake in case of assessing the potential of a disruptive technology. An highlight is also done on the fact that small companies are good at agilely changing products and market strategies. They are less critical to investing in projects with less profitability and competitiveness.To avoid the small companies to dominate the markets , executives need to have access to information by organizing meetings with high qualified people.The step number four in this process, is to place responsibility for building a disruptive-technology business in an independent organization in order to prevent financial and managerial people to limit the development of the technology. Finally, the disruptive organization should stay independent after the launch of the technology.

Though the article covers in detail on how a big organization can spot and cultivate disruptive technologies , there are three strong aspects that the article does not cover. The first one relates to the pace and uncertainty at which the disruptive technologies develop. There are too many waves of technologies in a single industry that the organization could not concentrate on all of that. The example for this being the mobility industry where there are currently technologies developing in Self driving cars, Electric vehicles, Hydrogen ion and even flying cars. The second obstacle that the article does not cover is that shareholders of these companies want short term gains that limit the innovative capabilities of the company. The final one being the lack of ecosystem for development of innovative and disruptive technologies within an organization. A big organization needs controls to be organized where as there should be less controls for it to be innovative. This is evident from the difference between organizations in manufacturing hub of Deloitte when compared to the organizations in innovation hub of Silicon Valley.

Further Research:
(Book) Christensen, C., Karen Dillon, Taddy Hall, & Duncan, D.S. (2016) Competing Against Luck: The Story of Innovation and Customer Choice, Harper Business.
(Video)“Clayton M. Christensen on Disruptive Innovation” (Published on 1 Jul 2012) – https://www.youtube.com/watch?v=WxwR_TTuKdc

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Donvil John-Alexander, Funcken Eva, Portzenheim Louise and Tisaire Carlos

(Article) Sanchez, P., & Ricart, J. E. (2010). Business model innovation and sources of value creation in low‐income markets. European Management Review, 7(3), 138-154.

BUSINESS MODEL INNOVATION AND SOURCES OF VALUE CREATION IN LOW-INCOME MARKETS This article identifies a set of contingency factors to differentiate two different business models when entering low-income markets : isolated and interactive business models. On the one hand, the isolated business model can be seen as an exploitation strategy where the company leverages its own resources and capabilities to seek…
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BUSINESS MODEL INNOVATION AND SOURCES OF VALUE CREATION IN LOW-INCOME MARKETS

This article identifies a set of contingency factors to differentiate two different business models when entering low-income markets : isolated and interactive business models.

On the one hand, the isolated business model can be seen as an exploitation strategy where the company leverages its own resources and capabilities to seek efficiency in the new market. This strategy is often used by competitive companies with high volume of sales. There are two key effectiveness factors in this model. Firstly, the external ones are a high level of munificience* and a low-level of dynamism**. Secondly, the internal ones are a lean value chain, keeping control over core capabilities and a commitment to low price.
The main source of value creation is the firm’s internal resources as no synergies are created with the environment. This leads to a cost effective business model where the value is added through the company’s own investments to develop its own capabilities.

On the other hand, the integrated business model is more of an exploration strategy where the company leverages external resources and fosters learning and innovation processes. Two key factors are investments in cross-sector partnerships, and the establishment of a co-managed value chain through a local network of alliances. Thanks to these key factors, synergies between the firm and its environment are high, and the main source of value creation can be found in the feedbacks loops (i.e. virtuous cycles).

Several limitations of the articles could be mentioned: relative positions of entrants on the market (i.e. first mover or runner-up), differences in country requirements, etc.
However, we believe risk management is the most relevant to consider. Indeed, no business model protects a firm from failure in emerging market entry. Moreover, EY (2007) reported that a striking 41% of “developed market companies” have no risk strategy regarding emerging markets operations.
According to the same study, political risk is ranked first when considering emerging markets. In fact, political power of hampering business (e.g. through expropriations, foreign exchange controls, …) is a key threat to any company running in high-risk markets. Therefore, ways exist to limit those risks: entering markets having Bilateral Investment Treaties with the firm’s HQ country, thoroughly assessing country risk factors, or contracting a Political Risk Insurance with the WorldBank for example (Connick, 2012).
Secondly, operational risks are top ranked as well. Indeed, the gap between strategy and implementation may appear greater than expected. Thus, in-depth risk assessment of potential partners is crucial. Then, strong audit practices need to be implemented and followed. As a matter of fact, only 44% of parents companies in developed markets claim to be satisfied with subsidiary’s audit and reporting practices (EY, 2007).
To conclude, the paper suggests two business models two enter low-income markets. First, firms with a strong identity, high sales volumes and low costs should focus on their own capabilities and keep a lean value chain. Second, others can invest in developing the market they are entering through local network of alliances. In both cases though, a firm should always consider risks in advance to develop a proper strategy to mitigate them.
Lexicon:

*high level of munificience: a lot of available resources that allows the replication of a firm’s regular operations
**low level of dynamism: easiness to foresee consequences of BM choices

Additional Resources:
“Value Proposition Design: How to Create Products and Services Customers Want” (Alexander Osterwalder and Yves Pigneur, own edition)
“Corporate-NGO Collaboration: Co-creating New Business Models for Developing Markets” (Nicolas M.Dahan, Jonathan P.Doh., Jennifer Oetzel, Michael Yaziji; Long Range Planning 43 (2010) p.326-342)
“Social Innovation and New Business Models: Creating Shared Value in Low-Income Markets” (Laura Michelini, Springer Briefs in Business)

Bibliography:
Note: Every information in this document comes from source (A) otherwise stated.
Sanchez, P., & Ricart, J. E. (2010). Business model innovation and sources of value creation in low‐income markets. European Management Review, 7(3), 138-154. Retrieved from https://onlinelibrary.wiley.com/doi/pdf/10.1057/emr.2010.16
Connick, J. et al. (2012). Managing political risk in emerging markets. Legal and regulatory bulletin. EMPEA. Retrieved from https://www.empea.org/app/uploads/2017/03/01_managing_risk_fall12.pdf
Ernst & Young. (2007). Risk management in emerging markets. EY. Retrieved from https://www.finyear.com/attachment/67799

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Giovanni Rinciari Laurent Clerbois Ernest van Zuylen Gustaf Orsucci

“Customer power, strategic investment, and the failure of leading firms” by Christiansen & Bower

EXECUTIVE SUMMARY The Paper, published in 1996 on the Strategic Management Journal by C. Christiansen and J. Bower, develops around the capability of incumbent firms to innovate, using the disk drive industry evolution from 1976 to 1990 as an example. KEY POINTS Among the essential key points that the authors want to highlight we find “resource dependence” and “resource allocation”. When an…
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EXECUTIVE SUMMARY

The Paper, published in 1996 on the Strategic Management Journal by C. Christiansen and J. Bower, develops around the capability of incumbent firms to innovate, using the disk drive industry evolution from 1976 to 1990 as an example.

KEY POINTS
Among the essential key points that the authors want to highlight we find “resource dependence” and “resource allocation”. When an incumbent has to decide whether or not to invest in a radical innovation, resource dependence may prevent proper resource allocation from happening (e.g. a resource dependence is represented by the existing customer segment the incumbent currently serves). As a result, mostly firms which are not resource dependent, i.e. Start-ups, are able to effectively introduce new disruptive innovation.
Indeed, one of the main arguments of the paper concerns the fact that only a small portion of leading firms’ failures can be attributed to managerial myopia or to insufficient resources, most of them stemming from excessive resource dependence.

IMPLICATIONS
In order to overcome these issues, there are a few actions manager of incumbent firms could take to prepare for innovation:

• Managers should be open-minded about new revenue sources and potential customers: marketing officers should not pay excessive attention to existing customer needs, which could be achieved by setting up a new procedure for prototype testing. More attention should be instead given to new technologies in emerging market segments.
• Managers should take resource dependence into account for corporate strategies: a minimum ratio of risky investments should be implemented (this ratio would, however, be different across industries).
• Managers should promote an adaptable corporate structure: setting up antennae sensitive to signals from the external environment. Successively firms should implement effective and structural change through the creation of subsidiaries.

LIMITATIONS
There are, however, some aspects this paper does not consider. The first concerns businesses that are timeless by definition: some businesses target a niche market, by selling products that don’t become obsolete (e.g. handicrafts), and hence are not affected by innovation.
The second concerns the means of achieving an adaptable corporate structure: instead of building new separate entities, the incumbents could follow Google’s example and acquire firms with innovative and disruptive ideas before they hit the mainstream (mass) market, and it is too late for them to respond.

FURTHER REFERENCES

• Video: https://www.youtube.com/watch?v=mbPiAzzGap0 – Christiensen – Harvard Business Review

• Article: Mui, Chunka. “How Kodak Failed.” Forbes, Forbes Magazine, 20 June 2016, http://www.forbes.com/sites/chunkamui/2012/01/18/how-kodak-failed/#4616b40a6f27

• Article: Musk, Elon. “Hyperloop.” Tesla, Inc, Tesla, Inc, 19 Aug. 2013, http://www.tesla.com/blog/hyperloop

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Anonymous

How Useful Is the Theory of Disruptive Innovation?”, Andrew King and Baljir Baatartogtokh

The authors of the article “How Useful Is the Theory of Disruptive Innovation?”, Andrew King and Baljir Baatartogtokh, are assessing the applicability of the theory of disruptive innovation for managerial decision-making. There are three key insights from this paper: 1. the theory of disruptive innovation lacks proof and it was not validated. Only 9% of cases picked by the author of the…
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The authors of the article “How Useful Is the Theory of Disruptive Innovation?”, Andrew King and Baljir Baatartogtokh, are assessing the applicability of the theory of disruptive innovation for managerial decision-making. There are three key insights from this paper:
1. the theory of disruptive innovation lacks proof and it was not validated. Only 9% of cases picked by the author of the theory, Clayton Christensen, match all elements of the theory;
2. conclusions of the theory are based on dubious assumptions that limit its predictive power;
3. there are other factors of success and failures of companies in abovementioned cases not considered in the theory, like legacy costs, changing economy of scales, law of probability.
The major managerial implication of this article is teaching managers how to react on the potential new rivals and innovations. There are recommended steps:
1. when disruptive innovations happen, managers should keep calm and decide whether to enter the new market based on the fundamental analysis of the market;
2. after managers decide to enter the new market, they should analyze how company’s existing abilities can be deployed most profitably to become a leader in the new market;
3. and if the decision is to abstain entering the new market, the company should form strategic cooperation with new entrants to avoid severe competition and leverage its own strengths.
We identified a number of limitations to the key insights and managerial implications:
1. the paper does not clearly outline what managers should do to expand the business, but only how to stay afloat;
2. actions of companies that base their business on the “legacy of the brand” and the resistance to changes are not considered;
3. companies surveyed are most active in Europe or North America, so it is questionable whether these implications can be applied to other regions of the world.
We went deeper in the research about disruptive innovations by analyzing two additional articles. The article “Explorative versus exploitative business model change: the cognitive antecedents of firm‐level responses to disruptive innovation” tries to link antecedents of managers and companies’ responses to disruptive innovations. The article “Driving Disruptive Innovation: Problem Finding and Strategy Setting in an Uncertain World” provides readers with an action plan for managers in case of a disruption on the market.
REFERENCES:

Irene J. Petrick & Russ Martinelli (2012) Driving Disruptive Innovation: Problem Finding and Strategy Setting in an Uncertain World, Research-Technology Management, 55:6, 49-57

King, Andrew A., and Baljir Baatartogtokh. “How useful is the theory of disruptive innovation?” MIT Sloan Management Review 57.1 (2015): 77.

Osiyevskyy, Oleksiy, and Jim Dewald. “Explorative versus exploitative business model change: the cognitive antecedents of firm‐level responses to disruptive innovation.” Strategic Entrepreneurship Journal9.1 (2015): 58-78.

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Anonymous

Business Models, Business Strategy and Innovation by David J. Teece

David Bilicz, Carolina Godinho, Ivana Kopkovà, Alexandra Rombis and Elena Zerbino What are the key insights of the paper? The first key insight obtained from the paper is that a business model (BM) defines the manner by which the enterprise delivers value to customers, entices customers to pay for that value and converts those payments into profit. The second is…
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David Bilicz, Carolina Godinho, Ivana Kopkovà, Alexandra Rombis and Elena Zerbino
What are the key insights of the paper?
The first key insight obtained from the paper is that a business model (BM) defines the manner by which the enterprise delivers value to customers, entices customers to pay for that value and converts those payments into profit. The second is that when designing a BM, the technological revolution should be considered. The last insight retained is that a BM innovation can be a competitive advantage.
What are the managerial implications of those insights? Be specific.
Regarding the first insight, managers should focus on designing the BM and make it correspond to the company’s strategy. In addition, they should exploit tools that can help. For example, “Business Model Canvas” allows managers to design a BM by defining the main components of the business and aligning them with the company’s strategy. Regarding the second insight, the main objective of the BM is defining the value proposition. This must be communicated to customers, especially in the contemporary technologically driven world, in order to capture value from customers and turn it into profit. Spotify, an e-business, managed to succeed in an industry dominated by piracy due to its clear value proposition. Adopting a “Freemium” model, Spotify created different streams of revenue in order to adapt to customers’ needs, while managing to create profits from each. Lastly, the BM itself can be an innovation without any radical/incremental innovation by selecting an unusual market segment, finding a new way to distribute value rather than the current one, or finding a new method to gain money from the products/services. For example Wal-Mart developed a model targeting smaller towns, offering cheap products at large volumes where the population was not big enough for two big retailer chains and volumes were not sustainable by smaller stores, making it impossible for competition.
What are the limitations of those insights and our outstanding issues?
Firstly, the lack of economic theoretical literature fails to provide an explanation on how to design a good business model. Specifically, this article is from 2010 – nowadays, business literature expanded considerably its focus on business model design, although the economic theory is still missing. Secondly, in online markets customers expect the product to be free and easy to access. This results in internet companies – and many others – having a hard time granting value for customers while capturing value in a sustainable way. Thirdly, if the BM is easy to replicate, the company loses its competitive advantage.
Appendix

1. Business Model Innovation – The secret behind Amazon, Spotify and Tinder success
https://www.youtube.com/watch?v=avWVPaJFgFk

2. The Business Model Canvas – 9 Steps to Creating a Successful Business Model – Startup Tips
https://www.youtube.com/watch?v=IP0cUBWTgpY

3. Ep 1 – Getting From Business Idea to Business Model
https://www.youtube.com/watch?v=wwShFsSFb-Y&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3

4. Strategy tools for Business Model Innovation
https://www.youtube.com/watch?v=rNN2bAV9Qqg

5. Alexander Osterwalder & Yves Pigneur (2010): Business Model Generation

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