Service Logic Business Model Canvas for Lean Development of SMEs and Start-Ups

Service Logic Business Model Canvas for Lean Development of SMEs and Start-Ups

Jukka Ojasalo (Laurea University of Applied Sciences, Finland) and Katri Ojasalo (Laurea University of Applied Sciences, Finland)
DOI: 10.4018/978-1-4666-8798-1.ch010
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Abstract

Business models have made a breakthrough both in the academic and in business community in the area business development. Old fashioned business plans are in many cases considered as a waste of time and resources. Particularly start-ups and SMEs have a great potential to take advantage of business model approach which allows lean and agile product and service development. However, the existing widely used business model frameworks are lacking the new service logic orientation. They mostly see the world in terms of goods logic. Since all sizes of businesses in all industries are increasingly adopting the service logic or service-dominant logic, there was a clear need to develop a new service logic based business model framework. Based on an extensive empirical study with both practitioners and academics, a new Service Logic Business Model Canvas was developed to fill this need. This chapter explains the theoretical foundations of this framework in SME and start-up context, as well as the framework itself and its application.
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Introduction

Rather than engaging in months of planning and research, entrepreneurs accept that all they have on day one is a series of untested hypotheses—basically, good guesses. So instead of writing an intricate business plan, founders summarize their hypotheses in a framework called a business model canvas. Essentially, this is a diagram of how a company creates value for itself and its customers.” Steve Blank, 2013, Why the Lean Start-Up Changes Everything, Harvard Business Review, May 2013, p. 67.

Compared to writing a business plan, which can take several weeks or months, you can outline multiple business models on a canvas in one afternoon... The canvas forces you to pick your words carefully and get to the point. This is a great practice for distilling the essence of your product. ..A single page business model is much easier to share with others, which means it will ready by more people and probably will be more frequently updated. Ash Maurya (2012, pp. 5-6), Running Lean. Create from Pan A to a Plan That Works, Series Editor Eric Ries, O’Reilly, USA.

Whether you are a startup or a big business trying to revitalize growth or save your business or protect against the future; whether you are high-tech, low-tech, or somewhere in between; whether you are business-to-business, business-to-consumer, or business-to-business-to-consumer, you are at the mercy of the value-creation economy. To succeed, grow, thrive, you must be focused on creating real value for known customers. You must be fast, agile, quick thinking, and quick acting. Cooper, Brant & Vlaskovits, Patrick. 2013. The lean entrepreneur. How visionaries create products, in-novate with new ventures, and disruptive markets. New Jersey: John Wiley & Sons, Inc., p. 23.

SMEs and start-ups have traditionally sacrificed their time and scarce resources for writing business plans, which have in many cases turned out to be totally useless. Business models and lean business development has turns out to be much more efficient and effective approach, particularly for SMEs and start-ups (Ries, 2011, Blank, 2013). Consequently, companies have shifted from business plans to business models when developing their business. A similar strong shift has taken place in business logics. All sizes of companies in all industries are increasingly abandoning the old fashioned goods logic, and instead adopting the service logic (Grönroos, 2006; Heinonen et al., 2010) or service-dominant logic (Vargo & Lusch, 2004). Still, the existing widely used business model frameworks, such as the Osterwalder and Pigneur’s (2010) business models canvas, are lacking the new service logic orientation. They mostly see the world in terms of goods logic. Thus, there was a clear need to develop a new service logic based business model framework. The purpose of this chapter is to increase the understanding of using Service Logic Business Model Canvas for lean development of SMEs and start-ups. Based on an extensive 18-months empirical study involving both practitioners and academics, a new Service Logic Business Model Canvas was developed. This new framework is usable particularly in the SME and start-up context where both resources and time are often much more scarce than with large companies.

This chapter has the following structure. First, it explains the general factors affecting business development of SMEs and start-ups. It discusses the competitive advantage of SMEs, what affects the growth of SMEs, as well as challenges of SME development. Then, it describes the evolution of business logics. It explains the principle ideas of traditional value chain, resource based view, and value network approach. Most importantly, it discusses the most recent business logic which has become dramatically popular both among academics and practitioners, namely service logic. Next, it discusses the principals of lean business development of SMEs and start-ups. After that, it explains the empirical method used in the development of the Service Logic Business Model Canvas. Then, it describes the Service Logic Business Model Canvas and its application process. Then, it draws the final conclusions.

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General Factors Affecting Business Development Of Smes And Start-Ups

This section deals with general factors affecting business development in SMEs and start-ups. First, it discusses competitive advantage of SMEs and start-ups. Next, it explains factors behind small business growth. Then, it discusses the challenges in SME development and management.

Key Terms in this Chapter

Service Design: This approach is both a set of methods for practitioners developing a service, as well as an emerging scientific field. The general awareness of service design has increased rapidly among practitioners because the methods of this approach have proven to be very powerful in bringing customers and the service experience in the center of service development (Ojasalo, Koskelo and Nousiainen, 2014 AU78: The in-text citation "Ojasalo, Koskelo and Nousiainen, 2014" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ).

Value-in-Use: The central idea of the service-dominant logic is that there is no value until the offering is used and experienced by the customer (Vargo & Lusch, 2008 AU80: The in-text citation "Vargo & Lusch, 2008" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). Value-in-use sees value as emerging rather that delivered ( Grönroos, 2006 ; Gummesson, 2007 AU81: The in-text citation "Gummesson, 2007" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). Service providers can only create resources and means to facilitate customers to create value for themselves ( Grönroos, 2006 ).

Business model: Outlines the essential details of a firm’s value proposition for its various stakeholders and the activity system the firm uses to create and deliver value to its customers ( Seddon et al. (2004 , 429).

Lean Business Development: Refers to an iterative and incremental innovation process that aims at building a minimum viable product as quickly as possible and test and develop it with potential authentic customers, as well as measure and learn from the experiments. Based on the learning from one cycle, earlier assumptions are revised and the next development cycle starts all over again ( Ries, 2011 ).

Service Logics: Refer to three new business logics emerged and dramatically increased their popularity during the past 10 years. These logics emphasize customer value and service. The service logics are Service-dominant logic ( Vargo and Lusch, 2004 ), Service logic ( Grönroos, 2006 ), and Customer dominant logic ( Heinonen et al., 2010 ).

Minimum Viable Product: Has just those core features that allow the product to be deployed to potential customers for feedback, and no more. It is that version of the product that enables a full turn of the build-measure-learn loop with a minimum amount of effort and least development time. It lacks many features that may prove important later on. The impact of minimum viable product must be measurable ( Ries, 2011 ).

SME: Small and medium-sized enterprises are non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees. Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most 10, or in some cases 5, workers (OECD. Retrieved October 20, 2014 from http://stats.oecd.org/glossary/detail.asp?ID=3123 ).

Start-Up: Is a company refers to and early stage in the life cycle of an enterprise where the entrepreneur moves from the idea stage to securing financing, laying down the basis structure of the business, and initiating operations or trading (Businessdictionary. Retrieved October 20, 2014 from http://www.businessdictionary.com/definition/startup.html#ixzz3Gi11ohGS AU79: Anchored Object 1 ).

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