Understanding the Value of Business Models: Empirical Evidence from Choice Experiments with Renewable Energy Investors

Business models and discussions about business models are deeply anchored in practice and day-to-day business. Latterly, this echoes in publications within top-ranked scientific journals (e.g. within SMJ, OS, a forthcoming special issue in LRP). Those publications witness the importance and practical relevance research on business models actually has. Business models assess the logic of how firms interwove strategy and operations for economic value creation. But literature focuses on theory building and conceptual work mainly and contributes only limited empirical-based evidence. An exceptional case is the work of Zott and Amit (Zott & Amit, 2007, 2008). They conduct an empirical approach but their understanding of business models is highly abstract which makes it difficult to derive concrete practical implications. We intend to contribute to those shortcomings by merging business model research with research on decision-making in finance. For evaluating decision-making in finance business models have not been applied yet. But in preliminary in-depth interviews we conducted with individual investors, financial experts and managers throughout various industries we found high relevance for contributing to that shortcoming: our interview partners reported on the importance of business models for firms and their investor relationships. In this regard managers and the financial community seem to use business models to evaluate the future potential of a firm to create, capture or increase cash-flows. Given those insights, research on the intersection of business models and decision-making in finance appears to be a suitable analytical framework to proceed further. We use this analytic raster to elaborate on a highly relevant field of interest: investment choices for renewable energy. On the one hand investment activities in renewable energy are growing. On the other hand the industry for renewable energy is an emerging industry. In emerging industries traditional financial approaches to evaluate investments are only of limited use. Those rely on historic financial data mostly (consider for instance multiples). But renewable energies are too young and the future of that industry is too uncertain to use past performance indicators to back investment decisions (e.g. consider technology development, market needs or political aspects). Rather we assume the business model concept to be suitable. We argue it would better account for future business potential. Following questions should guide our research: What is the value of different business model components for renewable energy from an investors' perspective? What impact has the investors' personal background on the evaluation of business models for renewable energy? In general we intend to understand how investors evaluate their investment decisions in emerging industries with only limited historic data. In particular we intend to contribute to financial relations in the era of renewable energy to improve fundraising success and with that the diffusion of renewable energy. In this regard we ask investors within an adaptive conjoint experiment (ACA) whether business models are relevant for their investment decisions and in what business models for renewable energy they would invest. Based on investors' choices, the conjoint experiment thus provides the possibility to display the value of different business model components. With that our research contributes to several directions: On the theory side, we merge literature on business models and literature on decision-making in finance. We enhance business model research by contributing empirical-based evidence on the value of different business model components. We further contribute to research on decision-making in finance and enhance it towards the concept of business models. Moreover we establish an evaluation tool that is suitable to assess future performance without to rely on historic and backward oriented financial figures. For practice, we provide recommendations and adjustment levers of how business models for renewable energy should be designed to meet future needs and succeed in future competition. Inter alia this is valuable as managers could fine-tune their business model to improve financial relations and with that improve fundraising success.