Managerial ties, external resources, and business model innovation: Interplay and mediation analysis

ABSTRACT

Scholars and practitioners argue that smaller ventures can embark on new growth trajectories through business model innovation (BMI). There are, however, scarce insights into BMI and its driving forces among new and smaller ventures. This limits our insight into how BMI can help such ventures to grow beyond a small scale. This article uses resource-based theory to develop a conceptual model where managerial ties enable BMI through the sourcing of resources from ecosystems and incubator communities embedding the focal venture. Analysis of survey data provides considerable empirical support for this model. Overall, the article clarifies the theoretical relationship between managerial ties and BMI, and the role of the external environment within the context of resource-based theory.

KEYWORDS:

• Resource-based theory
• business model innovation
• innovation management

Introduction

New and smaller ventures constitute an important part of the economy in most advanced countries (Davis & Bendickson, 2018; Drnevich & West, 2023; Perkins, 2019). A dynamic business sector is characterized by small flexible ventures that take advantage of new business opportunities (Clausen, 2020a; Kontinen and Ojala, 2011), leverage networks (Brunswicker & Vanhaverbeke, 2015; Lowik et al., 2012), enter new markets (Ahi et al., 2017), and derive income from new customer groups. To do this successfully, ventures typically need to alter the logic for how they create and capture value (Chesbrough, 2010; Cavallo et al., 2023; Kindström et al., 2022). Such change is referred to as business model innovation (BMI) (Desyllas & Sako, 2013; Teece, 2017). Business model innovation can be understood as “the discovery of a fundamentally different business model in an existing business” (Markides, 2006, p. 20) and suggests how smaller ventures can grow (far) beyond a nascent scale.

However, “businesses face significant barriers to business model experimentation” (Chesbrough, 2010, p. 358), particularly small ventures (Cosenz & Bivona, 2020; Miller et al., 2020; Kindström et al., 2022). The reasons are, as discussed in the literature on liabilities of newness and smallness (Aldrich & Auster, 1986; Bodlaj & Čater, 2019; Stinchcombe, 1965), that new and smaller ventures suffer from resource constraints such as lacking access to know-how, knowledge, ideas, technology, and finance, and having poorly developed capabilities (Cai et al., 2014; Drnevich & West, 2023; Levallet et al., 2023; Su et al., 2011; White et al., 2022). Further, BMI often involves dropping current activities and existing revenue streams. This typically triggers resistance and conflicts with existing assets and resources. This makes BMI risky for small ventures. BMI may also require the building of new capabilities and new external partnerships (Hargadon, 2015), which is costly.

A fundamental issue facing smaller ventures is thus the “question of how to achieve business model innovation” (Taran et al., 2015, p. 304). It turns out that there is no clear answer to this important question within the small venture setting (Miller et al, 2020; Morris et al., 2013). There is a paucity of research pertaining to theoretical and empirical facets of the business model construct (Andreini & Bettinelli, 2017), particularly when it comes to the small venture context (McAdam et al., 2016) and large-scale empirical research on its antecedents (Bhatti et al., 2021). This gap is a flaw in our knowledge of new and small ventures (McAdam et al., 2016). It limits our understanding of how these ventures, which occupy a vitally important segment of the business population (Blanchard, 2017; Bodlaj & Cater, 2019; Kindström et al., 2022; Minh & Hjortsø, 2015; Peón & Martínez‐Filgueira, 2019), may embark on new growth trajectories.

We respond to this gap by using, and extending, the resource-based view (RBV) of entrepreneurship (Alvarez & Busenitz, 2001). Using this theory, we propose a model of how smaller ventures can succeed with BMI. Our point of departure is the theoretical notion in this theory that entrepreneurs have individual specific resources that facilitate opportunity recognition as well as the assembly and reorganization of resources. These resources can create new production functions in smaller ventures (Alvarez & Busenitz, 2001). However, the RBV of entrepreneurship is somewhat unclear about what “new production functions” might be in practice. This makes this theory unnecessarily abstract and vague. Clarifying this, we propose that BMI is a specific manifestation of how founder-managers might discover new production functions.

Further, while the RBV of entrepreneurship postulates that social interaction underpins opportunity recognition and the assembly of resources (Alvarez & Busenitz, 2001), this mechanism has not been thoroughly unpacked. Seeking to improve and clarify this, we draw on the literature on managerial ties. Managerial ties can be defined as “executives’ boundary-spanning activities and their associated interactions with external entities” (Geletkanycz & Hambrick, 1997, p. 654). Importantly, ties facilitate embeddedness through the strength of interaction with external entities. Such embeddedness enables ventures and their managers to identify and mobilize external resources not elsewhere available to the venture (Halinen & Tornroos, 1998; Jack & Anderson, 2002). This is in line with the resource-based theory of entrepreneurship, where it is argued that resources sourced through social interaction can be used to create “resource bundles and capabilities underlying production (that) are heterogeneous across firms” (Alvarez & Busenitz, 2001, p. 757). Overall, this suggests that managerial ties are a key driving force behind BMI in smaller ventures.

However, we also propose that what founder-managers can accomplish through their ties is mediated by access to resources in the environment that are typically manifest in entrepreneurial hotspots. We focus on incubators and entrepreneurial ecosystems (EEs) as prime examples of such hotspots. While incubators are a (very) local environment and community for ventures (for example, Bergek & Norrman, 2008), entrepreneurial ecosystems have a broader and regional outreach and manifestation (Acs et al., 2016; Autio et al., 2018; Novotny et al., 2020). However, both incubators and ecosystems are characterized by interaction among members (Autio et al., 2018; Novoltny et al., 2020), collective learning, and knowledge transfer around a certain domain. Through embeddedness, such hotspots contain a latent pool of resources that may foster BMI among new and small ventures (if accessed). Reflecting this, the following research question has guided this article: What is the interplay between managerial ties on the one hand, and resources in incubator communities and resources in entrepreneurial ecosystems on the other, in enabling business model innovation among new and small ventures?

This article adds to the literature by connecting three important concepts—managerial ties, BMI, and external resources (manifest in incubators and EEs)—in the form of a conceptual model. Importantly, we use the entrepreneurship of resource-based theory (Alvarez & Busenitz, 2001) to articulate the theoretical logic between the concepts in our model. We also contribute back to this theory by explicating BMI as a manifestation of how smaller ventures might discover and develop new production functions. Further, we show how this is underpinned by social interaction by directing explicit attention to the role of managerial ties. This helps to build new theoretical insights, as called for, for instance, by Puchibar et al. (2019) who argue that a sound theoretical foundation of the BMI concept is still missing. Moreover, this article extends extant research on managerial ties (Peng & Luo, 2000) by linking this concept with theorizing on incubators and EEs, offering a new connection between these important concepts and their associated literatures (for example, Mian et al., 2016; Spigel, 2017). Further, the model also illuminates how the external environment can enable BMI, a current gap in extant BMI theory and research (Foss & Saebi, 2017). Importantly, the model is empirically tested, providing in-depth insight into antecedents of BMI based on large-scale empirical data, as recently called for (Bhatti et al., 2021).

Theoretical background and hypothesis development

Resources are crucially important for ventures’ competitive advantage. In the resource-based view of the firm, they are defined as “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness” (Barney, 2001, p. 101). VRIO resources are of particular interest in this theory. Such resources are valuable, rare, difficult to imitate, and organized to exploit these resources (VRIO). Such resources are of particular interest in this theory (Barney, 1991; Knott, 2015; Wright et al., 2014).

While the domain of RBV has traditionally focused on large corporations, there is ongoing interest in extending the theory to entrepreneurship and new and small ventures (for example, Brush et al., 2001; Orrensalo et al., 2022). New and small ventures are typically defined by younger age and lower levels of sales and employment, and they are characterized by (severe) resource scarcity, particularly when compared to others in their industry (Street & Cameron, 2007). Hence, most new and small ventures do not have VRIO resources. As a result, they often compete on the margin and persistently underperform (Pindado et al., 2023). Thus, understanding the relationship between resources and competitive advantage, within the domain of new and small ventures, is important.

Alvarez and Busenitz (2001) made an important contribution and clarification in this regard when they explicated the domain of VRIO resources in RBV to include: (a) opportunity recognition as a resource, and (b) the ability to assemble and combine resources as a resource. An important aspect of this theoretical notion is that agents (for example, entrepreneurs) have different insights about the value of resources, which is a resource in itself. Entrepreneurs can use this to organize other resources, often in new ways, which then becomes another important facet of the entrepreneur’s unique resource base (Alvarez & Busenitz, 2001).¹

However, whether and to what extent these resources lead to new (superior) production functions for new and smaller ventures remains something of a black box in the resource-based view of the firm (Cai et al., (2014). We argue that business model innovation can help to clarify this. The reason is that BMI is a specific manifestation of how founder-managers can create new (superior) production functions in smaller ventures.

From business model to business model innovation

Entrepreneurship scholars have long documented that individuals have heterogeneous resources such as human capital (Colombo & Grilli, 2010; Stuart & Abetti, 1990). These resources typically constitute a point of departure for the venture’s first business model (Alvarez & Busenitz, 2001). A business model (BM) may be defined as “concise representation of how an interrelated set of decision variables in the areas of firm strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets” (Morris et al., 2005, p. 727). Importantly, a BM is a construct that describes how an entire organization, with all its members, stakeholders, resources, and capabilities, intends to create value. Thus, creating and implementing a BM is an important way in which new and smaller ventures can overcome liabilities of newness and smallness, the threat of early and premature failure for new and small ventures (Stinchcombe, 1965; Su et. al., 2011, White et. al., 2022).

However, the strong connection between individual resources and the first BM can also be a straight coat. The reason is that the first BM is typically strongly grounded in founders’ resources and knowledge, which often are limited. Moreover, and as stressed by organization scholars, individual specific resources are not the same as organizational assets (Posen and Chen, 2013). Therefore, to grow beyond a nascent scale, there is typically a need to rejuvenate and change existing business models. Growth is mainly enabled by tapping into new sources of revenues, customers, and markets, which typically involves the need to go beyond the resources possessed by the entrepreneur and the team of founder-managers at startup. This calls for innovating the BM (Cavallo et al., 2023), but this also can be difficult (Chesbrough, 2010). This is reflected in extant understandings of BMI as “the discovery of a fundamentally different business model in an existing business” (Markides, 2006, p. 20), and a situation where a “firm adopts a novel approach to commercializing its underlying assets” (Gambardella & McGahan, 2010, p. 263). Reflecting this, we define BMI as a “‘new-to-the firm’ change that affects at least one out of three business model dimensions: value offering, value creation architecture and revenue model logic” (Spieth & Schneider, 2016, p. 690).

Given the importance of BMI for ventures, the extant literature has focused significant attention to its antecedents. These include organizational age and industry (White et. al., 2022), managerial attention (Frankenberger & Sauer, 2019), effectuation (Futterer et al., 2018), digitalization in general (Caputo et al., 2021), applying the internet of things (Haaker et al., 2021), market orientation (Yang et al., 2020), mastering of technology and business complexity (To et al., 2019), absorptive capacity and organizational agility (Bhatti et al., 2021), and industry structure (Waldner et al., 2015). Despite the growing number of articles published in this space, there still are some challenges facing the field. This is especially true with respect to construct clarity of BMI (Foss & Saebi, 2017) and the lack of sound empirical models (White, et. al., 2022). Moreover, while the extant literature has placed a solid emphasis on the BMI-performance relationship (White, et. al., 2022), and found that BMI increases venture performance (White, et. al., 2022), there is less guidance in the literature on how small ventures can achieve BMI with limited resources (Levallet et al., 2023). With this as a backdrop, we focus on the role of managerial ties.

The role of managerial ties

BMI typically requires sourcing of resources, insight, and knowledge that may be completely new to the venture. Innovation, such as BMI, is typically understood as the (re)combination of new and old knowledge (Katila and Ahuja, 2002; Schumpeter, 1934). Interestingly, this aligns with the notion in RBV that new superior production functions can be created through the assembly and reorganization of resources (Alvarez & Busenitz, 2001; Futterer et al., 2018). However, innovating the BM is a serious challenge for smaller ventures because “compared to larger organizations, small ventures require major efforts to innovate their BMs as they encounter relatively more barriers—such as limited strategic capabilities and resources, poor networking capacity—to grow and survive” (Cosenz & Bivona, 2021, p. 650). Consequently, they lack resources and combinations of resources to create the uniqueness needed to become competitive (Armstrong & Shimizu, 2007). What they face is, in other words, a strong liability of resource scarcity (Carroll & Hannan, 1989) that constitutes a barrier to growth.

A crucial issue for smaller ventures is therefore to access new resources that the venture can use to innovate the BM (Cai et al., 2014; Levallet et al., 2023). Research has, in this regard, emphasized the importance of managerial ties. Managerial ties can be defined as “executives’ boundary-spanning activities and their associated interactions with external entities” (Geletkanycz & Hambrick, 1997, p. 654). Interestingly, the notion of ties and their functions (Guo, et. al, 2017) aligns well with the insight in the resource-based theory of entrepreneurship (Alvarez & Barney, 2004) that acquisition and assembly of resources is underpinned by social interaction (Huggins & Thompson, 2014). As Alvarez and Busenitz (2001) explain, “The unique ways in which entrepreneurs think and expose themselves to a varied cross-section of social interactions allow them to accumulate the necessary and sometimes rare resources” (p. 768).

The concept of managerial ties can therefore help to explain and unpack how founder-managers in the resource-based view can source external resources through their connections (Peng & Luo, 2000; Shih & Aaboen, 2019; Wang, et. al., 2017). Importantly, ties facilitate “the detection and exploitation of opportunities and the identification and acquisition of resources needed to pursue these opportunities” (Schierjott et al., 2018, p. 109). Therefore, managerial ties can create new superior production functions in the form of BMI in small ventures:

H1:

There is a positive relationship between managerial ties and business model innovation among smaller ventures.

The role of the external environment

The external environment is deemed to be an important source of resources for small and new ventures (Aldrich, 1999) that may, at least in part, compensate for lacking internal resources and capabilities (Roberts, 2006). If mobilized, these resources can be used to create new superior production functions in new and small ventures and enable competitive advantage (Armstrong & Shimizu, 2007; Barney, 2001; Wernerfelt, 1984).

Extant theory and research also suggest that outcomes contingent on managerial ties are conditioned by the resources present in the external environment of the venture (Clausen, 2020b; Perkins, 2019). We are lacking an understanding of this central issue in the RBV of entrepreneurship. This theory has focused on social interaction in resource acquisition (Alvarez & Busenitz, 2001), but has not thoroughly incorporated how the external environment embedding such social interaction might matter. Further, there is also scarce knowledge in the BMI literature on how the external environment enables BMI (Foss & Saebi, 2017). Focusing on this gap in our understanding, we propose that managerial ties interplay with external resources in incubators and EEs in shaping BMI.

Incubators and EEs are key hotspots and external reservoirs of resources that have the potential to enable BMI in small ventures. This relates to the venture being embedded in the context they take part in (Halinen & Tornroos, 1998; Jack & Anderson, 2002). Small ventures and their managers can—through embeddedness—identify external resources (Jack & Anderson, 2002). This leads ventures to tap into a wider set of resources than are available internally. Embeddedness also helps to explain why certain ventures can tap into external resources and others cannot (Huggins & Thompson, 2014).

Entrepreneurial ecosystems

It is well established in the literature that some regions have a higher flow of ideas, information, and advice (Clausen, 2020b). Such regions are characterized by a larger pool of external resources such as finance, access to research and development (R&D) active institutions and industry partners, and managerial know-how. This generates community learning, positive externalities, and productive entrepreneurship (Freire-Gribb & Nielsen, 2014; Glaeser & Resseger, 2010; Helsley & Strange, 2011).

In recent years, the entrepreneurial ecosystem concept has emerged as a framework to describe the “inner force” and dynamics within a region in which entrepreneurial activity flourishes (Autio et al., 2018; Isenberg, 2010, 2011; Neck et al., 2004; Spigel & Harrison, 2018; Spilling, 1996). An EE can be defined as “combinations of social, political, economic, and cultural elements within a region that support the development and growth of innovative start-ups and encourage nascent entrepreneurs and other actors to take the risks of starting, funding, and otherwise assisting high-risk firms” (Spigel, 2017, p. 50).

EEs are typically composed of the flow of ideas, information, and advice that may be used to challenge existing business models and provide ideas for how to rejuvenate them (Alaassar et al., 2023). Importantly, EEs also have a culture that emphasizes entrepreneurship, risk-taking, initiative, and a dedicated community enabling knowledge transfer and learning. Thus, EEs may be conceptualized as hotspots characterized by knowledge sharing, collective learning (Alvedalen & Boschma, 2017), and resource transfer within entrepreneurship (Alvarez & Barney, 2007) as a domain that resource-constrained smaller ventures can benefit from when seeking to innovate their BM. However, the EE literature has mainly focused on startups, and scholars have criticized the EE perspective for being quite “shallow” in its explication of how EEs really influence new and smaller ventures (Nicotra et al., 2018). We therefore propose that BMI is a proper dependent variable when seeking to understand how EEs may influence the growth prospects of smaller ventures, a theoretical conjecture that we aim to test through the following hypothesis:

Hypothesis 2:

Resources in entrepreneurial ecosystems (EEs) enable business model innovation in smaller ventures.

Incubator communities

A regional ecosystem typically embeds many distinct communities and specialized hotspots (Novotny et al., 2020). The community and milieu in and around the place where smaller ventures are located is a critical source of resources for smaller ventures. Thus, what smaller ventures can accomplish is heavily influenced by their local access to complimentary resources, advice, knowledge sharing, and collective learning (Clausen, 2020b; Korsgaard, et al., 2015).

An incubator is one such local hotspot within a larger ecosystem. Incubators constitute a community and a distinct environment within EEs that can be a source of resources for entrepreneurial ventures (Bruneel et al., 2012; McAdam & McAdam, 2008; Mian et al., 2016). Incubator managers, as well as other clients and tenants in the incubator, constitute a localized environment with members interacting around entrepreneurship as a domain and develop a shared practice for how to solve problems and learn within that domain. Resources include access to innovation expertise such as advisors in the incubator with knowledge of the process of renewing business, industry partners, as well as other small business managers (Breivik-Meyer et al., 2020). We therefore propose that incubator environments constitute a specialized reservoir of external resources that promote BMI in small ventures:

Hypothesis 3:

Resources in incubator (INC) communities enable business model innovation in smaller ventures.

Mediating relationships

Pushing beyond the general notion of the importance of being embedded, we propose that managerial ties, at least in part, drive external resource mobilization from external hotspots like ecosystems and incubators. A key reason is that connections to external actors—as reflected in managerial ties—enable a higher level of embeddedness within external environments. Thus, access to the resources in incubators and EEs is contingent on having considerable managerial ties. This embeddedness (Granovetter, 1985; Uzzi, 1997), enabled, at least partially, through ties, influences the depth and breadth of external resources that founder-managers can source to their smaller venture. A key reason is, as postulated in the entrepreneurship of resource-based theory, that the assembly and reorganization of resources rests on social underpinnings. As Alvarez and Busenitz (2001) explain, “Rare resources that an entrepreneur uses to create heterogenous outputs … and their availability becomes known through the entrepreneur’s diverse cross-section of acquaintances” (p. 768). Cao and Shi (2021) support this argument by stating that entrepreneurial ecosystems “should provide the institutional context and structural elements that allow entrepreneurs to overcome such liabilities of newness” (p. 82).

We simply add to this line of reasoning that the amount and quality of resources residing within ecosystems and incubator communities will condition the quantity and quality of resources that entrepreneurs can potentially source through their ties. Furthermore, managerial ties are a resource that facilitates exchange relationships with external actors. A manager with more social ties to others is not only more likely to be exposed to a greater variety of ideas, resources, and knowledge from the external environment. He or she is also much more likely to be a resource for others, such as sharing knowledge and contacts that others do not have, which can be used in external resource exchange relationships. Taking all this together, we argue that ties provide integration and embeddedness in local communities and ecosystems. This provides access to valuable resources. External resources in incubators and EEs will therefore mediate (Shih and Aaboen, 2019) the direct relationship between ties and BMI:

Hypothesis 4a:

Resources in entrepreneurial ecosystems (EE) mediate the relationship between managerial ties and business model innovation.

Hypothesis 4b:

Resources in incubators (INCs) mediate the relationship between managerial ties and business model innovation.

Figure 1 is a model summing up the proposed relationships in the theoretical discussion above. In brief, we test five hypotheses in the empirical section. The model shows clearly that we propose a mediation analysis where resources in EE and incubators act as mediators in the relationship between managerial ties and BMI. Overall, the model we test is summarized in Figure 1 with the corresponding hypotheses.

Figure 1. Hypotheses.

Research methods

Research context

Many of the concepts of interest in this study require sophisticated measurements. While survey data have some drawbacks, as discussed further below, they have the key advantage that concepts, such as BMI, can be measured indirectly using measurable scales representing a latent construct.

Obtaining responses to surveys is increasingly difficult. To overcome this challenge, we included items measuring the key concepts of interest, such as BMI, in a large-scale survey administered to smaller ventures in rural incubators in Norway tasked with promoting regional development.² The survey is conducted annually and sponsored by a public agency, Siva, which supports incubation programs in Norway on behalf of the Norwegian government.³ Items measuring the key concepts of interest were included as a voluntary part of the annual survey.

After three reminders, 776 ventures participated in the annual survey, and 448 ventures also volunteered to participate in the research component of the annual survey. Therefore, the response rate was 43 percent in general, but 25 percent considering that not all participants wanted to participate in answering the voluntary research questions. Overall, the adopted survey design constitutes a decent trade-off between obtaining insightful responses, not wasting the time of unwilling participants, research ethics (that is, not “forcing” responses), and obtaining more responses than we would have managed to obtain if the survey had been conducted without the backing of the public agency.

Dependent variable

We used a recently validated scale to measure BMI (Spieth & Schneider, 2016). Details of the factor loadings can be found in the appendix Table A1. The scale consists of nine items, where example items are: “Target customers have changed,” “The firm’s core competences and resources have changed,” and “Revenue mechanisms have changed.” Importantly, the use of a validated scale to measure BMI concepts helps to alleviate prior concerns that BMI is a slippery concept with definitional ambiguity and unclear boundaries (for example, McAdam et al., 2016; Morris et al., 2013; Ritter & Lettl, 2018). A factor analysis (exploratory) suggests that BMI is best measured as a unidimensional concept (that is, captured using a single latent factor). The Dillon-Goldstein rho is 0.93, suggesting a high degree of construct validity. We used the Dillon-Goldstein rho as a composite measure because it has been shown to be more reliable than the more classical Cronbach’s alpha (Chin, 1998).

Key explanatory variables

Managerial ties (TIES): We adapted items and procedures from Peng and Luo (2000) to measure the concept of managerial ties. The following question was asked: “How would you describe the extent of the social network that the team of funder-managers had to the following types of actors when the venture became affiliated with the incubator community: entrepreneurs, (potential) customers, (potential) suppliers, (potential) investors, (potential) collaboration partners, and influential individuals in the region.” Responses were recorded using a 5-point scale ranging from “very limited” to “very extensive.”

Entrepreneurial ecosystem (EE): Our second hypothesis postulates a positive relationship between resources in EEs and BMI among small ventures. We used a recently validated scale that operationalizes EEs (Liguori et al., 2019). The scale measures six pillars of EEs—finance, support, culture, human capital, markets, and policy—reflecting Isenberg’s (2010, 2011) conceptual work. These items act as a proxy for resources in the EE. In this article, we focus on their combined overall influence on BMI, selecting three indicators per pillar. The scale in our analysis consists of 18 items and the following are examples of items (per pillar): “I believe the resources in my community are well designed to support business growth,” “There are local individual investors in my community who are willing to financially support entrepreneurial venturing,” “The social values and culture of the community emphasize creativity and innovativeness,” “There are entrepreneurial training programs, such as entrepreneurship bootcamps, available in my local community,” “My community networks could help me distribute new products across a variety of new markets,” and “Local community leaders regularly advocate for entrepreneurs.” The scale has a Dillon-Goldstein rho between 0.44 and 0.75.

Incubator (INC): To measure the resources within the incubator community, we adapted items by Hackett and Dilts (2008). We used six items to measure this concept: ”The incubator inspires to collaboration, networking and clear-thinking,” “the social environment in the incubator provides me with energy to further develop the business,” “firms in the incubator exchange information with each other,” “firms in the incubator run concrete projects together,” and two items measuring the extent of formal/informal meetings with incubator managers. The Dillon-Goldstein rho is 0.93, and a factor analysis (exploratory) supported a unidimensional measurement of this concept. These items acted as a proxy for resources in the incubator community.

Control variables

Prior competence of the management team (PRIOR): Extant research suggests that managers’ prior competence is a key asset for new and small ventures, and a key driving force behind BMI (Sosna et al., 2010). We adopted items from Zhao et al. (2013) to measure this concept. In the survey, the following general question was asked: “To what extent can you and/or others in the management team help the firm with (unique) competence acquired from education and/or prior work experience in the following areas: ‘developing products/services,’ ‘knowledge about markets,’ ‘understanding customer needs,’ ‘knowledge about relevant technologies,’ and ‘competence in organizational development’?” The participants could indicate their answer to each question on a scale ranging from 1 to 5. The prior competence of the management team was therefore measured as a latent concept with five items.

To capture the differences among the incubators, we controlled for incubator fixed effects. Importantly, doing so also controlled for differences in the region where each incubator was located. Moreover, we controlled for the differences in organizational size at the time of the survey. Extant research has shown that smaller ventures suffer from the liability of smallness, an effect that typically leads to bias in other parameter estimates associated with organizational aging unless controlled for (Carroll & Hannan, 2000). Venture size was measured in terms of size categories and was obtained from the survey.

The descriptive statistics as well as bivariate correlations and composite reliability for all included variables/concepts are presented in Table 1.

Table 1. Correlation matrix and descriptive statistics - latent constructs.

	Mean	SD	Max	Min	INC	TIES	EE	BMI	SIZE	PRIOR	RHO
INC	2.71	0.72	4.42	0.76	1						0.90
TIES	2.04	0.59	3.72	0.72	0.319	1					0.87
EE	1.96	0.48	3.38	0.67	0.430	0.312	1				0.93
BMI	2.31	0.69	3.84	0.77	0.464	0.290	0.388	1			0.93
SIZE	2.71	1.24	5.00	1.00	0.107	0.212	0.024	0.170	1
PRIOR	4.63	3.27	12.00	1.00	0.128	0.034	0.017	0.234	0.324	1

Note: Pairwise correlations based on latent constructs build from factor scores in SEM estimation for the full model. Various models did not change results. Rho is Dillon-Goldstein Rho Chin (1998) considered a more reliable measure of internal validity than Cronbachs Alpha.

Our study attempted to answer to the call for best practice in management research as put forth by Hair et al. (2012, 2019). This entails reporting on effect sizes (standardized beta coefficients), standard errors, goodness-of-fit measures, collinearity metrics, convergent and discriminant validity metrics, and tests for nonlinear effects and endogeneity unobserved heterogeneity (Hair et al., 2019, 2020). Finally, we used prior competence as a theoretical benchmark variable in the analysis. Prior competence has been highlighted as a crucial variable in extant theory and research on BMI (Sosna et al., 2010). It is therefore of substantial theoretical interest to compare the extent to which managerial ties and external hotspots can explain BMI relative to prior competence of the team of founder-managers.

Potential problems and implemented remedies

The data and methods employed in this study have some limitations and challenges. Most notably, we have strived to address common method bias stemming from the nature of survey data, discriminant validity, and reliability of focal constructs. A Harman’s single factor score test did not account for more than 25 percent of the total variance (considering 50 percent to be a major problem). Thus, common method bias should not be a major concern that invalidates the analysis. We assessed discriminant validity by estimating the heterotrait-monotrait (HTMT) ratio (Hair et al., 2019). The test statistic varied between 0.03 and 0.41 for the focal variables at hand. This was below the typical threshold of 0.85 described in the literature (Henseler et al., 2015).

Only some of the participants answered all the questions in our survey, a potential source of selection bias. We used the Heckman two-step selection model to control for potential selection bias (using the passing of time in incubator as an instrument). The inverse mills ratio (IMR) (which controls for selection bias) is added as an explanatory variable in all the partial least square structural equation modeling (PLS-SEM) models estimated in this study.

Estimation strategy

Several of our hypotheses included mediation between core constructs. Further, the core concepts in this study were unobservable. These characteristics lend themselves to the use of PLS-SEM. This econometric technique is particularly useful when the researcher aims to analyze paths between latent variables from smaller sample sizes (less than 1,000). Moreover, it enables multiple simultaneous mediation analyses to take place, thus making us able to study two mediators at the same time.

Analysis

Table 2 presents the results from the PLS-SEM estimations. Four models are estimated where model 1 captures only direct effects, models 2 and 3 separate mediating effects, and model 4 is a simultaneous mediation model with both incubators and entrepreneurial ecosystems included.

Table 2. PLS-SEM results.

			Model 1			Model 2			Model 3			Model 4
			Beta	t-value		Beta	t-value		Beta	t-value		Beta	t-value
IMR	->	BMI	-0.28	-2.21		0.10	0.87		-0.18	-1.23		0.09	0.75
PRIOR	->	BMI	0.09	1.67		0.12	2.28		0.10	1.54		0.12	2.12
SZ	->	BMI	0.10	1.67		0.02	-0.29		0.10	1.65		0.01	0.17
TIES	->	BMI	0.25	5.26		0.10	2.09		0.12	2.35		0.04	0.78
TIES	->	INC				0.33	6.87					0.32	6.28
INC	->	BMI				0.44	6.93					0.36	6.29
TIES	->	EE							0.33	7.64		0.33	6.39
EE	->	BMI							0.34	6.14		0.22	4.07
Incubator Fixed Effects				YES			YES			YES			YES
R2				0.24			0.37			0.33			0.40
Goodnes of fit				0.37			0.37			0.33			0.32
BIC				-349			-486			-495			-581
N				442			442			409			409

Note: Standard errors estimated using boostrapping with 10 000 simulations. VIF test exposed no severe multicolinearity.

The results show that the prior competence (PRIOR) of the team of founder-managers had a significant positive relationship with small ventures’ efforts to innovate their business model. This is a testimony to the effect of managers’ prior competence in driving BMI, as postulated by extant research (Sosna et al., 2010). Managerial ties had a direct, positive, and statistically significant relationship with BMI. This supports H1. We also found a direct positive and significant relationship between the EE scale and BMI. Further, Table 2 shows that the incubator community scale had a positive and significant relationship with BMI. These findings support H2 and H3.

Furthermore, we found that INC and EE each, in turn, partially mediated the relationship between managerial ties and BMI (supporting H4a and H4b), as displayed in Figure 2. Interestingly, in model 4, we see that, taken together, INC and EE represented a full mediation as evident from the results in Figure 2. Figure 3 sums up the results from our empirical analysis.

Figure 2. Mediation results.

Figure 3. Summarized relationships and support.

Discussion and conclusion

Theorizing in conjunction with the resource-based view of the firm postulates that founder-managers have VRIO resources that facilitate opportunity recognition, as well as the assembly and reorganization of resources (Alvarez & Busenitz, 2001). A central notion of this theory is that these resources have the potential to create new (superior) production functions in new and small ventures. This represents an interesting and much-needed expansion of RBV view to new and small ventures. However, there is a need to theoretically unpack, and empirically analyze, to what extent and how this happens. Thus, using the RBV of entrepreneurship as a point of departure, we developed a conceptual model where BMI represents one specific way in which founder-managers can create new superior production functions in new and smaller ventures.

Managerial ties and BMI

A key aspect of the RBV of entrepreneurship is that social interaction underpins opportunity recognition and assembly of external resources. However, RBV theory is rather unclear on how this pans out. Our article clears (some of) this fog by introducing the concept of managerial ties (Peng & Luo, 2000). Our research shows that managerial ties is indeed a key antecedent of BMI for smaller ventures. Interestingly, ties have a positive significant effect on BMI above and beyond the effect of prior competence. Our findings thus offer empirical support for the view that founder-managers’ social ties underpin the relationship between opportunity recognition, resource acquisition, and new superior production functions in the form of BMI in new and small ventures (Alvarez & Busenitz, 2001). Thus, leveraging managerial ties is a crucial way in which small ventures can, at least partially, overcome the so-called liability of resource scarcity that hinders new and smaller ventures from embarking on new growth trajectories.

Overall, our results concerning managerial ties and BMI represent a needed unpacking of some of the core propositions of the RBV of entrepreneurship. These findings also suggest that there is a need to expand the RBV view of entrepreneurship by explicitly incorporating the role of managerial ties.

New and small ventures are embedded in a specific context and typically need to mobilize resources externally. Such an embeddedness view of resources has not been clearly articulated in the RBV of entrepreneurship. Incorporating this is important because founder-managers of new and smaller ventures typically need to source resources from their external environment (Peng & Luo, 2000; Schierjott et al., 2018). Thus, it becomes important to understand whether and to what extent the relationship between ties and BMI is influenced by (resources in) the external environment (Clausen, 2020b; Perkins, 2019) in the RBV of entrepreneurship (Alvarez & Busenitz, 2001). Reflecting this, we developed a conceptual model unpacking the role and interplay between managerial ties, external resources in incubator communities, entrepreneurial ecosystems, and business model innovation.

We found a significant and positive relationship between incubators and BMI (supporting H3) as well as a positive significant relationship between ecosystems and BMI (supporting H2). These empirical results support the important theoretical conjecture that being embedded in external environments with higher resource prevalence and munificence, such as incubator communities and EEs, has a positive influence on BMI. This is in line with an embeddedness view where resources prevalent in the external environment (Perkins, 2019) matter for the development of new production functions in new and smaller ventures, at least in the form of BMI.

By noting the importance of external resources and the external environment, our model also proposed that there may be clear limits to what founder-managers of new and smaller ventures may accomplish through their ties alone. The reason is that what managers can source through their ties will be contingent on the prevalence and munificence of resources in the external environment (Clausen, 2020b). Our model thus proposed a mediation mechanism where external resources manifest in incubators and EEs mediate the relationship between ties and BMI. We found partial support for these hypotheses, and note that incubators and ecosystems fully mediate this relationship.

Taken together, our empirical results offer strong empirical backing for the resource-based view applied to small ventures. This perspective highlights the critical role of the resources of founder-managers (Alvarez & Busenitz, 2001; Velu & Jacobs, 2016), and then, particularly, opportunity recognition and resource assembly underpinned by social interaction such as managerial ties in our model. Through such resources, founder-managers can create new production functions in new and small ventures, at least in the form of BMI. At the same time, our model and the results explicate some of the weaknesses of the RBV applied to entrepreneurship. Our focus has been on the role of the external environment and embeddedness that has not been actively incorporated in this theory. Our results clearly show that the external environment (Clausen, 2020b; Perkins, 2019), in the form of incubator communities and ecosystems, influences BMI. Thus, the embeddedness of resources matters, in addition to the resources of the founder-manager.

Implications, limitations, and further research

Our conceptual model and empirical results have connected important concepts in three distinct literatures on managerial ties, incubators and EEs, and BMI. Importantly, the model, and its empirical verification, unpacks how the external environment influences BMI, which is called for in the BMI literature (Foss & Saebi, 2017). Moreover, our article adds further clarity by showing that smaller ventures and their managers need to be connected to external actors to harness the positive influence of (available resources in) the external environment when seeking to innovate the business model. At the same time, we demonstrated that what managers can accomplish through their ties is conditioned by the availability of resources in the external environment. Thus, our article has revealed important interplay between concepts such as managerial ties, external resources (in incubators and EEs) and BMI (Peng & Luo, 2000; Wang et al., 2017).

Our model and analyses also have implications for literature on how resources in incubators and ecosystems enable BMI. Prior studies have criticized the EE literature for having a somewhat shallow understanding of the extent to which EEs are relevant and, if so, how they influence ventures (Mack & Mayer, 2016; Nicotra et al., 2018). Focusing on BMI, this study found that resources in EEs are an important driving force behind small ventures’ efforts to innovate their business model. This finding reinforces the notion that BMI may be a proper dependent variable for EE research, particularly when understanding the relevance of EEs for small ventures. A key reason is that unlike nascent ventures, newer and smaller ventures already have an (incomplete) business model in place and face the challenge of rejuvenating it. Thus, while much extant research has focused on how EEs can mitigate the liability of newness (for example, Autio et al., 2018), this study draws attention to BMI as a way for smaller ventures to scale up and overcome the liability of resource scarcity. Thus, this study may have uncovered a new role for EEs as a source and driving force of BMI among new and small ventures. Overall, this study has demonstrated the usefulness of connecting two somewhat disparate literatures, those on BMI and EEs, and by doing so, it has uncovered a new role for EEs as a driving force behind BMI in the context of smaller ventures.

A key implication for managers of smaller ventures is that the external environment enabling BMI is, to a substantial extent, created by connections between actors facilitated by ties to others. Importantly, ties are also a variable that managers may strategically manipulate. Ties to others can be created and new networks can be formed through managerial action. Thus, focusing on how to exploit and further develop managerial ties emerges as a particularly effective way for smaller ventures to overcome the liabilities that hinder BMI.

Limitations and future research

A weakness of this study is that the empirical analysis is limited to ventures participating in a public incubation program. While incubators are an important constituent part of external hotspots, it is important to examine how ecosystem and community dynamics come into being in other communities, such as coworking spaces, science parks and other (corporate) entrepreneurship scenes. Such examinations are an important avenue for further research. Moreover, this paper has focused on BMI. Thus, it is important to emphasize that resources in EEs and constituent communities may influence other aspects of small venture development, such as other types of innovation. Furthermore, the empirical approach faces shortcomings and challenges, such as cross-sectional and self-reported data, which invalidate causal claims. Qualitative research designs are also needed to develop an in-depth understanding of the mechanisms and processes involved. Lastly, we have focused on Norway. Research from other countries and contextual settings is needed to derive an improved understanding of BMI among small ventures. Therefore, the present paper is only a small step toward an improved understanding of BMI in the small venture setting.

Conclusion

This article has advanced the resource-based view of entrepreneurship (Alvarez & Busineitz, 2001) by proposing that (a) business model innovation is a specific way in which smaller ventures can discover new production functions, (b) opportunity recognition and resource assembly needed to innovate the business model for smaller ventures is underpinned by managerial ties, and (c) their influence is conditioned by external resources. Empirical analysis of survey data collected among smaller ventures in Norway supports these key conjectures. Overall, our article explicates important mechanisms in resource-based theory applied to new and small ventures. Further, we can connect this important theory perspective with the literature on BMI, managerial ties, and external resources (in ecosystems and incubator communities).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The notion of opportunity recognition has similarities with the so-called discovery view of entrepreneurial opportunities. However, Alvarez and Busenitz (2001) also noted in their article that opportunities are perceived, driven by entrepreneurial cognition and creative insights, and that entrepreneurs see and create new opportunities. What we think is the most important contribution from the article is the notion that beliefs about the value of resources is a resource in itself, and that this resource enables entrepreneurs to collect and organize resources in new ways.

² The rural incubators are called Næringshage in Norwegian.

³ The authors were involved in the data collection as consultant-researchers on behalf of Siva.

Appendix

Table A1. Factor loadings.

Latent	Item	Lambda	Std. Error	z-value	Latent	Item	Lambda	Std.Error	z-value
TIES	-> Q20.1	0.71	0.04	19.97	EE	-> Q26.1	0.45	0.05	9.63
	-> Q20.2	0.71	0.03	21.56		-> Q26.10	0.64	0.04	17.01
	-> Q20.3	0.70	0.04	17.77		-> Q26.11	0.60	0.04	13.46
	-> Q20.4	0.72	0.03	26.58		-> Q26.12	0.40	0.05	8.15
	-> Q20.5	0.83	0.02	49.12		-> Q26.13	0.69	0.03	22.96
	-> Q20.6	0.72	0.04	20.30		-> Q26.14	0.73	0.03	28.81
						-> Q26.15	0.77	0.02	33.91
INC	-> Q10.3	0.76	0.02	32.26		-> Q26.16	0.65	0.04	17.18
	-> Q10.6	0.83	0.02	42.36		-> Q26.17	0.66	0.04	18.31
	-> Q10.7	0.81	0.02	36.43		-> Q26.18	0.75	0.02	32.11
	-> Q10.8	0.77	0.03	26.65		-> Q26.2	0.61	0.04	16.81
	-> q14_r	0.71	0.03	27.75		-> Q26.3	0.62	0.03	19.94
	-> q15_r	0.75	0.02	34.52		-> Q26.4	0.56	0.04	14.04
						-> Q26.5	0.69	0.03	23.01
BMI	-> Q25.1	0.70	0.03	21.07		-> Q26.6	0.75	0.03	27.04
	-> Q25.2	0.81	0.02	41.53		-> Q26.7	0.71	0.03	23.61
	-> Q25.3	0.81	0.02	39.79		-> Q26.8	0.75	0.02	30.92
	-> Q25.4	0.79	0.02	39.23		-> Q26.9	0.44	0.06	7.82
	-> Q25.5	0.82	0.02	42.03
	-> Q25.6	0.74	0.03	27.50
	-> Q25.7	0.75	0.02	29.94
	-> Q25.8	0.81	0.02	37.40
	-> Q25.9	0.70	0.03	20.39