Sustainable Entrepreneurship

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Received: 26 December 2018 Revised: 30 August 2019 Accepted: 16 September 2019
DOI: 10.1002/bse.2396
RESEARCH ARTICLE
Sustainable entrepreneurship, innovation, and business models:

Integrative framework and propositions for future research
Florian Lüdeke‐Freund
Chair for Corporate Sustainability, ESCP

Europe Business School, Berlin, Germany Abstract
This article introduces the business models for sustainability innovation (BMfSI) frame-
Correspondence
Florian Lüdeke‐Freund, Chair for Corporate work to study how business models mediate between sustainability innovations and
Sustainability, ESCP Europe Business School, business cases for sustainability. The BMfSI framework integrates two major perspec-
Heubnerweg 8‐10, 14059 Berlin, Germany.
Email: fluedeke‐[email protected] tives (implicitly) found in the sustainable business model literature. The first is the
agency perspective. It takes into consideration that some form of agency is needed,
that is, “someone” who takes decisions and acts. Sustainable entrepreneurs are
discussed as those agents who align their new or existing business models with sus-
tainability innovations in order to be successful in business and to create value with
and for stakeholders. The second perspective is the systems perspective, which
acknowledges that business models are always embedded within sociotechnical con-
texts through which, for example, public policies, private financing, or stakeholder
interests influence whether and how business models can be developed. The agency
and systems perspectives are integrated in the so‐called business model mediation
space. This theoretical notion embraces the decisions and activities pursued by sus-
tainable entrepreneurs as they align their business models with sustainability innova-
tions on the one hand and the influence of environmental contingencies, barriers, and
stakeholders from the sociotechnical context on the other hand. The paper concludes
with propositions for future research derived from the BMfSI framework.
K E Y W OR D S
sustainable entrepreneurship, business model, sustainability innovation, sociotechnical context,

stakeholders, sustainable value creation, innovation theory, framework
1 | I N T RO D U CT I O N activities and whenever they aim for large market shares and socio‐
political influence (Hockerts & Wüstenhagen, 2010; Schaltegger,
Inventions with the potential to create positive ecological and social Hansen, & Lüdeke‐Freund, 2016; Schaltegger & Wagner, 2011). Sus-
effects need to leave their niches to turn into effective sustainability tainable entrepreneurs tie their business success directly to the achieve-
innovations (Boons, Montalvo, Quist, & Wagner, 2013; Geels, 2010). ment of positive effects for the natural environment and humankind and
Sustainable entrepreneurs face this challenge whenever they try to dis- thus to the creation of value for a broad range of stakeholders
seminate new solutions to sustainability problems through commercial (Freudenreich, Lüdeke‐Freund, & Schaltegger, 2019). However, current
--------------------------------------------------------------------------------------------------------------------------------
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© 2019 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd
Bus Strat Env. 2020;29:665–681. wileyonlinelibrary.com/journal/bse 665

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666 LÜDEKE‐FREUND
research reveals significant uncertainties related to innovation‐centric the intersection of sustainable entrepreneurship and business model
approaches: “Innovation has been widely regarded as a panacea for sus- research: How can business models support the commercialisation of sus-
tainable development, but there remains considerable uncertainty tainability innovations and contribute to the business success of sustain-
about how it will lead to a more sustainable society” (Hall & Wagner, able entrepreneurs?
2012, p. 183). To approach an answer to this question, the next section describes
The most important uncertainty for sustainable entrepreneurs is the research method applied to develop the business models for sus-
whether they can build successful businesses based on their innova- tainability innovation (BMfSI) framework. Its development builds upon
tions (Schaltegger & Wagner, 2011), despite the different barriers they the theoretical foundations of sustainable entrepreneurship, sustain-
may face (Kiefer, Del Río González, & Carrillo‐Hermosilla, 2019). ability innovation, business models, and environmental contingencies,
Depending on personal, organisational, and sociocultural values, busi- which are discussed in Sections 3 and 4. Section 4 then introduces
ness success can be defined as financial returns, nonfinancial effects the complete BMfSI framework. Finally, Section 5 discusses limitations
such as improved innovative capacities, or a positive societal impact of the framework and its relationship to other streams of research and
through the reduction of ecological and social ills (Breuer & Lüdeke‐ concludes with propositions for future research.
Freund, 2017a, 2017b). But regardless of personal motivations and suc-
cess metrics, sustainable entrepreneurs need to commercialise their
problem solutions and transform markets to create private and public 2 | R E S E A RC H M E T HO D
benefits on a significant scale and for various stakeholders
(Freudenreich et al., 2019; Schaltegger, Lüdeke‐Freund, Hansen, & Conceptual frameworks are important links between initial descrip-
Lüdeke‐Freund, 2016). This means that they must reduce or even elim- tions of phenomena (e.g., sustainable entrepreneurship; Cohen &
inate the market imperfections and negative externalities that lead to Winn, 2007) and theories capable of explaining and predicting these
humanity's unsustainable development (Cohen & Winn, 2007). Some phenomena (e.g., when such entrepreneurs emerge; Hockerts &
sustainability scholars even argue that the worsening state of the world Wüstenhagen, 2010). The typical research cycle, as described by Mer-
in terms of increasing ecological degradation, poverty, and social injus- edith (1993), iterates between describing, explaining, and testing with
tice calls for radically different ways of doing business with net positive the goal of developing and refining theory (Figure 1). This iterative
effects (Ehrenfeld, 2004; Upward & Jones, 2016). process requires conceptual models and frameworks to move from
Academics and practitioners increasingly discover a management phase to phase (cf. Netter, Pedersen, & Lüdeke‐Freund, 2019).
concept that promises alternative approaches to deal with these chal- Although many researchers seem to be critical of conceptual research
lenges: the business model. This concept is changing the management because of an assumed lack of evidence or rigour, it is indispensable to
and innovation discourses in remarkable ways. Innovations of all sorts capture new and insufficiently described phenomena, reduce com-
are combined with business model thinking to renew and extend inno- plexity, consolidate and reflect upon the available knowledge, and
vation and strategic management, whereas diverse intrafirm and inter- finally allow for systematic theorising (Whetten, 1989, 2009). Most
firm issues are addressed, such as organisational change, value of current research on sustainable entrepreneurship and business
network design, or knowledge and innovation management (Wirtz, models seems to be moving from description to explanation (e.g.,
Pistoia, Ullrich, & Göttel, 2016; Zott, Amit, & Massa, 2011). The business Boons et al., 2013; Evans et al., 2017; Schaltegger, Hansen, &
model also has the potential to become an innovation in itself (Amit & Lüdeke‐Freund, 2016) and thus calls for conceptual models and
Zott, 2012; Chesbrough, 2010; Massa, Tucci, & Afuah, 2017). Its main
practical purpose is to allow organisations to model their approaches
to creating, delivering, and capturing value, whereas management
scholars use the business model as an analytical frame and unit of anal-
ysis (e.g., Bohnsack, Pinkse, & Kolk, 2014; Doganova & Eyquem‐
Renault, 2009).
The strategy and innovation mainstream treats the business model
mainly as a “mediating device” between technology, strategy, and eco-
nomic value (Chesbrough & Rosenbloom, 2002; Doganova & Eyquem‐
Renault, 2009). But the question of how business models can support
sustainable entrepreneurs and their innovations in creating ecological,
social, and economic value for various stakeholders has so far received
little attention (Boons et al., 2013; Evans et al., 2017; Lüdeke‐Freund
& Dembek, 2017; Schaltegger, Hansen, & Lüdeke‐Freund, 2016).
Therefore, this article presents a conceptual framework to delineate
major interrelations between sustainable entrepreneurship, sustainabil-
ity innovation, and the business model concept. By doing so, it offers
conceptual clarity to researchers dealing with an essential question at FIGURE 1 The research cycle (source: Meredith, 1993)
LÜDEKE‐FREUND 667
frameworks that consistently integrate the available knowledge and mediating function plays a crucial role. This mediating function is intro-
allow for systematic empirical testing. This article develops an analyt- duced to explain that deliberate business model design can support
ical framework of BMfSI to support this research endeavour. internal and external alignment of a firm and its business activities,
Conceptual research involves the development of concepts, models, which in turn is of particular importance for business success with sus-
and frameworks, where a “concept is a bundle of meanings or character- tainability innovations.
istics associated with certain events, objects, or conditions” (Meredith,
1993, p. 5, italics added). Sustainable entrepreneurship, for example, is
a concept to represent ecologically and socially motivated forms of busi- 3.1 | Sustainable entrepreneurship and business
ness. “A conceptual model is … a set of concepts, with or without propo- cases for sustainability
sitions, used to represent or describe (but not explain) an event, object,
or process” (Meredith, 1993, italics added). An example is Schaltegger Schaltegger and Wagner (2011) characterise sustainable entrepre-
and Wagner's (2011) sustainable entrepreneurship typology, which neurship as contributing “to solving societal and environmental prob-
integrates two conceptual dimensions (i.e., the magnitude of market lems through the realization of a successful business” and promoting
effects and the priority of sustainability as a business goal). Conceptual “sustainable development through entrepreneurial corporate activi-
frameworks are developed for explanatory purposes (cf. Whetten, ties” (p. 224). Innovations are central to these activities: “Sustainable
1989, 2009). They can take the form of conceptual induction (infer- entrepreneurship is in essence the realization of sustainability innova-
ences from analyses of examples), conceptual deduction (inferences tions aimed at the mass market and providing benefit to the larger
from premises and logical conclusions), and conceptual systems. The lat- part of society. By realizing such (radical) sustainability innovations
ter type “is characterized by the many interactions occurring among the sustainable entrepreneurs often address the unmet demand of a
elements of the conceptual framework. That is the conceptual system larger group of stakeholders” (p. 225). Schaltegger and Wagner
consists of multiple concepts with many interrelated propositions” (2011) see sustainable entrepreneurship as a progression of
(Meredith, 1993, p. 10). Conceptual systems can be as complex as the- ecopreneurship, social entrepreneurship, and institutional entrepre-
ories but typically do not have the same explanatory power. neurship, each of which shows a different emphasis on the solution
Using Meredith's terminology, the BMfSI framework can be best of ecological or social issues, the importance of financial success,
characterised as a conceptual system. It connects sustainable entrepre- and the need to influence societal norms. Theoretically speaking, sus-
neurship to the business model concept and considers the peculiarities tainable entrepreneurs bring forth sustainability innovations that con-
of sustainability innovation and environmental contingencies. Two major vert market imperfections into business opportunities, replace
perspectives that are (implicitly) articulated in the sustainable business unsustainable forms of production and consumption, and create value
model literature are integrated in this framework. The first is the agency for a broad range of stakeholders (cf. Hockerts & Wüstenhagen,
perspective, which takes into consideration that some form of agency is 2010; Schaltegger, Lüdeke‐Freund, et al., 2016).
needed, that is, “someone” who takes decisions and acts (e.g., entrepre- The sources of such business opportunities and the motivations of
neurs). The second perspective is the systems perspective, which sustainable entrepreneurs, that is, their entrepreneurial sustainability
acknowledges that business models are always embedded within wider orientation, are widely discussed in the literature (e.g., Amankwah‐
sociotechnical contexts that have an influence on whether and how Amoah et al. 2018; Kiefer et al., 2018). Cohen and Winn (2007), for
business models can be developed. The resulting framework is used to example, identify market imperfections in the form of inefficient firms,
identify and structure major relationships between these concepts ecological and social externalities, flawed pricing mechanisms, and
and perspectives and to support systematic analyses of the role busi- imperfectly distributed information as sources of business opportuni-
ness models play for sustainable entrepreneurs and their innovations. ties. In some cases, these opportunities are directly explored and
Based on such analyses, detailed explanations and testable hypotheses exploited by entrepreneurs, whereas in other cases, additional motiva-
can be developed in later stages of the research cycle. Evaluating the tion through laws and regulations is required (cf. Ács, Autio, & Szerb,
explanatory strength of the conceptual framework requires empirical 2014; Simón‐Moya, Revuelto‐Taboada, & Guerrero, 2014). Stake-
testing and moving forward in the research cycle. Such evaluations are holders, such as customers, non‐governmental organisations, or the
beyond the scope of this article and are thus proposed as an avenue media, demanding that firms integrate sustainability considerations
for future research. into their core businesses can be another important motivational fac-
tor (Amankwah‐Amoah et al. 2018; Hörisch, Freeman, & Schaltegger,
2014; Schaltegger, Hörisch, & Freeman, 2019). And on the individual
3 | T HE O R E T I CA L B A CK GR O U N D level, personal values such as altruism, universalism, or benevolence
can drive sustainable entrepreneurship (Breuer & Lüdeke‐Freund,
In the following, sustainable entrepreneurship is introduced and con- 2017a, 2017b). One of the most prominent examples is Ray Anderson,
nected to the business model concept, which leads to the conclusion late founder and CEO of Interface Inc., who used the reduction of his
that business models matter for sustainable entrepreneurship because firm's ecological externalities as an opportunity to revolutionise the
they can increase the likelihood of sustainable value creation with and floor covering industry. He was convinced that regulations addressing
for a broad range of stakeholders. In this regard, the business model's climate change and the use of natural resources were insufficient and
decided to change his firm in a way that significantly exceeded regula- moving to the right, firms are voluntarily striving for additional ecolog-
tory measures (Anderson, 2011). An example of a regulation‐based ical and social performance. The financially optimal business case is
case is the renewal of Germany's big energy utilities E.ON and RWE. point A. Beyond this point, for example, in point B, trade‐offs occur
Their ongoing transformation is motivated by a complex blend of laws and the financial performance decreases as the marginal costs of fur-
and regulations. However, making use of this situation also requires ther sustainability innovations increase after all low‐hanging fruits
entrepreneurial innovations such as new business models for the pro- have been picked (Hahn, Figge, Pinkse, & Preuss, 2010). The ecologi-
duction and distribution of renewable energies (Richter, 2013). It cally and/or socially optimal business case would be slightly above
seems appropriate to say that different motivations of sustainable point B, with the potential of further benefitting stakeholders beyond
entrepreneurship, including laws and regulations, stakeholder pres- the firm itself. However, even if further profitable innovations exist, a
sure, and values, may have an effect and even work together. firm's financial performance will at some point have its culmination
Exploring and exploiting market opportunities for their sustain- and decline (Schaltegger & Burritt, 2018; Schaltegger & Synnestvedt,
ability innovations should allow entrepreneurs to realise so‐called 2002), that is, the overall business case potential is limited. However,
business cases for sustainability (Schaltegger & Burritt, 2018). In it is important to consider that Figure 2 takes a firm's perspective,
essence, business cases for sustainability are based on positive inter- which tends to favour an interpretation of business cases as improved
relations between business success and contributions to a sustain- financial performance under the constraint of positive ecological
able development of the natural environment, society, and and/or social contributions. Seen from another perspective, for exam-
economy (Dyllick & Hockerts, 2002; Salzmann, Ionescu‐Somers, & ple, a stakeholder group representing the natural environment,
Steger, 2005; Schaltegger et al., 2019; Schaltegger & Burritt, 2018; Figure 2 will most likely be interpreted in a different way, namely, as
Schaltegger, Lüdeke‐Freund, & Hansen, 2012). Assuming that radical optimising the ecological performance of a firm under the constraint
innovations are crucial for improving a firm's sustainability perfor- of its economic survival, which speaks more to a business case repre-
mance—without neglecting the effects of accumulated incremental sented by point C. Along these lines, Schaltegger et al. (2019) argue
steps—the theoretical relationships between a firm's financial success that business cases (plural!) are co‐constructed by diverse stake-
and its ecological and social performance can be illustrated as in holders, that is, the meaning of business cases, be it primarily financial
Figure 2. success or success in terms of solving a pressing social problem, is
It is important to note that the horizontal axis shows the voluntary socially constructed, multifaceted, and negotiable.
(or mainly voluntary) ecological and social performance of a firm, that This interpretation of business cases is closely related to the notion
is, additional initiatives beyond laws and regulations (Schaltegger & of stakeholder value creation (Freudenreich et al., 2019), which is less
Burritt, 2018). This means that mandatory and compliance initiatives limited than a supposedly financial interpretation of business success.
should not be confused with “real” business cases for sustainability. Stakeholder value creation implies that entrepreneurs, for example,
A firm is compliant with ecological and social laws and regulations at through their innovations, create portfolios consisting of different
point 0 and FP0, respectively. This is where the original “Porter kinds of value (e.g., dividends, customer solutions, reliable contracts,
hypothesis” (Porter & van der Linde, 1995) ends. Beyond this point, employment, or reduced environmental harm), which are created with
FIGURE 2 Relationships between financial

and voluntary ecological and social
performance (based onSchaltegger & Burritt,
2018 ; Schaltegger & Synnestvedt, 2002).
BMfSI, business models for sustainability
innovation
and for multiple stakeholders. Theoretically speaking, business cases performance management and measurement systems, and leaders
for sustainability leading to value creation with and for stakeholders who stimulate cultural and structural change.
should be synonymous with sustainable value creation (Evans et al., Combining the main findings from these early works on sustainable
2017; Freudenreich et al., 2019; Hörisch et al., 2014). And this is business models and more recent publications (e.g., Evans et al., 2017;
where the business model and its mediating function can play an Lüdeke‐Freund & Dembek, 2017; Schaltegger, Hansen, & Lüdeke‐
important role. Freund, 2016) reveals that the business model concept is seen as
means to open up new business opportunities for sustainable entre-
preneurs (in the upper right area of Figure 2), as suggested by Charter
3.2 | The business model as mediating device et al. (2008) and as a means to stimulate organisational development
(as a precondition for moving towards the upper right area of
In accord with Chesbrough and Rosenbloom's (2002) findings on the Figure 2), as suggested by Stubbs and Cocklin (2008). Building on
value‐creating effects of business models for new technologies (see these assumptions, Schaltegger, Hansen, and Lüdeke‐Freund (2016),
also Baden‐Fuller & Haefliger, 2013), it can be assumed that sustain- p. 6) propose the following definition of a sustainable business model
ability innovations together with deliberately designed business (used interchangeably with “business model for sustainability”): “A
models can create and extend business case opportunities—indicated business model for sustainability helps describing, analysing, manag-
by the dashed line in the upper right of Figure 2. Transferring the ing, and communicating (i) a company's sustainable value proposition
notion that business models serve as mediating devices that allow cre- to its customers, and all other stakeholders, (ii) how it creates and
ating value with new technologies and other kinds of innovation, delivers this value, (iii) and how it captures economic value while main-
respectively, to sustainable entrepreneurship, leads to the assumption taining or regenerating natural, social, and economic capital beyond its
that business models could also support the creation of ecological, organisational boundaries.”
social, and economic value. Seen this way, the movement towards This definition highlights important business model functions that
the upper right in Figure 2 represents market success with ecological are discussed by most business model scholars, that is, creating, deliv-
and social innovations, such as emissions‐free mobility or access to ering, and capturing value (Massa et al., 2017; Zott et al., 2011). Teece
affordable health care, which need new or modified business models (2010) discusses further functions related to the commercialisation of
to be successful and to unfold their positive ecological and social innovations. He questions the assumption of standard economic the-
effects (Schaltegger et al., 2012). ory that innovations enable value creation by some kind of automa-
The assumption that business models can support such sustainable tism and scrutinises that market offerings create customer value per
business practices was explicitly formulated over the last 10 years se, because neither demand nor a sufficient willingness to pay can
(Evans et al., 2017; Lüdeke‐Freund & Dembek, 2017; Schaltegger, be presumed, which is particularly critical with green or social innova-
Hansen, & Lüdeke‐Freund, 2016; Stubbs & Cocklin, 2008). At the out- tions (e.g., Belz, 2006). Teece (2006, 2010) concludes that
set of the discourse, Charter, Gray, Clark, and Woolman (2008) commercialising innovations often requires the development of new
outlined some major issues and argued that sustainable consumption market segments and additional willingness to pay and is therefore a
and production require radical innovations, which, however, mostly business model function. In analogy, commercialising ecologically and
start in niches and struggle to reach mainstream markets (see also socially beneficial products, services, or product–service systems is
Geels, 2010). They saw that by “designing the elements of value prop- not only driven by supply, demand, or public policies, it is also a ques-
osition, value creation and revenue delivery appropriately a firm can tion of business model design, making use of the business model's
tune its offering, although the challenge is to develop a business mediating function (Doganova & Eyquem‐Renault, 2009) and its ability
model that is environmentally, socially and economically sustainable” to connect green and social innovations to potential markets (Boons &
(Charter et al., 2008, p. 59). In their view, developing sustainable busi- Lüdeke‐Freund, 2013; Schaltegger, Hansen, & Lüdeke‐Freund, 2016).
ness models is a question of new organisational structures, new offer- The business model's mediating function refers to iterative inter-
ings such as product–service systems (Reim, Parida, & Örtqvist, 2015; mediation and alignment between different areas of a firm and its
Tukker, 2015), and alleviating poverty through business development business (e.g., manufacturing and sales) as well as different social
at the “base of the pyramid” (Kolk, Rivera‐Santos, & Rufin, 2014). In actors (e.g., owners, managers, and investors; Al‐Debei & Avison,
parallel, Stubbs and Cocklin (2008) published their “sustainability busi- 2010; Chesbrough & Rosenbloom, 2002; Doganova & Eyquem‐
ness model ideal type,” which addresses some of the issues raised by Renault, 2009). The most prominent description of the mediating
Charter et al. (2008), such as the development of new organisational function can be found in Chesbrough and Rosenbloom's (2002) article
structures, products, and services. They define specific structural and on Xerox Corporation's technology spin‐offs, in which they study the
cultural attributes of internal capabilities and the external socio‐ business model's cognitive implications for commercialisation success
economic environment of an organisation, such as community spirit, and failure with new technologies that do not conform to the domi-
employees' trust and loyalty, or sustainability accounting and nant business logic of a firm. They find that “[t]he business model pro-
reporting. Moreover, six propositions about sustainable business vides a coherent framework that takes technological characteristics
models are put forward, including a business purpose that integrates and potentials as inputs, and converts these through customers and
ecological, social, and financial goals, accordingly designed markets into economic outputs. The business model is thus conceived
as a focusing device that mediates between technology development financing, stakeholder relationships, and barriers to sustainability innova-
and economic value creation” (Chesbrough & Rosenbloom, 2002, p. tions are added to the initial framework. These concepts and their rela-
532). They describe the mediating function as an iterative alignment tionships together form the business model mediating space, which is
of the characteristics of an innovation (e.g., a new photocopier or doc- the space, or totality, of decisions and activities that sustainable entre-
ument service) and the business model needed for its preneurs pursue to align their business models.
commercialisation, ranging from the definition of value propositions
and respective market segments to positioning the firm within its sup- 4.1 | Initial framework
ply chain and overarching value network.
Going beyond the basic idea of creating economic value from tech- The aforementioned proposition that business models are required to
nology, we see that the mediating function also refers to the creation create value with innovations (Chesbrough, 2010; Chesbrough &
of fit between strategy, organisation, innovations, and a firm's busi- Rosenbloom, 2002; Teece, 2006) is specified by linking the concepts
ness environment: “… with a business model approach companies of sustainability innovation, business model, and business cases for sustain-
can react faster to changes in the business environment … the busi- ability (Figure 3). From Section 3 follows that sustainability innovations
ness model concept improves the alignment of strategy, business (e.g., new processes, products, or services) require and thus motivate
organization and technology” (Osterwalder, 2004, p. 21). Al‐Debei new or modified business models to enter and diffuse in the market
and Avison (2010) call the business model accordingly an “alignment (Boons et al., 2013; Boons & Lüdeke‐Freund, 2013) and finally to create
instrument” and “intermediate theoretical layer” and add that it can business cases (Schaltegger et al., 2012).
also be used to ensure consistency with the interests of a firm's Figure 3 shows that the business model is the focal concept in this
stakeholders. initial framework and that its role is that of a mediator because sustain-
Simplifying the differences between conventional and sustainable ability innovations themselves do not bring about business success,
entrepreneurs, it is often found that the former have a rather narrow but the business models used for their commercialisation do so. This
focus on creating customer value for the sake of making financial assumption is supported, for example, by Chesbrough's (2010) finding
profits and therefore tend to align their business models in first place that mediocre technologies can outperform superior technologies if
with the interests of their customers and financial stakeholders the applied business model creates an additional competitive advan-
(Freudenreich et al., 2019). In contrast, sustainable entrepreneurs try tage. The importance of business model design for commercial success
to solve ecological and social problems through their business activi- with alternative technologies has recently been demonstrated in dif-
ties and aim at value creation for various stakeholders, which adds fur- ferent studies, for example, on energy service companies (ESCos; Bol-
ther complexity to the task of designing business models and aligning ton & Hannon, 2016) and electric vehicles (Bohnsack et al., 2014;
them with the manifold and even conflicting interests of a firm's Bohnsack & Pinkse, 2017).
diverse stakeholders (cf. Breuer, Fichter, Lüdeke‐Freund, & Tiemann,
2018; Upward & Jones, 2016). In addition, sustainable entrepreneurs 4.2 | Environmental contingencies
often face a lack of complementary assets, resources, or competencies
to align their business models with existing or new markets and to 4.2.1 | Public policy, private financing, and stake-
develop a solid positioning towards competitors (Kiefer et al., 2019; holder relationships
Schaltegger & Wagner, 2011). Overcoming these challenges and fur-
ther barriers, which are discussed in more detail below, requires a Although sustainable entrepreneurs aim at integrating their ecological,
thorough understanding of how business models can help mediate social, and financial performance by developing BMfSI, this does not
between sustainability innovations and business success and thus occur in isolation or without interfering with their business environ-
allow sustainable entrepreneurship to unfold. ment (Schaltegger, Lüdeke‐Freund, et al., 2016). This is critical because
“the environment in which new ventures emerge is an important field
of research, not only because environmental variables open up oppor-
4 | BMfSI—INTEGRATIVE FRAMEWORK tunities to exploit market inefficiencies … but also because different
environments can be more or less favourable to the success of new
Building on the identified mediating relationships between sustainabil- ventures” (Simón‐Moya et al., 2014, p. 715). It seems reasonable to
ity innovation, business model, and business cases for sustainability, this assume that this does not only hold for new but also for established
section introduces the BMfSI framework. The influence of environ- firms. A range of environmental factors exert influence and some even
mental contingencies is considered as well. Public policy, private act as contingencies, that is, factors with which BMfSI must be aligned
FIGURE 3 Initial framework of sustainability

innovation, business model, and business
cases for sustainability
to achieve optimal performance (cf. Tidd, 2001, on contingencies in evolutionary dynamics depends to a large extent on public policy sup-
innovation management). port and the willingness of private investors to provide financial
Such factors are discussed, for example, in studies that locate busi- resources. Correspondingly, Bolton and Hannon (2016) find “a syner-
ness models within sociotechnical systems (Bidmon & Knab, 2018; gistic relationship between a business model, investor perceptions of
Bolton & Hannon, 2016; Budde Christensen, Wells, & Cipcigan, risk and a political framework.” Regarding the fundamental role of pub-
2012; Hannon, Foxon, & Gale, 2013). Applying a multilevel perspec- lic policy and private financing, Wüstenhagen and Menichetti (2012)
tive, Bidmon and Knab (2018) and Bolton and Hannon (2016, p. explain their varying influence along a generic innovation cycle (see
1739) contend that business models can serve as “translation devices” also Grubb, 2004). They argue that in the early stages of basic and
that help new technologies to leave their niches and enter the regime applied research and development (R&D) and demonstration, only lit-
level, thus contributing to the evolution of sociotechnical systems. tle engagement from private investors can be expected. Public sup-
Similarly, Budde Christensen et al. (2012, p. 499) refer to innovative port, such as funding R&D and large‐scale demonstrations,
business models as “forces for change.” Bolton and Hannon (2016) compensate for the reluctance of private investors in these stages.
furthermore argue that the relationship between a business model The more an invention approaches the market stage, that is, the more
and its wider environment is determined by the specific position it it turns into an innovation, the more are private investors willing to
has in a sociotechnical system. In the case of ESCos, a form of step in—which is rational from their perspective because most of the
customer‐oriented product–service system, they are but one part of risks and development costs have been incurred by public institutions.
a complex system including resource extraction, energy conversion This means that the influence of policy interventions and private
and transmission, and several other value‐creating activities. There- investors varies along the innovation cycle, which concurrently implies
fore, although ESCo business models promote energy efficiency, their that although sustainability innovations mature, they are subject to
overall effect on sociotechnical systems and their sustainability perfor- varying policy support and private investor engagement.
mance is limited. The most critical phase is the passage from R&D and demonstra-
This points to both supporting and limiting influences, that is, bar- tion to commercialisation, the so‐called valley of death, which
riers, resulting from environmental factors such as technical infrastruc- describes a critical financing gap between initial public funding and
tures, institutions, and actors who shape a system while they are regular private financing (Wüstenhagen & Menichetti, 2012). This
shaped by that system in a mutual coevolutionary relationship gap, as a range of studies show (Grubb, 2004), results from an uncoor-
(Hannon et al., 2013; Schaltegger, Lüdeke‐Freund, et al., 2016). The dinated phase‐out of policy support while private investors are still
ability of new or modified business models to survive these hesitant to step in. The fundamental role public policy and private
FIGURE 4 The business models for sustainability innovation framework

financing play along the innovation cycle should also hold for the life socioecological problems (Carrillo‐Hermosilla, del Río, & Könnölä,
cycles of business models, including those of sustainable entrepre- 2010), the concept of sustainability innovation itself is problematic.
neurs. The BMfSI framework puts some emphasis on these two envi- With regard to balancing the various stakeholder interests that con-
ronmental factors as they are crucial to deal with the various barriers verge on this notion, Hansen et al. (2009, p. 687) argue that “[a]
faced by sustainable entrepreneurs and their innovations. But this is ggregating economic, ecological and social effects inevitably leads to
not to say that policymakers and private investors are the only rele- trade‐offs and is limited due to current methodological constraints …
vant stakeholders. Every business model depends on various stake- [and that] objective and specific ‘labelling’ of innovations as being sus-
holders and their willingness to engage in mutual relationships with a tainable can only be achieved within a collective and social discourse.”
firm as a precondition for business cases for sustainability and thus As an example, although customers are able to agree on the most desir-
value creation with and for stakeholders. Freudenreich et al. (2019) able smartphone, achieving agreement on the most sustainable one
discuss this issue in detail and propose a framework that considers would be much more difficult. Boons et al. (2013) frame this problem
an initial, nonexclusive list of stakeholders (customers, business part- as spatial, temporal, and cultural embeddedness, which leads to discur-
ners, employees, societal stakeholders, and financial stakeholders). sive ambiguity, that is, different context‐specific meanings of sustainable
Some of these are indicated in the BMfSI framework (Figure 4). development as a process and sustainability as a goal. Moreover,
Although the following discussion focuses on public policy and private despite the often presumed business opportunities of “sustainable busi-
financing as key moderators for the emergence and commercialisation ness,” Hansen et al. (2009) point out that only a minority of companies
of sustainability innovations, an extension or reconfiguration of the initiate sustainability innovations because they bear additional risks,
BMfSI framework with a focus on further or other stakeholders as such as directional risks. These imply that the direction of innovation
moderators is possible as well. impacts, that is, positive or negative ecological or social effects, cannot
be anticipated and thus add complexity to firms' decision making.
4.2.2 | Barriers to BMfSI Furthermore, it is commonly assumed that sustainability innovations
must be rather radical and systemic to change existing patterns of pro-
The commercialisation of innovations confronts innovators with duction and consumption (Boons et al., 2013). The literature on sustain-
diverse challenges from identifying customer segments to production ability transitions emphasises these characteristics as important to
upscaling. Besides such challenges, Teece (1986, 2006) identified a break up dominant technological regimes, though the accumulation of
more fundamental dilemma. It is often not the innovator who profits incremental changes is also seen as a transformative force (Geels,
most from an innovation but, for example, suppliers, co‐operators, 2010). Widely discussed examples are product–service systems (Reim
and competitors. Teece developed the “profiting from innovation” et al., 2015; Tukker, 2015), including approaches such as using instead
(PFI) theory to understand the causes of this dilemma and to propose of buying products (e.g., car sharing), dematerialisation through
strategies to solve it. extended services (e.g., washing centres), leasing (e.g., chemical leasing),
The PFI theory contains three building blocks to analyse and predict or repairing instead of disposal (e.g., refitting household devices; Mont,
commercialisation success (Teece, 1986). The appropriability regime 2004). However, despite the assumed advantages of such innovations,
describes how the type of an innovation and intellectual property pro- Andersen (2008) adds for consideration that their problem‐solving
tection determine the likelihood of capturing value from an innovation. potential should not be overestimated. Reliable links between innova-
Teece distinguishes tight regimes (e.g., hard to imitate, patent‐protected tion and sustainability performance can rarely be determined because
chemical processes) from weak regimes (e.g., manufacturing processes of methodological constraints of sustainability assessments.
that can be copied without defying copyrights). Dominant designs are Finally, the most denoting challenge is the so‐called double exter-
product layouts or production processes that are official or quasi indus- nality problem (Rennings, 2000). Adding to the aforementioned
try standards. In the early phase of an industry, competition is about internalisation of negative ecological and social externalities, innova-
design sovereignty as the owner of a dominant design can achieve a tors have to deal with spillovers from their R&D activities, which allow
superior market position. When a dominant design has emerged, com- third parties to profit from their efforts “for free” (a positive external-
petition is about learning, production costs, and the optimal employ- ity), for example, through (un‐)intended knowledge transfers or the
ment of specialised capital. Specialised assets and capabilities are dependency on complementary assets of others (Teece, 2006). The
central to the complementary assets concept, the third PFI building double externality problem means that part of the value of an innova-
block. Teece argues that the successful commercialisation of innovation cannot be appropriated due to spillovers, while external costs are
tions often depends on third‐party assets and capabilities as well as deliberately borne by the innovator (Hockerts & Wüstenhagen, 2010).
complementary products or services (e.g., marketing and after‐sales ser- Table 1 summarises the “Teecian barriers” and sustainability innova-
vices), particularly in the case of systemic innovations. tion challenges.
Besides these “Teecian barriers,” BMfSI are confronted with specific
barriers resulting from the deliberate aspiration to create sustainable 4.3 | The BMfSI framework
value with and for stakeholders. Besides problems such as cost disad-
vantages from the deliberate internalisation of otherwise externalised Figure 4 integrates the initial framework and the environmental fac-
ecological and social costs and the multidimensionality of tors. The resulting framework illustrates that the mediating
LÜDEKE‐FREUND
TABLE 1 Barriers to business models for sustainability innovation
Barriers relate to … Description of barriers
“Teecian barriers” to profiting from innovation

Appropriability regime Type of innovation (e.g., product), knowledge (e.g., tacit), and protection (e.g., patents) determine the ability to capture value from an innovation
Dominant design In early industry phases, innovators compete about standards, i.e., dominating product and process designs
Complementary assets Innovations depend on generic or (co‐)specialised assets and capabilities of others (whereas these assets can also depend on the innovation)
Further barriers to sustainability innovation
Discursive ambiguity The meaning of sustainable development and sustainability is spatially, temporally, and culturally embedded
Directional risks The social, ecological, and economic effects of an innovation cannot not (or only insufficiently) be anticipated
Radical innovation Technological regimes and unsustainable dominant designs must be replaced by radical innovations; these are mostly developed in niches
System‐level change Besides radical changes, system‐level changes are required to transform technological regimes and currently dominating designs
Methodological constraints Lack of (trusted) methods to prove the sustainability of an innovation, e.g., accounting systems, performance measurement, and communication
Double externality problem Innovation spillovers and the internalisation of external costs are a double burden for sustainable entrepreneurs
673
relationships between sustainability innovation, business model, and with and for stakeholders. The following sections discuss these two
business cases are embedded within a wider sociotechnical context relationships separately.
and a mesh of stakeholder relationships, which can exert supporting
and limiting moderating effects. A new theoretical concept is also
introduced in Figure 4, the business model mediation space. This is 4.3.1 | The sustainability innovation and business
the space, or totality, of decisions and activities that sustainable entre- model relationship
preneurs pursue to align their business models with their innovations
and business cases, their specific sociotechnical contexts, and stake- The first major relationship deals with sustainability innovations and
holder relationships. 1 their purposes, how sustainability innovations and business models
The dashed line between sociotechnical context and business interrelate, and how business models can be aligned with the former.
model mediation space indicates that a strict separation between According to Boons and Lüdeke‐Freund (2013), the relationships
these two spheres is hardly possible due to the various cross‐ between sustainability innovations and business models depend on
boundary relationships in which firms typically engage (with business the specific purposes of these innovations, which can be the dissemi-
partners, competitors, regulators, holders of complementary assets, nation of clean technologies, the introduction of new organisational
customers, etc.), as well as the fact that the effects of sustainability forms, or the solution of social problems. Regarding clean technolo-
innovations and business cases are, by definition, not limited to the gies, for example, the literature seems to agree on the importance of
firm level. On the contrary, their effects are expected to unfold business models for commercial success (e.g., Bohnsack et al., 2014;
beyond firm boundaries, ideally as positive externalities that help Bolton & Hannon, 2016; Huijben, Verbong, & Podoynitsyna, 2016).
solve ecological and social problems (Cohen & Winn, 2007; Three relevant technology and business model combinations can be
Schaltegger & Wagner, 2011). distinguished: (a) new business models can employ given technologies;
Diverse claims about the importance and effects of sustainability (b) given business models can take up new technologies; and (c) new
innovations and transitions are formulated in the literature (e.g., Geels, business models can be triggered by new technologies and vice versa.
2010; Hansen et al., 2009). But one aspect that is often missing is Transcending the question of how to combine particular innova-
agency. Who is bringing forth the required innovations? How are the tions and business models, Wells (2008) points to cognitive and nor-
respective agents stimulating evolutionary dynamics in sociotechnical mative effects on consumers and other stakeholders and argues that
systems? How are they contributing to systems change and transi- “the business model undoubtedly influences how consumers think
tions? Among other factors, it is the agency of sustainable entrepre- about the product, and the normative rules that shape expectations”
neurs who develop new business models or modify existing ones (p. 84). As an example, if electric power is offered as a low‐cost com-
and thereby create new relationships between their innovations and modity, users will undervalue and waste it. This, however, is only pos-
the markets they serve (cf. Bidmon & Knab, 2018). They also create sible because of high externalised costs (e.g., for nuclear waste
new relationships to their sociotechnical contexts and align their deci- treatment or subsidies for solar power). It is not only the innovation
sions and activities to public policies and the expectations of private in question that determines if and how it will unfold positive effects
investors and other stakeholders, whereas they can also try to influ- (e.g., green power). The way it is brought to customers can be equally
ence these environmental factors, for example, through lobbying important—rebound effects due to an increasing demand for more
(Schaltegger & Wagner, 2011). efficient products are a common example of unintended side effects
The proposed business model mediation space offers a broad of supposedly green innovations (Carrillo‐Hermosilla et al., 2010).
range of theoretical and empirical issues that need to be analysed to The questions sustainable entrepreneurs have to answer are as fol-
better understand the potentials and limitations of sustainable entre- lows: Which societal problem shall be solved (e.g., supplying cost com-
preneurs and their business models. Further contingencies and stake- petitive green power); what are the major barriers to commercialising
holders can of course come into play, such as complementary according solutions; and how can business models help in overcoming
technological artefacts or different actor groups. But it can be these barriers?
assumed that Figure 4 includes the essential concepts that are needed Public policies, such as governmental support for low‐carbon ener-
to introduce the BMfSI framework in general. gies through push and pull instruments (Mowery, Nelson, & Martin,
The business model plays a dual role in this framework. In the 2010), can positively influence the sustainability innovation and busi-
first horizontal relationship shown in Figure 4 (sustainability innova- ness model relationship and help in overcoming barriers. For example,
tion → business model), the business model is an outcome, whereas Hannon, Foxon, and Gale (2015) study how demand pull policies help
in the second horizontal relationship (business model → business in cultivating ESCos as a particular type of product–service system
cases for sustainability), it is an antecedent of business success, that that applies business models that replace the sale of energy units with
is, business cases and, associated to these, sustainable value creation energy services (e.g., selling a particular level of space heating instead
of kilowatt hours). In this case, a more efficient way of using energy
requires an alternative business model that was hindered under the
1
The concept of business model mediation space is inspired by the notion of “business model
design space” proposed by Huijben et al. (2016) as well as Tidd's (2001) notion of “strategic
originally dominating policy regime (Bolton & Hannon, 2016) but was
degrees of freedom.” made possible through different complementary assets offered by
direct (e.g., capital grants and feed‐in tariffs) and indirect (e.g., capacity for stakeholders as an outcome of business model alignment resulting
building, certification, and accreditation) policy support (Hannon et al., from the aforementioned first relationship. The focus is on the identifi-
2015; Hansen, Lüdeke‐Freund, Quan, & West, 2019). In a similar way, cation of success drivers such as costs, risks, or reputation and on under-
a study on former e‐mobility provider Better Place in Denmark finds standing how aligned business models contribute to their improvement
that “regulatory and policy change within a spatial jurisdiction may (cf. Schaltegger & Burritt, 2018). Considering that success does not
provide the opportunity for innovative business model design … automatically result from combining an innovation with the “right” busi-
Hence in seeking to understand the basis of business model innova- ness model, Schaltegger et al. (2012, p. 102) propose that “mapping the
tion it is pertinent to analyze the policy framework” (Budde links between business models and business cases for sustainability may
Christensen et al., 2012, p. 500). In this case, not only the direct gov- be worthwhile to get from single and event‐driven business cases for
ernment support for e‐mobility exerted moderating effects but also sustainability to business models for sustainability, which serve as tem-
Denmark's historically strong support for wind power, which provided plates for reproducing the respective business cases on a regular basis.”
green power as a complementary asset for Better Place's business This means that, if sustainable entrepreneurs use their business models
model. These examples show that we cannot simply assume that sus- as mediating devices to commercialise their innovations, they might
tainable entrepreneurs align their business models with their sustain- increase the likelihood of business success. Schaltegger et al. (2012) dis-
ability innovations without considering external influences. Public cuss the links between the business model and major success drivers to
policy‐based moderating effects, complementary assets held by cer- elaborate on this assumption. Table 2 shows exemplary interrelations
tain stakeholders, and other influences from the wider sociotechnical between these drivers and a business model's value proposition.
context play an important role in business model design. Furthermore, Schaltegger et al. (2012) argue that designing and
One major reason for public policy support is the limited availabil- maintaining a business model is directly related to a firm's sustainability
ity of financial capital for social and eco‐innovations in particular strategy. If the strategy is defensive, rather weak business model adjust-
phases of their development and application (Grubb, 2004; Yunus, ments should result, whereas a proactive strategy should conversely
Moingeon, & Lehmann‐Ortega, 2010). In an Organization for Eco- lead to radical business model redesign (for the underlying strategy
nomic Cooperation and Development study on green business models, typology, see Henriques & Sadorsky, 1999). For example, a firm with a
Beltramello et al. (2013, p. 9) conclude: “Access to financing is a major defensive human resources strategy might attract personnel mainly by
constraint for many new business models … financing is an important high salaries, whereas sustainability‐oriented employees might prefer
challenge for many young and innovative firms, and also for larger and companies with an alternative organisational culture paying attention
riskier business models that engage in more systemic or radical inno- to employees' diverse needs and values (Ehnert, 2009). In this case, fur-
vations.” The second moderator represents such financing issues and ther reaching organisational change might be necessary and even lead
points to the importance of private financing, inter alia, to balance pub- to business model innovation (Stubbs & Cocklin, 2008).
lic policy changes (e.g., when public funding is phased out). From a But regardless of how well‐aligned business models are with the
Teecian perspective, financial capital can be seen as a complementary innovations they seek to commercialise, they often struggle with com-
resource if it has to be acquired from third parties (Teece, 2006, 2010). petitive disadvantages such as relatively high costs or incompatibilities
Capital needs, risks, and investors differ along the innovation cycle
from basic research to market diffusion, and once the valley of death TABLE 2 Exemplary interrelations between a business model's value
proposition and business case drivers
has been survived (Wüstenhagen & Menichetti, 2012; section 3.2),
sustainable entrepreneurs and their innovations have to make their Business case
way from niche to mass market (Schaltegger & Wagner, 2011)— driver Business model value proposition
another critical phase in which access to private financing can be cru- Costs and cost Products and services with lower energy or
cial for survival. reduction maintenance costs for customers
Following Wüstenhagen and Menichetti (2012), it can be assumed Risk and risk Lowering societal risks through products and
that private investors supporting the sustainability innovation and reduction services can create value to certain customer
segments
business model relationship are very limited, because private invest-
Sales and profit Environmentally and socially superior products and
ments are scarce in the precommercial phase when entrepreneurs
margin services require modified or new value
search for appropriate business models. Most of the above‐identified
propositions to turn into sales and profits
barriers play against private financing in this phase, and only a very
Reputation and Sustainability as distinctive element of good
small number of specialised business angels and venture capitalists brand value corporate reputation and brand value
are willing to support this search.
Attractiveness as A companies' offerings and value propositions
employer allowing for personal identification to attract
4.3.2 | The business model and business cases employees
relationship Innovative Unfolding the full sustainability potential of
capabilities innovations enables modified or new value
propositions
The second major relationship deals with contributions to business
cases for sustainability and thus sustainable value creation with and Source: Schaltegger et al. (2012), p. 107).
with dominating sociotechnical systems (Bidmon & Knab, 2018; Budde 5 | DISCUSSION AND PROPOSITIONS FOR
Christensen et al., 2012). The insolvency of Better Place is an example of FUTU RE RE S EAR C H
how fragile a new business model can be when it comes to the creation
of a self‐sustaining business case, even though it is funded with hun- This article presents the BMfSI framework to structure core issues
dreds of millions of dollars (Reed, 2013). Public policies are needed that that emerge at the diverse intersections of sustainable entrepreneur-
burden unsustainable practices (e.g., using fossil fuels) while they sup- ship, sustainability innovation, and business model research (Boons
port socially and ecologically superior alternatives (Hockerts & et al., 2013; Schaltegger, Hansen, & Lüdeke‐Freund, 2016). The frame-
Wüstenhagen, 2010). Using Teecian language, BMfSI need public poli- work builds on the theoretically grounded assumption that the most
cies that offer complementary assets such as funding and mandate important business model function for the creation of ecological,
using more sustainable alternatives. Such policies must be reliable in social, and economic value is its ability to mediate between innova-
the long run because it can take a whole generation (or even longer) tions, for example, new processes, products or services, and valuable
for innovations to unfold their full transformative potential (Kemp, outcomes such as solved ecological and social problems. This view is
Loorbach, & Rotmans, 2007; Mowery et al., 2010) and to develop com- a theoretical extension of the mediation hypotheses put forward by,
petitive business case drivers, such as reduced costs and risks for cus- for example, Al‐Debei and Avison (2010), Chesbrough and
tomers or the reputation of a whole class of new technologies. Rosenbloom (2002), or Doganova and Eyquem‐Renault (2009), who
Various financing issues are related to the market introduction define business models as focusing and mediating devices that can
and diffusion of sustainability innovations. Different studies analyse unlock the latent economic value of innovations. This theoretical char-
how the financing success of clean technologies relates to specific acteristic is taken up by the BMfSI framework. As such, it is meant to
business model features (e.g., Bohnsack et al., 2014; Richter, 2013). support systematic analyses of how business models can be used by
For example, experiments with renewable energy financing experts sustainable entrepreneurs to unlock their innovations' latent sustain-
revealed a brand bias, where the employment of premium brand solar ability potentials, that is, to improve their ability to create ecological
technologies was rated as the most important criterion, even more and social value.
important than quantitative financial indicators (Loock, 2012; Sustainable value creation, however, faces several barriers. General
Lüdeke‐Freund & Loock, 2011). Clean energy business models with (“Teecian”) and sustainability‐specific barriers can be distinguished.
premium brand technologies provide better access to financial capital, Teece (1986, 2006) defines general barriers in his PFI theory, including
which is important for the development of roll‐out strategies and the appropriability regime in which an innovation is embedded, domi-
finally business cases. Sustainable entrepreneurs can use these nant designs it has to compete with, and complementary assets it
insights to optimise their business models when they enter the mar- depends on. Although Teece refers to technological innovations with-
ket and scale their businesses. Instead of striving for lowest costs to out considering social or ecological issues, the literature on sustain-
be competitive, investing in premium brand technologies can pay off ability innovation identifies more specific barriers. The identification
in terms of improved access to financial capital. If a business case is and systematisation of six sustainability‐specific barriers is not only a
based on such a branding strategy, private financing will strengthen contribution to the framework developed in this article but also a con-
appropriate financial models, value propositions, and marketing tribution to the wider discourse on responsible and sustainability inno-
approaches and thus positively moderate the business model and vation (e.g., Adams, Jeanrenaud, Bessant, Denyer, & Overy, 2016;
business case relationship. Boons et al., 2013; Hansen et al., 2009; Stilgoe, Owen, & Macnaghten,
As another example, Budde Christensen et al. (2012) found that a 2013). These barriers might also be seen as a call for further studies on
“combination of the sunk costs in batteries and those associated with distinctive sustainability‐oriented capabilities as recently laid out by
the recharging and battery swap infrastructure means that Better Place Demirel and Kesidou (2019). They identified voluntary self‐regulation,
is based on a capital intensive business model” (Budde Christensen et al., deliberate investments in environmental R&D, and green market sens-
2012, p. 503). This capital intensity can be traced back to certain fea- ing as key capabilities that firms need to develop to increase the like-
tures of their sustainability innovation, such as the need for expensive lihood of environmental innovations. Merging research on resources
batteries and high infrastructure costs. On their way to the market and capabilities, business model innovation, and sustainable entrepre-
and a potential business case, which the firm did not achieve, Better neurship could be one way of studying in more detail if and how
Place relied heavily on private financing to scale their business model Teecian and sustainability innovation barriers can be overcome, that
simultaneously in different countries. One industry that is successful is, if and how sustainable entrepreneurs can unfold agency within
and shows a positive moderating effect of private financing is the given systems such as industries and markets.
large‐scale renewable energy industry (e.g., Lüdeke‐Freund, 2014), Several empirical studies indicate that it is how an innovation is
where “financially strong investors have entered the renewable energy brought to the market, and not only the innovation itself, that decides
market, because large‐scale renewable energy projects offer relatively about market success or failure (e.g., Mitchell & Coles, 2003; Zott &
stable returns which are independent from the financial markets” Amit, 2008). Its effects on production and consumption patterns,
(Richter, 2013, p. 1226). In this case, the continuous inflow of private which are crucial from a sustainable entrepreneurship perspective,
financing, in concert with public policy support, creates a basis for con- can also depend on the underlying business model (Wells, 2008). This
tinued business cases. leads to rethinking the sources of competitive advantage. Chesbrough
(2010, p. 355) famously stated that, “it is probably true that a medio- that sustainability‐oriented business models need specific policy sup-
cre technology pursued within a great business model may be more port (e.g., Beltramello et al., 2013; Bisgaard, Henriksen, & Bjerre,
valuable than a great technology exploited via a mediocre business 2012), like most types of green or social innovation, it is not known
model.” That is, sustainable entrepreneurs who excel at developing if and how sustainable entrepreneurs actually use their business
or innovating business models might be better positioned to exploit models to benefit from public policies. Available examples of single‐
even radical innovations, despite their relative competitive disadvan- case or small sample studies often refer to clean energy or mobility
tages, which can result from higher (financial) costs or a lack of com- (e.g., Bohnsack et al., 2014; Budde Christensen et al., 2012; Hannon
plementary assets such as established retail partners (Schaltegger et al., 2013), but general information about policy‐driven business
et al., 2012). Although there seems to be broad agreement on the model innovations and strategies, for example, gained from large
importance of business models for competitive success and value cre- and mixed sample studies, are currently missing. Teece (2006),
ation, there are also more critical observers who quite rightly question reflecting on his PFI theory, acknowledges the importance of busi-
whether business models are really all‐in‐one solutions for sustainabil- ness models for the acquisition of complementary assets but does
ity innovations that shall be brought to commercial success (Budde not make a connection between business models as devices that help
Christensen et al., 2012). Therefore, the aforementioned assumptions in acquiring complementary assets and the public policies providing
about the mediating role of the business model might be contested them. Studies that provide more details about the relationships
and thus need empirical testing. A hypothesis that might be tested between business models and public policies are needed, also to bet-
could be: Sustainability innovations commercialised through new or ter understand if different moderators (e.g., public policies and pri-
adapted business models are more likely to enter markets and diffuse vate funding) are of varying importance along the different phases
successfully. of a business model life cycle.
However, “success” cannot be defined in general (cf. Upward & This relates to the valley of death, that is, the phase of highest
Jones, 2016). Although green innovators might define success as financial insecurity as innovations approach the market, which is
financial profit with environmental technologies, social entrepreneurs another major barrier for innovation‐driven entrepreneurship. How-
might perceive the social benefits of providing medical goods to poor ever, due to the additional challenges associated with sustainability
people as success while their own financial rewards are not that innovations—such as directional risks and the double externality prob-
important (Schaltegger & Wagner, 2011; Yunus et al., 2010). There- lem—it might be more demanding to convince banks and equity inves-
fore, the successful commercialisation of sustainability innovations is tors. Wüstenhagen and Menichetti (2012) offer a systematic
not the same as success per se. The latter depends on the entrepre- perspective on the different phases that have to be passed on the
neur's individual definition of the particular outcome that is to be way to market success and argue that the valley of death challenges
achieved, as well as the potential of a BMfSI to create stakeholder entrepreneurs to switch from public funding to private financing, for
value, that is, to meet stakeholders' expectations. Essentially, it is a example, based on venture capital, private equity, and project financ-
question of fulfilling a joint purpose (Freudenreich et al., 2019). This ing. The ability to adapt and communicate a business model's financing
particularity of sustainable entrepreneurship is acknowledged, for component in a convincing manner can be crucial to survive this pas-
example, in the Framework for Strategic Sustainable Development sage. A case in point is Welsh mobility designer Riversimple. This start‐
and its generic success concept (Broman & Robèrt, 2017). This some- up is successfully using crowdfunding and raised a significant amount
how elusive property of the concept of success requires accepting of money. Riversimple's hydrogen‐based mobility service and its
varying success or business case definitions, which also depend on financing model are prominently described on the firm's website.
the associated sustainability strategies. These can also address differ- The narrative used by Riversimple attracts a lot of interest and creates
ent kinds of success drivers; a selection of which has been presented trust in this new firm: “We don't believe that there needs to be any
in Section 4.3.2. Improving these drivers might sometimes require rad- trade‐off between a successful, profitable, resilient business and deliv-
ical sustainability strategies, leading to correspondingly radical BMfSI. ering our aim of eliminating environmental impact. We have designed
In this regard, we may hypothesise the following: Sustainability innova- our business, from scratch, to turn sustainability from a cost on the
tions without aligned business models fall short of improving business case bottom line to a source of competitive advantage. The more environ-
drivers and are thus not successful. If this is true, larger corporations mental damage we eliminate, the more successful we will be as a busi-
that use their traditional business models to market sustainable prod- ness” (Riversimple, 2019). A related hypothesis that could be tested
ucts or service should not wonder if they are not successful in the could state that a clear and strong business model narrative is required
market. The question whether incremental or radical business model to be more successful than companies that promote a sustainability
alignment is required to mediate the relationship between sustainabil- innovation without such a narrative: Companies that promote a sustain-
ity innovation and business case goes beyond the discussion in this able product or service and a corresponding business model narrative are
paper. But it points to a promising avenue for future research as there more successful in attracting private funding than companies without
is a lack of studies analysing this relationship and its effects on busi- such a narrative. One possible avenue may be to take a behavioural
ness case drivers in a systematic way. finance perspective to study how nonfinancial and even seemingly
Another insight refers to a topic that has also gained little atten- irrational decision criteria, triggered by a “smart” business model narra-
tion thus far. Although several market and policy studies conclude tive, are applied in financial decision making. These insights could
motivate a rather unexplored field of sustainable business model innovation, but how must the framework be adapted if more fine‐
research that recognises behavioural and nonfinancial aspects, as, for grained forms of ecological or social innovation were distinguished?
example, proposed by Loock and Hacklin (2015) who discuss heuris- For example, the eco‐innovation types identified by Kiefer et al.
tics and the cognitive foundations of business modelling. (2019), who distinguish systemic, externally driven, continuous
In sum, this article makes a contribution to the emerging field of improvement, radical and technology‐push, and eco‐efficient innova-
research and practice on sustainable business models in that it offers tions. It can be assumed that these different types of innovations lead
a new framework to structure major topics within this field. Although to different business model alignments and different outcomes in terms
it is often assumed that business models are crucial for sustainable of stakeholder value creation. Empirical studies could therefore analyse
entrepreneurship and their sustainability innovations to unfold, we the interplay of different types of sustainability innovations and how
lack an understanding of the processes, “mechanisms”, and dynamics these translate into different business model patterns (cf. Lüdeke‐
that integrate these phenomena. It might be an obvious and logical Freund, Carroux, Joyce, Massa, & Breuer, 2018; Lüdeke‐Freund, Gold,
assumption that business models—here, with a focus on their mediat- & Bocken, 2019) and different business cases. Moreover, only a few
ing function—are as important for sustainable entrepreneurs, as they barriers to sustainability innovation are explicitly addressed in the dis-
are for traditional entrepreneurs. But, in fact, this assumption is mostly cussion of the mediating and moderating relationships. The identified
formulated without opening an important black box; a black box that list of barriers is extensive but not yet conclusive. Further barriers might
obscures critical and yet unexplored relationships between sustain- be added, such as cognitive effects influencing entrepreneurs' ability to
ability innovations, business models, and business cases. Opening this engage in sustainability innovation (e.g., Laukkanen & Patala, 2014) or
black box is a prerequisite to support the deliberate application and limitations imposed by the available resources, competencies, and
study of business models with a green and social purpose. By delineat- dynamic capabilities of a firm (Kiefer et al., 2019). Future research could
ing major theory streams, concepts, and their relationships, this article start by refining these and further analytical variables implied by the
develops a foundation for further theorising and empirical research in BMfSI framework. Recent publications (e.g., Spieth & Schneider, 2016)
a domain that has yet to be thoroughly studied, namely, the manifold offer concepts to operationalise and quantify the degree of business
decisions and activities that take place in the business model mediat- model innovation, which would be a central variable in empirical
ing space. The conceptual and theoretical work done in this article research building on the proposed framework.
suggests a reference point for this domain and a first step towards
more comprehensive research programmes for its further develop- ORCID
ment. The specific strength of the BMfSI framework is that it builds Florian Lüdeke‐Freund https://orcid.org/0000-0001-9566-3699
on and integrates several theoretical streams, that is, entrepreneur-
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10990836, 2020, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/bse.2396 by INASP/HINARI - PAKISTAN, Wiley Online Library on [25/03/2023].

Sustainable entrepreneurship, innovation, and business models:

Chair for Corporate Sustainability, ESCP

sustainable entrepreneurship, business model, sustainability innovation, sociotechnical context,

Bus Strat Env. 2020;29:665–681. wileyonlinelibrary.com/journal/bse 665

FIGURE 2 Relationships between financial

FIGURE 3 Initial framework of sustainability

FIGURE 4 The business models for sustainability innovation framework

TABLE 1 Barriers to business models for sustainability innovation

Barriers relate to … Description of barriers

“Teecian barriers” to profiting from innovation

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