THE VARIETY OF ASPECTS OF BUSINESS MODELS IN THE HIGH-GROWTH AND HIGH-TECH ENTERPRISES: AN ESTONIAN CASE

Introduction

The relevance of the business model in relation to the enterprise’s performance, in general, has been widely acknowledged in literature. On one hand, the business model approach is increasingly addressing the business model as an economic concept, which “produces” revenues and costs (Slavik and Bednar, 2014). On the other hand, there is a growing body of literature that provides a range of approaches to characterizing their different components in achieving global growth (Chesbrough, 2003, 2006, 2010; Osterwalder and Pigneur, 2009; Teece, 2010; Watson, 2006).

This stream of the literature also tries to distinguish business model components and functions (Afuah, 2004; Chesbrough, 2003, 2006; Osterwalder and Pigneur, 2009; Teece, 2010; Watson, 2006). The business model and its components are becoming even more important in the changing economic environment, where the main emphasis is being put on knowledge-based start-ups in the high-growth and high-tech realms. Tie purpose of this chapter is to conceptualize the differences between a variety of business models and their components and identify differences between mainstream, high-tech, and high-growth enterprises. Tiis chapter is going to compare Estonian high-growth enterprises from different business fields and technological insensitivity levels.

Estonia is a very small country in Eastern Europe with a history of Soviet occupation. From the Soviet period, there have been several myths and negative attitudes toward entrepreneurship, because entrepreneurship was considered a crime. However, since the independence, several hard reforms have been carried out and Estonia has been considered a success story. Currently, Estonia has been also called the “most advanced digital society in the world.” Already in 1997, Estonia established an e-Governance system. This system allows citizens to access many public services online. In 2001, Estonia created the Digital Identity Card, which allows all citizens to access numerous services such as transportation, e-school, banking services, driving licenses, personal medical records, etc. And in 2005, Estonia became the first country in the world to allow citizens to vote online.

Tiis background of a high-tech, digital society with a stable economic environment has made Estonia the Silicon Valley of Eastern Europe. Estonia, with its small and smart society, has become a breeding ground for start-ups. Despite being a small country with only 1.3 million people, the country’s tech start-up ecosystem continues to grow, with start-ups raising around 330M EUR in 2018. According to Startup Estonia, we have currently around 650 start-ups in Estonia. Most of them operate in the following sectors: Business Software, Services and Human Resources (HR) (108 start-ups), AdTech and Creative Tech (98 start-ups), FinTech (69 start-ups), HealthTech, Life Sciences and Wellness (58 start-ups), and CleanTech (48 start-ups) (Startup Estonia, 2019). Estonian Tax and Customs Board shows that at the end of the second quarter of 2019 Estonian start-ups employed 4,848 people and employment taxes of 32.7M EUR were paid in the first 6 months of 2019. In the first half of 2019, Estonian start-ups generated 155M EUR in turnover, which is an increase of 3% compared to the same time in 2018. During the first half of 2019, 117M EUR was invested in Estonian start-ups. In total, there have been 24 new investment deals, with an average size of 4.43M EUR per deal. Despite the lower investment amount than the same time period in the previous year, there was a rise in the number of deals made (15 investment deals made within the first 6 months of 2018) (Startup Estonia, 2019).

The problem addressed by the research is how to assure/provide a supportive entrepreneurial ecosystem and encourage growth and innovation. Despite the growth of hi-tech and hi-growth sectors, they also have some barriers and difficulties. Therefore, it is important to understand if there are any differences between mainstream compared to either high-tech or high-growth business models as well as the kind of support required for various business model components and development phases.

The study is based on three Estonian enterprises. Data is retrieved from the Estonian Business Register and other resources (home pages, public interviews with stakeholders, reports, etc.). First, the authors focus on the business model and its components in the case of mainstream, high-tech, and high-growth enterprises. Second, the authors analyzed the components of business models and compared the similarities and differences of the components. And thirdly, the results were discussed and conclusions were made.

This chapter is organized into four sections. The chapter begins with Section 1, which gives an overview of the current state of discourse on a business model, covers and compares the business model components, and indicates differences between high-tech and high- growth enterprises. Section 2 gives an overview of the methodology employed. Section 3 contains an analysis of the case of Estonian enterprises. Finally, Section 4 includes discussions and conclusions and provides an analytical summary of the findings.