Abstract

Central to most conceptualizations of a business model is the firm’s approach to making money, or its economic model (Rayport & Jaworski, 2001). Surprisingly, no framework exists for capturing the entrepreneur’s economic model (Gunter and McGrath, 2005). In this research, a four-component framework is developed and tested. These four components include margins, volumes, operating leverage, and revenue drivers. Margins, volumes (transaction size and frequency), and operating leverage (extent to which cost structure is dominated by fixed versus variable costs) were classified as high, medium, or low. The firm’s revenue drivers were classified as high, medium, or low flexibility, and high, medium, or low in number of product lines. The development of this framework integrates these four elements and indicates which combinations should lead to highly successful ventures while others should result in more marginal firms.

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