43 Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 The aim of this paper is to find out if the business ideas of digital entrepreneurs develop within the opportunity discovery or creation context and what digital levels their business models have in this context. Following an exploratory research design, ten digital start-ups were interviewed and analyzed. Digital Entrepreneurs and the Origin of their Business Models Christiania Ropposch¹, Elisabeth Stiegler² & Christian Gubik³ Please cite this paper as: Ropposch et al. (2021), Digital Entrepreneurs and the Origin of their Business Models, Journal of Business Models, Vol. 9, No. 1, pp. 43-51 Keywords: Opportunity discovery and creation, digital entrepreneurship, business model 1 -3: Graz University of Technology, Austria DOI: https://doi.org/10.5278/jbm.v9i1.4274 Abstract https://doi.org/10.5278/jbm.v9i1.4274 Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4444 Introduction Business model innovation resulting from digital technologies has brought about a transformation in several industries including media or accom- modation. These transformations were largely in- troduced by pioneering start-ups that grew into giants like Airbnb or Amazon (Sorri et al., 2019; Zaheer et al., 2019). Digital technologies have thus had an important impact on the new venture idea and the entrepreneurial process (Nambisan, 2016) and open up a wide range of possibilities for en- trepreneurs (Kraus et al., 2019) and new business models (Cuc, 2019). The new opportunities driven by digitalization build the basis for digital entre- preneurship. Digital entrepreneurship is “a sub- category of entrepreneurship in which some or all of what would be physical in a traditional organiza- tion has been digitized” (Hull et al., 2007, p. 293); it “embraces all new ventures and the transformation of existing businesses that drive economic and/or social value by creating and using novel digital tech- nologies” (European Commission, 2015 cited by Sahut et al., 2019, p. 4); it’s the process of creat- ing a digital start-up (Zaheer et al., 2019). A digital start-up is in an early stage of development and growth (Klotz et al., 2014) where digital technolo- gies “enable at least one component of a business model in a way that is not just functional but vital to the firm” (Zaheer et al., 2019, p. 2). The basis for every new venture is the business op- portunity pursued by the entrepreneur, such as op- portunities due to digital technologies (Kraus et al., 2019). Ardichvili et al. (2003) describe the identifi- cation of the right opportunities for entrepreneurs as one of the key activities behind success and forms the basis and starting point for entrepreneu- rial behavior. Before a business model or a business plan can be developed, however, entrepreneurial chances and opportunities must be discovered or created. Within the opportunity discovery context, based on the description of Kirzner (1979), oppor- tunities exist independent from the activities of a person and wait to be discovered and used. In the opportunity creation context, opportunities do not yet exist, as described by its originator Schumpeter (1934). Instead, they are created if an entrepreneur develops them within an iterative process of act- ing and reacting. The finding and development of new ideas, as well as the networking of existing resources with existing and new possibilities form the basic building blocks from which new and fu- ture business models are created (Ardichvili et al., 2003), especially against the background of rapidly proliferating digitalization. Table 1 highlights the specific characteristics of opportunity discovery and creation. Examples of Airbnb or Facebook showed how digital companies can become game changers in indus- tries in conditions of high uncertainty, which is a characteristic of the opportunity creation context. Ojala (2016) investigated the issue of companies de- veloping their business model under conditions of high uncertainty, namely the opportunity creation context. But so far, investigations have not extended to whether digital entrepreneurs develop their busi- ness model in the opportunity creation or the dis- covery context. In order to understand the business model charac- teristics of digital entrepreneurs in a better way, Hull et al. (2007) identified three levels of digitalization – mild, moderate and extreme – with each level having specific characteristics. Hull et al. (2007) state that empirical investigations based on their characteris- tics should shed more light on the development of digital entrepreneurs and how digitized their busi- ness models are. More insights about the digital level of business models is also requested by Kraus et al. (2019). Furthermore, Zaheer et al. (2019) state that the research on digital entrepreneurship is still very fragmented and in-depth knowledge about the specifics of a digital entrepreneurs business model is still in very short supply. Following the requests of Hull et al. (2007), Kraus et al. (2019) and Zaheer et al. (2019) to shed more light on the characteristics of digital entre- preneurs and their business models, the goal of our research is to identify 1) in which opportunity context digital entrepreneurs develop their business model and 2) which level of digitalization characterizes these digital businesses. Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4545 Table 1. No. Characteristic Discovery Theory Creation Theory 1 Opportunity existence Opportunities are available independently from the entrepreneur and wait to be discovered. They result from unbalances in the environment, evoked by new technological standards or customer needs. Opportunities emerge through an iterative process of acting and reacting. They result from individual and personal visions of the entrepreneur. 2 Entrepreneur Entrepreneurs identify opportunities through an active search for opportunities and have a higher particular inclination to perceive them (Alertness). Entrepreneurs are no different to anyone else; they can develop themselves further by creating a new possibility. 3 Information Information about the market, customers and com- petition are available and lead to the recognition of a new opportunity. As a result of an evolutionary process, the outcome of opportunity creation is open and unknown in advance. Opportunities are sometimes unrelated to currently available information. New extensive knowledge can emerge. 4 Peculiarity New opportunities can be identified due to special abilities and knowledge of the entrepreneurs. The path-depending process of creating an oppor- tunity can lead to significant differences between entrepreneurs and others. 5 Decisions The opportunities are based on risks; there is suf- ficient information about possible outcomes and the possibility of occurrence available. Decisions are made deductively and from evidence, based on facts and information. The opportunities are based on uncertainty; infor- mation about possible results of a decision and the possibility of occurrence is not available. Decisions are made inductively and depend on the context. 6 Approach Causation: Selection of the necessary resources to reach a defined goal. Effectuation: Development of new possible goals by using the available resources. 7 Strategy Fully formulated strategy, almost no adaptions. Emergent strategy, many adaptions based on a trial- and-error. 8 Employees Based on experiences from working in industrial companies. Based on former entrepreneurial experiences. 9 Founding Formal, based on rules. Informal, based on the situation. 10 Competitors Competitive advantages emerge from building up barriers due to knowledge about the market and the product. Competitive advantages emerge by a high level of innovativeness. Table 1: Characteristics of the opportunity creation and discovery approach (based on Alvarez and Barney, 2011; Ardichvili et al., 2003; Eckhardt and Shane, 2003; Fueglistaller et al., 2012; Gaglio and Katz, 2001; Geißler and Zanger, 2015; Ghezzi, 2019; Gontareva et al., 2018; Hills et al., 2004; Jones and Barnir, 2019; Shane, 2000) Approach In order to find out how entrepreneurial opportuni- ties are formed and how this relates to the level of digitalization, this study follows an exploratory re- search design encompassing ten semi-structured interviews with digital entrepreneurs who started their businesses in the university context. The in- formants were CEOs or founders of the companies who were able to describe how the founding process of the company took place. We followed a purposive sampling strategy (Flick, 2014) as we deliberately selected digital entrepreneurs with an academic Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4646 background. The interview guideline used consisted of questions addressing the idea development, the founding process of the start-up, the development of the business model and the digital level of the business model. The interviews were conducted be- tween January and March 2020 and lasted between 20 and 42 minutes each. With the exception of one telephone interview, all the interviews were con- ducted in person. The interviews were all recorded and fully transcribed. The process of deductive data analysis described by Mayring and Fenzel (2014) was followed for analyzing the data. The characteris- tics from table 1 were utilized to identify whether a company operates in the opportunity discovery or the opportunity creation context, and every in- terview was deductively analyzed with the aid of these characteristics. In order to assess the digital level of every company interviewed, the classifica- tion into three digital levels proposed by Hull et al. (2007) was followed. In order to be able to classify the companies according to the three digital levels, we used the characteristics of the typology of digi- tal entrepreneurship advocated by Hull et al. (2007) and combined them with the characteristics of the digital maturity model proposed by PwC (Pricewa- terhouseCoopers, 2014). This provided us with a structured and sound operationalization for identi- fying the digital level. The categories were defined as the (1) digitalization as a company goal, (2) internal and external processes, (3) usage of digital technolo- gies for cooperation and development, (4) usage of digital technologies for marketing and sales, (5) cur- rent level of digitalization for their business model elements, (6) collection of customer data, and, (7) support of digital education of employees. Key insights According to the characteristics of the opportunity discovery and creation approach (see table 1), we revealed that 5 out of 10 companies identified and explored new opportunities in relation to the discov- ery context (A, B, E, G, J), whereas the remaining 5 companies did the same within the creation context (C, D, F, H, I). Although evidence of both theories has been found in every company, they could be clearly assigned to one single opportunity context. Table 2 provides an overview of the interviewed companies and their assignment to the discovery or creation context based on the characteristics from table 1 and complemented by exemplary phrases from the interview. In addition, table 2 indicates the digital level of the company ’s business. The majority of founders recognized an imbalance in the market, triggered by specific customer needs or problems. But there is no clear tendency toward the discovery context of opportunities. Furthermore, entrepreneurs developing their business models in the opportunity creation context also reach a point where their product or service solves a potential problem in the market of which they were unaware at the time they started. Moreover, at the end of the development of a business opportunity toward a business model, entrepreneurs sometimes find themselves with a completely different product than the one they started with (e.g. company D). Since five out of ten start-ups analyzed established their company in the opportunity creation context, a high degree of innovativeness is assumed in these cases. The creation of new business opportunities is based on developing products and services without or just restricted knowledge of the market and the competition. The founders create a new market de- mand by offering completely new products and ser- vices to customers. In our investigation it became evident that entrepre- neurs in the founding process intuitively and indi- vidually deal with the respective tasks and problems depending on the situation and do not strictly fol- low the characteristics of one opportunity context. Whether the entrepreneurs operate more in the dis- covery or creation context also depends on the com- bination of several factors, including access to a new opportunity, the environment, the mindset and pre- vious developments. By analyzing the digital level of all companies, we faced the challenge that a strict separation of each digital level is hardly possible. Nevertheless, we re- vealed that the business models of six companies have an extreme digital level (A, B, E, G, H, I), one has Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4747 Table 2. Company Discovery Theory Creation Theory Determining characterization Example of assigned phrase Digital level A x 1, 2, 3, 4, 5 “It was completely clear for me, that the potential of this technology will grow and that this will lead to huge changes. I see many parallels with internet as this topic also arose.” (No. 1 & 3) extreme B x x 1, 2, 3, 5, 6, 10 “Mobile access to web systems of the university was not possible with good user experience, our co-founder realized that this was so and it bothered him, He wanted to create better accessibility for himself and the students.” (No. 2 & 3) ”After running several startup projects in parallel, we finally decided to focus only on company B, problem-solution-fit.” (No. 5 ) extreme C x 1, 3, 5 “The idea came out of nothing. I thought that there is a similar solution for the industry and asked myself why there is no solution for the con- struction topic.” (No. 1) ”We have had to and still have to do a lot of groundwork here.” (No. 5) moderate D x 1, 3, 5, 6, 7, 10 “After a research of our new idea we noticed that a solution like ours did not exist at the present time.” (No. 1 & 3) ”If you have a sensor device there [...] then you can save labor and the risk of accidents. This results in a great added value in terms of cost savings. And that is where there has been an expansion of the business model.” (No. 10) moderate - extreme E x 1, 2, 3, 4, 5, 6, 7 “What I did was to scout trends. I detected a customer need and devel- oped a special solution for it.” (No. 1 & 2) ”[...] and our product is simply an addition or an innovation from the already known solution.” (No. 5) extreme F x 1, 2, 4, 5, 6 “We simply wanted to establish a company [...] The whole construct has developed over time.” (No. 1) ”My partners and I wanted to start and run a company and feverishly thought about what we could do. [...] we asked ourselves what we could do better than our competitors, and what the problem was and why other solutions didn’t work as well.” (No. 2 & 4) moderate - extreme G x 1, 2, 3, 4 “The idea came up because we detected a certain problem shared by catering companies concerning their online review system.” (No. 1) ”Because of our customers, we have again been working on new fea- tures and products.” (No. 3) ”I actually didn’t always want to be self-employed. (...) Retrospectively, I have to reflect and honestly say that, in mind-set terms, starting my own business was a good fit for me.” (No. 2) extreme H x 1, 3, 4, 5, 10 “That simply arose from the idea that there was nothing like that at the time. [...] and that didn’t exist at the time, at least not in the quality we needed. That’s why we did it ourselves.” (No. 1 & 3 & 5) ”I have always been self-employed, so I have never worked in a company. I am CEO.” (No. 4) extreme I x 1, 4, 5, 6, 8, 9, 10 “[…] the idea arose independently of the motivation to start a company. We simply made the product for ourselves.” (No. 1) ”We have seen the problem of not having accurate data. We have seen this in everyday life, however, we did not know or never knew about how big this problem really is and how big a need there is behind it.” (No. 5) extreme J x 1, 2, 3, 4, 5, 6, 8 “We saw what he was doing and thought there must be a simpler solution. We came up with our solution to a problem that was unknown to us until then.” (No. 2 & 4) ”And then, above all, we have both seen different companies and have also seen many things that did not suit us so well there and that we wanted to do better in our own company.” (No. 8) moderate - extreme Table 2: Assignment of the companies to the opportunity theory approach and their digital level Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4848 a moderate level (C), and three reach a moderate to extreme level (D, F, J) of digitalization. A clear as- signment to an extreme digital level was not possible in these cases. On the one hand they are providing solutions on a high digital level, and at the same time they are operating in industries in which non-digital contacts or processes are still required to a large extent (geriatric care, human resources, and stock farming). The only company with a moderate level of digitalization has developed a web-based tool for the interdisciplinary configuration of buildings in the construction industry, in which non-digital compo- nents of the business model and the industry must also be considered to a greater extent. By combining the results on the opportunity context with the results on the digital level of each business model, our results revealed that the companies op- erating in the discovery context are more likely to have an extreme level of digitalization (A, B, E, G), despite company J (moderate-extreme), than com- panies operating in the creation context (C, D, F, H, I), showing more often a moderate level of digital- ization. Nevertheless, with our results we are able to show that all the companies have a large proportion of high digitalization, although there are also indica- tions in the direction of a moderate digital level. The reason behind this high general digital level is based on the fact that every company surveyed offers var- ious digital aspects in its business model, predomi- nantly digital products and services. Overall, there is a slight tendency toward a higher de- gree of digitalization in conjunction with the oppor- tunity discovery context. This suggests that entre- preneurs who found their start-up in the opportunity discovery context and have sufficient information about the market and the competition are able to place a greater focus on digitalization than entrepreneurs in the opportunity creation context. We assume that entrepreneurs in the creation context devote greater energy to developing their business idea than to deal- ing with the issue of the company ’s appearance and operations with regard to digitalization. Instead, the focus is on the product or service to be developed. In comparison, entrepreneurs in the opportunity dis- covery context focus more strongly on digitalization, since more information about their customers and competition is already available. We further revealed that companies founded in connection within the op- portunity creation context have to iterate more often in the development of their products and services due to the path-dependent process of trial and error. In most cases, the founders developed completely new products or services in the course of this process, so that the orientation toward competitors is not possi- ble and customer preferences or market acceptance are difficult to predict. Discussion and Conclusions The goal of our paper was to show in which opportu- nity context – creation or delivery – digital entrepre- neurs develop their business models, depending on their level of digitalization. In sum, we revealed that digital pioneers with an extreme level of digitaliza- tion (Kraus et al., 2019) in the opportunity discovery context use digital technologies to develop user- friendly solutions for customer needs. Thus, entre- preneurs have sound knowledge of the market and customers in terms of opportunities in the discovery theory context, with the result that it is more likely to offer a higher level of digitalization. Fueglistaller et al. (2012) argue that successful entrepreneurs need to be one step ahead of their competitors to gain a competitive advantage. This would explain the high level of digitalization in this context. By contrast, companies in the opportunity creation context show a tendency toward a moderate level of digitalization due to a lower level of digitalization of internal pro- cesses or marketing and sales activities. Companies in the opportunity creation context have to deal with questions of uncertainty (Geißler and Zanger, 2015; Ojala, 2016), because of unknown customers, an un- known market and unknown sales channels where they cannot primarily focus on a high level of digi- talization. This explains in our cases the focus on the development of digital products and services and the neglect of other aspects. Nevertheless, Hull et al. (2007) stated that digital entrepreneurs selling digital products or services have at least a moderate digital level, which is also shown by our results. If we view the results through the lens of the busi- ness model, we see the main differences in both Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 4949 value creation and value delivery. The value proposi- tion of the business model is geared toward creating value with the help of smart products and services. According to Hull et al. (2007), this is a character- istic of digital entrepreneurs. The value delivery shows that companies combine digital distribution with traditional sales activities (e.g., direct sales). We have rarely found a complete digitalization here. In value creation, digital technologies are predomi- nantly used in the collaboration with other compa- nies. Of course, this is relatively easy to implement in software companies, since they are thoroughly fa- miliar with the use of digital tools in software devel- opment and document sharing. Internal processes are very often not yet digitized. In sum, our findings are in line with the findings of Zaheer et al. (2019) who state that digital technologies play a vital role in the elements of digital companies’ business models. With our study, we contribute to the discussion about business models of digital entrepreneurs by gaining more insights on digital levels of the busi- ness models. We also contribute to the discussion on the development of opportunities by showing, in which of the two opportunity contexts (creation or discovery) digital entrepreneurs develop their busi- ness models. In terms of practice, we were able to demonstrate the origins and peculiarities of the op- portunity context and what to consider when start- ing a digital business. Our study also has its limitations. First of all, we only have 10 companies included in our sample. More empirical data is needed to strengthen our findings. Additionally, more information about the business model is needed to gain deeper insights into the elements of the business model of digital entrepre- neurs. In the case of imprecisely formulated state- ments in the expert interviews, it was not always possible to make a clear assignment of a text pas- sage to the appropriate category. We addressed this challenge with intercoder agreement and multiple, iterative considerations of the text material. Future research can take our results as a basis for a quantitative study to reveal correlations between the opportunity context and digital level of the busi- ness model. Furthermore, it can be fruitful to reveal which of the characteristics or which combination of characteristics of either the opportunity creation or discovery are crucial for the entrepreneur to finally develop the opportunity in the creation or discovery context. Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 5050 References Alvarez, S. A. and Barney, B. (2007), Discovery and creation: alternative theories of entrepreneurial action, Strategic Entrepreneurship Journal, Vol. 1, No. 1–2, pp. 11–26. Ardichvili, A., Cardozo, R. and Ray, S. (2003), A theory of entrepreneurial opportunity identification and development, Journal of Business Venturing, Vol. 18 No. 1, pp. 105–123. Cuc, J. E. (2019), Trends in business model research: A bibliometric analysis, Journal of Business Models, Vol. 7, No. 5, pp. 1–24. Flick, U. (2014), An Introduction to Qualitative Research, SAGE Publications Ltd., London. Eckhardt, J. T. and Shane, S. A. (2003), Opportunities and entrepreneurship, Journal of Management, Vol. 29, No. (3), pp. 333–349. Fueglistaller, U., Müller, C., Müller, S. and Volery , T. (2012), Entrepreneurship: Modelle – Umsetzung – Perspektiven mit Fallbeispielen aus Deutschland, Österreich und der Schweiz, Springer Fachmedien, Wiesbaden. Gaglio, C. M. and Katz, J. A. (2001), The Psychological Basis of Opportunity Identification: Entrepreneurial Alertness, Small Business Economics, Vol. 16, No. 2, pp. 95–111. Geißler, M. and Zanger, C. (2015), Opportunities und Opportunity Recognition als Aufgabe des Gründungsmar- ketings, in Freiling, J. and Kollmann, T. (Eds.). Entrepreneurial Marketing, Springer Fachmedien, Wiesbaden, pp. 179–197. Ghezzi, A. (2019), Digital startups and the adoption and implementation of Lea Startup Approaches: Effectuation, Bricolage and Opportunity Creation in practice, Technological Forecasting and Social Change, Vol. 146 (2019), pp. 945–960. Gontareva, I., Chorna, M., Pawliszczy, D., Barna, M., Dorokhov, O. and Osinska, O. (2018), Features of the Entrepreneurship Development in Digital Economy, Technology Education Management Journal, Vol. 7, No. 4, pp. 813–822. Hills, G. E., Hansen, D. J. and Hultman, C. (2004), “Opportunity Recognition Processes: A Value Crea- tion Context”, paper presented at the Babson-Kauffman Entrepreneurship Research Conference (BKERC), 3 June – 5 June, Strathclyde, Scotland, available at: https://www.researchgate.net/profile/ David_Hansen10/publication/228961801_Opportunity_recognition_processes_A_value_creation_context/ links/02e7e52b34783254b4000000/Opportunity-recognition-processes-A-value-creation-context.pdf (accessed 14 March 2020). Hull, C. E. et al. (2007), Taking advantage of digital opportunities: A typology of digital entrepreneurship, International Journal of Networking and Virtual Organisations, Vol. 4, No. 3, pp. 290–303. Jones, R. J. and Barnir, A. (2019), Properties of opportunity creation and discovery: Comparing variation in contexts of innovativeness, Technovation, Vol. 79 (2019), pp. 1–10. Kirzner, I. M. (1979), Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship, University of Chicago Press, Chicago. Journal of Business Models (2021), Vol. 9, No. 1, pp. 43-51 5151 Klotz, A. C., Hmielski, K. M., Bradley, B. H. and Buenitz, L. W. (2014), New Venture Teams: A Review of the Literature and Roadmap for Future Research, Journal of Management, Vol. 40, No. 1, pp. 226–255. Kraus, S., Palmer, C., Kailer, N., Kallinger F. L. and Spitzer, J. (2019), Digital entrepreneurship: A research agenda on new business models for the twenty-first century, International Journal of Entrepreneurial Behaviour and Research, Vol. 25, No. 2, pp. 353–375. Mayring, P. and Fenzel, T. (2014), Qualitative Inhaltsanalyse, in Baur, N. and Blasius, J. (Eds.), Handbuch Methoden der empirischen Sozialforschung, Springer Fachmedien Wiesbaden, Wiesbaden, pp. 543–556. Nambisan, S. (2016), Digital Entrepreneurship: Toward a Digital Technology Perspective of Entrepreneurship, Entrepreneurship: Theory and Practice, Vol. 41, No. 6, pp. 1029–1055. Ojala, A. (2016), Business models and opportunity creation: How IT entrepreneurs create and develop business models under uncertainty, Information Systems Journal, Vol. 26, No. 5, pp. 451–476. PricewaterhouseCoopers (2014), “Digitalisierungsbarometer”, available at: https://www.pwc.de/de/digitale- transformation/assets/pwc_digitalisierungsbarometer_2014.pdf (accessed 22 January 2021). Sahut, J. M., Iandoli, L. and Teulon, F. (2019), The age of digital entrepreneurship, Small Bus Econ, (2019). Schumpeter, J. A. (1934), Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Harvard University Press, Cambridge. Shane, Scott (2000): Prior Knowledge and the Discovery of Entrepreneurial Opportunities, Organization Science, Vol. 11, No. 4, pp. 448–469. Sorri, K., Seppänen, M., Still, K. and Valkokari, K. (2019), Business Model Innovation with Platform Canvas, Journal of Business Models, Vol. 7, No. 2, pp. 1–13. Zaheer, H., Breyer, Y. and Dumay, J. (2019), Digital entrepreneurship: An interdisciplinary structured literature review and research agenda, Technological Forecasting and Social Change. Vol. 148 (November), p. 119735. https://www.pwc.de/de/digitale-transformation/assets/pwc_digitalisierungsbarometer_2014.pdf https://www.pwc.de/de/digitale-transformation/assets/pwc_digitalisierungsbarometer_2014.pdf