This is an MIT Sloan Management Review article. Companies, the authors argue, are increasingly turning toward business model innovation as an alternative or complement to product or process innovation. Drawing on extensive research they conducted over the course of the last decade, the authors define a company's business model as a system of interconnected and interdependent activities that determines the way the company "does business"with its customers, partners and vendors. In other words, a business model is a bundle of specific activities -an activity system -conducted to satisfy the perceived needs of the market, along with the specification of which parties (a company or its partners) conduct which activities, and how these activities are linked to each other. Business model innovation can occur in a number of ways: (1) by adding novel activities, for example, through forward or backward integration, (2) by linking activities in novel ways, or (3) by changing one or more parties that perform any of the activities. Changes to business model design can be subtle, the authors note; even when they might not have the potential to disrupt an industry, they can still yield important benefits to the innovator. The authors offer a number of examples of business model innovation and pose six questions for executives to consider when thinking about business model innovation: 1. What perceived needs can be satisfied through the new model design? 2. What novel activities are needed to satisfy these perceived needs? 3. How could the required activities be linked to each other in novel ways? 4. Who should perform each of the activities that are part of the business model? 5. How is value created through the novel business model for each of the participants? 6. What revenue model fits with the company's business model to appropriate part of the total value it helps create?

Christian Harbinson, a young associate at the venture capital firm Scharfstein Weekes, has a difficult decision to make before the next investment committee meeting. He's been watching over SW's investment in Seven Peaks Technologies, and sales of its single product have been disappointing. Now the company's head, Jack Brandon, wants another $400,000 to pursue a new product. Harbinson believes in Brandon and in his proprietary technology--a titanium alloy that prevents surgical instruments from sticking to tissue. Three years ago, Brandon quit his job and put $65,000 of his savings into developing a nonstick cauterizing device. Two distributors offered to carry it after they saw his demonstration at a trade show, and a couple of surgeons, quickly becoming enthusiastic, promised testimonials. But if Brandon's cauterizer is to take off, surgeons will have to abandon the forceps they've traditionally used and switch to the Seven Peaks device--a change in behavior that will come slowly if at all. So, Brandon thinks, why not adapt his alloy to a line of forceps? Now Harbinson wonders if he himself has become emotionally overinvested in Seven Peaks and if this decision is as much a test of his VC potential as of the actual deal. Should Scharfstein Weekes back Brandon's company with a second round of funding, or would it be a case of throwing good money after bad? Commenting on this fictional case study in R0703A and R0703Z are Ivan Farneti, a partner with Doughty Hanson Technology Ventures; Fred Hassan, the chairman and CEO of Schering-Plough; Robert M. Johnson, a venture partner with Delta Partners and a visiting professor at the University of Navarro's IESE Business School; and Christoph Zott, an associate professor of entrepreneurship at Insead.

Christian Harbinson, a young associate at the venture capital firm Scharfstein Weekes, has a difficult decision to make before the next investment committee meeting. He's been watching over SW's investment in Seven Peaks Technologies, and sales of its single product have been disappointing. Now the company's head, Jack Brandon, wants another $400,000 to pursue a new product. Harbinson believes in Brandon and in his proprietary technology--a titanium alloy that prevents surgical instruments from sticking to tissue. Three years ago, Brandon quit his job and put $65,000 of his savings into developing a nonstick cauterizing device. Two distributors offered to carry it after they saw his demonstration at a trade show, and a couple of surgeons, quickly becoming enthusiastic, promised testimonials. But if Brandon's cauterizer is to take off, surgeons will have to abandon the forceps they've traditionally used and switch to the Seven Peaks device--a change in behavior that will come slowly if at all. So, Brandon thinks, why not adapt his alloy to a line of forceps? Now Harbinson wonders if he himself has become emotionally overinvested in Seven Peaks and if this decision is as much a test of his VC potential as of the actual deal. Should Scharfstein Weekes back Brandon's company with a second round of funding, or would it be a case of throwing good money after bad? Commenting on this fictional case study in R0703A and R0703Z are Ivan Farneti, a partner with Doughty Hanson Technology Ventures; Fred Hassan, the chairman and CEO of Schering-Plough; Robert M. Johnson, a venture partner with Delta Partners and a visiting professor at the University of Navarro's IESE Business School; and Christoph Zott, an associate professor of entrepreneurship at Insead.

Cumberland Entertainment, a niche music producer, was looking for capital to finance its planned expansion. CEO, Tom Smith, entered into negotiations with private equity firms, and struck an agreement that turned out to be incomplete. As a result, serious problems arose between financial investors and management. The case series describes how the parties dealt with these problems as their relationship evolved.

Cumberland Entertainment, a niche music producer, was looking for capital to finance its planned expansion. CEO, Tom Smith, entered into negotiations with private equity firms, and struck an agreement that turned out to be incomplete. As a result, serious problems arose between financial investors and management. The case series describes how the parties dealt with these problems as their relationship evolved.

Cumberland Entertainment, a niche music producer, was looking for capital to finance its planned expansion. CEO, Tom Smith, entered into negotiations with private equity firms, and struck an agreement that turned out to be incomplete. As a result, serious problems arose between financial investors and management. The case series describes how the parties dealt with these problems as their relationship evolved.

Cumberland Entertainment, a niche music producer, was looking for capital to finance its planned expansion. CEO, Tom Smith, entered into negotiations with private equity firms, and struck an agreement that turned out to be incomplete. As a result, serious problems arose between financial investors and management. The case series describes how the parties dealt with these problems as their relationship evolved.

In June of 1999, Steward Dodd, Noah Freedman, and Richard Davidson established Brainspark, a British business incubator designed to support and grow fledgling new businesses. The Brainspark business model was built on a blend of investing, mentoring, and teamwork, and the creation of an environment that would facilitate and enable knowledge and information sharing among companies. By the first half of 2001, however, Brainspark had suffered a serious downturn in its market value and its cash reserves were dwindling. The case focuses on the debate among Brainspark's management team about the appropriate business model and/or exit strategy for Brainspark.