The Logic of Profit in a New Venture: Developing and Testing a Pragmatic Model

This study proposes a comprehensive framework for characterizing the economic model that underlies an entrepreneurial venture. The proposed framework includes four components: revenue drivers, operating leverage, margins, and volumes. Further, volumes and revenue drivers have two sub-components. A foundation for each is established. To test the framework, a survey instrument was developed and administered to entrepreneurs from a cross-section of retail ventures. Cluster analysis is used to identify more commonly employed models among firms. Further, evidence is produced of differences in the models relied upon based on organization descriptors, and differences in company performance based on the firm’s economic model. The study demonstrates a practical approach to measuring a firm’s economic model that can be used by researchers, educators and practitioners. Implications are drawn for theory and practice, and suggestions are made for ongoing research.