LAUSR

Abstract Designing a business model is not a one-off process; adjustments are often required. To create such adjustments and realize business model innovation, firms require the deployment of dynamic capabilities. Yet, we know little about the role of dynamic capabilities in fostering business model innovation, particularly in SMEs. This research, designed as an in-depth longitudinal case study, investigates how an SME’s market orientation and its deployment of dynamic capabilities are related to business model innovation. By developing a process framework of an SME’s business model innovation from start-up to scale-up, this paper contributes to the literatures on business model (innovation), small business, and dynamic capabilities. It clarifies how an SME’s market orientation, through the fitting deployment of its dynamic capabilities, drives its business model innovation. More specifically, this study characterizes market-driving, market-driven, and ambidextrous business models in the SME context, and reveals the exact dynamic capability processes necessary for transforming a business model from market-driving to market-driven, and ultimately to a model reflecting an ambidextrous market orientation. These insights outline how SMEs can deploy dynamic capabilities that align with the SME’s market orientation to innovate the design and architecture of their business models.