1. Introduction
The rise of community group buying, live-streaming selling, and the Internet of Things has encouraged entrepreneurs to innovate current business models (BMs) and start new businesses [
1,
2]. Many startups have successfully created business marvels through their innovative business models [
3]. Examples include Meituan, TikTok, and Xiaomi, which seized market opportunities and delivered new values to consumers. Nevertheless, adopting a business model is also a process of facing external legitimacy tests [
4]. During the COVID-19 epidemic, the Chinese government regulated several startups for wasting investors’ money to capture the community group-buying market. For instance, in 2021, Meituan, one of the most well-known companies, spent USD 2.8 billion on community group buying, which swung from profit to loss. In addition, a set of problems such as click farming and price deception in live-streaming selling led to heavy supervision from the government and platforms. Meanwhile, some companies build social support and credibility by gaining consumer trust, which drives performance [
5]. Hence, the legitimacy problem encountered when launching a new model has a significant impact on the success or failure of startups. In the intensely competitive Chinese entrepreneurial environment, the simultaneous pursuit of external legitimacy and enterprise competitiveness is often imperative for firms to survive, and it is crucial for a startup’s business model innovation (BMI).
BMI refers to an organization’s basic logic to create, transmit, and acquire value together with stakeholders [
6,
7,
8,
9]. Earlier research about BMI originated from e-commerce and focused on how firms change their profit models within the integration of new technology and the Internet [
4,
10]. Later, one of the main streams of research concentrated on the relationship between BMI and performance; it was generally assumed that BMI can enhance the survival and growth of startups [
11,
12,
13,
14]. Despite this, numerous businesses owned innovative ideas and technologies fail due to difficulties gaining consumer recognition or sustaining themselves after government policies are tightened. According to new institutional theory, legitimacy constraint is one of the primary causes which leads to the failure of new businesses [
15]. Legitimacy, as an institutional element, refers to the order and norm in a social system [
16] which enables an organization to keep its own values consistent with the values of the social situation in which the organization is embedded [
17]. In the field of strategic management, legitimacy is a crucial factor embedded in the micro-operations of firms and facilitates access to vital strategic resources for startups [
18]. Extant literature has investigated the effects of internal legitimacy on the growth of startups [
19], but limited attention has been paid to the effects of different dimensions of external legitimacy on the relationship between BMI and the performance of startups. In addition, this study found that Chinese startups provide a suitable context for testing this research gap. In the context of the Chinese transition economy, legitimacy factors from various sources play different roles in the growth of startups, it is of practical significance to investigate the level of external legitimacy for the development of startups.
Legitimacy is one of the core concepts of new institutionalist theory [
20]. Weber [
16] first introduced legitimacy into sociological research and argued that legitimacy is the alignment of an organization’s values with the social context in which the organization is embedded. Aldrich and Fiol [
21] divided legitimacy into sociopolitical legitimacy, which refers to the acceptance of the firm’s behavior by its close stakeholders, and cognitive legitimacy, which refers to the acceptance and understanding of the firm by the public. Scott [
22] further divided sociopolitical legitimacy into regulative and normative. Regulative legitimacy refers to companies “doing the right thing” [
23]. The source of this legitimacy constraint is mainly the laws, regulations, and institutions stipulated by the government, industry associations, and other institutions, which is a mandatory regulation. Normative legitimacy refers to companies “doing the thing rightly”. The source of this legitimacy is social and moral values, which emphasize the expectation of the general public for the organization to “do the thing rightly” [
24]. According to Scott [
22] and Harris [
24], this study proposes regulative, normative, and cognitive legitimacy as three dimensions of legitimacy.
Further, it is considered that the implications of the legitimacy of startups’ growth should be considered in the realm of organizational management [
25]. Legitimacy involves external stakeholders that imply legitimacy needs extrinsic consideration. In other words, legitimacy is one of the main strategic orientations of the organization, which drives the firm to manage the relationship with external stakeholders [
26]. The BMI of a startup cannot be separated from the influence of external legitimacy [
27]. If the source of legitimacy from stakeholders is lost, the production and operation activities of the organization can hardly be sustained, or they can even lose the foundation of survival [
28,
29]. First, regarding legal constraints, the emergence of new technologies has spawned new business models and issues such as lagging policy regulation. Due to the rigid nature of laws and regulations, the activities of new businesses must be approved by government agencies [
30]. This leads to the institutional convergence of business models and impedes the development of business models. Second, the BMI of startups is subject to re-evaluation by industry stakeholders [
31]. New ventures are frequently required to compromise the market and overcome regulative legitimacy constraints by forming virtual ties with competitors, joining industry alliances, and other means [
32,
33]. Third, cognitive legitimacy constraints define the beliefs and premises of society as a whole, forcing startups to effectively presuppose their roles and behaviors within the existing social system, but this convergence pressure can result in a loss of business model novelty [
34]. The relationship between BMI and the performance of startups has been discussed extensively [
35,
36], but whether novelty-based and efficiency-based BMI in startups is carried out effectively or ineffectively is controversial among scholars [
37]. Therefore, this study draws on external legitimacy as a moderating factor and posits that three dimensions of external legitimacy will affect relationships between both novelty-based and efficiency-based BMI and the performance of startups.
In summary, based on the literature we can assume that novelty-based and efficiency-based BMI can affect the performance of startups. As a corollary, this study proposes that three dimensions of legitimacy will moderate the effects of BMI on the performance of startups. To do so, data from 149 Chinese startup firms were collected to depict how BMI can drive the performance of startups. The remainder of this paper is structured as follows. First, the discussion of the relationship between novelty-based and efficiency-based BMI and the performance of startups will be presented, and the role of regulative, normative, and cognitive legitimacy as three dimensions of a moderator will be highlighted. Then, the method, dataset collection, empirical results, and analysis are presented. Following it, conclusion, limitations, and future research directions will be presented in the final section.
5. Conclusions and Implications
5.1. Conclusions
In this paper, we empirically tested the assumption that novelty-based and efficiency-based BMI can improve the performance of startups. Through providing a model framework, we also proposed how different dimensions of legitimacy moderate the relationship between business model innovation and the performance of startups. Based on startups’ experiences, findings depict that startups can achieve performance in pursuing novelty-based and efficiency-based BMI.
First, our study consolidates prior findings on the implications of BMI in developing countries [
11,
19] and offers the importance of BMI for entrepreneurial enterprise. Our findings from 149 Chinese startups show not only that BMI works in the context of developing countries but also provides a value network according to the new value proposition. Using specific BMI, startups can attract more quality partners, broaden their sources of information, increase the frequency of enterprise interaction, and reduce transaction costs.
Second, our findings concerning the BMI–PS relationship suggest a better understanding of how BMI influences the performance of startups. The significance of novelty-based and efficiency-based BMI is different. Furthermore, the significance of efficiency-based BMI is stronger, which indicates that compared with novelty-based BMI, many new enterprises tend to choose a more secure and efficient business model to gain a competitive advantage.
Third, we have not found that any study investigated the moderating role of contextual factors such as external legitimacy in the relationship between BMI and the performance of startups. The plot of regulative and normative legitimacy moderating effect on the relationship between novelty-based BMI and performance of startups proposes that the negative impacts of legitimacy diminish under conditions of highly novelty-based BMI. Moreover, normative legitimacy positively moderates the relationship between efficiency-based BMI and the performance of startups. Cognitive legitimacy positively moderates the relationship between novelty-based BMI and the performance of startups. However, hypotheses H2b and H4b are rejected; one interpretation is that regulative legitimacy is a double-edged sword for new startups that adopt efficient business models. In a market with low regulative legitimacy, the absence of government regulation and risk prevention enables enterprises to take advantage of information asymmetry to obtain the advantage of poor information and make profits in the short term. Additionally, the improvement of transaction efficiency represents reducing transaction costs for new ventures and stakeholders. However, faced with rapidly changing market demands, only an organization that is prepared to adopt a new way will lead to the creation of a new BMI; such cognitive legitimacy from the public can be accepted to help startups improve performance. Otherwise, cognitive legitimacy will offset the benefits of improving efficiency [
84].
5.2. Theoretical Contribution
Business model innovation is beneficial for enterprises to gain competitive advantages. However, previous studies focused on the business model innovation of incumbent enterprises and paid attention to the internal legitimacy factors, ignoring the business model innovation of startups. The activity and innovation of startups is stronger than that of incumbent enterprises, which makes the business model innovation more quick and successful. However, they are often faced with policy constraints, resource competition from incumbent enterprises, and consumer doubts, which are not common problems faced by incumbent enterprises.
Based on this, there are two aspects of contribution. First, this study enriches the empirical research on the relationship between business model innovation and the performance of startups. Business model innovation is a meaningful action taken by new enterprises, and the institutional situation is a critical external factor affecting enterprise actions, which will impact enterprise performance. By exploring and testing the moderating effect of external legitimacy on BMI and the performance of startups, the empirical research on business model innovation is expanded. Second, in the entrepreneurial context, legitimacy is the essential institutional factor of BMI, and the role of the three dimensions of legitimacy is different. The current research regards legitimacy as the paradigm of the whole analysis unit, and the validity of the three dimensions has not been further tested. This study explores the moderating effects of regulative, normative, and cognitive legitimacy on the relationship between novelty-based, efficiency-based BMI and the performance of startups and proposes that in an institutional environment with high levels of regulative and normative legitimacy, it may be harder for new enterprises adopting novel business models to benefit from them.
5.3. Managerial Implications
In the context of transformation, the existence of an institutional vacuum provides space for the business model innovation of startups, but this space is not in a blank state for a long time. The emergence of novel business models in the market can reconstruct the relationship between transaction entities and reopen the value network, but the existence of this business model will inevitably form a competitive relationship with the current dominant business model. Therefore, it is constrained by the system environment. Currently, new enterprises need to quickly cross the threshold of legitimacy. New enterprises should make their own behavior conform to the expectation of external legitimacy, which is the mandatory correction of enterprises in the process of business model innovation. To achieve long-term development, senior managers need to pay attention to institutional information, consider laws and regulations, regional culture, public and other factors, and expand the channels and legitimacy of resources needed in business model innovation. At the same time, new enterprises can consider embedding in the existing value network and maintain good competitive and cooperative relations with other competitors, which is conducive to typical development.
Managers should be sensitive to laws and regulations, pay attention to the collection of relevant evaluation information from news media and consumers, and adjust business behaviors appropriately according to this information. Enterprise managers should not simply follow the policy, but also give full play to their initiative and positively influence the policy content through the interaction between government and enterprise. Similarly, in the face of media coverage of negative news, managers need to quickly carry out public relations, clarify the facts, and develop solutions. In the face of the doubts and product problems raised by consumers, it is necessary to put forward feasible plans from the consumers’ perspective and learn lessons to deal with product problems.
5.4. Limitations and Future Research
This study still has the following limitations. In terms of data collection, the research has adopted various methods to screen out effective questionnaires as far as possible, but subjective opinions still exist when questionnaires are used. In future research, objective and open data should be collected as far as possible to ensure the reliability of the research. In terms of research context, legitimacy in the entrepreneurial context is of particular significance to startups. Relevant research contexts can be expanded in the future to explore the significance of legitimacy in other contexts to different types of enterprises. In addition, limited by the data confidentiality requirements of respondents, we did not obtain detailed data about the sector and structure of startups, which future studies should consider.
Based on the consideration of the entire paper, the follow-up research can be extended in the following three aspects. First, BMI is a dynamic process, and the results cannot be measured overnight. The follow-up research can start from the dynamic perspective and explore the dynamic matching process between business model innovation and institutional factors through longitudinal case studies. Second, further research should consider the combination or interaction of various institutional factors. Institutional logic does not only affect entrepreneurial actions at a single level. Future research must pay attention to the complexity and interaction of institutional factors and strengthen the emphasis on all levels of legal factors, primarily normative factors. Third, further research should try to find antecedent variables of business model innovation. From the perspective of entrepreneurship, a business model is the process of thinking and innovation of entrepreneurs. Exploring the antecedent variables of business model innovation from the perspective of entrepreneurs can better guide the current entrepreneurial practice. Moreover, the structure of production and service companies can be analyzed, especially the MT and MHT of production companies and the KIS of service companies.