Understanding Business Model Innovation: Unraveling the Role of Schemas, Entrepreneurial Team Faultlines, and Industry Context

ABSTRACT Business model innovation (BMI) is a key decision faced by entrepreneurial firms. Yet, a firm's entrepreneurial team can hold diverse cognitive views of business models, leading to an incomplete understanding of how entrepreneurial teams can actually leverage these diverse cognitive resources for BMI. Drawing on the cognitive view of BMI, we explore how domain‐specific schemas—a key aspect of managerial cognition gleaned from prior industry experience—may influence BMI. Rather than assuming the influence of schemas is uniform across situations, we conceptualize it as contingent on two salient situated factors—namely, team faultlines and industry competition logic. We posit that while the sharing of schemas in entrepreneurial teams is critical for BMI, whether those teams are able to bring about actual innovation depends on the industry context in which their new venture operates. Empirical analysis of 799 IT‐based firms in China provides general support for our arguments. Our study contributes to the cognitive view of BMI and deepens our understanding of the role of situated context in BMI.