The role of digital transformation in promoting sustainable business models: Insights from startups

Abstract

Digital transformation has emerged as a structurally significant driver of sustainable business model development, particularly in the startup ecosystem, where resource constraints and competitive pressures simultaneously necessitate and incentivize innovative technological adoption. This study examined how digital technologies—specifically artificial intelligence (AI), the Internet of Things (IoT), blockchain, and cloud computing—enable startups to embed sustainability into their core operational and strategic architectures. Employing a mixed-methods design, the study drew on survey data from 350 entrepreneurs and in-depth interviews with 20 industry experts across diverse industry sectors. Structural equation modelling was applied to examine the relationships among digital exploitation capabilities, digital exploration capabilities, digital strategy adoption (DSA), digital transformation (DT), market-driven business model innovation (MDBMI), and sustainable business performance (SBP). Findings indicate that digital strategy adoption exerted the strongest effect on both SBP (β = 0.245, p < 0.01) and MDBMI (β = 0.320, p < 0.01), while MDBMI demonstrated a significant mediating pathway to SBP (β = 0.398, p < 0.001). Case evidence from Zerodha, Tesla, and Swiggy illustrates the mechanisms through which digitalization advances circular economy practices, energy optimization, and stakeholder accountability. The study also identifies persistent barriers—including high infrastructure costs, digital literacy deficits, and inadequate scalability frameworks—that temper the transformative potential of digital technologies for early-stage ventures. These findings contribute a theoretically grounded, empirically validated perspective on the digital–sustainability nexus and carry actionable implications for startup founders, policymakers, and institutional investors.