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Is it Meg? Or the Model?

meg_whitman.jpgThe other day I watched former eBay CEO Meg Whitman being interviewed on The Today Show.Whitman, who is making a bid for the governorship of California, cited as evidence of her qualifications that over a million people now make a full-time living from eBay.

That statement gave me pause. Not to take anything away from Meg Whitman — no doubt she’s an extraordinary manager — but her statement made it sound like she was directly responsible for creating a million jobs.

I beg to differ with that implied conclusion.

While Meg Whitman apparently did a brilliant job growing eBay, what fundamentally made those jobs possible was not Meg Whitman herself, but eBay’s extraordinary business model, the brainchild of eBay founder Pierre Omidyar, who started the firm in 1995.

What exactly, you may ask, is a business model? That’s a good question, one practitioners and academics have struggled with over the past decade.

Here’s my single-sentence definition, a key element of the doctoral thesis I’ve been working on for more than a year:

The strategic logic by which an enterprise profitably acquires and serves customers.

In my view, the quality and strength of a business model is the single most important factor in the success of high-potential, scalable enterprises. In other words, it’s the model, not Meg.

This is a big turnaround in my thinking. During the go-go dotcom days, when I found myself called down to the Bay Area to pitch research services to smug, 25-year-old-paper-millionaire Stanford yuppies, I developed a deep disdain for the facile, selling-dog food-online “business models” pouring out of Silicon Valley. They were bogus on the face of them.

Some of my company’s customers, such as Amazon.com, went on to experience extraordinary success. Many others — including the online grocery and dog food sellers — bit microcircuit.gifthe dust. So it took years before I could bring myself to use the term “business model” without smirking inwardly.

But six years ago, after I formally started studying entrepreneurship, I discovered that use of the term “business model” stretches back more than three decades. It first appeared in the academic management literature in 1975, and over the next 19 years was cited only 166 times. Between 1995 and 2000, though, “business model” was cited more than 1,500 times in the same literature.

In short, the dotcom era popularized — and trivialized — an important idea that today is even more crucial, since software and telecommunications technologies have fundamentally altered price and performance equations in many business sectors.

I’ve changed my mind about the importance of business models, too. In fact, I’ve started editing a new book about business model innovation written by Alexander Osterwalder and Yves Pigneur (plus more than 300 collaborators from 28 different countries).

So I care deeply about business models, and their importance to enterprises of all kinds (I’m also growing intrigued by the notion of personal business models: How we each structure our economic activities to create a livelihood — more on that later).

For now, though, I’ll wish good luck to a potential future governor of California, while humbling suggesting that with respect to eBay, it’s not Meg — it’s the model.

You may enjoy other entrepreneurship-related posts:

The Surprising Truth About Why People Become Entrepreneurs

Quiz: Are You the Entrepreneurial ‘Type’?

Entrepreneurship: A Primer

Know Your Gift

The Soul of an Entrepreneur, the DNA of a Business

Make This Year’s Decisions Stick with This Simple Secret

In Praise of Salaried Employment

Entrepreneurship: Why It’s Not about You

2 Comments to Is it Meg? Or the Model?

On Apr 2, 2009, Kurt Haug commented:

As usual, excellent observations. Especially about the changing “flavor” of the phrase “business model.”

Actually a very important concept at the core of what determines if a business will or will not work. Truly unfortunate that it was become so easily tossed about as an excuse for poorly conceived and executed business practices.

On Apr 3, 2009, by Tim commented:

Some good research on business models has appeared over the past seven years — maybe that owes to the bubble bust. I’m particularly intrigued by the idea of business model design (yet amazed by how often luck/chance/chaos/customer suggestions play the key role in helping enterprises stumble upon good models).

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