Book review: So who needs a business model?, by Kieran Levis

This author claims that the most original entrepreneurs of our time had no plan. An interesting idea, says John Naughton.

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Last Updated: 25 Oct 2010

Winners and Losers: Creators and casualties of the age of the internet
Kieran Levis
Atlantic Books, £25.00

Forget 'business' books, especially those written by business school professors who produced the graduates who got us into the present mess. If you want to understand what's going on, Joseph Schumpeter, the flamboyant Austrian economist who for generations scandalised the matrons of Cambridge, Mass, is your man. He portrayed capitalism as a force that renews itself via waves of what he dubbed 'creative destruction'.

For those in the print, music and broadcast industries who are contemplating the effects of the current wave on their fortunes, the elegance of the concept will bring little consolation. But for Kieran Levis, Schumpeter's shadow looms over his entire book.

The Harvard sage was unusual among economists in understanding the importance of entrepreneurs as inventors - not of artefacts but of new businesses and processes. And Levis' Winners and Losers is mainly about the people who, over three decades, have created markets where none existed.

Levis sets out to describe 'how a handful of businesses in the last 30 years were born and rose to enormous heights - and how others fell from them. None of the new businesses would have made sense ei-ther to customers or to investors much before 1980. It was not clear at first how many of them made money. Few sold products - and those who did sub-contracted their manufacture to others. Many of them provided information or services free - or at ridiculously low prices. Yet nearly all of them mushroomed from nothing to revenues of billions in just a few years.'

Levis marshals the usual suspects for his line-up of winners - Apple, Amazon, Dell, eBay, Google, IBM, BSkyB and Nokia - and losers, including Sony, Webvan, AOL, Netscape and Encyclo- pedia Britannica. In each case, the rise or decline of the enterprise is chronicled in varying detail, and each chronicle is accompanied by an analysis of factors that purport to explain success or failure.

Most of the stories are well known, and some (Apple, Amazon, Google and eBay) have been extensively covered by others. In each case, Levis provides a readable digest of what is already known, and debunks an urban myth or two. Take, for example, the widespread belief that Jeff Bezos composed the business plan for Amazon on his laptop while his wife drove them from New York to California. 'In fact,' writes Levis, 'they flew from New York to Texas, and drove from there, while the business plan was not written for another year.' And, apparently, it's not true that eBay started from Pierre Omidyar's desire to help his wife complete her collection of Pez sweet dispensers.

As he shatters these myths, Levis uncovers something interesting: many of these world-changing enterprises had no business plan when they started, and so the process of orderly investment appraisal so beloved of Lord Mandelson and his civil servants doesn't apply.

Levis is good on the things that distinguish new markets from mature ones. In most radically new markets, for example, the need that the innovation addresses has never been clearly articulated before (so there's no relevant market research data); business models often seem bizarre; and at the outset it's 'unclear who will sell what to whom, if indeed any money does pass hands'. (It took Google a while to figure out a way to make money.) Viable business models 'can take years to emerge and frequently never do'. And it's 'impossible to predict how fast they will grow or how big they will become' (cf Amazon).

One of the difficulties of writing engagingly about business success and failure is the way narratives tend to morph into morality tales. Hindsight may be the only exact science, but it's a misleading one. Entrepreneurs who, like Bezos of Amazon, have been rewarded with success are accredited with uncanny wisdom and insight, while those who misread the digital runes - like the hapless executives of Encyclopedia Britannica or of major record labels - can seem unconscionably stupid in retrospect.

In padding out his morality tales with analytical essays, Levis does his best to avoid the trap, but sometimes it seems that he's making it up as he goes along. And if he were to revisit his case studies in 10 years' time, some of them might themselves have succumbed to another of Schumpeter's waves. Dell isn't looking too good already, for example. And as for eBay, well...

John Naughton is professor of the public understanding of technology at the Open University

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