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OrganizationScience informs® Vol.18,No.2,March–April2007,pp.181–199 doi10.1287/orsc.1060.0232 issn1047-7039eissn1526-54550718020181 ©2007INFORMS BusinessModelDesignandthePerformanceof EntrepreneurialFirms ChristophZott INSEAD,BoulevarddeConstance,77305FontainebleauCedex,France, christoph.zott@insead.edu RaphaelAmit TheWhartonSchool,UniversityofPennsylvania,3620LocustWalk, Philadelphia,Pennsylvania19104-6370,amit@wharton.upenn.edu efocusonthedesignofanorganization’ssetofboundary-spanningtransactions—businessmodeldesign—andaskWhowbusinessmodeldesignaffectstheperformanceofentrepreneurialﬁrms.Byextendingandintegratingtheoretical perspectivesthatinformthestudyofboundary-spanningorganizationdesign,weproposehypothesesabouttheimpactof efﬁciency-centeredandnovelty-centeredbusinessmodeldesignontheperformanceofentrepreneurialﬁrms.Totestthese hypotheses, we developed and analyzed a unique data set of 190 entrepreneurial ﬁrms that were publicly listed on U.S. and European stock exchanges. The empirical results show that novelty-centered business model design matters to the performance of entrepreneurial ﬁrms. Our analysis also shows that this positive relationship is remarkably stable across time, even under varying environmental regimes. Additionally, we ﬁnd indications of potential diseconomies of scope in design; that is, entrepreneurs’ attempts to incorporate both efﬁciency- and novelty-centered design elements into their businessmodelsmaybecounterproductive.

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Publié par

mtoledan

Publié le

03 septembre 2012

Nombre de lectures

149

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OrganizationScienceVol. 18, No. 2, March–April 2007, pp. 181–199issn1047-7039eissn1526-54550718020181

Business Model Design and the Performance ofEntrepreneurial FirmsChristoph ZottINSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France,christoph.zott@insead.eduRaphael AmitThe Wharton School, University of Pennsylvania, 3620 Locust Walk,Philadelphia, Pennsylvania 19104-6370, amit@wharton.upenn.eduWheofwocbuussionnestshemdoedseilgndeosifgannafofregcatnsitzhaetiopne’rsfosremtaonfcbeooufnednatrrye-psrpeannenuirniagltrﬁarnmssa.ctBioynesx—tebnudsiinngesasndmiondteelgrdaetisinggnth—eaonrdetiacsaklperspectives that inform the study of boundary-spanning organization design, we propose hypotheses about the impact ofefﬁciency-centered and novelty-centered business model design on the performance of entrepreneurial ﬁrms. To test thesehypotheses, we developed and analyzed a unique data set of 190 entrepreneurial ﬁrms that were publicly listed on U.S.and European stock exchanges. The empirical results show that novelty-centered business model design matters to theperformance of entrepreneurial ﬁrms. Our analysis also shows that this positive relationship is remarkably stable acrosstime, even under varying environmental regimes. Additionally, we ﬁnd indications of potential diseconomies of scopein design; that is, entrepreneurs’ attempts to incorporate both efﬁciency- and novelty-centered design elements into theirbusiness models may be counterproductive.Key words: organization design; new organizational forms; business model; design themes; organization performance;environmental muniﬁcence

Substantial research on organization design has fo- fundamentally change the way they organize and engagecused on internal design issues such as centralization, in economic exchanges, both within and across ﬁrmspan of control, personnel ratios, and lines of authority and industry boundaries (Mendelson 2000). According(e.g., Nystrom and Starbuck 1981). Some scholars, how- to Brynjolfsson and Hitt (2004), this includes the waysever, have observed that organizations are increasingly in which ﬁrms interact with suppliers as well as with“experimenting with their governance of transactions, customers. An emerging stream of work on boundary-that is, adopting new ways of structuring their bound- spanning designs complements a large body of literaturearies” (Foss 2002, p. 1). A growing body of work on that points to the links between internal organizationorganizational forms has gradually shifted attention frominternaldesigntowardmodesoforganizingandman-sdtersuicgtnuriessoufesi,ncseuncthivaess,thaenddetghreeeimofpldiceacteinotnrsalioznatiporno,dtuhce-aging transactions with the ﬁrm’s environment (e.g., tivity for investment in information technologies (e.g.,Ilinitch et al. 1996, Lewin and Volbverda 1999, Milesand Snow 1986, Romanelli 1991). While this body of see Bresnahan et al. 2002 or Ichniowski et al. 1996).-research has enhanced our understanding of how man- This paper builds on the shift in perspective from viewagersandentrepreneurssetorganizationalboundaries,itnogwaorrdgavniiezawtiinognfIToramsaasnaecnoamblpelremofenbtotuonIdTariyn-vsepsatnmneinntgsimportant questions remain. For example, how can the organizational design.design of an organization’s set of boundary-spanningtransactions be described and measured? And what do In this paper we refer to the design of an organiza-we know about the performance implications of different tion’s boundary-spanning transactions as business modeldesigns? design, and we ask how business model design can beRecent advances in communication and information measured, and how it affects ﬁrm performance. We for-technologies,suchastheemergenceandtheswiftexpan-tmenatl,lystrduecﬁtnueret,haenbdugsionveesrsnamnocedeolfatsradnespaiccttiionngs“dtehseigcnoend-sion of the Internet, and the rapid decline in com-puting and communication costs, have accentuated the so as to create value through the exploitation of busi-possibilities for the design of new boundary-spanning ness opportunities” (Amit and Zott 2001, p. 511). A busi-organizational forms (Daft and Lewin 1993, Dunbar ness model elucidates how an organization is linked toand Starbuck 2006, Foss 2002, Ilinitch et al. 1996). external stakeholders, and how it engages in economicIndeed, these developments have opened new horizons exchanges with them to create value for all exchangefor the design of business models by enabling ﬁrms to partners.181

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Designing the business model is a salient issue forentrepreneurial ﬁrms who are less constrained by pathdependencies and inertia than more established ﬁrms(Stinchcombe 1965). Following Bhide (2000), we deﬁneentrepreneurial ﬁrms as relatively young organizationsthat have the potential of attaining signiﬁcant sizeand proﬁtability. These ﬁrms must solve coordinationproblems in a world of novelty and systemic change(Langlois 2005). Their performance is therefore oftencritically dependent on boundary-spanning organiza-tional arrangements (Hite and Hesterly 2001). One ofthe central design tasks of entrepreneurs is to delin-eate the ways in which their new businesses trans-act with suppliers, customers, and partners. As Irelandet al. (2001, p. 53) note, entrepreneurs often “try to ﬁndfundamentally new ways of doing business that will dis-rupt an industry’s existing competitive rules, leading tothe development of new business models.” For example,Christensen (2001) highlighted the shift in the locus ofproﬁtability in the computer industry as companies likeDell pioneered nonintegrated and ﬂexible business mod-els in which production and distribution were organizedin novel ways. Even when entrepreneurial ﬁrms replicatethe business models of existing organizations (Aldrich1999), they may have to adapt these designs to their ownparticular market niche (McGrath and MacMillan 2000).Although recent work in entrepreneurship and organi-zation theory has begun to address the important role ofdesign in the entrepreneurship process (Hargadorn andDouglas 2001, Romme 2003, Van de Ven et al. 1984),relatively little is known about the speciﬁc trade-offsand performance implications of business model design,which can be far-reaching. For example, Hargadorn andDouglas (2001, p. 494) attribute the failure of Prodigy,an online service in which investors had invested $600million, to the mismatch between the design of its busi-ness model and customer needs.In this paper we identify two critical themes ofbusiness model design—efﬁciency centered and noveltycentered—and offer hypotheses about the impact ofbusiness model design themes on the performance ofthe focal entrepreneurial ﬁrm, taking into considera-tion the potentially moderating role of the environment.Efﬁciency-centered business model design refers to themeasures that ﬁrms may take to achieve transaction efﬁ-ciency through their business models. It aims at reduc-ing transaction costs foralltransaction participants.Novelty-centered business model design refers to newways of conducting economic exchanges among vari-ous participants. It can be achieved, for example, byconnecting previously unconnected parties, by linkingtransaction participants in new ways, or by designingnew transaction mechanisms. Efﬁciency- and novelty-centered designs are neither orthogonal (for instance,novel design elements may engender lower transactioncosts), nor are they mutually exclusive: Both may be

present in any given business model. They are notexhaustive, either. Business models may be characterizedby other value-creation themes. These could include“lock-in” designs, which attempt to retain stakeholders,and “complementarities” designs, which emphasize thebundling of goods, activities, resources, or technolo-gies (Amit and Zott 2001). However, here we focus onefﬁciency- and novelty-centered designs in the interestof building and testing a parsimonious theory.To test our hypotheses, we have developed a uniquedata set that contains detailed information about thebusiness models of 190 entrepreneurial ﬁrms that werelisted on U.S. or European public exchanges between1996 and 2000. We measure each business model designtheme as a variable at a particular point in time, andwe regress these variables on a range of performancemeasures. Overall, we ﬁnd that business model designmatters to the performance of entrepreneurial ﬁrms.Our most robust ﬁnding relates to the positive associ-ation between novelty-centered business model designand ﬁrm performance. Our analysis shows that thispositive relationship is remarkably stable across time,even under varying environmental regimes. Our resultsalso indicate that entrepreneurs’ attempts to design bothefﬁciency- and novelty-centered business models may becounterproductive.This paper builds on and extends earlier work thathas considered business models in the context of or-ganizational performance. Focusing primarily on the im-pact of network effects on the stock market value ofe-commerce ﬁrms, Rajgopal et al. (2003) examine hownetwork effects interact with the ﬁrm’s business model,measured as a categorical variable (i.e., content provider,portal, ﬁnancial services, e-tailer, or auction site). Inour analysis, we focus primarily on the design of thebusiness model (rather than on network effects), and onits direct impact on ﬁrm performance, theoretically aswell as empirically. Our proposed measures of businessmodel design are continuous and apply to a broad rangeof ﬁrms. Filson (2004) studies the impact of the com-petitive strategies of Amazon.com, Barnesandnoble.com,CDNow, and N2K on ﬁrm value. We, too, focus on ﬁrmsthat derive at least some of their revenue through trans-actions that are executed on the Internet. However, weexamine in detail the impact on ﬁrm value of businessmodel design, distinct from the competitive strategy ofa ﬁrm (Zott and Amit 2006). Our sample size is alsolarge.Our study attempts to make several contributions tothe organization design literature. First, we reﬁne con-cepts and measures for examining the design of a ﬁrm’sbusiness model. The importance of research on transac-tion designs as new organizational forms has been rec-ognized in earlier studies, (e.g., Foss 2002, Rindova andKotha 2001). We contribute to this literature through the

development of ﬁne-grained concepts for operational-izing and measuring business model designs. Second,we provide a theoretical extension of the transactioncosts perspective and Schumpeter’s theory of innovation.By integrating these theories with bargaining theory, wedevelop the performance implications of business modeldesign, speciﬁcally for entrepreneurial ﬁrms whosetransactions are enabled by information and communica-tion technologies. To date, little about this has been pub-lished. Third, drawing on a large and a unique data setabout business model design themes, which we have col-lected ourselves, we test the links between these designthemes and focal ﬁrm performance. Although we buildon earlier studies that examine how business models arelinked to ﬁrm performance (e.g, Rajgopal et al. 2003),we believe that this is the ﬁrst study to operationalize,measure, and test the performance consequences of busi-ness model design themes. Our study also contributesto the literature on entrepreneurship, by highlighting thepivotal role that business model design plays in the per-formance of entrepreneurial ﬁrms.To summarize, in this paper we argue theoreticallyand show empirically that the business model is a usefulunit of analysis for research on boundary-spanning orga-nization design, as well as a locus of innovation thathas so far been largely overlooked by entrepreneur-ship research. Rindova and Kotha (2001, p. 1277) havepointed out the need for “a broader and more dynamicunderstanding of [organizational] form, in which it isviewed as a ﬂexible arrangement of resources and struc-tures conﬁgured to generate a stream of value-creatingproducts and services.” The concept of the businessmodel fulﬁlls these requirements, and can potentiallyhelp advance the emerging body of research on new or-ganizational forms.The next section presents our theory and hypothesesand is followed by sections describing our data, meth-ods, and our results. We conclude with a discussion ofour ﬁndings and the implications of our study for futureresearch.Theory and Hypotheses DevelopmentBusiness Model Design ThemesConﬁguration theory provides a useful starting point fordeveloping measures of business model design, becauseit considers holistic conﬁgurations, or gestalts, of designelements (Miles and Snow 1978). Conﬁgurations areconstellations of design elements that commonly occurtogether because their interdependence makes them fallinto patterns (Meyer et al. 1993). The design elementsof a business model are the content, structure, andgovernance of transactions. In this paper, we followMiller’s (1996) suggestion to view conﬁguration as avariable rather than as a deviation from an ideal type.Miller states that, “Conﬁguration  can be deﬁned as

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the degree to which an organization’s elements areorchestrated and connected by a single theme” (Miller1996, p. 509).So what are the common design themes that orches-trate and connect the elements ofa business model?Miller (1996) identiﬁes innovation and efﬁciency. Hischoice is particularly appropriate for the study of busi-ness models adopted by entrepreneurial ﬁrms becauseinnovation and efﬁciency reﬂect fundamental alterna-tives for entrepreneurs to create value under uncertainty.Entrepreneurs can create new designs and/or reproduceand copy existing ones (Aldrich 1999). Imitation-basedapproaches toward business creation are often associ-ated with an emphasis on lower costs, i.e., increasedefﬁciency (Zott 2003). Because these themes are notmutually exclusive, any given business model design canbe novelty centered and efﬁciency centered at the sametime.Business Model Design, Firm Performance, andthe Moderating Role of the EnvironmentWe hypothesize that the design of an entrepreneurialﬁrm’s business model, which is centered speciﬁcally onthe themes of novelty and/or efﬁciency, is associatedwith the ﬁrm’s performance. This association can be bro-ken down into two effects: One relies on the total value-creation potential of the business model design, and theother considers the impact of business model design onthe ﬁrm’s ability to appropriate the value that its busi-ness model creates.Business models can create value either by enhanc-ing the customers’ willingness to pay or by decreasingsuppliers’ and partners’ opportunity costs—for exam-ple, through improved transaction efﬁciency. The totalvalue created by a business model is also a function ofthe competitive alternatives, in other words, the marketpower of the focal ﬁrm’s business model vis-à-vis rivalbusiness models. The total value created is the valuecreated for all business model stakeholders (focal ﬁrm,customers, suppliers, and other exchange partners). It isthe upper limit for the value that can be captured by thefocal ﬁrm (Brandenburger and Stuart 1996).How does business model design inﬂuence the com-peting claims to total value created by different stakehold-ers in the business model? Drawing on Brandenburger andNalebuff(1995)andBrandenburger and Stuart (1996), wereason that there is a positive association between thedesign of the business model and the performance ofthe focal ﬁrm—if, for a given level of competition, thefocal ﬁrm’s business model design creates value,anditdoesnot decreaseits bargaining power relative to otherbusiness model stakeholders.Environmental conditions seem important as modera-tors of the hypothesized relationship between businessmodel design and the performance of an entrepreneurialﬁrm (McArthur and Nystrom 1991). Muniﬁcence, dy-namism, and complexity are all important dimensions

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of the environment (Dess and Beard 1984). We fo-cus on muniﬁcence, which captures the availability ofresources, and which—according to Randolph and Dess(1984) and McArthur and Nystrom (1991)—inﬂuencesthe survival and growth of existing companies as wellas the ability of new ﬁrms to enter the market. The useof muniﬁcence as a focal dimension of environmentaluncertainty derives from a resource-dependence view oforganizations, which treats environments as arenas inwhich all compete for resources (Pfeffer and Salancik1978, Aldrich 1979). This perspective seems particu-larly relevant for entrepreneurial ﬁrms, which depend onexternal resources, and on the receptivity of capital andproduct markets to innovative activity.Building on the work of Aldrich (1979), Dess andBeard (1984), and Tushman and Anderson (1986), wedeﬁne muniﬁcence as the extent to which the envi-ronment supports growth. In this paper, muniﬁcencerefers to the scarcity or abundance of critical resourcesrequired to create and implement business model de-signs. The performance prospects of ventures withnovelty- and/or efﬁciency-centered business model de-signs may vary with the availability and costs of re-sources that entrepreneurs can access.Novelty-Centered Business ModelDesign and PerformanceThe essence of novelty-centered business model designis the conceptualization and adoption of new ways ofconducting economic exchanges, which can be achieved,for example, by connecting previously unconnected par-ties, by linking transaction participants in new ways,or by designing new transaction mechanisms. Businessmodel innovation may complement innovation in prod-ucts and services, methods of production, distributionor marketing, and markets (Schumpeter 1934). A novelbusiness model either creates a new market (like eBay)or innovates transactions in existing markets (like Price-line.com). Dell, for example, implemented a customer-driven build-to-order business model that replaced thetraditional build-to-stock model of selling computersthrough retail stores (Brynjolfsson and Hitt 2004).Not only can the business model exploit an oppor-tunity for wealth creation, but its design may in itselfbe part of the opportunity development process. Theentrepreneur-as-designer can cocreate opportunities, forexample, by drawing on new information and communi-cation technologies to bridge factor and product marketsin new ways.Business model innovation may give rise to entre-preneurial rents (Rumelt 1987). These monopoly-typerents may accrue to business model stakeholdersbetween the introduction of an innovation and its dif-fusion. Although we expect novelty-centered businessmodel design to have a positive primary effect on theperformance of entrepreneurial ﬁrms, entrepreneurial

rents may accrue toallstakeholders in the businessmodel. To predict the overall effect of novelty-centeredbusiness model design on the performance of the focalentrepreneurial ﬁrm, we must also consider its effect onthe ﬁrm’s ability to appropriate the value that its businessmodel generates. This ability depends on factors like(i) the switching costs of other business model stake-holders, (ii) the focal ﬁrm’s ability to control informa-tion, (iii) the ability of other stakeholders to take uniﬁedaction vis-à-vis the focal ﬁrm, and (iv) the replacementcosts of other stakeholders (see Coff 1999, p. 122). Forexample, the higher the switching costs of other businessmodel stakeholders, the greater the focal ﬁrm’s bargain-ing power vis-à-vis these stakeholders, and the greaterits ability to appropriate rent.We suggest that, on average, an increase in businessmodel novelty will not decrease the focal entrepreneurialﬁrm’s ex post bargaining power relative to other busi-ness model stakeholders. The focal ﬁrm is the innovator,and its business model is the locus of innovation. Thehigher the degree of business model novelty, the higherthe switching costs for the focal ﬁrm’s customers, sup-pliers, and partners, as there may not be readily avail-able alternatives to doing business with the focal ﬁrm.The other determinants of the focal ﬁrm’s bargainingpower, identiﬁed by Coff (1999), are unlikely to be sys-tematically affected in one direction or the other. Thefocal ﬁrm’s bargaining power vis-à-vis these parties isunlikely to be diminished through novelty-centered busi-ness model design. Therefore, considering the positiveeffect of novelty-centered business model design, bothon total value created and on the ability of the focalﬁrm to capture that value, we expect a positive effect ofnovelty-centered business model design on the perfor-mance of an entrepreneurial ﬁrm.Hypothesis 1.The more novelty centered an entre-preneurial ﬁrm’s business model design, the higher theﬁrm’s performance.Novelty-centered business model design will mattermore to performance in periods of high resourceavailability, when entrepreneurs’ dynamic governancecosts (e.g., persuasion costs) are lower (Langlois 1992,Langlois and Robertson 1995), than in periods of re-source scarcity. They can persuade, negotiate, and coor-dinate with resource holders more easily, and teachthem about the merits of their innovative business modeldesigns. They have easier access to the resources neededto support and implement their business model inno-vations, such as investments in complementary assets.Entrepreneurial ﬁrms with novelty-centered businessmodel designs are poised to take advantage of the greaterwillingness of customers to spend, and they will notsuffer a decrease in their aggregate bargaining powervis-à-vis other business model stakeholders. Thus, novelbusiness model design is more distinctly associated with

higher ﬁrm performance when resources are abundantthan when they are scarce.Hypothesis 2.In environments characterized by highresource muniﬁcence, the positive association betweennovelty-centered design and the performance of theentrepreneurial ﬁrm will be stronger than in environ-ments with low resource muniﬁcence.Efﬁciency-Centered Business ModelDesign and PerformanceAn alternative way for entrepreneurs to create wealth isto imitate rather than innovate—to do things similar toestablished organizations, but in a more efﬁcient way(Aldrich 1999, Zott 2003). To examine the performanceimplications of efﬁciency-centered business models, webuild on the transaction cost perspective (Milgrom andRoberts 1992; Williamson 1975, 1983), which refersto the design of economic transactions. According toWilliamson (1983), exchange attributes, including infor-mation asymmetry and complexity, determine that trans-actions will be organized into markets or hierarchies inways that minimize transaction costs and maximize per-formance. Researchers generally assume that economicactors whose transactions are unaligned with appropriategovernance structures are “more likely to display poorﬁnancial performance  than those whose transactionsare properly aligned” (Silverman 2001, p. 484). Poppoand Zenger (1998) have explicitly modeled the perfor-mance implications of the transaction cost perspective,and Milgrom and Roberts (1992) have elaborated on theeffect that transaction costs, in the form of coordina-tion, and motivation costs have on ﬁrm performance.These studies suggest that there is an important directrelationship between the design of transactions and ﬁrmperformance.Efﬁciency-centered design refers to the measures thatﬁrms may take to achieve transaction efﬁciency throughtheir business models. The construct focuses on busi-ness model design and is not intended to capture allmeans by which a ﬁrm can strive for efﬁciency (e.g.,through a reduction of production costs). The essence ofan efﬁciency-centered business model is the reductionof transaction costs. This reduction can derive from theattenuation of uncertainty, complexity, or informationasymmetry (Williamson 1975), as well as from reducedcoordination costs and transaction risk (Clemons andRow 1992, Langlois 1992, Milgrom and Roberts 1992).The order-tracking feature in Amazon’s business model,for example, is aimed at enhancing transaction trans-parency and therefore constitutes an efﬁciency-centereddesign element. It reduces the cost of providing infor-mation to the logistics company, and induces more cus-tomers to check on their packages (Brynjolfsson andHitt 2004). Other efﬁciency-centered design elementsare intended to increase the reliability and simplicity

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of transactions, reduce the asymmetry of informationamong transaction participants, speed up transactions,enable demand aggregation, reduce inventory, providefor transaction scalability, or reduce the direct and in-direct costs of transactions. Consider Baxter ASAP,which lets hospitals order supplies electronically directfrom wholesalers. By reallocating its saved resources(the costs of data entry), the company was able tooffer additional value-adding services to its customers(Brynjolfsson and Hitt 2004). Consequently, we expect apositive primary effect on ﬁrm performance of adoptingan efﬁciency-centered business model design.As with the novelty-centered business model design,to predict the overall effect of an efﬁciency-centereddesign on ﬁrm performance, we must consider its effecton the ﬁrm’s ability to appropriate the value that it gen-erates. Efﬁciency-centered business model design aimsat reducing transaction costs, for example, through sim-pliﬁed transactions, reduced transaction complexity, ordeep linkages among business model stakeholders thatoften do not require transaction-speciﬁc investments(web services, for example). These characteristics ofefﬁciency-centered business model design are likely toaffect the switching costs forallbusiness model stake-holders in the same direction so that, in the aggregate,the balance of power among these parties will not shift.Importantly, the focal ﬁrm’s bargaining power is unlikelyto decrease.Another central aspect of efﬁciency-centered designis that it enables better information ﬂow among stake-holders and reduces information asymmetries amongthe parties, limiting the control over information thatany stakeholder can have. In general, this aspect doesnot negatively affect the focal ﬁrm’s bargaining power.Moreover, the third determinant of the focal ﬁrm’s bar-gaining power identiﬁed by Coff (1999, see above)—the ability of other business model stakeholders to takeuniﬁed action against the focal ﬁrm—is unlikely to besystematically affected in one direction or the other bydesign efﬁciency. Last, it should be noted that reducingdirect transaction costs (e.g., search, transportation, andcoordination costs) increases the pool of potential cus-tomers, as well as partners and suppliers, and implies areduction in the cost to the focal ﬁrm of replacing suchstakeholders, increasing the ﬁrm’s bargaining power.These arguments suggest that, on balance, a more pro-nounced efﬁciency-centered business model design doesnot decrease the focal ﬁrm’s bargaining power relative toother business model stakeholders. We therefore expecta positive main effect of efﬁciency-centered businessmodel design on the performance of an entrepreneurialﬁrm.Hypothesis 3.The more efﬁciency centered an entre-preneurial ﬁrm’s business model design, the higher theﬁrm’s performance.

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When resources are scarce, efﬁciency-centered busi-ness model design assumes greater importance as a dif-ferentiating factor than in periods of resource muniﬁcence.In tough economic environments, consumers and busi-nesses spend and invest less, and cost savings be-come more important as a driver of value creation.Entrepreneurial ﬁrms are more volatile than establishedorganizations (Stinchcombe 1965), so are sensitive tosuch changes. Conversely, during times of high envi-ronmental muniﬁcence, total value can be enhanced, forexample, by tapping additional revenue streams. In otherwords, in environments characterized by low resourcemuniﬁcence, the advantages derived from reduced trans-action costs are accentuated, while our arguments aboutthe bargaining power of ﬁrms with efﬁcient businessmodels continue to hold. Thus, efﬁcient business modeldesign will be more distinctly associated with higherperformance of an entrepreneurial ﬁrm when resourcesare scarce than when they are abundant.Hypothesis 4.In environments characterized by lowresource muniﬁcence, the positive association betweenefﬁciency-centered design and the performance of theentrepreneurial ﬁrm will be stronger than in environ-ments with high resource muniﬁcence.Interaction Between Novelty- andEfﬁciency-Centered Business Model Designand PerformanceDo these arguments imply that entrepreneurs shouldembrace both efﬁciency-centered and novelty-centeredbusiness model designs? The need to balance designelements has been recognized by researchers who high-light the beneﬁts to entrepreneurs of reconciling distinctaspects of design, such as the familiar and the unfamiliar(Hargadorn and Douglas 2001), conformity and differ-entiation (Deephouse 1999), and reliability and distinc-tiveness (Lounsbury and Glynn 2001). Achieving thisbalance can help entrepreneurs build much-needed legit-imacy (Zott and Huy 2006), a prerequisite for venturegrowth and performance (Zimmerman and Zeitz 2002).This suggests that novelty and efﬁciency can be com-plementary, and that their interaction could have a pos-itive effect on performance. First, increasing the degreeof novelty of a business model may enhance the returnon efﬁciency-centered design. Novelty-centered businessmodel design makes a business model more distinctive,and this may result in increased switching costs for otherbusiness model stakeholders because of fewer compara-ble alternatives. By emphasizing business model novelty,the focal ﬁrm may be better positioned to appropriatesome of the value it creates through increased efﬁciency.Second, increasing the emphasis on efﬁciency-centereddesign may enhance the return on design novelty. Novelbusiness models that are also designed for efﬁciencymay appeal to a wider range of customers (i.e., not onlyto those who are intrigued by its novel elements, but

also to those who appreciate lower transaction and coor-dination costs). Thus, by simultaneously emphasizingefﬁciency and novelty as design themes, the entrepreneurmay be able to create even more value than througheither novelty-centered or efﬁciency-centered businessmodel design alone.Hypothesis 5.The more novelty centered and efﬁ-ciency centered the business model design, the higherthe performance of the entrepreneurial ﬁrm.However, another line of reasoning suggests that at-tempts by entrepreneurs to design their business modelsfor both higher efﬁciency and greater novelty may insteadadversely affect their ﬁrm’s performance. Embracing twomajor design themes concurrently could lead to subop-timal resource allocation. Given the limited resourcesavailable to entrepreneurial ﬁrms, entrepreneurs who tryto achieve too much at once may ﬁnd that they are notobtaining adequate returns on their design efforts andinvestments. This is because a lack of focus may con-fuse market participants, undermine the venture’s legiti-macy, create technological and organizational problems,and lead to higher costs. Furthermore, a ﬁrm that getsstuck between innovation and imitation—or, analogously,between novelty and efﬁciency design themes—may per-form poorly because it misses out on the opportunity tolearn to become an even more skillful innovator or imita-tor (Zott 2003). In summary, there might be diseconomiesof scope in design resulting from bundling novel and efﬁ-cient design elements.Hypothesis 6.The more novelty centered and efﬁ-ciency centered the business model design, the lower theperformance of the entrepreneurial ﬁrm.Data and MethodsSampleTo test our hypotheses, we studied the business mod-els of ﬁrms that derived all or part of their revenuesfrom transactions conducted over the Internet, as theseﬁrms are likely to experiment with, and take advantageof, the possibilities that advanced information and com-munication technologies offer for the design of busi-ness models. We examined the business models of ﬁrmsthat went public in Europe or the United States betweenApril 1996 and May 2000. Our sample selection strat-egy enabled us to create a data set of 362 relativelyyoung entrepreneurial ﬁrms and their business models,from which we randomly sampled 201. Limited dataavailability forced us to drop 11 ﬁrms from the sample,which left us with a ﬁnal sample size of 190. We consid-ered public companies, both to ensure the availability ofdata and because data collection from initial public offer-ing documents is an acknowledged method for study-ing entrepreneurial ﬁrms (e.g., Dowling and McGee1994). Concerns about survival bias are mitigated by the

fact that during the sampling period, the threshold forbecoming a public company was relatively low, whichresulted in listing very young and immature companies.As a result, many of the ﬁrms in our sample still facedhighly uncertain prospects at the time they went public(Lieberman 2005). Indeed, when we investigated the fateof these ﬁrms in June 2004, we found that 107 of our190 sample ﬁrms (56%) had been delisted: 20 had gonebankrupt, 68 had been acquired, 8 had been merged, and11 had been taken private.1Data CollectionFor each business model design theme, we built com-posite scales and identiﬁed and measured relevant itemsin a survey instrument (see Appendix A). The survey-ing process proceeded in ﬁve stages: (1) development ofthe survey instrument, (2) development of measurementscales, (3) pretesting of the survey, (4) development ofan online Web interface and of a central database, and(5) data collection.Following the increasing use of panelists in manage-ment research (e.g., Iansiti and Clark 1994, Lee et al.2003, MacCormack et al. 2001), we hired 11 part- orfull-time research assistants (primarily MBA students),and trained them as raters to ﬁll in the survey instrumentfor assigned sample companies. We carefully selectedour raters from a larger pool of applicants by inter-viewing them and asking them to submit an abbreviatedtest survey on a randomly chosen sample company todisplay their understanding of Internet-based businessmodels. After choosing the most qualiﬁed candidates,we trained them in data collection and data analysis.In addition, raters were provided with written guide-lines on the proper way to address survey items. Eachrater was assigned to one of two project managers, whoreviewed completed surveys for internal consistency andcompleteness, but not for the accuracy of each indi-vidual measurement. On average, it took a rater abouttwo and a half days to collect data on a given busi-ness model, to analyze the model, and to complete thesurvey. Data sources included IPO prospectuses, annualreports, investment analysts’ reports, and websites. Thedata were collected from May 2000 to June 2001. Dur-ing that time period, we took one measurement of thedesign themes for each of the 190 business models inour sample, collecting cross-sectional data on our inde-pendent variables.We validated interrater reliability by assigning a ran-domly chosen business model to two different raters(each of whom was assigned to a different projectmanager), and by conducting a pairwise comparison ofresponses, yielding a Cronbach alpha of 0.81 and aPearson correlation coefﬁcient of 0.72. Raters were inbroad agreement with each other for 82% of the individ-ual items. We repeated the test periodically for differentraters and different business models and found that allindicators of reliability had further improved.

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Independent VariablesWe selected two independent variables of businessmodel design: design efﬁciency and design novelty. Weused 13 items as measures of design efﬁciency, and 13items as measures of design novelty. Given the difﬁ-culty of obtaining objective measures of business modeldesign, we deemed the use of perceptual measuresobtained from our raters appropriate (Dess and Robinson1984). The strength of each of these items in a givenbusiness model was measured using Likert-type scales(see Appendix A for details) and coded into a standard-ized score. After coding, we aggregated the item scoresfor each design theme into an overall score for the com-posite scale using equal weights (see Mendelson 2000).This process yielded distinct quantitative measures ofthe extent to which each business model in the sampleleveraged efﬁciency and novelty as design themes. (SeeTable 2 for summary statistics.)We validated the internal consistency and reliability ofour measures using standardized Cronbach alpha coefﬁ-cients, 0.69 for the design efﬁciency measure and 0.72for the design novelty measure. Our measures sufﬁ-ciently satisfy Nunnally’s (1978) guidelines, which sug-gest 0.7 as a benchmark for internal consistency. Todemonstrate the convergent and discriminate validity ofour measures, we ran a conﬁrmatory factor analysis(CFA). We also employed a partial least squares (PLS)approach to further strengthen our claim about discrim-inant validity. The methods and the results are detailedin Appendix B. Both empirical tests provide support forconstruct validity of our measures.Dependent VariablesA ﬁrm’s stock market value reﬂects the market’s expec-tations of future cash ﬂows to shareholders, and can beviewed as a measure ofperceivedventure performance.This differs fromrealizedperformance, which is typi-cally embodied in historical measures of ﬁrm proﬁtabil-ity (e.g., ROI, ROA). Given the level of uncertainty oftenassociated with the true prospects of entrepreneurialﬁrms, perceived performance as stock market value isa particularly suitable measure for an entrepreneurshipsetting (Stuart et al. 1999). Measures of realized perfor-mance such as ROI, ROA, or Tobin’sqare less appro-priate for young, high-growth entrepreneurial ﬁrms thatoften have negative earnings, few tangible assets, andlow (even negative) book values. For instance, 134 ﬁrmsin our sample (i.e., 86% of the sample ﬁrms for whichwe had the relevant accounting data) had negative earn-ings in the fourth quarter (Q4) of 1999. Five ﬁrms (i.e.,3% of the sample ﬁrms for which we had the relevantdata) even had a negative book value in the same period.These numbers did not change substantially in Q4 2000.There are limitations in using stock market valuationas a dependent variable. The nature of our sample andthe period in which we collected the data could prompt

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concerns about bias, due to an irrational bubble in thestock market. However, while the rationality of the mar-kets during 1999–2000 remains an open question (e.g.,Pastor and Veronesi 2004 offer a rational explanationfor investors’ behavior and provide empirical evidenceagainst the bubble hypothesis), our paper is not pred-icated on the efﬁciency of capital markets. It centerson the differential performance implications of alterna-tive business model designs, and our estimation methodexploits their differential valuation by capital markets.Even if the companies in our sample were systematicallyovervalued, this would not distort the qualitative resultsof our regression analysis. An additional support to ourmethodology is the fact that our dependent variable cap-tures market participants’ perceptions of the businesscycle, and the level of resource muniﬁcence in the envi-ronment. It reﬂects the factors that market participantsvalue (akin to Shleifer and Vishny’s 1991 analysis ofstock market valuations of conglomerates in the 1960sand 1980s). This was actually beneﬁcial for our analysisbecause it allowed us to test our contingency hypothesesabout the moderating effect of resource muniﬁcence onthe relationship between business model design and ﬁrmperformance.Because most ﬁrms in our sample have relatively lowlevels of debt, the market value of a ﬁrm’s equity is agood approximation of the market value of the wholeﬁrm. We measured the market value of equity at a givendate as the number of shares outstanding multiplied bythe ﬁrm’s stock price, taken from the combined CRSPand Datastream databases. We then calculated the log-arithm of the market value of the equity in order tocomply with the normality assumption of ordinary leastsquares (OLS) regression. Following this transformation,we found that the null hypothesis of normality couldnot be rejected at the 5% level of signiﬁcance using aShapiro-Wilk test. To test our hypotheses, we used mea-surements of the dependent variable at various pointsin time (annual average, average during Q4, and thelast day of trading of Q4) and in various time peri-ods (1999, 2000) characterized by different levels ofresource muniﬁcence for entrepreneurial ﬁrms.Until now, most empirical research has employedindustry-type measures of muniﬁcence, such as meanannual industry sales growth (Tushman and Anderson1986), employment growth in the industry (Dess andBeard 1984), and other indicators of growth at the indus-try level (McArthur and Nystrom 1991). Because thebusiness model construct spans industry boundaries, andmany of the sample ﬁrms span multiple industries, wecould not deﬁne an industry-level variable that capturedresource muniﬁcence adequately. We therefore measuredthe dependent variables in time periods that were suf-ﬁciently distinct in terms of environmental resourcemuniﬁcence, yet close to the point in time when theindependent variables were measured.

Despite the short window, the change in the resourceavailability for entrepreneurial ﬁrms triggered by theworldwide crash of high-tech stocks in March 2000 wassevere. Park and Mezias (2005), for example, demon-strate the sharp and statistically signiﬁcant reversal in anumber of muniﬁcence measures. Table 1 summarizesthe differences between the time periods we considered.The year 1999 (and Q4 1999 in particular) was a timeof relatively high muniﬁcence for entrepreneurial ﬁrmsin our sample, whereas the year 2000 (and Q4 2000 inparticular) was a time of relatively low muniﬁcence. Inaddition, other indicators of environmental uncertainty,such as complexity and dynamism (Dess and Beard1984), may have changed between the years, perhaps toa lesser extent.The use of multiple measures of the dependent vari-able provided a robustness check for our results. In ouranalysis, we contrast the average market value of ﬁrmsin Q4 1999 with that in Q4 2000, the market value ofﬁrms at the close of Q4 1999 with that at the close ofQ4 2000, and the average market value of ﬁrms in 1999with that in 2000.Control VariablesWe included further factors that might inﬂuence themarket value of a ﬁrm’s equity as control variables inthe analysis, because their omission might confoundit. Our industry controls were the level of competi-tive threat, and estimated market size. Our raters mea-sured competitive threat on a four-point Likert scalebased on information found in annual reports, prospec-tuses, competitors’ SEC documents and websites, For-rester benchmark studies, Hoover’s database (which listseach focal ﬁrm’s main competitors), and investmentanalysts’ reports. The information on market size wasobtained from Forrester research reports and from theU.S. Department of Commerce. Consistent with marketpower arguments (Porter 1980), and our own theory, thegreater the level of competition that a business modelis facing (in more competitive or smaller markets), thelower the chances that the business model will createmuch total value and the lower the performance of thefocal ﬁrm.Our ﬁrm-level controls included the age of the ﬁrm,size, country of origin, and expenditures on R&D, adver-tising, and capital. Size was measured as a logarithm ofthe number of employees. The variable can be viewedas a proxy for the focal ﬁrm’s bargaining power, rela-tive to rival ﬁrms and other business model stakehold-ers. All other things being equal, the larger the focalﬁrm, the greater its potential for value creation as wellas its bargaining power, and, hence, the better its per-formance. We controlled for country of origin using adummy (“1” for ﬁrms headquartered in North America,“0” for European ﬁrms).

Table 1 Indicators of Resource Muniﬁcence 1999 and 2000Indicators of resource muniﬁcence1999 2000• Median quarterly sales growth of sample • Median sales growth of sample companies:companies: 30% (Q2 1999), 29% (Q3 1999), 18% (Q1 2000), 15% (Q2 2000), 8% (Q3 2000),33% (Q4 1999) 6% (Q4 2000)• Number of Internet-related IPOs in United States: • Number of Internet-related IPOs in United States:193 (Q4: 62) 122 (Q4: 0) (2)• Public market Internet IPO ﬁnancings in % of total • Public market Internet IPO ﬁnancings in % of totalIPO ﬁnancings: 67% IPO ﬁnancings: 36% (2)• VC funding for B2C e-commerce companies: • VC funding for e-commerce companies dropped$4.5 billion (+1000% from 1998) (1) from $843 million (Q1) to $69 million (Q4) (3)Sources. (1) PriceWaterhouseCoopers, http://www.ecommercetimes.com/perl/story/2505.html. (2) Morgan Stanley.2002.The Technology IPO Yearbook, 8th ed.22 Years of Tech Investing. http://www.morganstanley.com/institutional/techresearch/tech_ipo_yearbook.html?page=research. (3) PricewaterhouseCoopers/VentureOne, Money Tree SurveyQ4 2000.

The inclusion of these ﬁrm-level variables strength-ens the claim that our analysis captures the inﬂuenceof distinct business model design characteristics on ﬁrmperformance, as opposed to the effects of ﬁrm character-istics or strategy. For example, investment in R&D hasbeen used in prior research as a proxy for technologystrategy (Dowling and McGee 1994) and as a proxy forthe degree to which a ﬁrm pursues a product differen-tiation strategy (Mizik and Jacobson 2003). Advertisingexpenditures have been employed as a proxy for a ﬁrm’smarketing strategy (Mizik and Jacobson 2003).Finally, we considered alternative business model de-sign themes, such as complementarities and lock-in(Amit and Zott 2001), by constructing two latent con-trol variables, using 9 indicators for complementarities(Cronbach alpha=070), and 15 indicators for lock-in(Cronbach alpha=074).Econometric Modeling and Estimation ApproachWe analyzed the data using multivariate regression tech-niques. We tested the robustness and validity of ourmodel speciﬁcation in several distinct ways. First, wetested for multicollinearity among independent variablesby calculating variance inﬂation factors (VIF) (seeKleinbaum et al. 1998). Second, we performed analysesusing different dependent variables. Third, we discardedinﬂuential observations based on established criteria foridentifying inﬂuential points (e.g., leverage, studentizedresidual, or change in the determinant of the covari-ance matrix) from our data set to see whether they dis-torted results. Fourth, we tested for overﬁtting of thedata.2Fifth, we considered the potential bias introducedby sampling on the dependent variable by running atruncated regression model (Maddala 1986).3Sixth, wetested for homoscedasticity using White’s test. Seventh,we tested for potential endogeneity (i.e., the concernthat business model design could be a choice variablethat is correlated with unobservables that are relegatedto the error term) by running a 2SLS regression with

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instrumental variables and by using the Hausmann test(see Greene 2003, p. 80ff).4Eighth, we performed mul-tiple partialF-tests (Cohen and Cohen 1983) to ensurethat adding the design novelty and design efﬁciency vari-ables, as well as their interaction, improved the ﬁt of themodel signiﬁcantly, compared to a baseline model thatcontained only control variables.None of these tests gave rise to concern, yet we ob-served multicollinearity in those regressions where theinteraction term between design novelty and design efﬁ-ciency was included. We therefore mean-centered theinteraction variable, as well as the design novelty anddesign efﬁciency measures (see Aiken and West 1991).This signiﬁcantly reduced the VIF to levels that atten-uated the concern about multicollinearity. In addition,we ensured that the mean-centering approach did notentail a lack of invariance of regression coefﬁcients,which may arise in equations containing interactionseven under simple linear transformations of the data(Aiken and West 1991). Overall, therefore, we concludethat our model speciﬁcation proved robust and valid.ResultsDescriptive StatisticsTable 2a, provides an overview of the data set we assem-bled. It reveals the entrepreneurial nature of our sampleﬁrms as well as the enormous change that occurred inthe environment between Q4 1999 and Q4 2000. Specif-ically, in 1999 the median age of a sample companywas just over four years, while the mean company wasjust under seven years old. The few older ﬁrms in thesample are those that went through an extensive trans-formation, with entrepreneurial management leading thechange. The median sales of sample companies in 1999were just under $25 million, while the median bookvalue of equity in the same year was $57 million. Themedian sample company employed 269 people (mean1,067). With respect to the change in the environment

Zott and Amit:Business Model Design and the Performance of Entrepreneurial Firms190Organization Science 18(2), pp. 181–199, © 2007 INFORMSbetween 1999 and 2000, we note that the median com- scarcity and less uncertainty about the viability of busi-pany was worth $349 million at the end of December ness model designs, innovative business model designs1999, but only $49 million at the end of December 2000, were associated with higher levels of performance.representing a decline of 85.6% in market value over a Comparing Tables 3a and 3b (full sample) with Table12-month period. 3d (restricted sample), we note that the coefﬁcient on theTable 2b, depicts the Pearson correlations among the design novelty variable is signiﬁcant at the 1% level inright-hand side variables used in the regression analy- the restricted sample for all four models (see Table 3d),sis. We note that while some correlations among the while it is signiﬁcant at the 10% level in the full sam-explanatory variables are signiﬁcant, they do not pose ple for three of the four models we ran (see Tables 3aa multicollinearity problem, as their variance inﬂation and 3b). This might suggest a weakening of the noveltyfactors (VIF) are low. effect due to entry dynamics. We explored these appar-ent differences by running a separate set of regressionsHypotheses Testedusing only the 30 ﬁrms that entered our sample in 2000.Table 3 depicts the OLS regression results. Tables 3a (These regressions are available from the authors uponand 3b (full sample) show the results for regressions in request.) We observed that in most models the coefﬁ-which the dependent variable is the logarithm of mar- cients for novelty-centered business model design wereket value averaged over Q4 1999 (Table 3a), and Q4 not signiﬁcant for this small set of 30 ﬁrms. That is,2000 (Table 3b). Table 3c summarizes the main regres- the novelty-centered business model design of the ﬁrmssion results for each of the three dependent variables that entered our sample in 2000 did not signiﬁcantlywe considered. Table 3d (restricted sample) depicts the explain the variance in the dependent variable. Further-results of the same regressions reported in Tables 3a and more, according to thet-test suggested by Cohen and3b on a restricted sample of ﬁrms that were present in Cohen (1983, p. 111), the coefﬁcient on design noveltyboth 1999 and 2000. In other words, in the regressions in the sample of the 30 entering ﬁrms was signiﬁcantlyreported in Table 3d we control for entry and exit in our different from the respective coefﬁcient in the sample insample between 1999 and 2000. 1999.Hypothesis 1 (regarding novelty-centered business This analysis highlights the potential role of entry dy-model design) is supported by the analysis. As depicted namics for the hypothesized contingent effect of muniﬁ-by Table 3 (Tables 3a–3d), the coefﬁcient on the design cence on the relationship between business model designnovelty variable is positive, and in most cases it is signif- and ﬁrm performance. Speciﬁcally, under conditions oficant both during a period of environmental muniﬁcence low resource muniﬁcence, capital markets may be lessand during a period of resource scarcity. The observed receptive to new public offerings from ﬁrms that centereffect was relatively robust to changes in the environ- their value proposition on novel business models. Over-ment. Our results suggest that even in times of resource all, however, Hypothesis 2 (about the changing strength

Table 2a Descriptive StatisticsStandardVariable name (acronym) Mean Median deviation Min Max No. observationsMarket value at close of Q4 1999 $1,506 $349 $3,184 $2 $25,942 159US$ million (MVQtr4Close_99)Market value at close of Q4 2000 $387 $49 $1,101 $07 $8,885 173US$ million (MVQtr4Close 00)_Design efﬁciency 0702 0712 0112 0404 092 190Design novelty 0366 0359 0133 0077 0795 190Complementarity 0617 0639 0174 0000 0972 190Lock-in 0454 0463 0140 0167 0763 190Age of ﬁrm 70 43 78 04 458 190Ln number of employees 5723 5593 1336 2833 10342 190Country (1=United States, 0=European country) 088 100 032 000 100 190R&D expense US$ 00 (million) $27 $05 $64 $00 $67.3 190Advertising expense US$ 00 (million) $47 $10 $93 $00 $52.8 190Capital expense US$ 00 (million) $427 $37 $4159 $00 $5,733.1 190Book value of equity 99 (million) $1637 $573 $4166−$686 $4,601.2 188Book value of equity 00 (million) $2728 $712 $6852−$9673 $5,752.2 160Sales net US$ 99 (million) $2633 $249 $1,575.4 $00 $20,111.8 177Sales net US$ 00 (million) $331.7 $529 $1,643.0 $00 $20,609 177Number of employees 1,067 269 3,557 17 31,000 190Market size US$ 00 (million) $20,477 $5,400 $65,640 $120 $744,000 190

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Variable name(acronym)Independent variablesCentered design 1000efﬁciencyCentered design 0175∗1000noveltyInteraction between−0057−0041 1000centered designefﬁciency andcentered designnoveltyControl variablesComplementarity 0349∗∗0349∗∗−0001 1000Lock-in 0316∗∗0413∗∗−0173∗0373∗∗1000Competition−0006−0322∗∗−0147∗−0128∗−0121†1000Ln market size−0039 0016 0022 0112−0062 0097 1000Age of ﬁrm−0112−0131†0118 0026∗−0152∗0048 0214∗∗1000Ln number of 0004−0038 0027 0040−0028−0076 0338∗∗0452∗∗1000employeesCountry−0074 0168∗0123†0107 0159∗0097 0462∗∗0107 0110 1000R&D expense 00 0066 0220∗∗0049 0088 0140†−0011 0022−0027 0281∗∗0123†1000Advertising−0088 0020 0037 0042 0002 0027 0199∗∗0223∗∗0493∗∗0178∗0434∗∗1000expense 00Capital expense 00 0004 0018−0004 0147∗0075 0055 0066 0355∗∗0271∗∗0036 0001∗0414∗∗1.000∗001≤p <005,∗∗p <001,†005≤p <01.of the design novelty coefﬁcient in different environ- test statistic we used wasPRSS−CUSS/DF_PR−ments) receives little support from our data. Following DF_CU/CUSS/DF_CU, where PRSS was the sumGatignon (2003), we examined the moderating role of of squared residuals from the partially restricted model,environmental muniﬁcence by conducting a Chow test CUSS was the sum of squared residuals from the com-for the equality of the coefﬁcients in the overall model pletely unrestricted model, DF_PR was the number ofbetween the 1999 and 2000 regressions. The test pro- degrees of freedom of the partially restricted model, andvided signiﬁcant results (see Table 4). This led us to DF CU was the number of degrees of freedom of the_further examine whether the coefﬁcient on design nov- completely unrestricted model. As a result of these tests,elty caused the observed structural break suggested by we could not reject the null.Table 3c. The table shows that the regression coefﬁ- Hypothesis 3 (about efﬁciency-centered business modelcients on the design novelty variable were highly signif- design) receives mixed support from our data. The resultsicant in 1999, but less so in 2000. To conﬁrm whether in Table 3 indicate that Hypothesis 3 is supportedthis effect was statistically signiﬁcant, we conducted a by the Q4 2000 results in the full sample (Table 3b:series of pooled regression runs (for all models and all Models 1–4). The results are robust across all depen-dependent variables): (a) on a completely unrestricted dent variables (see Table 3c). In our full sample, dur-model, in which we included a year dummy (zero for ing a period of resource scarcity, entrepreneurial ﬁrms1999, one for 2000) that we interacted with all vari- performed better if their business model design—andables; (b) on a partially restricted model, in which the hence value proposition to their customers, partners,only difference from the model in (a) was that the coef- and suppliers—included efﬁciency enhancements thatﬁcient on novelty-centered business model design was reduced their transaction costs, simpliﬁed transactions,restricted to be the same for 1999 and 2000. Then, and sped up processes. However, Hypothesis 3 is notwe didF-tests to test the null hypothesis of homo- supported by the data pertaining to Q4 1999. Table 3a,geneity of the coefﬁcient on design novelty in mod- which depicts the regression results during a period ofels (a) and (b). Following Gatignon (2003, p. 74) the environmental muniﬁcence (1999), shows that while the

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