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Capitalization Devices
Business Models and the Renewal of Markets

Liliana Doganova and Fabian Muniesa

Introduction

Robert is an academic entrepreneur.1 During his PhD at a French public

research organization specialized in computer science, he took part in the
development of a technology based upon an algorithm that allows processing
data incoming from vehicles in order to compute predicted travel times. He
would like now to bring this technology to the market. He has just founded a
start-up company with a senior researcher from his research team. The tech-
nology seems to be working well. And the travel times that it produces can be
put to many uses—a bit like the weather forecast, Robert explains. There are
applications for individual drivers who wish to estimate their travel time, but
also for business clients, such as truck fleet managers, who wish to optimize
their logistics. But the entrepreneurs are having a hard time convincing ven-
ture capitalists to invest in their start-up: the whole problem, Robert laments,
‘is about the business model of this thing’.2
What is this ‘problem’, and how does ‘the business model’ provide a solu-
tion to it? We could start by saying that the problem is to make the travel
times computing technology valuable. But there are many ways in which
something may be made valuable (Stark 2009; Aspers and Beckert 2011;
Berthoin Antal et al. 2015). That may be the case, for example, when a tech-
nology is shown to have an application, or, to put it in marketing terms, to
meet the unsatisfied needs of a set of users. In this respect, Robert’s tech-
nology definitely is valuable, and all the more so as it has many applica-
tions. But the existence of applications is not enough to solve this ‘problem’
that the entrepreneurs seem to be struggling with. There is something else at

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stake here, another form of valuation going on. To grasp it, we need to move
beyond the entrepreneurs’ viewpoint and look at the investors whom they
are trying to convince.
Bernard is a venture capitalist. Meeting entrepreneurs like Robert and their
technologies with numerous and certainly valuable applications is his daily
routine. But applications are not what he is looking for. He recalls the case
of one of his most successful investments. The start-up’s founders contacted
him, praising the merits of the software they had developed—a technology
that large organizations, ranging from banks through insurance companies
to hospitals, could use in order to search within their voluminous dispersed
databases. At first, the venture capitalists said no ‘because selling software
tools to people is both difficult and of little ambition’, adding with a bit of
dismay that ‘there are tons of people who invent software tools every morn-
ing’ and that ‘it does not mean that you can make a firm with that’. Their
argument was also about the figures: ‘We may be able to sell it a first time for
100,000 euros, a second time for 50,000, a third time for 10,000, and then we
will have a firm that will make a turnover of one million over twenty years’.
The advice Bernard gave to this start-up was to go for a ‘new business
model’: use their technology to make a search engine that would allow inter-
net users to find the best price for a product and hence allow online merchants
to attract these willing-to-buy customers in exchange for a small contribution
paid to the search engine for each relevant click. The start-up followed the
advice, and Bernard’s venture capital firm made the investment. A few years
later, the search engine proudly showed millions of clicking and buying users
and was sold to an internet giant for no less than 475 million euros.
What we are interested in here is not a Google-like fabulous success story,
but the kind of problem that the new business model allowed to solve. That
problem, we argue, lies in transforming a technology into an asset that has
the power to generate a steady stream of future cash flows, that is, into capital.
What is at stake here is a peculiar way of making things valuable. The chapter
discusses how the business model instruments such a mode of valuation,
which we call capitalization. In order to do so, we characterize the particular
kind of encounter that this mode of valuation requires between someone like
Robert and someone like Bernard, that is, an entrepreneur and an investor.
The chapter proceeds as follows. We start by documenting the rise of busi-
ness models, emphasizing their focus on the notion of value and the contro-
versies that they have triggered among management scholars. The chapter
then introduces recent approaches to business models, which shed light on
the performative role that they can play, and explains the approach adopted
here, which examines business models as valuation devices (Doganova
2011)  and, more narrowly, as capitalization devices. An empirical section
follows which investigates how business models work by focusing on two

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moments of business model innovation related to the birth of new industries

(internet and biotechnology). The chapter concludes on capitalization as a
singular mode of valuation instrumented by business models.

The Rise of Business Models

The business model is a recent invention. Ghaziani and Ventresca (2005)

trace its first appearances back to the mid-1970s. The term then referred to
computer-based models of business practices. Concomitantly to the advent
of the ‘Digital Economy’, the mid-1990s marked a strong shift in the use of
business models. In the ABI Inform database which the authors searched, the
incidence of the term grew from less than ten articles per year until the early
1990s, to 600 articles in 2000. A more recent study using the EBSCO host
database confirms this trend, with the number of publications reaching more
than 1,000 per year in 2010 (Zott et al. 2011).
The rise in numbers, Ghaziani and Ventresca (2005) argue, goes hand in
hand with a shift in the ‘frames’ to which the keyword ‘business model’
has been associated. Within its original frame (which the authors call
‘computer/systems modelling’), the business model was a software model
of an existing business, a simplified representation of an already function-
ing organization—similar to the scale model of a plane for example. Since
the mid-1990s, the predominant frame of business models has been that
of ‘value creation’, which the authors illustrate with the following excerpt
from an article published in the Journal of Business Strategy in 2000:  ‘The
key to reconfiguring business models for the knowledge economy lies in
understanding the new currencies of value’ (Ghaziani and Ventresca 2005,
538, citing abstract from Allee 2000). The change is blatant: business mod-
els no longer deal with depicting existing practices and organizations, but
with finding new sources of ‘value’. In a similar vein, Zott et  al. (2011)
observe the centrality of the notion of value in current conceptualizations
of the business model, encompassing both the ‘creation’ and the ‘capture’
of value.
Ghaziani and Ventresca (2005) analyse the rise in numbers and the shift in
frames as an instance of ‘cultural change’. We argue that the change in ques-
tion reaches beyond the domain of ideologies and beliefs, for the business
model is not only a ‘keyword’ (or merely a ‘buzzword’, as some would say): it
is a device that instruments new forms of valuation, to the advent of which
its expansion has contributed. A clear sign of the magnitude of change is the
virulent reaction that the rise of business models triggered among strategy
scholars. For example, Michael Porter—an eminent strategy scholar, who has
also been an outspoken critic of business models—wrote:

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Instead of talking in terms of strategy and competitive advantage, dot-coms and

other Internet players talk about ‘business models’. This seemingly innocuous
shift in terminology speaks volumes. The definition of a business model is murky
at best. Most often, it seems to refer to a loose conception of how a company
does business and generates revenue. […] The business model approach to man-
agement becomes an invitation for faulty thinking and self-delusion. (Porter
2001, 72–3)

The quote from Porter captures quite well the main lines of criticism addressed
to the business model in the management literature. They can be summed up
into three key problems: the problem of definition, the problem of reference,
and the problem of (in/dis)utility. First, scholars have pointed out, the busi-
ness model is untruthful to itself, because it does not have a stable definition.
It remains, as Porter puts it, ‘murky at best’, in spite of academics’ and practi-
tioners’ continuous attempts to find the essence of the business model and fix
it in a correct and clear definition. Second, the business model is untruthful to
its external reference, that is, the enterprise that it is supposed to describe. It is
no more than a ‘loose conception of how a company does business’. It fails to
fulfil its predictions—some have even denounced it as serving the purposive
concealment of charlatan-entrepreneurs’ real intentions. Third, the business
model is not useful. Modelling, several studies have shown, does not help
entrepreneurs in their planning endeavours, does not improve the perfor-
mance of new ventures, and even harms it, by inducing managers into what
Porter describes as ‘faulty thinking and self-delusion’.
The harsh criticism that business models have received in the academic
literature stands in sharp contrast to their widespread use by practitioners.
Recent studies have suggested that this discrepancy may be due to the fail-
ure of prevalent theoretical approaches to account for what business models
are and what they do (Doganova and Eyquem-Renault 2009; Baden-Fuller
and Morgan 2010; Perkmann and Spicer 2010), a failure due to the essen-
tialist or functionalist perspectives that these approaches tend to adopt. An
essentialist perspective searches for the essence of the business model, try-
ing to provide a clear, precise, unambiguous definition of an object that
seems to inevitably escape such attempts. A functionalist perspective assigns
a presupposed function to the business model and tries to assess its effi-
ciency accordingly. In so doing, prevalent theoretical approaches make two
strong assumptions. The first is that the lack of a stable definition impedes
the working of business models. The second is that the function of busi-
ness models, known a priori, is to describe, faithfully represent, or accu-
rately predict the characteristics of the external entity—a present or future
enterprise—to which it refers.
However, as demonstrated elsewhere (Doganova and Eyquem-Renault
2009; Eyquem-Renault 2011), it is precisely the plasticity of the business

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model—its ability to take on different shapes and meanings—which ena-

bles it to circulate among various actors (entrepreneurs, investors, custom-
ers, technology partners, and so forth), act as a boundary object (Star and
Griesemer 1989), and instrument collective exploration activities (Doganova
2013). The narratives and numbers of which it is made do not merely depict
an external entity; they are addressed to a public which they attempt to
enrol. Rather than as a description, the business model thus functions as
a demonstration—an exercise ‘situated on the crossroads of a probationary
approach […] and of ostentatious conduct’ (Rosental 2007, 35). This suggests
that the usefulness of business models does not lie in their ability to accu-
rately represent the firm, but in their ability to circulate and enrol allies. Such
an approach to business models shifts attention from their representational
efficiency to the performative role that they might play in the construction
of new businesses and markets.

Performativity and Valuation Devices

While there are different, and sometimes contradictory, dimensions of the

idea of performativity (Muniesa 2014), three of them seem particularly rel-
evant for business models. The first one has to do with performance. As the
analogy with demonstrations suggests, the business model is not only a state-
ment, but an act—an act of exhibiting something, presenting it to an audi-
ence, putting it on stage. The something in question may be a PowerPoint
presentation projected at a start-up competition, a business plan submitted to
investors, or the entrepreneur herself making her ‘pitch’ in front of someone
to convince. In this respect, business models’ most salient working mode is
that of ‘narratives that convince’ (Perkmann and Spicer 2010).
Imagine Bill Gross, the founder of GoTo.com, speaking at a TED conference
in 1998 about the idea of a web search engine that would rank results not
according to their relevance but according to the price paid for them—an idea
that gave rise to the ‘sponsored search’ or ‘pay per click’ business model which
later made Google’s commercial success (Battelle 2005; Levy 2011). Gross had
to counter numerous objections coming from the audience, reminding his
public about the Yellow Pages, where those who pay for the largest insert get
the most calls, and underlining the transparency of the system he envisaged,
which would display the prices that advertisers were willing to pay for each
click. As noted by Stark and Paravel (2008) in their discussion of PowerPoint
presentations, public demonstrations may be a perilous exercise, for they
nurture counter-demonstrations. This is something that many entrepreneurs
experience, as the publics whom they seek to enrol take hold of their model,
and start criticizing and reshaping it.

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This brings us to a second dimension of business models’ performativity,

which has to do with them acting as ‘scale models’—small representations of
a future enterprise that can be played with, as children play with a train model
for example, but also, and more importantly, experimented with, as when
developers gather around the prototype of a new product to assess its techni-
cal and market feasibility (Wheelwright and Clark 1992), when economists
manipulate the models they have built to inquire into them (Morgan 2012),
or when architects scale models up and down to get to know the buildings
they are designing and gradually bring them into existence (Yaneva 2005).
Comparing business models to the mathematical models used in economics
and to the model organisms used in biology, Baden-Fuller and Morgan (2010)
emphasize a central quality of models: they are objects that can be manipu-
lated, experimented with. As such, business models can be used to produce
knowledge about existing businesses (with exemplar cases like McDonald’s or
Dell being taught and discussed over and over again), change existing organi-
zations (see, for example, Sosna et al. 2010), or build new ventures.
It is certainly in this latter case, when business models are used to build new
ventures, that their performative role as scale models that can be manipu-
lated and circulated is the most salient. The business model then describes
a future enterprise—states what its activities will be, what customers it will
serve and what alliances it will establish, etc.—and, in so doing, it helps bring
this future enterprise into existence, because it helps enrol necessary partners,
such as investors (Doganova and Eyquem-Renault, 2009). In other words, as
a scale model, the business model is performative insofar it describes a set of
relationships and, by circulating, it gradually builds the relationships it has
postulated. The following quote from Steve Blank, a Silicon Valley entrepre-
neurship practitioner and author, illustrates the business model as a tool that
draws links and makes links:

A business model is actually a single slide. That’s all it is. It’s a single slide, a dia-
gram, that shows all of the flows between your company and your customers.
It’s a single PowerPoint slide that you could put up and say:  ‘Here’s our busi-
ness model’. And in that one slide you have your material costs, you have your
distribution channel, you have your customer acquisition cost. You have eve-
rything: your revenue, your expenses. And someone looking at that goes: ‘I get
it. I  disagree with this line and with this line and with this line, but I  get it.’
(Transcribed from video footage of Cleantech Open 2009)3

Business models have the capacity to travel—not only within the entre-
preneurial collective that emerges as a new venture is built, but also in the
broader time and space of industries and management science. Baden-Fuller
and Morgan (2010) analyse business models as ‘role models’, maintained by
management scholars’ labelling and classifying activities, and as ‘recipes’,

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lying between general principles and exact templates. As such, business mod-
els lend themselves to replication, and this is where a third dimension of their
performativity is to be found. Business models that have proved to ‘work’ in
the past are reproduced in press articles, textbooks, and the practitioners’
and academic literature. They are working examples that entrepreneurs can
copy and that investors can use as benchmarks to assess the propositions
submitted to them. By associating themselves with a particular type and plac-
ing themselves in a particular category, firms gain legitimacy (Perkmann and
Spicer 2010). They also spare modelling efforts.
Business models are thus performative in (at least) three ways: as perfor-
mances, when the model is exhibited and put on stage; as scale models,
which draw and build relationships, and hence help bring into existence that
which they purport to describe; as role models, that are followed and imitated
by new ventures. One question remains though: if business models are per-
formative, what do they perform? That is, what worlds do they carry? And
what do the new ventures that are built with them look like? We would like to
address these questions by taking on board the observation of Ghaziani and
Ventresca (2005) and Zott et al. (2011) that business models are intimately
associated with the notion of value, and terms such as ‘value creation’ and
‘value capture’. The very notion of ‘value creation’ (i.e. the generation of
revenue) appears indeed as a crucial marker of the investment imagination
(Ortiz 2013, 2014) of the business model. So what kind of value is this valua-
tion device meant to prompt, and what difference does this make?

Business Models for the Generation of New Markets

Google
It is no coincidence that the rise of business models was concomitant to that
of the digital economy. A key challenge that the internet entrepreneurs of
the 1990s were facing was how to generate revenues for their start-ups, given
that services were expected to be provided for free. Take Google, for example
(see Battelle 2005; Levy 2011). We often think of the PageRank algorithm
as Google’s greatest invention. Indeed, the technology that the start-up’s
founders developed in the late 1990s while studying at Stanford represented
a dramatic improvement in comparison with existing search engines, e.g.
AltaVista. The latter ordered webpages by reading their content and relying on
keywords. Taking inspiration from the citation mechanism in the academic
literature, the PageRank algorithm ordered webpages according to the num-
ber of links pointing at them, which greatly enhanced the relevance of search
results. While Google’s technology attracted users, investors, and public
attention almost immediately, it took the start-up two years to find a business

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model for its search engine. The invention of this business model—known as
AdWords at Google, ‘pay per click’, or ‘sponsored search’—was no less impor-
tant for the development of the company than the PageRank algorithm.
The business model that made Google’s success was invented in 1998
by a start-up called GoTo.com (later renamed Overture). At that time, the
predominant business model in the industry followed classic advertising
methods. Internet start-ups provided their users with free services and made
money (if they did) by displaying ads on their websites—ads that visitors
were faced with and on which they were likely to click if interested. The
key metric here was that of traffic: the more traffic a website (e.g. Yahoo’s
portal) had, the higher price it could require from advertisers willing to
display themselves on the website in the hope to redirect some of the traf-
fic that it drew onto their own websites. The intuition of GoTo.com was
the following: it was not only traffic—the numbers of visitors coming to a
website—that had value, but the ways in which these visitors were behav-
ing, and more precisely the words that they were typing. These words
had potentially commercial value, for they expressed the—potentially
buying—intentions of the visitor. To put it in marketing terms, visitors with
a ‘purchase intention’ had much greater value for the online merchants to
which they could be matched, and a lower ‘cost of acquisition’ than that
incurred by placing an ad in front of numerous but undifferentiated inter-
net users who were most likely uninterested, and sometime even irritated,
by the ads that they were forced to see.
How can value be put on the words typed by a visitor in a search engine?
GoTo.com’s idea was to sell these words to online merchants. How can a price
be put on them? GoTo.com made online merchants bid for the keywords
they wanted to be associated with, and was paid for every click that led a
visitor from its search engine to a merchant’s website—hence the name ‘pay
per click’ for this business model. The idea was controversial: instead of rank-
ing webpages according to their content, as search engines did at that time,
or according to the links that pointed at them, as Google did, GoTo.com
was ranking webpages according to the price that those who produced them
were willing to pay. The most ‘relevant’ results were neither the most similar
in terms of content, nor the most popular on the web, but the ones that led
to the highest bidder. And yet, it worked: by 1999, GoTo.com had attracted
thousands of merchants and millions of searches. Two years later, Google
introduced AdWords, and started displaying the results of ‘sponsored’ search
(i.e. results displayed because merchants had paid to be associated with a
given keyword) next to those brought about by the ‘natural’ search instru-
mented by the PageRank algorithm. AdWords sold keywords through a com-
bination of bidding and pay per click—an imitation for which it was sued by
GoTo.com—while adding its own flavour in the ranking of results by taking

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into account the popularity of commercial links (i.e. the numbers of times
they had been clicked on) when ordering them.
In his reflections on the performativity of networks, Healy (2011) analyses
Google’s PageRank algorithm as perfomative, insofar as it was built upon a
network-based theory of relevance where citations indicate the relative impor-
tance of an object (be it an academic article or a webpage); assumed a certain
network structure where some nodes are more important than others for they
are more central, and at the same time helped reproduce this structure by rein-
forcing the centrality of the webpages that it ranked highest; was adopted by
many internet users in their practice and understanding of what web search
is; and was manipulated by some internet websites that played on the algo-
rithm’s assumptions to improve their ranking (giving rise to a new industry
called ‘search engine optimization’). This line of analysis may be extended to
the other major invention of Google. AdWords, and the sponsored search/
pay per click business model that it copied and popularized, helped establish
an internet market whose survival was still highly uncertain in the late 1990s
and seriously threatened by the 2000 crash. It served as a ‘role model’ for new
start-ups entering the market, and for the investors who funded them, both
copying a template that had proved its economic viability. By allowing to
target potential customers and hence to decrease their ‘cost of acquisition’, it
also unleashed markets for many small online shops which could not afford to
buy advertising space on central internet locations such as the Yahoo portal.
If the PageRank algorithm embeds citation-based definitions of relevance
and network imageries, the AdWords business model carries a peculiar the-
ory of valuation. Instead of lying in present size (e.g. the overall number of
visitors that an online portal reports, as indicated by ‘traffic’ or ‘audience’
metrics), here value is derived from the future flow of singular transactions,
each of which consists in a click that a particular user, driven by a ‘purchase
intention’, makes to reach a certain product and, thereby, the merchant who
happens to offer that product and rank well. In such a model, valuation both
occurs in ‘real time’—the time of users clicking on links and merchants bid-
ding for keywords—and deploys in the future, as the search engine gets a
grasp on the transactions to come and ‘monetizes’ them. The model thus ena-
bles both the creation of economic value, by turning the words that someone
types in a search engine into a commodity that can be sold and bid for, and
the capture of the value thus created, by means of a complex technology of
tracing clicks and visualizing transactions.

Genentech
In his study of the ‘science business’ of biotech, Pisano (2006b) identifies the
birth of the biotechnology industry with the founding of Genentech, the first

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biotechnology start-up. Genentech was founded by scientist Herbert Boyer

and venture capitalist Robert Swanson in 1976. Three years earlier, Boyer and
colleagues had introduced a new technique of genetic engineering called
recombinant DNA (rDNA). The technique was a breakthrough because it
enabled producing therapeutic proteins, such as insulin (until then, proteins
could not be synthesized through traditional chemical methods because of
their large size; a few proteins could be obtained from natural sources, such
as pig pancreases for insulin). Swanson, the story goes, heard about this and
contacted several scientists, among whom Boyer, who agreed to talk to him
for ten minutes. At the end of a three-hour meeting, the two decided to cre-
ate a firm that would exploit the possibilities offered by recombinant DNA in
view of developing new drugs, namely insulin.
Drug development is a very lengthy, costly, and uncertain process. While
Google’s founders could put together the first demo of their search engine
with materials at hand, Genentech would have needed years of time and
millions of investment to master the rDNA technique and go through the
phases of discovering, developing, and commercializing a new drug. As
noted by Pisano, the pharmaceutical industry had huge barriers to entry,
and had not seen any successful entries since 1944. As in the case of Google,
the innovation that Genentech made was twofold: not only did it introduce
a new technology for drug development, but it also invented a new busi-
ness model that was then copied and adapted by the hundreds of biotech
start-ups founded in its wake. It gave rise to an industry that, for thirty years,
has attracted more than $300 billion in capital (Pisano 2006a). What was
that business model?
The model proposed by Genentech relied on alliances drawn with univer-
sities, venture capital firms, and incumbent pharmaceutical companies. The
biotech start-up would focus on research, in collaboration with universities.
In the case of Genentech, Boyer retained his position at the university and
only consulted for the company he had co-founded; the company began life
as a ‘virtual enterprise’ with no labs and research conducted through contracts
with universities. In the absence of revenues, the start-up’s research would be
funded by venture capital for a few years. At a certain stage of the drug devel-
opment process, the start-up would enter into an R&D (research and develop-
ment) partnership with a large pharmaceutical company that would fund the
remaining development of the drug in exchange of the rights to commercial-
ize it. Thus, Genentech and Eli Lilly signed an agreement for recombinant
insulin in 1978 (the resulting drug, Humulin, was the first approved biotech-
nology drug). For Pisano (2006b, 85–6), this agreement pioneered ‘an entirely
new business model for entrants into the pharmaceutical industry’; it was ‘a
critical business innovation’ which ‘created a template’ and ‘provided a proof
of feasibility of R&D collaboration as a mode of funding’.

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The invention of this business model was critical for the emergence of
the biotechnology market—a market in which promises of future drugs are
being bought and sold. It enabled the transformation of scientific or techno-
logical entities—such as recombinant DNA in the case of Genentech, a new
molecule, or knowledge about a biological mechanism of action—into eco-
nomically valuable assets that have the capacity to generate streams of future
cash flows. The profile of this stream is quite different from the one that we
examined above: instead of the series of almost continuous but very small
amounts of money generated by the pay per click model, only a few inflows,
but of a high magnitude, occur here. Typically, a start-up would raise several
rounds of venture capital investment; then, when establishing a partnership
with a pharmaceutical company, receive research funding and milestone pay-
ments on different stages of drug development, as well as royalties if a drug
reaches the market; finally, sell itself to the capital markets or to a larger com-
pany, with the money going back to the start-up’s founders and investors.
For example, Genentech was sold to Roche in 2009 for 43 billion dollars.
This, of course, is quite an exceptional case in the history of the biotechnol-
ogy market. Still, the amounts of money that flow between start-ups, inves-
tors, and pharmaceutical companies are often counted in millions of dollars.
A significant portion of these flows end up sinking, as the probabilities that a
development succeeds and a new drug reaches the market are very small, and
the chances that a start-up continues attracting the funding it needs until it
finds a buyer for its products or for itself are not high.
While Genentech’s business model was copied by many start-ups enter-
ing the biotechnology market that emerged from it, the development of the
industry gave rise to new business models (Mangematin et al. 2003 ; DiVito
2012). Nevertheless, this model left an enduring imprint, serving not only as
a template, but also as a foundational myth for the biotechnology commu-
nity whose members still regularly evoke that 1976 meeting between a Nobel
prize-winning scientist and a visionary venture capitalist (Pina Stranger
2011). It epitomizes the surprising capacity of business models to orchestrate
encounters and, in so doing, to transform a priori non-economic entities
(such as a genetic engineering technology) into assets that generate streams
of future revenues, that is, into capital.

Business Models and the Crafts of Capitalization

The business model is a device that performs a singular mode of valuation

through which a variety of things—keywords, online behaviour, a genetic
engineering technology—are transformed into ‘assets’ that have the power
to generate streams of future revenues. Valuation revolves around this

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asset-becoming process:  a process through which something becomes an

object of investment and, therefore, an object that is considered primarily
from the angle of capitalization, that is, as a vehicle for return on invest-
ment. In other words, the business model makes things valuable by capital-
izing them. The device carries its own theory of valuation, so to say. And this
embedded theory is that value does not come from just considering things
as objects you can buy and sell in a market. It comes from considering the
thing from the viewpoint of its ‘earning power’ (Muniesa 2011, 2014, 104 ;
Doganova 2014), that is, in its capacity to ensure a stable stream of future
revenues to the investor. It is in this very particular sense, we claim, that the
object of a business model becomes business.
The cases of Google and Genentech stand as authoritative exemplars of the
powers of business models to create new markets, new business opportuni-
ties, and new economic realities. They also illustrate two critical traits of the
configuration a capitalization device sets in motion. Which are those? We
refer, first, to the orchestration of a scene in which an entrepreneur and an
investor encounter and stimulate each other and, second, to the resolution
of this encounter through the actualization of a future revenue in the form
of discounted value.
Let us focus on the first trait: that of the role of the business model in pro-
pelling an encounter between an entrepreneurial venture and a capitalistic
investment. The business model stands, primarily, as a proposition involving
two dramatis personae: the entrepreneur, who delivers the ‘value’ proposition,
and the investor, who receives and assesses it. It does not matter if those two
anthropomorphic actors correspond in reality to employees in bureaucratic
organizations (e.g. a firm, a bank). What counts is their impersonation in an
actual physical encounter between two characters: two persons, or rather per-
sonalities, that in the case of Genentech, for example, achieve an almost leg-
endary status. The choreography of the historical meeting between Boyer and
Swanson has been told and remembered again and again. A quick net search
for images of the encounter provides astonishing evidence of the iconic,
near-mythical character of this event.4 And this is not a detail of folklore. The
actual event of the encounter is a crucial step in the valuation configuration.
The business model is rehearsed and presented. It is a demonstration of value,
an exercising of the valuating self in which the entrepreneur and the inves-
tor need to simulate each other in order to stimulate each other (Muniesa
2011, 28), the purpose being the attainment of a mutually beneficial state of
capitalization.
We talk about ‘orchestration’ and ‘choreography’ because the configura-
tion of these types of business model encounters does actually require the
establishment of a whole industry of business matching, pairing, and partner-
ing (Doganova 2012). In the biotech industry, consultant firms and dedicated

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service providers specialize in the construction, maintenance, and commer-

cialization of databases that operate as the informational ferment for the pair-
ing of start-ups and venture capitalists. Other firms provide this industry with
a suite of ‘partnering conferences’ that have become requisite hubs for the
achievement of capitalization encounters.
Once this encounter has been set up and figured, there enters the sec-
ond noteworthy trait of the business model considered as a capitalization
device: that of shifting valuation from present products to future relation-
ships. ‘Future’ is indeed the word that most evidently resonates in the propo-
sition that the entrepreneur addresses to the investor, and in what the latter
asks to hear. The investor, the motto goes, does not look at what the start-up
is and has got in the present, but at what it can become in the future. The
business model rarely goes very deep into the nitty-gritty of the underlying
technology; making sense of the business model is less about assessing the
technical verisimilitude of a technology than about envisioning the concat-
enation of prospective business links. In this respect, the operation instru-
mented by the business model consists in detaching value from objects in
the present and attaching it to connections in the future. This observation
resonates with McGrath’s (2010) analysis of business model thinking as a
shift away from classic strategy paradigms, which place value in organiza-
tions’ present positions or resources—as in Porter’s five-forces model or in the
resource-based view of the firm.
It is not surprising that business models gained prominence with the ‘inter-
net revolution’, as a major concern then was to transform technologies that
were obviously valuable to their users (e.g. a search algorithm) into tech-
nologies that were also valuable to investors, for they could be capitalized
upon. Google ‘had value’ because words typed by users in search queries
could be thought of as ‘having value’—value for users, but also for Google
and for Google’s financiers. But, as this value becomes prospective, a number
of precautions apply in order to protect and reward the investor in time. As
a capitalization device, the business model is hence entwined with discount
methodologies in capital investment (Doganova 2011, 2014). The enormous
money flows that Google’s AdWords business narrative entailed were not a
reflection of the actual price of keywords in a spot market, but the very out-
come of this compound of capitalization.

Conclusion

It is emblematic that the study of business models in the management lit-

erature increasingly focuses on the issue of business model innovation
(Chesbrough 2010), and the invention of ‘social business models’ in particular

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Liliana Doganova and Fabian Muniesa

(Thompson and MacMillan 2010; Yunus et al. 2010). Envisaging the business
model as a device for capitalization—whose valuation principle consists in
transforming things into future flows of revenue, by detaching value from
present objects and attaching it to future relationships—helps us understand
why it developed first within the contexts of the biotech and internet busi-
ness ‘revolutions’, and how it managed to move beyond these particular set-
tings to incorporate other valuation themes, such as social entrepreneurship.
This capacity of business models to colonize not only the future, but also
spheres of activity which had hitherto remained out of the scope of capi-
talization reveals them as a particularly efficient instrument within the trend
of what Leyshon and Thrift (2007) have called the ‘capitalization of almost
everything’. Financial capitalism, they argue, ‘is dependent on the constant
searching out, or construction of, new asset streams’ (Leyshon and Thrift
2007, 98). Such kinds of analyses usually concentrate on the financial arena
proper, i.e. on processes of securitization, speculation, and financialization.
But, as instances of the wider problem of the logic of the investor, they meet
our observations on business models as performative instruments for the pro-
duction of ‘asset streams’. The realities explored here thus fall within the
scope of what Horacio Ortiz has aptly called ‘the limits of financial imagina-
tion’ (Ortiz 2011, 2014).
Should this be a source of concern? The performative capacities of business
models, and the key role they play in the financing of innovation, can of
course be praised for their contribution to the augmentation and improve-
ment of economic reality (and of society at large)—although one can rightly
ask whether this means the obliteration or not of other ways in which col-
lective decisions about the improvement of economic reality could or should
be taken (Ortiz 2014, 46). We do not explore this question further here. This
chapter is, first and foremost, an attempt at signalling the remarkable fea-
tures of the business model considered as an instrument for ‘making things
valuable’.
An instrument for ‘making things valuable’, the business model is also an
instrument for ‘making things’. Recall Bernard’s story evoked in the introduc-
tion of this chapter: the venture capitalist shaped the business model of the
start-up turning it from a software provider into a web search engine. The
enrolment of investors, conditioned upon the application of business models
that have the capacity to generate steady streams of future revenues, thus
has consequences for the characteristics of the products and services that
populate markets. Entrepreneurs profile their technologies for capitalization,
in anticipation, or as a consequence, of the investor’s gaze. Venture capital-
ists, faced with a range of investment proposals from which they need to pick
one or two, select the technologies that they will help move to the market.
This is both complicated and consequential. It is complicated, but it becomes

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simpler when technologies become comparable once they have been pushed
through the mechanism of the business model and transformed into streams
of cash flows which can then be capitalized and summed up to a unique
number: e.g. the investment’s net present value or its rate of return. This (and
here comes the consequentiality) inevitably gives priority to projects that
score highest. As capitalization devices, thus, business models certainly pro-
pel innovation—although they do not do it in a very innovative way.

Notes

1. The work on which this chapter is based was partly supported by the European
Research Council (ERC Starting Grant 263529). We thank Horacio Ortiz, Alvaro
Pina-Stranger, Martin Kornberger, Lise Justesen, Anders Koed-Madsen, and Jan
Mouritsen for comments and suggestions on an earlier draft. We also thank par-
ticipants in the workshop ‘Unpacking performativity processes in organizations’
in May 2014 at MINES ParisTech and in the symposium ‘Theories of performativ-
ity and the performativity of theories’ at the Academy of Management Meeting in
Philadelphia, where this chapter was presented.
2. The illustrations in the introduction are taken from Doganova (2012). The quotes
are excerpts from the author’s interviews with Robert and Bernard (for confidential-
ity reasons, these are fictitious names).
3. Steve Blank’s presentation at the 2009 edition of the Cleantech Open (an impor-
tant business fair) is available online from YouTube:  <http://www.youtube.com/
watch?v=CSDXxkSLBzw>, accessed 20 June 2014.
4. An iconic reportage is available from the website of the Life Science Foundation:
<http://www.lifesciencesfoundation.org/events-Genentech_Inc.html>, accessed 20
June 2014.

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