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Business Ecosystems [Design
Posted on January 14, 2015 @ 09:37:00 AM by Paul Meagher

This will be the third blog in my series on Ecological Business Design. In my first blog, Ecological Business Design, I introduced the idea and it's possible benefits. In my second blog, Find Your Niche, I tried to demonstrate that the ecological concept of a "Niche" might be useful for thinking about how to design a business. The ecological concept of a niche is more evolved than the business use of that term and provides a cluster of useful concepts for thinking about the market for your business and how to manage it over time.

In today's blog I want to explore another central concept in ecology called tropism, which is also related to the concept of a food web, which in turn is central to defining what an ecosystem consists of. Many business writers and academics like to talk about the startup ecosystem, an innovation ecosystem, or simply a business ecosystem. It is quite sexy and accepted to do so. The problem I have with many of these articles and papers is that concepts from ecology actually play very little role in their theoretical approach so the authors should have simply used the term "system" instead of "ecosystem" (or no reference to "system" at all). One recent example, is White Paper: Announcing 5 Ingredients For Fostering A Thriving Startup Ecosystem. In this paper the author argues for the importance of 5 ingredients for creating an environment for startup success: talent, density, culture, capital, and regulatory environment. I have no issues with any of these suggested ingredients or their importance, however, I fail to see the motivation for using the term "ecosystem" to characterize this list of ingredients.

What more do we need in order to legitimately use the phrase business ecosystem (or startup ecosystem or innovation ecosystem)?

In my opinion you need to incorporate the concepts of tropism and food chains into your discussion. An ecosystem is not just a juxtaposition of elements (or ingredients) existing within an environment. Those elements have specific types of energetic relationships to each other. These energetic relationships are often hierarchical and are referred to as the tropic levels of the ecosystem. At the base level there are "producers" such as plants which provide the foundation for all the tropic levels of the system. The next tropic level is a "consumer" of these plants, namely, a herbivore of some sort. That herbivore in turn may be consumed by an omnivore or carnivore called a "secondary consumer" which in turn may be consumed by another carnivore higher up in the food chain. Each level in the food chain involves a loss of energy as only a fraction of the biomass from the level below it is converted into the biomass of a consumer occupying the next level up in the food chain. The hierarchy is not strict because an omnivore, for example, can feed both from the base level of the food chain (the producer level) and some level of consumer organism below it. Because the hierarchy is not strict we might be inclined to call it a food web rather than a food chain. Nevertheless, there is still some notion of tropic levels in a food web as we can analyze each organism in terms of what it eats and what eats it.

The top level species in the food chain is called the apex predator, however, we need to be careful here because ecosystems do not tend to have neat linear orderings like the levels of a hierarchy in a government organization. Ecosystems are more likely to have a circular or cyclic arrangement and the way ecosystems do this is by having another type of component in them called "decomposers". So the apex predator dies, or is killed by some unfortunate accident, and is in turn eaten by a host of micro-organisms from bacteria, to larvae, to beetles. Although we can talk about some organism as being the top of the food chain, that organism eventually gets recycled into the food web through the action of decomposers who might be viewed as occupying the top of the food chain if they weren't so tiny. The notion of their being a "top" of the food chain can be problematic depending on how you view the role of "decomposers".

To summarize so far, my claim is that if you want to use the term "ecosystem" as a metaphor to think about how your business might fit within the larger business environment, then you need to think about where you fit within a chain of producers, consumers, and decomposers. Furthermore, you should consider what level you are at with respect to the base level of the system (the producers) and what that might entail in terms of how much energy/profit you can extract out of the system. There are usually not more than 5 tropic levels in a food chain as there is progressively less energy available at each higher level. The quality of the energy at higher levels in the food chain is more concentrated so supplies more energy per unit consumed, however, there are fewer units at higher levels. To use the term "ecosystem" to characterize the landscape of a business entails, in my opinion, identification of analogues for producers, consumers, and decomposers in the system and the tropic levels each of these entities occupies in the system. It might also involve thinking in terms of circular arrangements rather than just linear arrangements of these entities. Most business writers don't go this far when they use the term "ecosystem" which makes me wonder whether they are justified in using the term as these types of relationships are foundational when thinking about what an ecosystem consists of. The species (or biotic) elements of an ecosystem are not simply juxtaposed next to each other but have specific energetic (or tropic) relationships to each other.

In 1942, the theoretical ecologist Raymond Lindeman died before his last and most influential paper was published (he died tragically young at 27) called The Tropic-Dynamic Aspect of Ecology. It had a huge impact on ecology and highlighted the importance of using energetic relationships, or tropic levels, to organize thinking about what an ecosystem consists of. One of the reasons the paper is still worth reading is because it contains a very interesting and useful diagram that summarized his understanding of what a lake ecosystem consists off. It illustrates all the ideas that are discussed in this blog - producers, consumers, decomposers, circular (or cycling) arrangements, and tropic levels. The tropic levels in this diagram are indicated by the upside down "v" beside the different levels which denotes the efficiency of the energy conversion at each level (how much of the consumed food is converted to biomass). Depictions of food webs in today's textbooks are somewhat dumbed down compared to Lindeman's own representation of what a food web in a lake ecosystem consists off. Lindeman's own diagram was an evolution from other diagrams he referenced in his thesis (each one trying to capture what an ecosystem consisted of).

In conclusion, ecological business design involves analyzing the big picture of where your business will fit within the context of other businesses and the environment. There are many ways to formulate the "big picture" but if you want to do it using ecological concepts and ideas, then that arguably involves thinking in terms of consumers, producers, decomposers, tropic levels, and cycling arrangements. Lindeman's diagram of a lake ecosystem is suggestive of the type of understanding you might want to strive for when thinking about how your business fits into the big picture, the business ecosystem. I'm not claiming that this is easy to do, but I am suggesting that if want to use the term ecosystem to characterize your business environment it should include some of these ideas otherwise there is not much benefit in using the term ecosystem to describe it. This exercise in defining your business ecosystem is not guaranteed to make your business more money, but it might produce some useful insights because it offers a technique for thinking about the bigger picture of your business in a different and unique way, a way that is grounded in and guided by ecological theory, ideas, and observations.

Note: An entity called "Ooze" appears in the center of Lindeman's diagram. Ooze actually has a scientific meaning and there are several different types of ooze. Lindeman wasn't being mystical here although the central role of ooze in lake ecosystems seems somewhat counterintuitive. Ooze might be similiar to soil in land-based ecosystems.

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