Abstract A central question in strategic management is: what explains the difference in performance among firms? The traditional debate is whether firm or industry effects are the dominant explanation. Yet, among practitioners, a very different explanation, in the form of"business model, is commonly offered for why some firms do better than others. We provide a fundamental, reliable, and practical typological definition of business model, and use this to classify the segments of all U. S firms in COMPUSTAT/CRSP. We find that business model effects explain performance heterogeneity more than even industry effects do Running head Do Business models matter? Keywords business models, performance, strategic management, components of variance, analysis of varianceii Abstract A central question in strategic management is: what explains the difference in performance among firms? The traditional debate is whether firm or industry effects are the dominant explanation. Yet, among practitioners, a very different explanation, in the form of “business model,” is commonly offered for why some firms do better than others. We provide a fundamental, reliable, and practical typological definition of business model, and use this to classify the segments of all U.S. firms in COMPUSTAT/CRSP. We find that business model effects explain performance heterogeneity more than even industry effects do. Running head Do Business Models Matter? Keywords business models, performance, strategic management, components of variance, analysis of variance