8 Successful Give-Back Models for Social Enterprises

Let’s look at eight successful give-back models for social enterprises and see how different companies use the power of profit + purpose to make the world a better place.

It’s easy to look at the most recognized social enterprises like Toms Shoes or Warby Parker and think that the buy-one-give-one model is the way to go. But that’s not always the case. There are many strategies that social entrepreneurs are employing to address the issues that they care about when the 1:1 approach doesn’t apply.

1. Buy-One-Give-One

This type of social enterprise can be found in many different variations, but the idea is essentially the same: a consumer buys a product, such as shoes, and the business gives the same item to underserved or disadvantaged people.

This tried-and-true strategy works well when addressing a need that can be solved by a specific item such as shoes, glasses, gloves and scarves, etc. It breaks down when an organization expands beyond that mission or addresses a more complex problem that can’t be solved by at 1:1 purchase, such as homelessness. Smile Squared uses a one-for-one model to bring healthy smiles to children in every corner of the globe through the purchase of toothbrushes. Recently, they added travel journals and pouches that help fund wish trips granted to children facing life-threatening medical conditions.

You can see that the 1:1 model breaks down when the goal is to help kids travel. To solve this problem, Smile Squared devised an effective strategy for adding new products that supported their new efforts.

Always give people an alternate way to support your cause. Twice as Warm offers other items, such as a mug, t-shirts, and a tote bag. Some social enterprises are set up to accept donations as well.

Look closely at your goals to be sure that the 1:1 strategy is the best approach to solving the issue you’re addressing now and any you hope to tackle in the future.

2. Buy Some and We’ll Donate Some Money

With this type of social enterprise, consumers purchase products and some or all of the profits are donated to the cause(s) they support.

The One World Play Project makes unpoppable One World Futbols that never go flat or need a pump. When you buy a One World Futbol, they donate 5% of the purchase price to organizations that help to bring play to youth in disadvantaged communities. Because the company realized that not everyone needs a soccer ball, one of the pricing options is, “Don’t need a ball for yourself? Just Give!” Your donation provides balls directly to the organizations that partner with One World Play Project. This is a good way to expand beyond the one-for-one approach. Newman’s Own gives 100% of their profits to charity. In their 35 years of giving, they’ve donated over $500 million to charities in four areas of focus.The give from your profits strategy has significant upsides. It allows for giving on multiple fronts, much like a foundation. You can make and sell almost any combination of products and services.The biggest downside we see is alienating the causes you don’t support and the time it takes to respond to organizations that don’t fall within your focus.

3. Social Value Enterprises

This is a fine-tuned version of the buy-some-give-some type of social enterprise where the giving creates social value and actively encourages more of the same.

FruitCraft Fermentery & Distillery is an employee-owned business that puts maximizing social value above maximizing profits. Started by two brothers, one component of their social mission is that the business is democratically run by the employees for the benefit of society.They also award startup grants to entrepreneurs who adopt FruitCraft’s pay-it-forward model. We’ve seen a lot of nonprofits use a grant model to encourage entrepreneurship and social change, but this is the first social enterprise we’ve encountered that wants to spawn more social enterprises. This is a good strategy for a company with a social mission to help other organizations do good. In some ways, it can be thought of as the social enterprise version of a foundation. You raise funds, and then use those funds to support other projects that align with your goals and values.

4. Advocacy-Based

These types of organizations advocate for causes directly related to what they sell.

Patagonia is known for both their high-quality outdoor wear and for their environmental activism. Culminating in their Patagonia Action Works program, they support grassroots activists working to find solutions to environmental issues. Founder Yvon Choinard says in their introductory video that, “Patagonia’s reason for existence is to force government and corporations to take action in solving our environmental problems.”

A thriving business, Patagonia has given nearly $90M in support of activism and advocacy. In addition, their products are manufactured to minimize their environmental impact. This dual-pronged approach places them in a leadership role among Advocacy-based businesses. It’s easy to look at Patagonia and think that they are only able to make an impact due to their deep pockets. Keep in mind, however, that Yvon started out selling handmade pitons to fellow climbers out of the back of his car. As the business grew and his awareness of climbing's environmental impact increased, he began placing advocacy at the heart of the company. Today product sales support their robust advocacy work.

Key Takeaways for Social Enterprises From TOMS’ Latest Move

TOMS were one of the first leaders of the Give Back Model movement; learn from their latest pivot.

5. Social Benefit Through Economic Support

This type of social enterprise provides opportunities for disadvantaged people or communities to use their own hard work to improve their economic situation.

Thrive Farmers “ensures stable and predictable wages for our farmer partners. Through our innovative revenue-sharing platform, farmers have a direct market to their customers and are freed from the effects of a volatile commodities market, creating better financial futures for their families and communities.”

You can achieve a lot by helping people help themselves. By providing assistance in taking products to market or gaining access to previously unknown or unattainable markets, your efforts can create opportunities for people to succeed on their own merits.

Access to markets may only be one challenge faced by the people you’re trying to help. Be sure you have a holistic view of their challenges before you focus entirely on a sales and marketing solution.

6. Social Employment

These social enterprises focus on helping struggling people find employment.

Cornbread Hustle is a staffing agency that advocates for second chances and recovery. They teach entrepreneurial skills to help people become better employees, find meaningful employment, or start a business. It also serves as a resource for socially conscious employers looking for skilled workers.

Their model is designed to improve society by opening doors and creating opportunities for employees that have experienced traumatizing hardships. This approach is an evolution of workforce development—a well established program for many nonprofits. Keep in mind, however, you’re essentially setting up a staffing agency with a twist. You have to be able to effectively run the primary business in order to add the additional challenge of assisting the underserved people you intend to help.

If you have these skills and the network (or are willing to build one) then this type of social enterprise might be just what you’re looking for.

7. Awareness Brands

The goal of an Awareness Brand is to promote social change by informing people about the cause they address.

Beautiful in Every Shade is an empowerment movement with the goal of transforming the way everyday people from around the world look at themselves and others. They sell graphic t-shirts that financially support their cause and convey their message.

It’s a simple strategy to empower those who wear the shirts and engage others in the movement. Graphic T’s, posters, stickers, etc. are all good ways to present a message and fund the efforts to achieve their goals.

Just keep in mind, if the products or services you’re selling are misaligned with your awareness campaign, this might turn people off. Imagine the results if it's discovered that an organization fighting for fair employment is selling tote bags made using child labor. Be sure to always think through the full social and environmental impact of what you sell.

8. Multi-Purpose Mission

This type of social enterprise is formed to address more than one cause at a time. Most often, the causes are related to each other, such as sanitation and the environment.

Australia-based Who Gives A Crap , built two social missions into their business. As toilet paper manufacturers, they make their products from 100% recycled paper and boldly claim that, “All of our products are made without trees.” They were inspired to start a social enterprise when they learned that 2.3 billion people across the world don't have access to a toilet. To address this unhealthy sanitation issue, they donate 50% of their profits to help build toilets and improve sanitation in the developing world. Similar to Patagonia and Beautiful in Every Shade , their product sales align with their social mission, but they address it differently.

Their approach has several benefits. First of all, everyone needs toilet paper on an ongoing basis. Unlike a single purchase of apparel that produces a one-time impact, their subscription model ensures recurring sales. Secondly, buying toilet paper from a company that improves sanitation conditions around the world is a clear market differentiator that will lead social consumers to choose their brand. We should know—we’re one of their customers.

This two-pronged approach is powerful. However, it’s a rare and difficult combination to implement effectively. If you consider building a company around this idea, make sure that there’s clear synergy between the different elements and that you’re able to execute both missions successfully. If not, your company may feel unfocused or schizophrenic.

New Frontiers

As social entrepreneurship grows, so too do the strategies that founders are applying to achieve their goals. If you’re deciding to create a social enterprise, be sure that the type of social enterprise model you choose makes sense for what you want to achieve, is scalable, is economically sustainable, and resonates with your customers as well as your cause.

If you’re a social entrepreneur and don’t see anything on our list that conforms to what you want to do, invent something new. The social enterprise market is open to innovative approaches.

Are you a social enterprise that doesn’t fit the mold? Contact us , we’d love to hear about your strategy.

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How to build a business that gives back

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Many people start a business for more than just the profit. Alongside the freedom and creativity that comes with being an entrepreneur, running your own venture gives you the opportunity to build a business that gives back to good causes.

You may have a cause close to your heart, a charity you want to support or a desire to help your community.

There are countless examples of businesses that give back – from Gandys , founded by two orphans who are on a mission to build children’s homes around the world, to Patagonia who give 1% of their annual sales revenue to environmental causes.

Why should your business give back?

Being a business that gives back can have big benefits.

In recent years, more people have become aware of the social and environmental impact of businesses and their products.

Customers now have more resources at their fingertips to help them shop in line with their values.

Consumers are trying to be responsible citizens of the world and they expect the same from the businesses they buy from.

According to Forbes , more than 88% of consumers think companies should try to achieve their business goals while improving society and the environment.

83% of consumers also think that companies should support charities and nonprofits with financial donations.

In fact, the average American consumer will drive nearly 11 minutes out of their way to buy a cause-marketing product!

And when choosing between two brands of equal quality and price, 90% of US shoppers are likely to switch to a cause branded product.

Building a business that gives back can help you attract more customers by connecting with them over a shared cause.

Although making a positive impact won’t market your business for you , it could help you become more profitable and unlock more business growth.

Global giant Unilever has 26 sustainable living brands under their umbrella, and those brands grew 46% faster than the rest of the business, delivering 70% of overall turnover growth in 2017 .

Around the world, brands are giving back in a variety of ways and seeing the benefits of embedding philanthropy, corporate social responsibility and cause marketing.

Many small business owners and aspiring social entrepreneurs assume they have to be making a massive profit before they’re ready to embed giving back into their business – but that’s not necessarily the case.

Here are several ways you can build a business that gives back from the beginning:

Donate a percentage of your sales revenue

When you’re planning to bring a product or service to the market, you need to know your finances.

Your sales revenue is the income that covers your business running expenses. What’s left is your profit, and it’s usually calculated at the end of the year.

When you’re calculating your prices you need to take into account the cost to make the product or deliver the service, and the overheads involved in running your business – as well as how much you’re going to pay yourself, your staff and contractors, and how much profit you want to make.

When you know your margins, you can donate a percentage of your sales revenue to good causes, or a set amount for each product sold.

This means you don’t have to wait until the end of the year to calculate your profit, and you can make donations more regularly.

To keep things simple, you might opt to give back once a month based on the amount of revenue you’ve generated, or every time you make a sale.

If you partner with more than one charity, you could even give customers the option to choose their cause.

I recently purchased insurance from Evergreen Insurance , a broker who donates up to 25%  percentage of their income from each policy to animal, wildlife and environmental charities.

Operate a Buy One Give One model

The Buy One Give One model was first made famous by brands like TOMS Shoes, who give a pair of shoes to a child in need for every pair they sell.

Buy One Give One can work really well for product based businesses. The simplicity of the impact story naturally fuels conversations, making this a perfect model for harnessing word of mouth marketing.

Several finalists in the 2019 Be The Change Awards operate a Buy One Give One model for their impact.

Pala Eyewear make sustainable sunglasses and give back to eye-care programmes in Africa by providing grants to vision centres for every pair sold.

By calculating a ‘cost per patient’, Pala are able to equate buying a pair of sunglasses to giving a pair of spectacles to a person who needs them.

YOU Underwear actually operate a Buy One Give Two model for their organic, ethically made underwear – two pairs are donated to girls in need for every pair sold.

Buy One Give One also seems to be one of the most popular models of impact according to consumers.

64% of shoppers say simply giving money away isn’t enough – they want businesses to integrate social impact directly into their business models – such as Buy One Give One campaigns.

However, if you’re considering implementing a Buy One Give One model there are some considerations to take into account.

In their early days, TOMS were criticised for failing the community they were trying to serve.

International development experts say that charitable gifts often undermine local businesses in the regions they are trying to help – creating a culture of dependency on donations, failing to address the root causes of poverty and reducing demand for local products, which damages trade.

TOMS founder Blake Mycoskie has admitted that his critics were right, and has since tried to support activities that better alleviate poverty, such as shoe manufacturing operations staffed by locals.

Choosing the right charity partner is key to the success of any give back model, and particularly important when it comes to implementing a Buy One Give One system in your business.

At Ethical Hour, we chose to partner with B1G1 . As a business, their model is straightforward and easy to implement – you can create “giving stories” for each transaction in your business, make your impact easily online and track your impact in real time against the Sustainable Development Goals.

In terms of the charities they partner with, they have a screening process to make sure there is transparency about how the impact projects are run.

Businesses pay an annual membership fee and B1G1 cover the transaction costs, so you know that every penny you donate goes to the cause you’ve chosen – not on admin fees, salaries and overheads.

Choosing a transparent organisation and understanding exactly where your donation goes is essential if you genuinely want to make an impact and communicate this openly and honestly to your customers and stakeholders.

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Commit a percentage of profits and operate with “profit first”

Profit isn’t a dirty word in the ethical business space, but many impact entrepreneurs feel a sense of guilt or shame at the idea of profiting from their cause – especially in the beginning.

Donating a percentage of your profits can help you overcome difficult money mindset barriers, and motivate you to make your business as profitable as possible. More profit means more positive impact!

Depending on your country of operations, there are legal structures that dictate how much profit to donate. In the UK not for profit companies must reinvest 100% of their profits into their cause.

Organisations like 1% for the Planet are another way to formalise your commitment to your impact.

Becoming a certified Social Enterprise might also involve committing to donating a certain percentage of profits.

However, even if you’re not ready to enter a formal arrangement, you can still decide on how much to donate at the end of the year when your accountant calculates your annual profit.

Accessories brand Elvis & Kresse re-distributes up to 50% of their profits to projects and charities related to the unique materials they reclaim.

Alternatively, if you don’t want to wait until the end of the year to donate, you can follow Mike Michalowicz’s “Profit First” plan.*

He recommends implementing a simple accounting system where you set up a separate bank account for profit, and commit to moving a percentage of all sales income into that account before you pay your expenses and overheads. That way, your business can start being profitable from day one!

You’ll also have a clear overview of how much you’re putting away to give back and can make donations more regularly if you want to.

Give time instead of money

If your margins are tight or you’re not ready to commit to a financial model of giving back yet, you could donate time instead of money.

This works particularly well for service based businesses where you can lend your expertise to a charity, not for profit or community organisation who could benefit.

I give around one day a month to a local children’s charity in my role as trustee, supporting them with marketing and business advice.

If you charge an hourly or day rate, you can allocate a financial value to the time you give and include this in your impact report as a way of demonstrating how your business gives back.

Embed social value in your supply chain

When you’re trying to build a business that gives back, you put a lot of thought into where your money goes.

Choosing your suppliers is another opportunity to vote with your wallet. By purchasing from ethical businesses, social enterprises and other businesses committing to giving back, you can maximise the positive impact of money you’re spending anyway.

As an ethical business, you have a unique opportunity to influence and improve communities by giving back.

Philanthropy can have big benefits for your brand, and if you embed giving back into your business you have a powerful opportunity to create a significant impact in the world.

*Please note, this is an affiliate link, which means I get a small percentage of the sales revenue if you make a purchase. It doesn’t cost you anything extra, and I only recommend products, services and resources that I’ve used personally and have seen good results from .

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How to Design a Winning Business Model

  • Ramon Casadesus-Masanell
  • Joan E. Ricart

Smart companies’ business models generate cycles that, over time, make them operate more effectively.

Reprint: R1101G

Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors’ studies show, is enterprises’ unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, companies routinely deploy doomed business models.

Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage.

Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors’ strengths into weaknesses.

The Idea in Brief

There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones, according to a recent survey.

However, most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.

Moreover, companies often don’t realize that business models can be designed so that they generate virtuous cycles—similar to the powerful effects high-tech firms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.

By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and even use the cycles to turn competitors into complementary players.

This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, companies fare poorly partly because they don’t recognize the differences between strategy, tactics, and business models.

Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.

design a business model that gives back

  • RC Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of “How to Design a Winning Business Model” (HBR January–February 2011).
  • JR Joan E. Ricart ( [email protected] ) is the Carl Schroder Professor of Strategic Management and Economics at IESE Business School in Barcelona.

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Team Flower Blog

Nov 28 Creating a Business Model that Gives Back

design a business model that gives back

Flowers have the power to beautify our living spaces and make us feel good, but what if they could also make the world a better place? There are plenty of ways for floral businesses to give back: donations, volunteering, raising awareness, or sponsorships. Thankfully, these initiatives don’t have to be expensive, time-consuming, or complicated, and it’s never too late to start!

Whether you’re a wedding and event florist passionate about animals, a local flower shop owner committed to supporting neighbors in need, or a flower farmer dedicated to environmental issues, this article seeks to provide you with a helpful starting point and hopefully some inspiration, too.

In addition to helping your community flourish, corporate giving can be a business-savvy decision, too. A recent Harvard Business School study found that most buyers prefer to purchase from brands and companies that give back, especially when they understand the impact it has (more on that in a minute). But while business donations can boost public perception of your company and foster brand loyalty and engagement among customers, giving back should never be viewed as merely a marketing tactic. Instead, it’s important to give thoughtfully and authentically to causes that you’re passionate about. When charitable giving aligns with a company’s overall mission, it makes the world a better place, inspires others, and, ultimately, turns profit into purpose.

Finding a Non-Profit Organization

You may already know about a few great local charities, or perhaps you regularly donate to a couple of national organizations. If not, no problem! There are a lot of great and deserving organizations that would benefit from your support. Be sure to get educated about local non-profits (a simple online search will get you started) and research non-profits dedicated to any causes you’re passionate about. GuideStar and Great Non-Profits are two organizations that can provide you with more information and lists of charities.

When considering a charity, it’s also wise to ask what percentage of donations goes to administrative expenses and fundraising. The best organizations work to keep overhead low so that the vast majority (ideally 80% or more) of all donations go directly to the mission.

design a business model that gives back

Types of Donations

There are a few different models for donating directly from your business. Here are some of the most popular:

Donate a Percentage of All Profits

One popular and seemingly simple model is to donate a portion of all profits to charity. Some businesses choose to leave the exact percentage vague and state something to the effect of “a portion of all profits donated to Boys and Girls Club,” whereas others publicize a more specific amount, such as “20% of all profits donated to Doctors Without Borders.”

However, a challenge with donating a portion of the profits is there isn’t much transparency or clarity to the consumer. While any corporate giving structure is admirable, this model doesn’t convey the impact of a purchase to the consumer; a buyer simply isn’t aware of the profit margin. This model can also be more complicated from an accounting perspective.

Donate a Percentage of Sales

Giving a percentage of total sales, by contrast, provides far more clarity to the consumer about the impact of their purchase. If, for example, a florist donates 10% of all sales to ABC non-profit, a buyer understands that the charity will receive $6 from their $60 floral arrangement. Buyers appreciate this transparency, and business owners can go the extra mile by working with the non-profit organization to understand the impact of the total donations. For example, if a total of $840 is donated to a soup kitchen each month and the non-profit shares that the average meal costs them $1.20, the business can publicize that 700 people were fed through their donations.

The downside, of course, to donating a percentage of all sales is that it’s not a sustainable model for many businesses. This is especially true if profit margins are thin to begin with. Some companies opt to promote these types of donations for a specific event or for a short period of time.

design a business model that gives back

Donate A Set Dollar Amount Per Sale

This may be the easiest way to implement a monetary charitable donation, especially for specific products. As an example, farmer-florists can publicize that “$5 of every $30 mason jar arrangement is donated to St. Jude Children’s Hospital,” or a floral designer may wish to advertise that “$10 of every $80 workshop registration will go to Feeding America”. This model is both transparent to the consumer while providing business owners some control over which goods and services are (and are not) eligible.

In-Kind Donations

In-kind donations refer to any non-monetary donation to a non-profit, including goods, services, or time. In the floral world, this might include bringing flowers to a nearby senior center or hospital, donating arrangements to the local library’s fundraising dinner, or volunteering a bouquet-making workshop at a women’s shelter.

If you have a brick-and-mortar location, you may also wish to consider signing up as a collection site for organizations like Toys for Tots or a nearby shelter in need of gently used coats and winter gear.

One important thing to note with in-kind donations is that they’re not always tax-deductible. Be sure to consult your tax advisor and the non-profit organization’s director to learn more about your options.

design a business model that gives back

Volunteering

Giving time can be just as important and valuable as giving money, and there are plenty of ways to help. Plus, volunteering as a team with your employees can be a fun and fulfilling team-building experience. As a company, you can set a monthly goal for the number of total hours volunteered (for example, an average of 5 or 10 hours per employee each month) and reward staff with a local lunch when the goal is met. Be sure to wear your company shirts while volunteering and share your company’s goals on social media to create a buzz and inspire others to donate their time, too!

When it comes to volunteering, the options are endless. There are plenty of flower-related options, including setting up flowers on veterans' gravesites each Memorial Day, or you could choose something focused on the local community, like stocking the shelves at a nearby food pantry.

When it comes to volunteering, consider your skills, interests, and community needs. Whether you’re a pet-whisperer and love walking local shelter dogs, a social media pro (lots of small charities need help with this!), or bilingual and willing to translate for refugees in need of assistance, there are plenty of opportunities.

Volunteermatch.org  is a great place to start and find volunteer work nearby.

Sponsorships

Sponsoring community events, such as “First Fridays,” a charitable 5K run, or a town festival, can be a great way to promote your business while helping your community flourish! The price can vary considerably, but many local events offer tiered structures starting around $100-200. Depending on the nature of the event and sponsorship type, businesses may also be given the opportunity to set up a table or booth. This is a great way to showcase some of your work, pass out flyers or freebies, and advertise upcoming events or workshops. For example, event florists may wish to show off a beautiful centerpiece, flower farmers can share free sunflower seed packets with kids, and floral designers can pass out flyers with discounts for upcoming workshops. While the upfront cost of setting up an attractive booth can be costly (budget a couple hundred dollars each for a custom tablecloth and signage, plus decor), it’s well worth the investment.

Youth sports teams can provide another great way to give back locally for a relatively low fee. Many intramural teams offer sponsorships, often starting around $150-300, and often name the sponsor’s business on the back of each team member’s jersey. Many leagues also promote the businesses on their website and social media and include other perks that can lead to a great return on investment!

design a business model that gives back

Raising Awareness

Last but not least, there are plenty of ways to give back that don’t involve giving money, goods, or services. You can use your business’s platform to lift up deserving non-profit organizations by sharing them on social media or via e-newsletter. If you have a brick-and-mortar location, be sure to offer a “community board” where nearby charities can post their information. You can also set up a fundraiser at check-out or via social media in conjunction with a partnering charity.

Prior to making your first donation, there are a couple of important things to consider:

Connect and Work Together

Before making any corporate donation—especially a recurring one—it’s helpful to first talk to a member of their team. If it’s a smaller organization, the best point of contact may be the Executive Director. In contrast, mid-size or larger organizations may have a Director of Development or a similar role. This person can guide you in the best way to donate (e.g., through the website or via paper check) and answer any questions you may have. They may also provide you with information about your corporate donation being tax deductible, if applicable.

Additionally, if you plan to ever use their information (including their name and logo) in any of your marketing, it’s always best to have express permission to do so. Co-branding with their organization is a great way to reach potential new customers and share your company’s mission.

If your business is planning to donate a percentage of sales or profits, it may also be appropriate to share your monthly accounting statements in the interest of accountability and transparency. This way, the organization can independently verify that the advertised donation amount matches what they’re receiving. Some businesses may wish to have the receiver sign a non-disclosure agreement regarding the financial information being shared. When in doubt, it’s always best to consult your attorney or adviser.

Share the Impact

Don’t be shy about sharing the impact of your donations or volunteering—it may inspire others to give back, too! Sharing the impact of donations is especially important if you’re donating a percentage of all profits or sales. Buyers will appreciate the transparency and like to know how far their purchases went (for example, “donations from sunflower sales in August provided 14 school supply-filled backpacks for nearby children in need”) in a monthly e-newsletter or on social media.

We hope this information provided you with some insight, encouragement, and helpful information to give back to the community through your business. Those of us in the floral industry work hard to make the world more beautiful, and we have the power to make it a better one, too.

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design a business model that gives back

The 9-Step Business Model Canvas Explained (2023 Update)

design a business model that gives back

Written by Raquel Alberdi

Business | entrepreneurship, 16 comments(s).

Business Model Canvas

Blog » The 9-Step Business Model Canvas Explained (2023 Update)

design a business model that gives back

“A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business . And by “business” we simply mean how the company makes money by acquiring and serving its customers”.

-Reid Hoffman

After meeting with hundreds of entrepreneurs and business owners over the years I believe the LinkedIn co-founder and Blitzscaling author Reid Hoffman’s got it spot on.

People tend to focus on specific parts of their business, such as which software packages are being used, which is the cheapest supplier, how to optimize internal processes…?

They get so bogged down in the details of the day-to-day running that they lose the overall vision of their business.

Without this vision they are unable to scale, they make marginal profits, miss opportunities, struggle to innovate, and end up running “just another” business.

Another handy metaphor in understanding this common mistake is the soldier in the trenches .

Every meter of ground gained comes at a heavy cost, mistakes are made, and progress is hard-fought and slow…a day-to-day experience for 99% of entrepreneurs and businessmen.

But when you do have that 360 vision you see the entire battlefield. Decisions are much clearer, fewer mistakes are made, and progress is fast and methodical.

Fortunately, a business model framework exists that gives you both vision and clarity .

The Business Model Canvas provides entrepreneurs, business owners, and strategists with a tool to analyze, structure, and evolve a business while always keeping the bigger picture front of mind.

So let’s take a closer look at how it works.

Table of Content

What is the Business Model Canvas?

Created by Swiss entrepreneur and Strategyzer co-founder, Alexander Osterwalder, the Business Model Canvas is a visual representation of the 9 key building blocks that form the foundations of every successful business. It’s a blueprint to help entrepreneurs invent, design, and build models with a more systematic approach.

Why is it so popular within the business community?

Its simplicity. The business model canvas allows us to carry out a high-level analysis without drilling down and getting lost in the details. You just draw out the 9 building blocks on a blank canvas, fill them in as each concept relates to your business, and hang it somewhere everybody can see.

It’s a visual overview of your entire business on a single canvas.

While the Business Model Canvas is an extremely fluid concept and hyper-specific to individual companies, each canvas is still broken down into these 9 key building blocks:

Customer Segments

Value propositions, customer relationships, revenue streams, key resources, key activities, key partners.

When laid out on the canvas the model will look something like this:

 Scheme of business model in which 9 important fields are developed for its execution.

While you’ve probably come across each of the 9 building blocks before, the attractiveness of the Business Model Canvas is that it confines them to a single page , not a traditional 42-page document.

This makes it a lot easier to digest, as well as assess existing business models or map out new ideas.

How do I fill out the Business Model Canvas?

To start your Business Model Canvas you will need to breakdown and analyze each of the 9 building blocks.

A good way to approach this is to gather the heads from marketing, sales, operations, finance, and manufacturing (if product-based) and pencil-in a morning where you can all meet together.

Then, after drawing a mock canvas onto a whiteboard, proceed to dissect and discuss each of the 9 building blocks as they relate to your business. You can use sticky notes to better organize your thoughts around the canvas.

If you are an entrepreneur or new business owner working alone and don’t have a team to bounce your ideas off, not to worry. You can still carry out your analysis before sharing it with a like-minded entrepreneurial community or forum, like those found on ThePowerMBA , to get useful, insightful feedback.

Whichever way you decide to approach it, I recommend you complete each block in the following order:

  • Cost structure

For continuity, I’m going to use the fashion retail giant Zara when analyzing each of the 9 key building blocks.

If you’d like to skip to another case study similar to your own business, navigate to the table of contents at the top of the page and select one of the other business model canvas examples.

Customer segment business model canvas for Zara company

The first block of the Business Canvas Model is about understanding who is the most important customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And why would they buy your product or service?

Not a single company exists without its clients, making customer segments the best block to start with while drawing out your business model canvas.

A great exercise to define your customer segments is to brainstorm and create your company’s buyer persona (s) .

Buyer personas are fictional depictions of an ideal or hypothetical client. Typically when brainstorming a buyer persona you’d want to define certain characteristics (age, demographic, gender, income, industry, pain points, goals, etc.)

However, remember at this stage we want a snapshot of our customer segment. There’s no need to jump into great detail just yet.

In the case of Zara, there are three distinct customer segments to whom they offer different products.

The products created for each of these customer segments (clothing, shoes, and accessories) are not trans-consumable. That is to say, a woman’s dress is highly unlikely to be worn by a 7-year-old child.

Once we know exactly who it is we are targeting, it’s time to look at what we as a company have to offer.

Zara Customer Segments business model canvas template showing the development of the 9 fields

The second phase is about figuring out your company’s value propositions , and importantly, your UVP (unique value proposition). The “what” that makes customers turn to you, over your competitors? Which of their problems are you best at solving?

Each value proposition consists of a bundle of products or services that fulfill the needs of a buyer persona from your customer segment. It’s the intersection between what your company offers, and the reason or impulse customers have for purchasing.

Some popular questions to ask while determining your UVP are:

  • Which specific customer pain point are you trying to solve?
  • What job are you helping customers get done?
  • How does your UVP eliminate customer pain points?
  • What products or services do you provide that answer this specific pain point?

So let’s try and apply this to Zara. Why do people choose to purchase from them, over their competitors?

Zara’s principal value propositions are fairly clear. They offer various ranges of stylish men’s, women’s, and children’s clothing and accessories at an affordable price.

But there’s more to it than that.

If we dive a little deeper we see Zara’s value propositions are more complex, which are behind the success of the brand:

Fast fashion

Zara adds new clothes and designs to its collections every 2-3 weeks, both in its stores and online. It keeps the brand updated, fresh, and modern while maintaining its all-important medium price point

Great eCommerce experience

Once you enter Zara’s online store you’re presented with a clean, easy-to-navigate, and high-end feel. The customer segments are visible on the left navigation bar with a search tab to further aid customers with their online experience.

Zara's Canvas business model where you can see the innovative presentation of its image

Localized stores

You can find a store in nearly all major retail locations (shopping malls, retail outlets, airports, etc.) meaning accessibility is not an issue for the majority of consumers.

Flagship stores

Zara demonstrates its aesthetic evolution to customers through its flagship stores. The recent opening of their Hudson Yards , New York City flagship is a great example of this. Customers shop around its vivid, minimalist layout offering them an experience aligned with the brand’s deeper, eco-friendly values.

Zara's Canvas business model where you can see the innovative presentation of the image of its stores

Zara Hudson Yards, New York

Business Model Canvas Template Zara - Value Propositions

The next step is to ask yourself how you are reaching your customers, and through which channels ?

This includes both the channels that customers want to communicate with you as well as how they’ll receive your products or services.

Is it going to be a physical channel? (store, field sales representatives, etc.) Or is it a digital channel? (mobile, web, cloud, etc.).

Zara has 3 primary channels in which they communicate and deliver products to its customers:

  • Direct sales through their stores
  • Online (both app and website)
  • Social media

Customers can go to a traditional “bricks and mortar” store to browse, model, and purchase different items of clothing at one of their retail stores.

Alternatively, they can shop online or through their mobile application and have the product delivered straight to their door or nearest store. The choice is completely up to them!

So that covers Zara’s commercial channels, but what about how they communicate with customers?

While they do communicate through their mobile app, their predominant channel is social media.

What’s more, they’re really, really good at it.

For example, did you know that Zara invests less than 0.3% of its sales revenue into advertising?

This is only possible due to an A-rated social media presence . Customer queries are not only dealt with quickly, but recommended re-works are sent back to HQ, forwarded onto in-house designers who then apply the feedback to future collections.

This customer-first approach through fluid communication channels has saved them thousands of dollars in marketing, strengthened their brand, and created a loyal customer base.

You should only step away from this building block once you’ve decided how each of your customer segments want to be reached.

Zara Channels business model canvas template where its components are developed

Once you have acquired customers, you will need to think about how you can build , nurture, and grow those relationships.

Now, this can be automated and transactional like large eCommerce brands Amazon or Alibaba. Or, it could be at the complete opposite end of the scale and require a more personal relationship you’d typically have with a bank or your local bike shop.

Zara’s relationship with its customers is threefold, and lies somewhere in the middle of transactional and personal:

  • Salesperson at store
  • Brand through social media
  • Sentimental attachment to a product

Yes, you have the initial transactional touchpoint at the store or online, something relatively impersonal and for many the only interaction they’ll have with the brand.

However, customers (especially in the fashion industry) are encouraged to continue to interact with a brand through social media platforms.

As we mentioned before when discussing channels, Zara has a very effective communication system in place. Not only can people instantly get in touch with the brand, but also engage with new posts, images, and collections uploaded to social media.

This personal approach to customer relationship building can, in some cases, lead to the natural growth of brand ambassadors and communities .

An attachment can also develop between customers and particular garments or accessories from one of their collections. The sentimental attachment to these products also creates another potential form of brand loyalty.

The relations with Zara's clients to give a Business Model Canvas where the 9 points to be developed are seen

Now that you’ve described how you are going to create real value for your customers, it’s time to look at how you plan to capture that value.

What are your revenue streams? Is it going to be a transactional, direct sales strategy ? Are you going to consider a freemium mode l, where you give a portion of your product or service away for free with the idea of converting later on down the line?

If you’re a SaaS company such as SalesForce or Strava , then it’s likely that a licensing or subscription revenue model will be more appropriate.

At Zara, it’s extremely simple. They make their money by selling clothes and accessories either at a store or online.

Zara business model canvas template for the development of Revenue streams within the 9 points to work

As you can see, we’ve filled in the entire right-hand side of our business model canvas. We touched upon:

Customer segments

  • Value propositions
  • Revenue streams
  • Distribution channels

Now it’s time to move over to the left side of the business canvas model and look at what we need, internally , to deliver our value propositions.

Key resources of the Zara Business Model Canvas

To start with, let’s take a look at key resources.

The key resources are all things you need to have, or the assets required to create that value for customers.

This could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand).

Another key resource every company needs to consider is its human capital . Are you going to need highly specialized software engineers? Or field-based sales teams?

They are relatively capital-heavy resources that need to be factored into your business model.

In the case of Zara, they are going to need a number of key resources if they hope to deliver their propositions:

  • Stock management
  • A large, interconnected network of physical stores
  • A strong brand
  • Logistics and supply chain infrastructure

Stock is vital for both online and offline customers.

If they are unable to supply their range of products and meet customer demands, satisfaction levels fall and they have a serious problem on their hands.

A large distribution network of brick and mortar stores combined with a strong brand name help mitigate these factors, as well as reinforce any ongoing marketing activities and communication efforts.

Finally, an efficient logistics process within Zara is critical, especially when you consider the complexities involved with such a large-scale operation.

They will require the necessary technology to analyze data on inventory, storage, materials, production, and packaging, with the staff to execute each of these stages and manage the delivery of the final products.

Zara business model canvas template where the Key Resources are developed

The next step is to define the key activities – the areas you need to be good at to create value for your customers.

To mix it up a little let’s take a look at a slightly different business in Uber .

Their key activities can be broken down into:

  • Web and mobile app development
  • Driver recruitment
  • Marketing: customer acquisition
  • Customer service activities : drivers’ ratings, incidents, etc.

They need a fast, clean UX for their customers using the app, drivers to carry out their service, and the ability to both market the product and deal with any customer queries.

Zara’s key activities will differ to those of Uber. Some of the things they need to consider would be:

  • Manufacturing
  • Retail process (point of sale and 3rd party management)
  • Distribution channel / logistics

Design is a key activity as Zara’s value proposition is to provide stylish garments at an affordable price. Their collections need to be constantly updated to follow the latest fashion trends at the time.

To produce their collections Zara will also require manufacturing capabilities. Now Zara doesn’t own their own factories (we will get to that in the Key Partners section) but they still need to be involved in the garment manufacturing process.

Everything from fabric selection to pattern making, to detailing and dyeing affects the outcome of the final product which of course they have to then go on and sell.

The effective management of the retail and distribution channels (online, offline, shipping, and communication with providers) is also key. A breakdown in either of these activities, such as a poor relationship with an important provider will have serious consequences for the business.

Zara business model canvas template showing the key activities for its development

Most modern business models now require brands to build out and work with various key partners to fully leverage their business model.

This includes partnerships such as joint ventures and non-equity strategic alliances as well as typical relationships with buyers, suppliers, and producers.

A great example of a strategic partnership would be between ThePowerMBA and Forbes . In exchange for exposure of our brand to the magazine’s global audience, we provide expertise and content on high-level business education programs.

As we touched upon when discussing key activities , Zara requires strategic partnerships with many different providers if they are to design and produce their collections.

Another key partner is their major holding company, Inditex .

Inditex has several subsidiaries including Massimo Dutti , Pull & Bear , and Oysho . Being a subsidiary of Inditex means they share a consolidated balance sheet, stakeholders, management and control, and various legal responsibilities.

While as a subsidiary Zara is afforded certain freedoms when it comes to design, delivery, and the general running of the company, the overall strategy will need to be aligned with Inditex and its other subsidiaries.

Zara Key Partners business model canvas template where the eighth point is developed

The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to run this model?

This includes some of the more obvious needs such as manufacturing costs, physical space, rent, payroll, but also areas such as marketing activities.

If you are unsure of exactly what to include in your cost structure take a look at a Profit and Loss statement ( P&L ) from a competitor or company in a similar industry to yours. You’ll find many items overlap such as research and development ( R&D ), cost of goods sold, admin expenses, operating costs, etc.

Once that’s done you should prioritize your key activities and resources and find out if they are fixed or variable costs .

As Zara is such a large, corporate business they are going to have both fixed costs (rent, payroll, point of sales personnel) and variables, such as costs associated with the fluctuating sale of goods, purchase of materials and, manufacturing costs.

Once you’ve completed these 9 steps, your Business Canvas Model should look something like this:

Business Model Canvas Examples

Hopefully, you were able to get a good feel for the effectiveness of the business model canvas with our run-through of Zara.

However, if you found it difficult to follow due to the stark difference between your industries, I’m going to quickly go through 3 more companies to demonstrate the tool’s flexibility:

  • Netflix (Media service/production)
  • Vintae (Vineyard)

Even if these business model canvas examples don’t align exactly with your industry, I honestly believe that studying different models gives you a competitive advantage in your professional career regardless.

If you’re currently employed by a company, you’ll better understand how your specific role helps the company achieve some of its “long-term” goals.

Alternatively, if you are a business owner yourself (or perhaps thinking of starting your own business) you’ll have a better understanding of your business and where potential opportunities lay.

I’m sure you’re familiar with our next business model canvas example candidate, Netflix .

The global media company offers an online streaming service of various movies, documentaries, and TV programs produced in-house or licensed 3rd-party content. Their success sparked a revolution in the online media world with the likes of Amazon, Apple, Disney, HBO, and Hulu all rushing to launch their own online video streaming platforms.

Netflix started life as an online DVD rental company, basically a web version of the more popular (at least at that time) “bricks and mortar” Blockbuster.

Co-founder Reed Hastings predicted as far back as 1999 that the future of media was in online streaming, saying “postage rates were going to keep going up and the internet was going to get twice as fast at half the price every 18 months.”

It wouldn’t be until 2007 that Hasting’s prediction would become true when Netflix, as we now know it, was born.

So let’s take a current look at their business model canvas:

Netflix business model in which the 9 topics are taken into consideration

As you probably know, there are very few people out there who haven’t subscribed, watched, or at least heard of Netflix. There is content for everybody: wildlife documentaries, sci-fi movies, rom coms, action-thrillers, you name it – it’s there.

That’s why their customer segment can be classified as a “ mass market ” as the base is just so diverse.

All people require is a computer, TV, internet, and/or smartphone and they’re good to go. For most developed markets, that covers just about everybody.

Value Proposition

Whether on the train to work, sitting in the car (if you’re not driving!), or relaxing at home in front of the TV, you can consume their online, on-demand video streaming service.

They also have a huge library of content for consumers to choose from, ensuring that people keep coming back, as well as increasing their mass-market appeal.

They also produce high-quality, original content to differentiate themselves from their competitors.

Most people access Netflix either through their website or mobile/TV App . Another popular channel that you may have picked up on is their affiliate partners .

You’ve perhaps signed up for a mobile, TV, and internet package where the provider offers Netflix as an extra to sweeten the deal, so to speak.

That would be an example of an affiliate partnership between Netflix and mobile service providers.

I doubt many consumers have had direct contact with Netflix unless it’s to resolve a subscription issue or general query. It’s very much a self-automated service – you download the app, select the program you wish to watch, and hit play.

Very simple, very effective.

Again, this doesn’t need much embellishment. Netflix generates money from the different tiers and packages put together in their subscription services.

This varies depending on the region to account for local markets, but on the whole, it’s sold at a low price point.

Originally, Netflix’s Key Resources would have been their unrivaled DVD collection combined with a cost-effective mail-order system.

Nowadays it’s undoubtedly the rights to stream online video content. Netflix has brokered deals with some of the biggest production studios worldwide.

Combined with their huge library of in-house productions , it’s more than enough to encourage customers to renew their subscriptions.

To help sustain interest in their product, Netflix understands they need to serve-up relevant content for each sub-sector of their mass audience. Therefore their machine learning algorithm selects content for consumers based on streaming habits (what they watched, at what time, etc,.) to personalize the customer experience.

This explains why over 80% of all content streamed on Netflix was cherry-picked by this algorithm, making it a Key Resource for their business model.

Also, Netflix accounts for a whopping 12.6% of global bandwidth usage . The literal capacity to stream their services must be met meaning bandwidth must also be included here.

Content procurement is arguably their biggest Key Activity. They need to find people to produce and deliver their original content, including actors, studios, writers, etc. as well as secure the licensing and streaming rights from 3rd party producers such as Sony, Warner Bros, and Disney.

Finally, they need a fast, easy-to-use application to host their online streaming service. This needs to be available for both TV and mobile devices if they are to deliver their “on-demand” value proposition.

K ey Partners

Seeing as Netflix’s entire business model is largely based around streaming 3rd party content, key partnerships need to be built with production studios . No content, no Netflix!

Also, as we touched upon earlier Netflix is one of the largest consumers of bandwidth worldwide. If the speed and delivery of their streaming service are to be continued then deals will also need to be made with internet service providers (ISPs).

Netflix’s biggest expenditures come from both their in-house content procurement and 3rd party licensing agreements . The high-quality standard of video streamed on Netflix is only possible due to the speed and performance of its online platform and application , which has additional costs of staff, software, etc.

To show you just how flexible the business model canvas can be, I wanted to throw in a slightly leftfield example. Vintae is a Spanish wine producer who, after a detailed analysis of the business model canvas, was able to innovate and disrupt one of the world’s most competitive industries.

As some of you may know, the wine industry is extremely competitive. It’s also steeped in history and tradition , making it very challenging for newcomers to grab market share, let alone think about year-on-year growth and revenue.

However, CEO “Richi” Arambarri looked at the traditional “ bodega ” business model and saw a chink in its armor.

A “small” innovation in the business canvas model helped them to become one of the region’s most important winery groups, with over 10 installations and a presence across all regional denominations (Rioja, Priorat, Rias Baixas, etc.) with year on year growth of 30% – practically unheard of in such a competitive industry.

So how did Vintae analyze the business model canvas to find a niche in their market?

To answer that question, we must first look at the traditional winery business model .

Traditional Winery Business Model with its 9 developed points

As you can see, the wine industry has historically been patrimonial. Vineyards and estates are passed down through generations with the winery responsible for all phases of production, clarification, and distribution.

The traditional winery business canvas model suggests you must be the owner of the winery/vineyard where the wine is “manufactured”, meaning physical assets are a key resource of the business model.

So, if you wanted to start producing a Rioja, for example, you’d have to set up your vineyard in the region.

This is monumentally expensive as you need to:

  • Purchase the land
  • Plant a vineyard
  • Absorb set-up and installation costs
  • Deal with maintenance costs

It’s here where Vintae saw their opportunity.

What if we move vineyard ownership across the business model canvas from key resources to key partners ?

By leasing the equipment and space of large wineries (of which there was plenty), they could still produce their wine but reduce the cost and exposure associated with land purchase, crushing equipment, huge storage tanks, vineyard maintenance, and their bottling line.

This enabled them to focus on their sales, marketing, and distribution channels to create a better brand experience for their customers.

Also, it afforded them more flexibility when creating new wines as they were no longer confined to the limitations of grapes grown on their vineyard.

The lightness of this new business model eliminates maintenance overheads, channels energy into personalizing the customer experience, and allows for unprecedented levels of growth in one of the world’s most competitive industries.

Vinate business model

Business Model Canvas Software

Although I did mention starting with a large whiteboard, sticky notes, and a pack of colorful sharpies there are several options in which you can digitize the business canvas model production process.

While I still believe the aforementioned process is extremely valuable (it gets your entire team’s input in a single hour-long session) you may decide it more viable for each member of management to pool their ideas digitally before sharing with the rest of the group.

If that’s the case, then take a look at some of the following software tools for creating your business model canvas.

Strategyzer

Created by the founders of the business model canvas Alex Osterwalder and Yves Pigneur , Strategyzer offers a range of business model canvas templates for you to get started with.

If you opt for the paid model (there is a 30-day free trial period) they offer a series of various classes that teach you how to build and test different value propositions and business models.

A real-time built-in cost estimator analyzes the financial viability of some of your business ideas, identifying alternative areas you may wish to explore with your model.

All-in-all, it’s a great resource to play around with and test some of your business ideas, with the option to dive into further detail if you see fit.

Canvanizer is a free, easy-to-use web tool that allows you to share links between team members who are brainstorming ideas for a business model canvas, but working remotely.

Like Strategyzer, there are several business model canvas templates provided to help you get started with your analysis. The strength of this platform is its accessibility. Much like a Google Doc., several people can brainstorm on the same canvas simultaneously with changes being synchronized automatically.

Business Model Canvas Tool

A ThePowerMBA alumni, impressed by the simplicity and effectiveness of the tool, went ahead and created the free application Business Model Canvas Tool .

It’s an incredibly intuitive, and easy-to-use tool that allows you to create templates simply by clicking the + button in each building block.

Each business model canvas created can be downloaded and shared as a pdf. with the rest of the team.

Would You Like to Learn More about Business Models?

If, after going through our 9-step guide on how to use the Business Model Canvas you’d like to learn more about different business model analysis tools , take a look at our alternative MBA business program .

As you’ll see, the course gives students a 360-degree view of business and management practices – such as engines of growth, segmentation and targeting, and value propositions.

I highly recommend you go check it out.

Regardless, I’d love to hear what you thought about this guide. Was it helpful? Would you like to see additional business cases analyzed from your industry?

Let us know in the comments below.

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16 Comments

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2X

MANAGEMENT • 4 MIN READ

How To Create The Perfect Business Model In 8 Steps

image-of-business-man-creating-a-perfect-business-model

Get your Business Model wrong…

And you’re %&$#?@!

But if you get your Business Model right, Things become WAY easier.

After working with hundreds of entrepreneurs and business owners over the past few years, I’ve realized:

Nearly everyone is making their business model…

  • Too complex …
  • Horrible for cash flow (which is kind of important; more on that later) …
  • Creating a job for themselves (and not a real business) …
  • And trying to combine multiple business models into one …

Long story short, they’re setting themselves up for failure right from the start.

My focus with this article (and what we do at 2X ) is to help get your Business Model dialed in so you have the best odds of accomplishing your goals – freedom, profit, impact, growth .

This is why it’s the FIRST STEP we take when working with a new client.

image-of-2x-triangle-focusing-strategy

Strategy sits at the core of our 2X Formula , and your business model is a huge part of this. So if there’s ONE thing we can get right when working with a new client, it’s making sure they create a simplified, focused, and VERY strategic business model!

Yet, I’m guessing YOUR business model is far from optimized.

How do I know this?

Well… We work with a lot of successful entrepreneurs at 2X.

These are not people who have just started out; these are 6 and 7-figure business owners, and although they’re already having some success…

100% of Them Had An Unoptimized Business Model!

That’s right! Even though these are already successful businesses, EVERY SINGLE ONE OF THEM needed a more simple, more focused, more strategic business model… and in today’s article I’d like to show you how we help them do this.

So if you feel like you’re doing everything “right”, but you’re not:

  • Seeing the traction you would like …
  • Experiencing the growth and numbers you planned for …
  • Getting the most out of your team, or your own time management …

And you’re generally working harder and longer than ever, and beginning to think you’re stuck in ‘hustle mode’… there’s a very good chance it comes back to your business model.

I have 8 Business Model tips for you, which I’ve discovered after working with dozens of entrepreneurs and CEOs, so you can:

Scale and grow easier (and faster) … Get A LOT more productivity out of your team … Have more time to work “on” your business (instead of being stuck inside it) … Finally remove yourself as the bottleneck …

So let’s dive into the first tip, although if you prefer to watch, here’s an accompanying training video…

1. Cash Flow… The Lifeblood Of Your Business.

When you’re coming up with your strategy, you NEED to take cash flow into account. No exception, no matter who you are — whether you run a 7-figure business or are just starting out.

It blows my mind how few entrepreneurs think about cash flow when creating their business model, and it’s an issue we run into again and again when working with clients at 2X.

They come to us with a really solid business, and they are great at what they do, but they’re stuck on the six-figure hamster wheel because they don’t have a hold on their cash flow.

And this isn’t just about how much money you have in your account. This is important, sure, but what’s more important is that you have more money coming in than what’s going out. Not only that… the money coming in should come in quickly, whereas the money going out should leave over a period of time.

Take how we approach cash flow at 2X…

The majority of our clients pay in full, up front. Whereas a good portion of our team gets paid later based on results.

This means we always have really healthy cash flow, because the majority of our expenses come on the back of great results, which allows us to reinvest into our team and business, so we can acquire more customers… who give us more money up front… and this whole epic cycle continues.

It really is a beautiful thing, but we were VERY intentional about this when building our business model.

image-of-quote-its-not-only-how-much-money-is-going-in-and-out

And doing this is easy, but so few entrepreneurs do it.

Take one of our recent 2X clients : a great agency run by Thomas and Catherine, who produce amazing results for their clients.

They should have grown month-on-month, but didn’t. They’ve been flat for a while and struggled to get to the next level because they never had enough cash flow . This wasn’t surprising, because they:

  • Charged a small fee up front…
  • A few weeks later, charged a ⅓ of the project fee…
  • And then, at the end of the project ( often two months down the line ) charged the rest…

This meant they didn’t get paid the majority of their fee until AFTER they did all the work.

Well… we helped them fix this straight away!

Once they did, they more than doubled their business ( practically overnight ), and did this while Catherine went on maternity leave ( and the whole family went on a big vacation ).

2. Make YOU Replaceable… Don’t Be Your Own Bottleneck.

Last year I sat around a table of entrepreneurs, sharing stories, challenges and ideas.

Five of us were all around the same level, but two of the guys were way ahead in term of success and business size. It was a talented table, and everyone around it shared great ideas.

But I noticed something important when we all answered this question:

“What’s the number one thing that’s holding you back at the moment?”

We went around the table, and one person said cash flow and another said acquiring customers, and we all had our own excuses.

But then it got to the two most successful guys, and they both said without hesitation,

“ME! I’m The Bottleneck.”

The biggest bottleneck ( almost without exception, in any business ) is the CEO.

The reason is, most businesses are built around the founder. They rely on them to come up with the ideas and scale and grow, and often to even get everything done. When you’re at the beginning this is fine…

But the most successful businesses are those that create a business model that does the opposite: uses the founder as leverage instead of as a bottleneck .

The entrepreneurs I know who are making the biggest strides and growing the fastest are those who have designed their business model so it can scale without them (not rely on them to do all the work).

This means…

You need to make sure you’re replaceable. You have to hire a team and create processes that allow you to work “on” the business, not in it.

And a good way to gauge this is to ask yourself:

image-of-what-would-happen-to-your-business

For most, just thinking about that creates a lot of anxiety, so if your answer isn’t that it would survive and thrive without you, then you DO NOT have a business model designed for true, scalable growth.

3. Focus On ONE Audience… Stop Chasing Three.

The saying goes that the “person who chases two rabbits catches neither.”

The same applies to business, but it’s crazy how many entrepreneurs I speak to that tell me about their different offers and products … and really, all they’re saying is that they have 3 different audiences who all want and need 3 different solutions.

This is crazy.

image-of-serve-one-audience-and-do-it-well

It’s easy to try and please everyone, but in the same way you can’t catch two rabbits at once, you cannot truly impact more than one audience at any one time.

So let me ask you… what would happen if:

  • You focussed on one audience…
  • You knew this audience on a deep level…
  • You communicated to, and built messages specifically for them…
  • You designed a specific solution that creates true transformation…

You would make a massive impact, right? Of course you would, and your business would go through the roof!

This is how powerful it is when you design your business model around ONE audience, because when you build ONE offer they need, you create magic. This leads us to the next step…

4. Build ONE Core Offer… And Be Known For That.

Once you know who your ONE audience is, the next step is to build ONE core offer for them.

Sounds simple, and honestly… it is!

But the reality is that most entrepreneurs struggle with this because they worry about niching down and committing to the wrong audience or offer.

You have to fight this.

The business model your company needs should be SIMPLE. It should be specific to one type of person, and solves their problem in a specific way.

image-of-become-know-for-your-flagship-offering

Because as soon as you offer more than one solution, you dilute your marketing and message, and you create a ‘paradox of choice’ where your audience doesn’t know what they should choose — so they do nothing because it’s easier than trying to figure out the “right” answer.

This doesn’t help them and it doesn’t help you, so figure out what your ONE offer is for your ONE audience, and build your entire business model around this.

We Practice This At 2X, Because We Have ONE Core Offer For One Type Of Business Owner.

Our core offer that everyone knows us for is our 2X Accelerator program . It’s the same price for everyone, and it offers the same guarantees to all members. This keeps things SIMPLE, and helps us drive better results by optimizing and mastering ONE offer.

(we’ll do 7-figures in our first year with high profit margins, largely in part to this laser-focus on one core offering)

Most entrepreneurs think that ‘new’ and ‘more’ will save them. Often times, it won’t. Double down and make something great and you’ll be much better off.

image-of-a-simple-successful-business-model

5. Own A Phrase… Become The “Go To” Expert.

Once you have your ONE audience, you want to remove all competition and become the only “go to” expert they need (or even think about).

The best way to do this is to…

… OWN A PHRASE!

Let me explain…

Your ONE audience needs to see you as the ONLY solution to their problem, and the best way to do this is to own a relevant phrase so you remain top of mind, all the time.

I saw how crucial this is first-hand with one my previous businesses: From 6 to 7-Figures.

We intentionally built our business model around becoming the “go to” solution for self-published, non-fiction, business authors when launching their book.

So We Began To Own The Phrase… “Book Launch”

Everything we did focussed on “Book Launch”:

  • Marketing …
  • T-Shirts we wore …
  • Copy (both inside our marketing, and sales pages ) …
  • Program names …
  • Talks / Events / Networking …
  • Internal communications and team meetings …

Everything we did focussed around the phrase, “Book Launch”.

And before long, anybody who had a friend who mentioned their book launch, and they were:

  • Self-Published.
  • Non-Fiction.
  • Business Author.

… straight away they would say, “you need to speak to Austin at Epic Launch.”

We owned this phrase, and it lead to consistently qualified ‘hot’ leads every single week.

But this didn’t just happen. We consciously focussed on our ONE audience with ONE core offer, and made sure we became ‘top of mind’ by owning a relevant phrase so they saw us as the only solution.

These Three Elements: Audience + Offer + Phrase = Insane Results, And A Business Model That Works!

So once you know your audience and what your core offer is, think about the phrase you can own that will keep you top of mind with them.

  • What phrase will help you attract the right people?
  • What phrase is both memorable and relevant to you?
  • What phrase creates a positive association between your core audience and core offer?
  • And how can you become the go-to for this phrase?

6. Define Your Core Marketing Channels… And OWN Them.

This is one of the biggest mistakes we see entrepreneurs make when it comes to their business model…

… They go all in, into one platform.

I love the focus and you should dial in one core lead source at a time… … but putting all your faith into (and relying solely on) ONE marketing channel…?

A disaster waiting to happen!

A buddy of mine experienced this a couple of years ago…

He owned an ecommerce business that was on fire, growing quickly month-on-month.

But then his fast growth fell to zero as soon as his Facebook advertising costs doubled with some changes outside his control.

This, along with lower conversions and higher competition forced him to make some major investments in other forms of marketing.

image-of-those-major-investments-did-not-work-out

All this stemmed from an over reliance on a single channel, and I’ve seen countless others do the same with Google, one JV partner, etc.

But what happens if an advertising source changes their algorithm? What happens if a company goes away altogether?

You’ll wish you had multiple sources of leads … ( just like multiple sources of income is one of the keys to personal wealth ).

Please, do not back yourself into a corner like this.

A successful business model does not rely on a single platform, form of marketing, partner or client. Invest in 2-3 marketing channels that drive consistent leads, and for each one you need:

  • A great strategy — so you get the best results for the least effort…
  • A system / process — so you can repeat and consistently scale with ease…
  • An owner — someone on your team who takes charge and owns this channel…
  • KPIs & tracking — so you know the numbers, and can keep your team accountable…

7. Get Your Numbers Dialed In… From The Very Beginning.

As CEO, your decision making determines everything. But you can only make right decisions if you understand the numbers and dial them in.

And here’s the honest truth… The first time you do this, it may sting.

Honestly, most entrepreneurs don’t understand their numbers, and in the beginning when you’re hustle and grinding, you can get away with it.

But as you evolve from hustling entrepreneur into successful CEO… you need to know your numbers!

You need this dose of reality, and you need to objectively base your decisions on the:

  • Financial numbers…
  • Core KPIs and measurables…
  • Key data points…

This is why NUMBERS play a fundamental role in the work we do at 2X …

image-of-2x-triangle-focusing-numbers

When we work with a new client, we start with their vision and goals and what they plan to accomplish, but then dive into their numbers and figure out if what they’re doing will help them achieve this.

And I’m afraid to say, most of the time the numbers don’t add up.

So do the math! Does it add up to your goals?

If not, you need to change your strategy and business model, and you need to dial in your numbers so everything aligns.

Knowing your numbers is one of the most important things you will ever do as a CEO, although nothing we’ve talked about so far matters unless you do this final thing …

8. Align ALL This With Your Vision!

Building the perfect business model means nothing unless it aligns with your vision.

This is why the first thing we do with a new client is dive into what they TRULY want…

  • Want a million bucks…? Great.
  • Want more time with your family…? Fine.
  • Want to travel the world and work from a laptop…? Sure.

Whatever your vision is… build the business model that will make this happen!

Use the other seven tips we talk about in this article, sure… but none of that matters unless you:

  • Have a specific vision (that gives you purpose).
  • Align your business model to this vision.

This is why this final tip is the most important of all, because unless you get this right, everything else will fall apart as you grow and scale your business.

Which is why VISION is central to our entire 2X Formula .

image-of-2x-formula

If you align your business model with your vision, you WILL build something amazing.

We’ve seen how powerful this process is at 2X.

We work with talented people each day who have a great business, but struggle to scale to the next level (and are burning out because all they know is to hustle and grind).

Yet within 90 days we help them 2X their business, and:

  • Increase their revenue and profits like Ryan and Erik , who went from $6.5 million before they joined 2X, to more than $35 million while in the 2X program…
  • Remove their key bottlenecks holding them back like Alex did, who learned how to leverage his time and team properly while working with us, and tripled his business in just 42 days …
  • Optimize their team and improve their operations like Willem …
  • Save them time so they can work “on” the business (instead of “in” it) like Thomas and Cathrine , who scaled their business while Cathrine was on maternity leave, giving them the work/life balance they desired …

We do this by guiding them through the 2X Formula, offering them 1-on-1 business coaching and mentorship . You’ve seen part of this process in today’s article, but it only scratches the surface.

So if you want to see the entire 2X Formula in action, we’ve recorded an in-depth training that goes through it step-by-step.

design a business model that gives back

The Playbook To 7+ Figures

This has been called “the business Bible for 6-figure entrepreneurs”… now you can get it with exclusive bonuses for a crazy low price!

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Business model canvas deep dive

Business models: the toolkit to design a disruptive company

In today's fast-paced business world, having a solid understanding of business models is essential for creating a successful and disruptive company. In this deep dive article, we will explore the toolkit to design a disruptive company through the lens of the Business Model Canvas.

1. What is a business model?

Definition:.

A business model describes the rationale of how an organization creates, delivers and captures value. It can be described through 9 building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships & Cost Structure.

Business Model History

Where did the term even come from?

The search to define what a business model is goes as far back as 1994, when Peter Drucker introduced the theory of the business was a set of assumptions about what a business will and won’t do in an article for the Harvard Business Review. He speaks about how companies fail to keep up with changing market conditions, as well as their duty to identify customers and competitors, their values and behaviour. Now considering that we've had businesses for over hundreds of years - it's pretty remarkable we only just came up with the term 'business model' a few decades ago!

In the middle of the 2002 dot com crisis, Joan Magretta  built on Drucker’s business definition to exclaim that business models are “at heart, stories. Stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: ‘Who is the customer? And what does the customer value?'

The shift from a business plan to business model goes hand-in-hand with the rise of personal computers and the use of spreadsheets. Entrepreneurs used to plan their businesses year by year, quarter by quarter, and write it down in a document almost like a book who’s copy is final. The change occurred hand in hand alongside the introduction of powerful new technology such as Microsoft Excel, enabling people to model them digitally and more accurately. Being able to calculate your entire profit and loss for a business was now available to you on a single Microsoft Excel page. This now meant businesses could be modelled before they were actually launched. Products or services could be done ahead of time in terms of calculating the business' recurring revenue, profit, marketing costs, advertising spend etc. in order to model the framework of the business.

This change in approach prompted the likes of Alexander Osterwalder and Yves Pigneur to invent the Business Model Canvas in 2005, the first ever visual business tool of its kind. Long gone are the days of having to come up with a long & highly unrealistic business plan,  trying to predict what product or service you'll be selling at the company five years from now!

What is the Business Model Canvas (BMC) ?

what-is-a-business-model-BMC-canvas

The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual tool with elements describing a company’s value proposition, infrastructure, customers and finances. It provides an organized way to lay out your assumptions about not only the key resources and key activities of your value chain, but also your value proposition, customer relationships, channels, customer segments, cost structures, and revenue streams.

It assists companies in aligning their activities by illustrating potential trade-offs by comparing them to one another and being able to see the bigger picture of their overall business framework. It's essentially taken Peter Drucker's hypothetical concept of a business 'model' and turned it into something much more tangible, that we can now see visually and use as a tool to consider all the different aspects of a single business model.

The Business Model Canvas explained in a short 2-minute video:

Why use the Business Model Canvas?

what-is-a-business-model-whyuse

Create a shared language

This concept can become a shared language that allows you to easily describe and manipulate business models to create new strategic alternatives. Without such a shared language it is difficult to systematically challenge assumptions about one’s business and innovate successfully.

Simple, visual and practical

The canvas is perfect for any good discussion, meeting, or workshop on business model innovation and creates a shared language. We need a concept that everybody understands: one that facilitates description and discussion. We need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function.

Discover opportunities

By going through the process of listing the different parts of your business on the canvas, you begin to visualise and understand the different relationships between the nine building blocks that make up the tool.

Iterate quickly

Whether you’re using sticky notes on a real life Business Model Canvas or you’re designing your business model on the Strategyzer app , you can iterate on your designs very quickly. The tool enables you to prototype a first version and simply keep iterating until you’ve tested enough ideas to find product-market fit.

Read more: 14 Ways to Apply the Business Model Canvas

2. The 9 building blocks of The Business Model Canvas

We believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to deliver value and make money. The nine blocks cover the three main areas of a business: desirability, viability and feasibility. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems. Let’s take a look into the three different sections:

building-blocks-DFV-canvas

Desirability

Value propositions.

The Value Proposition's Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need.

Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers. Some Value Propositions may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with added features and attributes

Customer Segments

The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve Customers are the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The Channels Building Block describes how a company communicates with and reaches its Customer Segments.

Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including:

  • Raising awareness among customers about a company’s products and services
  • Helping customers evaluate a company’s Value Proposition
  • Allowing customers to purchase specific products and services
  • Delivering a Value Proposition to customers
  • Providing post-purchase customer support

Customer Relationships

The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments. A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations:

  • Customer acquisition
  • Customer retention
  • Boosting sales (up-selling)

Revenue Streams

The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).

If customers is the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.

A business model can involve two different types of Revenue Streams:

  • Transaction revenues resulting from one-time customer payments
  • Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

Cost Structure

The Cost Structure describes all costs incurred to operate a business model. This building block describes the most important costs incurred while operating under a particular business model.

Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Some are more cost-driven than others. So-called “no frills” airlines, for instance, have built business models entirely around low cost structures

Feasibility

The Key Resources Building Block describes the most important assets required to make a business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.

Different Key Resources are needed depending on the type of business you are building. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

Key Activities

The Key Activities Building Block describes the most important things a company must do to make its business model work. Every model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.

Partnerships

The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work. Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize, reduce risk, or acquire resources. We can distinguish between four different types of partnerships:

  • Strategic alliances between non-competitors
  • Coopetition: strategic partnerships between competitors
  • Joint ventures to develop new businesses
  • Buyer-supplier relationships to assure reliable supplies

3. Types of business models

In 2009, Amazon expands from platform to sales by launching Amazon private labels. It copies third-party sellers who created successful businesses by sourcing products absent from Amazon’s platform. Amazon sees this as an opportunity to create its own line of products.

Amazon Business Model

In 1999 Amazon launched its third-party seller marketplace and established itself as an incredibly successful e-commerce platform for other retailers. In 2007 Amazon began to use its platform to sell its own electronic devices (Kindle e-reader) and expanded to private label products under the AmazonBasics brand. While many companies aim to shift from sales to platform, Amazon executed are verse shift from platform to sales. With its private label business Amazon started to compete with third-party suppliers who are also customers of its e-commerce business. Amazon continuously expanded its private label product catalog with a wide selection (from electronics to clothing and everyday accessories) and lower prices.

The term “freemium” was coined by Jarid Lukin and popularized by venture capitalist Fred Wilson on his blog. It stands for business models, mainly Web-based, that blend free basic services with paid premium services. The freemium model is characterized by a large user base benefiting from a free, no-strings-attached offer. Most of these users never become paying customers; only a small portion, usually less than 10 percent of all users, subscribe to the paid premium services. This small base of paying users subsidizes the free users. This is possible because of the low marginal cost of serving additional free users.

In a freemium model, the key metrics to watch are:

(1) the average cost of serving a free user

(2) the rates at which free users convert to premium (paying) customers

Flickr Business Model

Flickr, the popular photo-sharing Web site acquired by Yahoo! in 2005, provides a good example of a freemium business model. Flickr users can subscribe for free to a basic account that enables them to upload and share images. The free service has certain constraints, such as limited storage space and a maximum number of uploads per month. For a small annual fee users can purchase a “pro” account and enjoy unlimited uploads and storage space, plus additional features.

Multi-sided platforms, known by economists as multi sided markets, are an important business phenomenon. They have existed for a long time, but proliferated with the rise of information technology. The Visa credit card, the Microsoft Windows operating system, the FinancialTimes, Google, the Wii game console, and Facebook are just a few examples of successful multi-sided platforms. We address them here because they represent an increasingly important business model pattern.

What exactly are multi-sided platforms? They are platforms that bring together two or more distinct but interdependent groups of customers. They create value as intermediaries by connecting these groups. Credit cards, for example, link merchants with cardholders; computer operating systems link hardware manufacturers, application developers, and users; newspapers link readers and advertisers; video gaming consoles link game developers with players.

The key is that the platform must attract and serve all groups simultaneously in order to create value. The platform’s value for a particular user group depends substantially on the number of users on the platform’s “other sides.” A video game console will only attract buyers if enough games are available for the platform. On the other hand, game developers will develop games for a new video console only if a substantial number of gamers already use it. Hence multi-sided platforms often face a “chicken and egg” dilemma.

One way multi-sided platforms solve this problem is by subsidizing a Customer Segment. Though a platform operator incurs costs by serving all customer groups, it often decides to lure one segment to the platform with an inexpensive or free Value Proposition in order to subsequently attract users of the platform’s “other side.” One difficulty multi-sided platform operators face is understanding which side to subsidize and how to price correctly to attract customers.

Multi-sided platforms bring together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other groups of customers are also present. The platform creates value by facilitating interactions between the different groups. A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the network effects.

Let’s take a look into Google ’s multi-sided business model.

Google Business Model

As a multi-sided platform Google has a very distinct revenue model. It makes money from one Customer Segment, advertisers, while subsidizing free offers to two other segments: Web surfers and content owners. This is logical because the more ads it displays to Web surfers, the more it earns from advertisers. Increased advertising earnings, in turn, motivates even more content owners to become AdSense partners. Advertisers don’t directly buy advertising space from Google. They bid on ad-related keywords associated with either search terms or content on third party Web sites. The bidding occurs through an AdWords auction service: the more popular a keyword, the more an advertiser has to pay for it. The substantial revenue that Google earns from AdWords allows it to continuously improve its free offers to search engine and AdSense users.

Google’s Key Resource is its search platform, which powers three different services: Web search (Google.com), advertising (AdWords), and third-party content monetization (AdSense). These services are based on highly complex proprietary search and match making algorithms supported by an extensive IT infrastructure.

Google’s three Key Activities can be defined as follows:

1. Building and maintaining the search infrastructure.

2. Managing the three main services.

3. Promoting the platform to new users, content owners, and advertisers.

More platform business model examples: Visa, Google, eBay, Microsoft Windows, Financial Times

In 1999 Salesforce.com disrupts the customer relationship management (CRM) arena by offering CRM-as-a service over the Internet. Salesforce unlocks a new market and continuously strengthens its business model with new innovations.

Salesforce.com was founded in 1999 with the goal of “making enterprise software as easy to use as a website like amazon.com.” Salesforce pioneered the software as-a-service (Saas) for customer relationship management tools. The company didn’t stop there and has constantly improved its services and business model. We distinguish between two, non-exhaustive phases: the early business model in 1999 and extensions starting in 2005.

Salesforce Business Model

Subscription

In 2006, Spotify launches a free online music service to compete against freely available, pirated music. Its main revenue source comes from users upgrading to a premium subscription.

Spotify is a music streaming platform that gives users access to a large catalog of music. It uses a freemium revenue model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.

Spotify relies heavily on its music algorithms and its community of users and artists to keep its premium experience delightful. Its premium subscriber base has grown from 10% of total users in 2011 to 46% in 2018.

From the start Spotify saw itself as a legal alternative to pirated music and paid song purchases on iTunes. Spotify pays a significant portion of its revenue in the form of royalties to music labels. It has paid close to $10 billion in royalties since its launch in 2006.

The company accelerated the shift from music downloads to streaming and disrupted Apple iTunes in the process. For the first time in company history, Spotify made a profit in 2019.

Spotify Business Model

4. What is business model innovation?

Business model innovation describes the innovative processes and rationale of how an business creates, delivers and captures value as opposed to how to create a new product or service. It's about fundamentally rethinking your business around a clear, new customer need, and then realigning your key resources, processes and profit formula with this new value proposition.

It’s not easy approach to take when making decisions as it pushes people out of their comfort zones. But the results can be dramatic, providing a real competitive business advantage - and we're seeing this sort of disruption a lot more often. Internet technology giants such as Amazon as world-class at demonstrating this kind of business acumen, where the founder Jeff Bezos even describes his company as 'the best place to fail in the world', referring to his company's approach to coming up with new business ideas.

Take Amazon Web Services for example: A project grew out of the company's need to improve their own tech stack performance. The American company went on to create Amazon Web Services to offers customers reliable, scalable, and inexpensive cloud computing services, paying only for what they used. Within 5-years would go on to totally dominate the cloud computing market and make Amazon over $10bn.

Read the case study we put together for Amazon Marketplace, using the business model portfolio to tell the story of how they validated their business idea: Patience is a Virtue: An Amazon Case Study in Three Parts . Otherwise you can read about the differences between organizations such as Amazon and Nestle .

4. Business Model Patterns

In the following section we outline a pattern library that is split into two categories of patterns: invent patterns to enhance new ventures and shift patterns to substantially improve an established, but deteriorating business model to make it more competitive.

www.strategyzer.comhubfs01-Hero-BusinessModelPatterns

Invent Patterns

Codify aspects of a superior business model. Each pattern helps you think through how to compete on a superior business model, beyond the traditional means of competition based on technology, product, service, or price. The best business models incorporate several patterns to outcompete others.

Shift Patterns:

02-HiltiShift-HiltiShiftCase

Codify the shift from one type of business model to another. Each pattern helps you think through how you could substantially improve your current business model by shifting it from a less competitive one to a more competitive one.

Applying Business Model Patterns

Understand patterns to better perform the following business model activities:

Design and assess

Use patterns to design better business models around market opportunities, technology innovations, or new products and services. Use them to assess the competitiveness of an existing one.

Disrupt and transform

Use patterns as an inspiration to transform your market. In the following section, we provide a library of companies that disrupted entire industries. They were the first to introduce new business model patterns in their arena.

Question and improve

Use patterns to ask better business model questions, beyond the traditional product, service, pricing, and market-related questions. Regardless, whether you are a senior leader, innovation lead, entrepreneur, investor, or faculty, you can help develop superior business models based on better questions.

03-InventPatterns-BusinessModelPatterns

Frontstage Disruption

Market explorers: unlock markets.

Develop innovative value propositions that create, unleash, or unlock completely new,  untapped, or underserved markets with large potential.

Be a pioneer and unearth new revenue potential through market exploration.

Channel Kings: Access customers

Radically change how to reach and acquire a large number of customers. Pioneer innovative new channels that haven’t been used in your industry before.

Gravity Creators: Lock in customers

Make it difficult for customers to leave or switch to competitors. Create switching costs where previously there were none and turn transactional industries into ones with long term relationships.

A great product isn’t enough to bring a flock of customers to your door. You must design a superior business model to attract and retain customers into your ecosystem. Switching costs have enabled industry leaders such as Adobe, Salesforce, Microsoft or Rolls Royce to lock customers in and outcompete other players.

Backstage Disruption

Resource castles: build moats.

Build a competitive advantage with key resources that are difficult or impossible for competitors to copy.

Activity Differentiators: Better configure activities

Radically change which activities they perform and how they combine them to create and deliver value to customers.Create innovative value propositions based on activity differentiation.

Scalers: Grow faster

Find radically new ways to scale where others stay stuck in conventional non-scalable business models.

Profit-Formula Disruption

Revenue differentiators: boost revenues.

Find innovative ways to capture value, unlock previously unprofitable markets, and/or substantially increase revenues.

Recurring Revenue – Generate recurring revenues from one-time sales. Advantages include compound revenue growth (new revenues stack up on top of existing revenues), lower cost of sales (sell once and earn recurrently), and predictability.

Bait & Hook – Lock customers in with a base product (the bait) in order to generate recurring revenues from a consumable (the hook) that customers need recurrently to benefit from the base product.

Freemium Providers – Offer basic products and services free of charge and premium services and advanced product features for a fee. The best freemium models acquire a large customer base and excel in converting a substantial percentage to paid users.

Subsidizers – Offer the full value proposition for free or cheaply by subsidizing it through a strong alternative revenue stream. This differs from freemium, which only gives free access to a basic version of products and services.

Cost Differentiators: Kill costs

Build a business model with a game-changing cost structure, not just by streamlining activities and resources, but by doing things in disruptive new ways.

Resource Dodgers – Eliminate the most costly and capital-intensive resources from your business model to create a game-changing cost structure. (Examples: Airbnb, Uber, Bharti Airtel)

Technologists – Use technology in radically new ways to create a game-changing cost structure. (Examples: WhatsApp, Skype)

Low Cost – Combine activities, resources, and partners in radically new ways to create a game-changing cost structure with disruptively low prices. (Examples: EasyJet, Ryanair, Trader Joe’s)

Margin Masters: Boost margins

Achieve significantly higher margins than competitors by focusing on what customers are willing to pay for most, while keeping your cost structure in check. Prioritize profitability over market share.

Contrarians – Significantly reduce costs and increase value at the same time. Eliminate the most costly resources, activities, and partners from your business model, even if that means limiting the value proposition. Compensate by focusing on features in the value proposition that a well-defined customer segment loves and is willing to pay for, but which are relatively cheap to provide. (Examples: CitizenM, Cirque de Soleil, Nintendo Wii)

High Enders – Create products and services at the high end of the market spectrum for a broad range of high-end customers. Use these to maximize margins and avoid the small size and extreme cost structure of a luxury niche. (Example: iPhone )

5. Business model examples

Below are 4 examples of business models. See our searchable business model examples catalog for dozens of business models analyzed using the business model canvas.

Tesla was founded in 2003 with the goal of commercializing electric vehicles, starting with luxury sports cars and then moving onto affordable, mass market vehicles. In 2008, Tesla began selling its Roadster. Its first breakthrough was in 2012 when it launched the Model S.

Tesla’s first “affordable” car, the Model 3, was announced in 2015 and produced in 2017. Prior to Tesla, the market for electric vehicles was relatively insignificant and was served by utilitarian and unremarkable models. Tesla was the first car manufacturer to view the market for electric vehicles differently: Tesla saw a significant opportunity by focusing on performance and the high end of the market.

Tesla Business Model

Learn more about Tesla’s business model by downloading your free copy of the 100-page preview of our bestselling book: The Invincible Company.

IKEA, the popular furniture company, also relies on customers as their free workforce but in a different way. Hundreds of thousands of IKEA customers assemble their bookshelves, tables, and other furniture at home after buying big boxes at big stores.

This was unthinkable before IKEA made it popular, because people used to expect furniture manufacturers to perform the assembly task. There’s a reason why customers are willing to do the work and it's because IKEA’s business model of boxed furniture offers a larger choice, immediate delivery, and all at a lower cost.

Ikea - Business Model

Read more about how Facebook, IKEA, WhatsApp, and Uber's business model make billions .

Dollar Shave Club

Dollar Shave Club (“DSC”) disrupted the market for shaving products by selling directly to consumers through its online store. Because they cut out the middleman (retail), they can pass on savings to customers. DSC makes up for the lack of established brand and distribution reach by harnessing the power of viral videos and internet marketing.

Could you access your customers in an unprecedented and scalable way? How could you cut out the middleman and create direct access to your end-customers?

Dollar Shave Club - Business Model Canvas Example

Apple is one of the leading smartphone manufacturers in the world. But their product doesn’t do it all; in fact, you could argue that there are better smartphones out there. But Apple’s business model has moats that make it extremely difficult for others to overthrow them.

Apple - iPhone - Business Model

For example Apple’s app store connects its millions of iOS users with countless software developers that supply hundreds of thousands of apps searching for an audience. It's this ecosystem that's hard to copy, not the technology. Even with the best technology it is very hard to gain market share. Only Google with its Android operating system has managed to create a competing ecosystem.

Other interesting business models: AirBnb , ARM , citizenM , Dell , Didi , Dyson , Fortnite , M-Pesa , Microsoft Windows , Patagonia , Spotify , Tupperware , Waze , Whatsapp , Zara .

6. Business model tools and resources

  • Business Model Canvas template
  • The Portfolio Map template
  • Business Model Generation masterclass
  • Business Model Generation book
  • Value Proposition Design book
  • Testing Business Ideas book
  • The Invincible Company book
  • Business Model Generation Masterclass
  • Testing Business Ideas by David Bland & Alexander Osterwalder
  • The Invincible Company: Manage a portfolio of innovation

About the speakers

Download your free copy of this whitepaper now, explore other examples.

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Denis Oakley & Co

Denis Oakley & Co

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

September 23, 2021 By Denis Oakley

The Ultimate Guide to Creating Powerful Business Models

Designing better businesses requires an idea and a process. In this post, I’ve distilled a huge amount of my knowledge on the practical stuff of how to design better businesses.

A business is not something that happens or is copied, it is something that is designed so that it can do the job better than anyone else.

Anyone can make a great product. Creating a powerful value proposition is fairly simple as well. Don’t get me wrong – both require a lot of effort and thousands of hours of work. The process to do it is fairly well known and repeatable. To get ahead now you need to wrap the value proposition in a powerful business model that accelerates growth and disrupts your competition and the market. In this article, I’m going to distil everything I’ve learned about creating powerful business models.

I’ve learned this through practice – running my own and other people’s startups, mentoring some of the brightest entrepreneurs in the world, and by thinking constantly about business models on my daily runs through the wilderness.

As this is a work in progress the page is a little rough at the moment but will be updated each week so that it will be the ultimate guide to creating powerful business models and helping you create the world that your customers need.

Why do you need to do business model innovation

You do business model innovation because your industry is being disrupted , by competitors or environmental changes , or because you want to disrupt an industry, catching the big wave of a new technology being adopted .

Business model innovation is all about designing your business model to have the biggest impact on the market. I’ve put together a list of definitions as to what business model innovation is – some are a bit wordy…

My definition is

Business model innovation is the deliberate process of changing your business model to deliver more customer value and disrupting markets to reduce competition. Denis Oakley

The reason you do business model innovation is that you want to change the world. .. the status quo isn’t good enough for you. It’s not easy and your organisation needs to be ready for it as well as having the need.

That said you may be sceptical about the need for strategy and prefer to just get shit done. If you are gung ho, it is worth pausing and thinking about why entrepreneurs need business models . In a word, it’s because business models have the ability to create massive customer value , and then shareholder value.

How to Do Business Model Inovation

Normally we start with the business model canvas , here’s a quick introduction , or if you prefer a small video-based course .

The business model canvas is a simple A4 sheet where you can sketch the core aspects of your business. It’s like a map – we cut out a lot of detail. At the same time, it shows you what makes you competitive in the market.

The canvas is composed of 9 sections.

You have a problem that you create a value proposition to solve for customers. You reach the customers through marketing and distribution channels and look after them with customer service . In return, they give you money . To do this you need key resources and undertake key activities . You might own or do these yourself, or get them from partners . In either case, they cost you money .

This can be a bit heady, so have a look at all these examples of technology company business models – where you have the business model canvas, a video and a written description.

To Develop a Business Model

It’s good to have a process as often business model design can miss a lot of great options. I’ve sketched out a five-step innovation process and written a short E-book that you can download .

To develop a great business model a great value proposition is important and these questions will help you develop one , but you need to find a worthwhile opportunity to pursue .

At later stages of the business model design process, I do a lot of scenario modelling, some of it quantitative using decision-making tools .

As we develop business models we care about what works, not about what people believe. Marketing may be critically important, or not . There is no dogma. The process is ruled by evidence and inspiration.

The only concrete rule is that we must delight the customer and give them something better than they ever imagined .

Doing it yourself

A good place to start is by trying to sketch out business models yourself and learning how to draw your first business model canvas . You will need to find the right level of detail to make it work. You may want to check out this post on how to create your first business model canvas

You’ll undoubtedly face problems as you develop your canvas , especially as you try to ensure that you create one that is desirable, viable ( or feasible ) and profitable. It can be easy to think too small as you develop your models. There are many mistakes along the way , which is why a robust process is critical.

What we are looking for are step changes in performance and explosive growth .

Once you’ve completed the business model and mapped it out on the business model canvas. It’s tempting to throw it in a drawer. In reality, it provides an amazing way to develop KPI’s and performance dashboards .

Moving from a Business Model to a Great Business Model

Success is profoundly influenced by the competitive environment , and that, in turn, is heavily influenced by co mpetitors business models .

Technology and Transformation

Legacy businesses have the choice of being digitised or digitalized but business model transformation is often better, if scarier. Product development often seems a safer play and you must always be wary of those who prefer the status quo . A safe place to start is by looking at current performance seen through the light of the business model canvas. Alternatively, a strategy workshop that you can run yourself may help you move forward.

Entrepreneurs and business model innovation.

There are some mistakes specific to entrepreneurs . In some cases that is due to their readiness or the reasons that they want to start a business. Whatever the reason, business models are critical to their success and avoiding the Wave. I offer plenty of advice on how you can avoid failure based on almost 20 years of mostly dodging that bullet.

  • 13 Signs Your Industry is Being Disrupted
  • 5 Step Business Model Innovation Process
  • Why Do Entrepreneurs Need Business Models?
  • Developing the Business Model Canvas in New Directions
  • Business Model Innovation Changes Everything

About Denis Oakley

Explorer | Trail Runner | Mountain Lover

'Big' companies are civilisation. I stay in the wilderness guiding entrepreneurs and startups on their journey to becoming 'Big'.

Then I head back to the frontier

Strategy | Marketing | Operations

Ready to start?

The Ultimate Guide to Creating Powerful Business Models

I help entrepreneurs transform their industries through wiser choices

Outcome : More Traction, Bigger Rounds, Better Products

Method : Problems, Customers, Business Models, Strategy

design a business model that gives back

8 Successful Give-Back Models for Social Enterprises

design a business model that gives back

(Source: Cosmic )

May 31, 2018 — Santa Cruz, CA

It’s easy to look at the most recognized social enterprises like Toms Shoes or Warby Parker and think that the buy-one-give-one model is the way to go. But that’s not always the case. There are many strategies that social entrepreneurs are employing to address the issues that they care about when the 1:1 approach doesn’t apply.

Let’s look at eight successful give-back models for social enterprises and see how different companies use the power of profit + purpose to make the world a better place.

1. buy-one-give-one.

This type of social enterprise can be found in many different variations, but the idea is essentially the same: a consumer buys a product, such as shoes, and the business gives the same item to underserved or disadvantaged people.

This tried-and-true strategy works well when addressing a need that can be solved by a specific item such as shoes, glasses, gloves and scarves, etc. It breaks down when an organization expands beyond that mission or addresses a more complex problem that can’t be solved by at 1:1 purchase, such as homelessness.

Twice as Warm provides new winter accessories to people in need through their Wear One, Give One program. When you buy their hats, gloves, or scarves, the same apparel you purchase is given to families and individuals in their area who can’t afford their own.

This is a great approach if the goal is only to serve people in cold climates. However, the one-for-one approach could limit the scope of their efforts. A large portion of the world’s most troubled areas aren’t in places where people need winter clothes. Twice as Warm isn’t setting itself up to help those people or address the larger issue of providing clothing to economically challenged families.

Smile Squared uses a one-for-one model to bring healthy smiles to children in every corner of the globe through the purchase of toothbrushes. Recently, they added travel journals and pouches that help fund wish trips granted to children facing life-threatening medical conditions.

Continue reading article here: https://designbycosmic.com/articles/design-thinking/8-successful-give-back-models-for-social-enterprises

Tagged Cosmic

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Adding Giving Back into your Business Model

Adding Giving Back into your Business Model

Making money is the differentiator between a hobby business and a professional business. When I started my business, I had lousy money mindset and just kept thinking that I wanted to help people (forget making money, that is not as important). I had many money hang ups and didn’t want to be thought of (and think of myself as) being money hungry. Yikes.

I realize now, that making money means that I can allow my business to provide for my family, invest in others’ businesses as they join my team, and allows my business to give back to the world. To me, that feels like success. I’ve weaved giving back and intentional investments into the Reina + Co business.

Even if you’re making little money in your business, you can start to think of what is important to you and set forth to make an impact. Once you decide and make a plan, it’s easier to move forward.

design a business model that gives back

The 5 Year Story of the Reina + Co Pencils of Promise School

Building a school in Guatemala was on my bucket list shortly after I started Reina + Co. But I wasn’t making a lot of money at the beginning so I parked that $35,000 idea as a “revisit in 5 year goal. A year after I started my business, I was challenged to think about what would happen if I started to contribute 5 percent of the money we earned toward a fund that we put toward the $35k needed. Whether it was $10 or $5000, 5% was just that. We started in earnest to build our school within the 5 year time span that I had arbitrarily set for myself. We decided to contribute 10% and have been setting aside the money. We’re hoping to get there before 2 years!

Check out our POP School Fundraising Page here!

How can i start to contribute to a cause, 1. decide on a cause that’s important to you.

For us, our Pencils of Promise school was a priority, but you probably have a cause you’re passionate about. Whether it’s the environment, refugee crisis relief, military, animal rescue, educating girls in STEM, whatever is close to your heart, lean into that. Decide on one or two organizations you want to help support.

2. Decide how much money (or what percentage you can contribute)

I like to have a specific figure I wanted to hit. A scary goal of $35,000 felt big and audacious and something to work toward. For you, it might be donating your product to a local shelter. It might be creating a sponsorship or a scholarship for a cause you’re passionate about. It can also be an annual goal of a certain amount that you’d like to donate. Nothing is too little, give what you can from what you have.

3. Look for “fringe money”

To whatever extent this is relevant to you, consider contributing these funds toward your cause of choice. Speaking fees, royalties and affiliate income, and other things that you haven’t built into your Financial Projections, you might choose to allocate toward your giving fund. Obviously, this example doesn’t make sense for somebody whose main sources of income is speaking, book or product royalties, or affiliate commissions, but if that isn’t a core part of your business model, you can use this fringe money as a way to contribute more.

We put all of our favorite resources on our website. Some of them are affiliate links (which means we get a small commission for introducing somebody to a product we love!) and will be compensated.

4. Let others support you

Have a birthday coming up? Let your friends, family, and other community members support you by contributing to the giving fund! Any other creative way you can encourage others to give toward your goal, you’ll allow them to feel part of a bigger cause and that their money is making a difference!

5. Donate Your Time

One way that I give back is that I do pro bono coaching for Military Spouses. It’s a cause that is near and dear to my heart and rather than doing non-skilled volunteering, I choose to be in service of spouses who endure the constant strain of supporting a service member. I also do non-skilled volunteering during Memorial Day weekend with a non-profit called Tragedy Assistance Program for Survivors to support the family members of our fallen service members.

You can pick a cause that feels in line with your values and choose to do skilled work (like donating your graphic design talents) or non-skilled work (like serving at the soup kitchen).

6. Donate Your Platform

If you have a platform and an audience, you can use it to spread good. Encourage your community to give back, to contribute to a cause, or to volunteer. We all have something to give and the ripple effect is huge if every leader who has an audience chooses to engage her following to do good in the world.

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Our next-generation model: Gemini 1.5

Feb 15, 2024

The model delivers dramatically enhanced performance, with a breakthrough in long-context understanding across modalities.

SundarPichai_2x.jpg

A note from Google and Alphabet CEO Sundar Pichai:

Last week, we rolled out our most capable model, Gemini 1.0 Ultra, and took a significant step forward in making Google products more helpful, starting with Gemini Advanced . Today, developers and Cloud customers can begin building with 1.0 Ultra too — with our Gemini API in AI Studio and in Vertex AI .

Our teams continue pushing the frontiers of our latest models with safety at the core. They are making rapid progress. In fact, we’re ready to introduce the next generation: Gemini 1.5. It shows dramatic improvements across a number of dimensions and 1.5 Pro achieves comparable quality to 1.0 Ultra, while using less compute.

This new generation also delivers a breakthrough in long-context understanding. We’ve been able to significantly increase the amount of information our models can process — running up to 1 million tokens consistently, achieving the longest context window of any large-scale foundation model yet.

Longer context windows show us the promise of what is possible. They will enable entirely new capabilities and help developers build much more useful models and applications. We’re excited to offer a limited preview of this experimental feature to developers and enterprise customers. Demis shares more on capabilities, safety and availability below.

Introducing Gemini 1.5

By Demis Hassabis, CEO of Google DeepMind, on behalf of the Gemini team

This is an exciting time for AI. New advances in the field have the potential to make AI more helpful for billions of people over the coming years. Since introducing Gemini 1.0 , we’ve been testing, refining and enhancing its capabilities.

Today, we’re announcing our next-generation model: Gemini 1.5.

Gemini 1.5 delivers dramatically enhanced performance. It represents a step change in our approach, building upon research and engineering innovations across nearly every part of our foundation model development and infrastructure. This includes making Gemini 1.5 more efficient to train and serve, with a new Mixture-of-Experts (MoE) architecture.

The first Gemini 1.5 model we’re releasing for early testing is Gemini 1.5 Pro. It’s a mid-size multimodal model, optimized for scaling across a wide-range of tasks, and performs at a similar level to 1.0 Ultra , our largest model to date. It also introduces a breakthrough experimental feature in long-context understanding.

Gemini 1.5 Pro comes with a standard 128,000 token context window. But starting today, a limited group of developers and enterprise customers can try it with a context window of up to 1 million tokens via AI Studio and Vertex AI in private preview.

As we roll out the full 1 million token context window, we’re actively working on optimizations to improve latency, reduce computational requirements and enhance the user experience. We’re excited for people to try this breakthrough capability, and we share more details on future availability below.

These continued advances in our next-generation models will open up new possibilities for people, developers and enterprises to create, discover and build using AI.

Context lengths of leading foundation models

Highly efficient architecture

Gemini 1.5 is built upon our leading research on Transformer and MoE architecture. While a traditional Transformer functions as one large neural network, MoE models are divided into smaller "expert” neural networks.

Depending on the type of input given, MoE models learn to selectively activate only the most relevant expert pathways in its neural network. This specialization massively enhances the model’s efficiency. Google has been an early adopter and pioneer of the MoE technique for deep learning through research such as Sparsely-Gated MoE , GShard-Transformer , Switch-Transformer, M4 and more.

Our latest innovations in model architecture allow Gemini 1.5 to learn complex tasks more quickly and maintain quality, while being more efficient to train and serve. These efficiencies are helping our teams iterate, train and deliver more advanced versions of Gemini faster than ever before, and we’re working on further optimizations.

Greater context, more helpful capabilities

An AI model’s “context window” is made up of tokens, which are the building blocks used for processing information. Tokens can be entire parts or subsections of words, images, videos, audio or code. The bigger a model’s context window, the more information it can take in and process in a given prompt — making its output more consistent, relevant and useful.

Through a series of machine learning innovations, we’ve increased 1.5 Pro’s context window capacity far beyond the original 32,000 tokens for Gemini 1.0. We can now run up to 1 million tokens in production.

This means 1.5 Pro can process vast amounts of information in one go — including 1 hour of video, 11 hours of audio, codebases with over 30,000 lines of code or over 700,000 words. In our research, we’ve also successfully tested up to 10 million tokens.

Complex reasoning about vast amounts of information

1.5 Pro can seamlessly analyze, classify and summarize large amounts of content within a given prompt. For example, when given the 402-page transcripts from Apollo 11’s mission to the moon, it can reason about conversations, events and details found across the document.

Reasoning across a 402-page transcript: Gemini 1.5 Pro Demo

Gemini 1.5 Pro can understand, reason about and identify curious details in the 402-page transcripts from Apollo 11’s mission to the moon.

Better understanding and reasoning across modalities

1.5 Pro can perform highly-sophisticated understanding and reasoning tasks for different modalities, including video. For instance, when given a 44-minute silent Buster Keaton movie , the model can accurately analyze various plot points and events, and even reason about small details in the movie that could easily be missed.

Multimodal prompting with a 44-minute movie: Gemini 1.5 Pro Demo

Gemini 1.5 Pro can identify a scene in a 44-minute silent Buster Keaton movie when given a simple line drawing as reference material for a real-life object.

Relevant problem-solving with longer blocks of code

1.5 Pro can perform more relevant problem-solving tasks across longer blocks of code. When given a prompt with more than 100,000 lines of code, it can better reason across examples, suggest helpful modifications and give explanations about how different parts of the code works.

Problem solving across 100,633 lines of code | Gemini 1.5 Pro Demo

Gemini 1.5 Pro can reason across 100,000 lines of code giving helpful solutions, modifications and explanations.

Enhanced performance

When tested on a comprehensive panel of text, code, image, audio and video evaluations, 1.5 Pro outperforms 1.0 Pro on 87% of the benchmarks used for developing our large language models (LLMs). And when compared to 1.0 Ultra on the same benchmarks, it performs at a broadly similar level.

Gemini 1.5 Pro maintains high levels of performance even as its context window increases. In the Needle In A Haystack (NIAH) evaluation, where a small piece of text containing a particular fact or statement is purposely placed within a long block of text, 1.5 Pro found the embedded text 99% of the time, in blocks of data as long as 1 million tokens.

Gemini 1.5 Pro also shows impressive “in-context learning” skills, meaning that it can learn a new skill from information given in a long prompt, without needing additional fine-tuning. We tested this skill on the Machine Translation from One Book (MTOB) benchmark, which shows how well the model learns from information it’s never seen before. When given a grammar manual for Kalamang , a language with fewer than 200 speakers worldwide, the model learns to translate English to Kalamang at a similar level to a person learning from the same content.

As 1.5 Pro’s long context window is the first of its kind among large-scale models, we’re continuously developing new evaluations and benchmarks for testing its novel capabilities.

For more details, see our Gemini 1.5 Pro technical report .

Extensive ethics and safety testing

In line with our AI Principles and robust safety policies, we’re ensuring our models undergo extensive ethics and safety tests. We then integrate these research learnings into our governance processes and model development and evaluations to continuously improve our AI systems.

Since introducing 1.0 Ultra in December, our teams have continued refining the model, making it safer for a wider release. We’ve also conducted novel research on safety risks and developed red-teaming techniques to test for a range of potential harms.

In advance of releasing 1.5 Pro, we've taken the same approach to responsible deployment as we did for our Gemini 1.0 models, conducting extensive evaluations across areas including content safety and representational harms, and will continue to expand this testing. Beyond this, we’re developing further tests that account for the novel long-context capabilities of 1.5 Pro.

Build and experiment with Gemini models

We’re committed to bringing each new generation of Gemini models to billions of people, developers and enterprises around the world responsibly.

Starting today, we’re offering a limited preview of 1.5 Pro to developers and enterprise customers via AI Studio and Vertex AI . Read more about this on our Google for Developers blog and Google Cloud blog .

We’ll introduce 1.5 Pro with a standard 128,000 token context window when the model is ready for a wider release. Coming soon, we plan to introduce pricing tiers that start at the standard 128,000 context window and scale up to 1 million tokens, as we improve the model.

Early testers can try the 1 million token context window at no cost during the testing period, though they should expect longer latency times with this experimental feature. Significant improvements in speed are also on the horizon.

Developers interested in testing 1.5 Pro can sign up now in AI Studio, while enterprise customers can reach out to their Vertex AI account team.

Learn more about Gemini’s capabilities and see how it works .

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Google Gemini: Everything you need to know about the new generative AI platform

design a business model that gives back

Google’s trying to make waves with Gemini, a flagship suite of generative AI models, apps and services. But while Gemini appears to be promising in a few aspects, it’s falling short in others — as our informal review revealed .

So what is Gemini? How can you use it? And how does it stack up to the competition?

To make it easier to keep up with the latest Gemini developments, we’ve put together this handy guide, which we’ll keep updated as new Gemini models and features are released.

What is Gemini?

Gemini is Google’s long-promised , next-gen GenAI model family, developed by Google’s AI research labs DeepMind and Google Research. It comes in three flavors:

  • Gemini Ultra , the flagship Gemini model.
  • Gemini Pro , a “lite” Gemini model.
  • Gemini Nano , a smaller “distilled” model that runs on mobile devices like the Pixel 8 Pro .

All Gemini models were trained to be “natively multimodal” — in other words, able to work with and use more than just words. They were pretrained and fine-tuned on a variety of audio, images and videos, a large set of codebases and text in different languages.

This sets Gemini apart from models such as Google’s own LaMDA , which was trained exclusively on text data. LaMDA can’t understand or generate anything other than text (e.g., essays, email drafts), but that isn’t the case with Gemini models.

What’s the difference between the Gemini apps and Gemini models?

Google's Bard

Image Credits: Google

Google, proving once again that it lacks a knack for branding, didn’t make it clear from the outset that Gemini is separate and distinct from the Gemini apps on the web and mobile (formerly Bard). The Gemini apps are simply an interface through which certain Gemini models can be accessed — think of it as a client for Google’s GenAI.

Incidentally, the Gemini apps and models are also totally independent from Imagen 2 , Google’s text-to-image model that’s available in some of the company’s dev tools and environments. Don’t worry — you’re not the only one confused by this.

What can Gemini do?

Because the Gemini models are multimodal, they can in theory perform a range of multimodal tasks, from transcribing speech to captioning images and videos to generating artwork. Few of these capabilities have reached the product stage yet (more on that later), but Google’s promising all of them — and more — at some point in the not-too-distant future.

Of course, it’s a bit hard to take the company at its word.

Google seriously underdelivered with the original Bard launch. And more recently it ruffled feathers with a video purporting to show Gemini’s capabilities that turned out to have been heavily doctored and was more or less aspirational.

Google’s best Gemini demo was faked

Still, assuming Google is being more or less truthful with its claims, here’s what the different tiers of Gemini will be able to do once they reach their full potential:

Gemini Ultra

Google says that Gemini Ultra — thanks to its multimodality — can be used to help with things like physics homework, solving problems step-by-step on a worksheet and pointing out possible mistakes in already filled-in answers.

Gemini Ultra can also be applied to tasks such as identifying scientific papers relevant to a particular problem, Google says — extracting information from those papers and “updating” a chart from one by generating the formulas necessary to re-create the chart with more recent data.

Gemini Ultra technically supports image generation, as alluded to earlier. But that capability hasn’t made its way into the productized version of the model yet — perhaps because the mechanism is more complex than how apps such as ChatGPT generate images. Rather than feed prompts to an image generator (like DALL-E 3 , in ChatGPT’s case), Gemini outputs images “natively,” without an intermediary step.

Gemini Ultra is available as an API through Vertex AI, Google’s fully managed AI developer platform, and AI Studio, Google’s web-based tool for app and platform developers. It also powers the Gemini apps — but not for free. Access to Gemini Ultra through what Google calls Gemini Advanced requires subscribing to the Google One AI Premium Plan, priced at $20 per month.

The AI Premium Plan also connects Gemini to your wider Google Workspace account — think emails in Gmail, documents in Docs, presentations in Sheets and Google Meet recordings. That’s useful for, say, summarizing emails or having Gemini capture notes during a video call.

Google says that Gemini Pro is an improvement over LaMDA in its reasoning, planning and understanding capabilities.

An independent study by Carnegie Mellon and BerriAI researchers found that Gemini Pro is indeed better than OpenAI’s GPT-3.5 at handling longer and more complex reasoning chains. But the study also found that, like all large language models, Gemini Pro particularly struggles with math problems involving several digits, and users have found plenty of examples of bad reasoning and mistakes.

Early impressions of Google’s Gemini aren’t great

Google’s promised improvements, though — and the first arrived in the form of Gemini 1.5 Pro .

Designed to be a drop-in replacement, Gemini 1.5 Pro (in preview at present) is improved in a number of areas compared with its predecessor, perhaps most significantly in the amount of data that it can process. Gemini 1.5 Pro can (in limited private preview) take in ~700,000 words, or ~30,000 lines of code — 35x the amount Gemini 1.0 Pro can handle. And — the model being multimodal — it’s not limited to text. Gemini 1.5 Pro can analyze up to 11 hours of audio or an hour of video in a variety of different languages, albeit slowly (e.g., searching for a scene in a one-hour video takes 30 seconds to a minute of processing).

Gemini Pro is also available via API in Vertex AI to accept text as input and generate text as output. An additional endpoint, Gemini Pro Vision, can process text and imagery — including photos and video — and output text along the lines of OpenAI’s GPT-4 with Vision model.

Gemini

Using Gemini Pro in Vertex AI. Image Credits: Gemini

Within Vertex AI, developers can customize Gemini Pro to specific contexts and use cases using a fine-tuning or “grounding” process. Gemini Pro can also be connected to external, third-party APIs to perform particular actions.

Google brings Gemini Pro to Vertex AI

In AI Studio, there’s workflows for creating structured chat prompts using Gemini Pro. Developers have access to both Gemini Pro and the Gemini Pro Vision endpoints, and they can adjust the model temperature to control the output’s creative range and provide examples to give tone and style instructions — and also tune the safety settings.

Gemini Nano

Gemini Nano is a much smaller version of the Gemini Pro and Ultra models, and it’s efficient enough to run directly on (some) phones instead of sending the task to a server somewhere. So far it powers two features on the Pixel 8 Pro: Summarize in Recorder and Smart Reply in Gboard.

The Recorder app, which lets users push a button to record and transcribe audio, includes a Gemini-powered summary of your recorded conversations, interviews, presentations and other snippets. Users get these summaries even if they don’t have a signal or Wi-Fi connection available — and in a nod to privacy, no data leaves their phone in the process.

Gemini Nano is also in Gboard, Google’s keyboard app, as a developer preview . There, it powers a feature called Smart Reply, which helps to suggest the next thing you’ll want to say when having a conversation in a messaging app. The feature initially only works with WhatsApp but will come to more apps in 2024, Google says.

Is Gemini better than OpenAI’s GPT-4?

Google has several times touted Gemini’s superiority on benchmarks, claiming that Gemini Ultra exceeds current state-of-the-art results on “30 of the 32 widely used academic benchmarks used in large language model research and development.” The company says that Gemini Pro, meanwhile, is more capable at tasks like summarizing content, brainstorming and writing than GPT-3.5.

But leaving aside the question of whether benchmarks really indicate a better model, the scores Google points to appear to be only marginally better than OpenAI’s corresponding models. And — as mentioned earlier — some early impressions haven’t been great, with users and academics pointing out that Gemini Pro tends to get basic facts wrong, struggles with translations and gives poor coding suggestions.

How much will Gemini cost?

Gemini Pro is free to use in the Gemini apps and, for now, AI Studio and Vertex AI.

Once Gemini Pro exits preview in Vertex, however, the model will cost $0.0025 per character while output will cost $0.00005 per character. Vertex customers pay per 1,000 characters (about 140 to 250 words) and, in the case of models like Gemini Pro Vision, per image ($0.0025).

Let’s assume a 500-word article contains 2,000 characters. Summarizing that article with Gemini Pro would cost $5. Meanwhile, generating an article of a similar length would cost $0.1.

Ultra pricing has yet to be announced.

Where can you try Gemini?

The easiest place to experience Gemini Pro is in the Gemini apps . Pro and Ultra are answering queries in a range of languages.

Gemini Pro and Ultra are also accessible in preview in Vertex AI via an API. The API is free to use “within limits” for the time being and supports certain regions, including Europe, as well as features like chat functionality and filtering.

With AI Studio, Google launches an easy-to-use tool for developing apps and chatbots based on its Gemini model

Elsewhere, Gemini Pro and Ultra can be found in AI Studio. Using the service, developers can iterate prompts and Gemini-based chatbots and then get API keys to use them in their apps — or export the code to a more fully featured IDE.

Duet AI for Developers , Google’s suite of AI-powered assistance tools for code completion and generation, is now using Gemini models. And Google’s brought Gemini models to its dev tools for Chrome and Firebase mobile dev platform.

Gemini Nano is on the Pixel 8 Pro — and will come to other devices in the future. Developers interested in incorporating the model into their Android apps can sign up  for a sneak peek.

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