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What Is a Business Model?

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A business model is a plan describing how a business will make money. It is an outline that explains the company’s revenue and cost structure, and how it expects to turn a profit—or at least sustain itself as a going concern.

Key Takeaways

  • A business model is an outline of how your business will generate a profit. The plan includes important information like target market, market need, and details on business expenses.
  • There are lots of types of business models, and models can be combined as well. You’re probably familiar with some of the more common ones like manufacturer, distributor, retailer, and franchise. 
  • When creating a business model, you should be clear about who your target customer is and how you’ll reach them. You’ll also want to know specifics about what you’re selling, and what sets you apart from your competition.

Definition and Examples of a Business Model

A business model is an outline that breaks down the ways that a company makes its profit. It identifies the target market, the market’s need, and how the business will serve its customers. The plan also includes the costs incurred from expenses like producing and marketing the product. There are multiple types of business models, each tailored to fit the unique needs of various businesses.

An example of a business model is one in which the concepts are split into two categories—business ideas and business resources. Under the business idea category lies products and services, target audience, competition, differentiation, advertising, and sales. Business resources, meanwhile, are what’s needed to make the idea work and can be divided into ownership, staffing, facilities, financial model, funding, and balance sheet.

A business is unlikely to be successful unless all facets of the business model provided in the example above allow it to be competitive in its marketplace. 

Types of Business Models

Here are a few commonly used business models that you’re probably familiar with. 

Manufacturer

This type of business model is when a company makes a product from raw materials or assembles prefabricated items to create new merchandise. The business can sell the items directly to consumers itself, which is a business-to-consumer (B2C) model, or it can use a business-to-business (B2B) model in which it sells to other businesses. 

An example of a B2C manufacturer would be a shoe company that sells its products directly to customers. A B2B manufacturer would be a business that sews dresses and only sells its products wholesale to other businesses, which then sell the dresses to the general public. 

Distributor

The distributor business model is when a company purchases inventory from a manufacturer and sells it to either a retailer or directly to the public. A common challenge that distributors face is picking the right price point that allows them to make a profit on the sale, but still offers competitive pricing. An example of a distributor would be a company that buys soft drinks from a manufacturer and sells those beverages to restaurants at a higher price.

There are many different types of business models and multiple models can be combined to create a new approach.

Retail business models are those used by companies that buy inventory from a manufacturer or distributor and sell those products to the public. Retailers can range from a single mom-and-pop shop to huge chain stores—they often have brick-and-mortar locations, an online store, or both. 

An example of a retailer would be a hat store that buys the products from a distributor. A limited selection of the hat store’s products is available at its brick-and-mortar storefront, but its full inventory can be purchased online. 

The franchise business model can be applied to other business models, like the ones we just discussed. The franchisee takes on the business model of the franchise and with it, the latter’s pre-established processes and protocols. Examples of popular franchises include McDonald’s, KFC, Burger King, and 7-Eleven.

When developing your business model, identify your target customer and how you’ll reach them. You’ll also want to familiarize yourself with what you’re selling (costs, margins, features, benefits, etc.) and what your competitive advantage is .

SCORE. “ Do you have a Successful Business Model? ”

SCORE. “ Develop Your Business Model by Answering These 4 Questions .”

  • What is a business model? Types and examples

account business model definition

Few things are as important to a company as its business model. Your business model serves as a template and guide for just about every part of your business. It's essential to not only create a business model that reflects how you will make money, but also adapt it over time as the needs of your market change.

How does a business model work? What are some common types of business models? This guide will introduce you to business models and provide a helpful guide so you can create your own.

Business model definition

A business model explains an organization's core strategy for running a profitable operation. It describes what will be sold, how revenue will be generated and how the customers will pay.

Business models capture the rationale and the plan for creating and delivering value. Business models also reflect the company's unique value proposition, which is the essential way in which the company meets the market’s needs.

Key components of a business model

While every company's business model will look different, a successful business model will contain the following key components:

  • A description of the products or services (including the cost of manufacturing)
  • A strategy for distributing that product (marketing, delivery, merchandising)
  • How the customer pays (pricing structure, payment methods)

Your business model integrates all of the components of your business and organizes them into a cohesive structure.

Business model vs. business plan

The term "business model" is sometimes used synonymously with "business plan." However, the two documents serve slightly different purposes.

A business model is a holistic portrait of how the company operates. Think of a business model as an aerial photograph of your organization, giving you a comprehensive view of your current and future operations.

A business plan refers to the specific strategy for accomplishing a particular goal. A business plan is more like the turn-by-turn directions you receive on your GPS device.

The business model and business plan must be in alignment, but the business model explains how you will succeed while the business plan shows how you’ll get there.

Why choosing the right business model is important

Writing for the Harvard Business Review, Joan Magretta explains that business models matter because they tell a specific story about your company. Your company's "story" explains how all the pieces come together and connects this narrative to your raw financial numbers.

Business modeling is, therefore, important for at least three groups of people:

1. Your company's employees

Your business model determines the scope and strategy of your business processes. It's important for you and your employees to understand your existing business model, as well as how it translates into your day-to-day activities.

But more than that, a successful business model will also provide a vision for the future, which empowers established businesses to improve their cash flow and make expansion plans.

2. Your target customer groups

Successful business models also create value for your business and help you communicate this value to your target customer segments. While your key customers will likely never read your business model, it should help you strategize ways to communicate your unique value proposition to your customers.

3. Investors

Investors will also need to understand your business model. Ideally, your business model describes a clear strategy for meeting a market need, establishing your goals, and setting a long-term vision. A clear business model will help you gain the confidence of investors and secure funding.

What are common types of business models?

There are many different types of business models, with new models emerging as entire industries adapt and grow. The following list is not exhaustive but represents some of the more common business models in use today, along with some business model examples to illustrate how they work in the real world:

Manufacturing business model

A manufacturing business model focuses on the production of goods by sourcing raw materials and using a standardized production process. Manufacturers typically sell their finished products to retailers and other distributors, though some manufacturers also sell directly to consumers.

Examples include Ford Motor Company, Frito-Lay, and Whirlpool.

Retail business model

Retail is likely the most familiar business model for most American consumers. A retailer purchases finished goods from a manufacturer or distributor, then sells these products directly to customers.

This setup usually takes place inside brick-and-mortar stores, though many companies are adapting their business framework to offer online options.

Some of the most common retail business model examples include stores such as Target or Wal-Mart.

Franchise business model

A franchise business model might overlap with other business models, though the key difference is how the business is structured. In the franchise business model, a franchisee purchases the rights to a business from the franchisor or parent company.

The franchisee then operates under the established brand, which gives them more stability than if they'd launched their own business from scratch.

Common franchise business model examples include McDonald's, Ace Hardware, and Planet Fitness.

eCommerce business model

An eCommerce business model functions similarly to a retailer, though it relies on online platforms to advertise products and conduct transactions. eCommerce companies also utilize delivery companies to transport products to their customers.

The most common eCommerce business model example is Amazon.com, though retailers like Target and Wal-Mart have also launched eCommerce segments.

Freemium business model

The freemium business model is popular among technology companies. Freemium business models blend free and paid features on the same platform. The idea is simple: customers who enjoy the free service can be encouraged to sign up and pay for access to premium features.

Flickr, the online photo app, is a good example freemium business model, though many companies offer introductory services before promoting their premium features.

Advertising business model

Advertising companies are third-party organizations that help connect other businesses to their core customer segments. Essentially, the business’s users and customers are two different groups. Strategies can vary widely, especially when digital companies offer print ads, internet marketing, and content for social media platforms to help their clients expand their advertising reach.

Facebook, Instagram, and TikTok all fit into this business model.

Affiliate business model

An affiliate business model is similar to an advertising model, though an affiliate business strategy is more subtle. Instead of clear, overt advertisements, an affiliate business will embed links into other content to drive sales.

For instance, an affiliate business might link to Hulu when writing a review of popular streaming platforms.

How to create a new business model

Creating a new business model is important when launching a startup, but many companies create entirely new business models to adapt as they grow. Here's how to create a new business model that works for your unique industry:

1. Define the problem

First, determine the problem or need that your company can uniquely address. Identifying the problem can ensure that there is a demand out there for your products or services.

Every business idea should start with the question, "Why?" Why does your business exist? What need does it fill? Why will customers want to purchase your product? Keeping this understanding center of mind will help you stay focused throughout the process.

2. Identify your target market

A good business model will focus on specific customer segments. Who are you trying to reach? This insight will help you refine your marketing efforts and product features based on the demographic groups you seek to build relationships with.

3. List your products or services

The next step is crucial. You want to list and describe your products and services and explain clearly how these satisfy the need you defined in step 1. It's important to ensure that your team’s expertise matches the products and services that solve these needs.

For example, if you have a background in personal finance, you might consider how a new accounting software system might assist certain types of established businesses. This stage tends to be iterative, meaning you'll come back and redefine your product offerings based on feedback and adapt them to new market needs.

4. Determine your business needs

Once you zero in on your products, you'll want to determine what you'll need to connect them to your customer base. This calculation can include costs incurred from

manufacturing/product development, as well as the need for personnel, marketing, and other expenses.

5. Build a network of key partners

Depending on the nature of your business, you may want to network with other professionals. For example, if you're relying on a retail business model, you may want to start networking with distributors, manufacturers, and other industry players.

You may want to consider if there's an eCommerce platform you'd like to use in conjunction with retail sales or if there are business tools that can help you run your business more efficiently.

6. Create a financial strategy

Successful businesses use their business model as a financial model to calculate their overall profitability. You'll need to determine how you intend to make money, including things like cost structure, profit formula, pricing, and other core considerations.

A successful business model will ensure that you satisfy the need you identified in step 1 while generating profits that help maintain and grow your operations.

7. Test and refine your model

The most successful companies will test their existing business models to determine how well they're performing. This work might reflect things like customer feedback, financial performance, or the need to adapt to new market conditions.

Here's a tip: conduct a "soft launch" of your business for a select group of customers. Offer discounts in exchange for honest feedback. Incorporate their feedback into your business model design, then proceed to a full-scale launch once you've refined your model.

How to improve your business model

If you've had the same business model for years, it may be time for a review. Improving your current business model can help you adapt to new technology, changing costs, and new customer demands. For example, if an advertising firm's business model doesn't take into account new social media platforms, the company may miss out on opportunities to connect with its audience.

Here are some strategies for business model innovation and improvement:

Listen to customer feedback

Turn your existing customers into coaches. Product and company reviews can be a gold mine for information about current client needs and how well your company meets those needs. You may discover new ways to innovate and adapt.

Lower your overhead

If your company struggles to make a profit, you may want to rethink some of your overhead costs. For example, automating some of your core business processes through technology can help your employees work more efficiently, reducing the number of hours you spend on back-office tasks.

Introduce a new product or service

When your company has been offering the same products and services for years, it might be time to shake things up. Introduce a new product or service to demonstrate your value to your customers, or use this as an opportunity to gain a whole new set of customers.

Reconsider your revenue model

Your current revenue model may be based on an outdated price structure. It may be that the cost of manufacturing or rising inflation warrants an increase in the price of your core products and services.

If you operate a subscription-based service (or a freemium model), you may offer discounts to existing customers while raising the price of a product or service for new customers.

Change your marketing message

Your marketing campaign is how you tell your story. If your story changes, so should your marketing message. Refine your marketing strategy by adapting to new digital channels, or consider developing content that directly impacts your target audience.

How BILL can help improve your business model

Creating and refining your business model is just one way to run a successful business. BILL can help small and mid-size businesses save 50% of the time they spend on accounts payable. Learn more about how to pay smarter.

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

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This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

account business model definition

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

  • How to price your product
  • How to position your product

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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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strategic account management

8 best practices for successful strategic account management

Reading time: about 8 min

For most organizations, the old business adage rings true: 80% of your sales come from 20% of your clients. It would make sense, then, to treat these valuable assets with greater care. Yet, too often, companies don’t have a dedicated process to nurture those key business relationships.

The work isn’t done when the sale closes. Customers big and small can churn for many reasons. The best way to avoid a costly breakup with your most valuable customers is to implement a strategic account management program.

Read on to learn strategic account management best practices and how you can nurture key relationships for long-term success.

strategic account management best practices

What is strategic account management?

Strategic account management (SAM) or key account management focuses on building long-term mutually beneficial partnerships with key customers.

Through in-depth research and assessment, strategic account managers find opportunities to drive value for their partners by identifying problems, offering creative solutions, and leveraging partnerships to move both organizations toward their strategic goals.  

A formal strategic account management program can:

  • Foster customer loyalty.
  • Stimulate growth.
  • Increase profitability.
  • Drive innovative and scalable service solutions.

Sales vs. strategic management

Unlike a sales program, which focuses on short-term selling cycles and customer acquisition, strategic management goes a step further to develop deeper relationships with a small number of core customers over time.

In short, sales is about the present. Strategic management is about the future.

While the gains may not be immediate, strategic accounts are a vital part of an organization’s long-term success and profitability.

Strategic account management best practices

An effective SAM program isn’t something you stumble upon. The most successful organizations rely on formal, measurable, repeatable processes to develop and maintain their most valuable customer relationships.

Whether you already have a process in place or plan to implement a new strategic account program, use these account management best practices to put your organization ahead of the curve.

1. Assign dedicated strategic account managers

The first step to a successful program is to assign dedicated account managers who are separate from sales. The best programs don’t have managers that must split their priorities or switch focus between making sales and developing strategic accounts.

Instead, create a team (or teams) with dedicated accounts and team leads focused solely on strategic management.

When filling these roles, keep in mind that sales and strategic management have different objectives and require a different skill set and approach to customer relationships.

Strategic account managers should be both analytical and personable. They need to build rapport with customers, think strategically about partnership opportunities and solutions, collaborate and communicate with high-level stakeholders and decision-makers, and lead a cross-functional team.    

2. Develop selection criteria for key accounts

While all customers are valuable, not all customers can be elevated to a key account. Be selective. Strategic accounts are reserved for customers whose partnerships can propel your organization toward its goals.

How can you determine which accounts are worthy?

You’ll need to develop a shortlist of selection criteria that hone in on alignments between your two organizations. Focus on three to eight objective criteria, weighted in relative importance to your organization.

These criteria could include:

  • Product fit
  • Revenue potential
  • Growth potential
  • Cultural fit
  • Geographic alignment
  • Existing relationships
  • Potential channel partnership

Senior management should take the lead on this stage rather than the sales managers. Selection criteria are based on the organization’s high-level strategic goals and vision, so senior managers are the best fit for this role.  

3. Polish the handoff from sales

An oft-overlooked step in the SAM process is the transition from sales to account management. How well you handle account transitions is an important part of building a trusted relationship with your customers.

For best results, follow a formal, scripted handoff from the sales team to the account management team. Each customer (whether they become a key account or not) should be methodically organized and tracked in your account system.

Make sure to communicate clearly with the customer, so they understand who their points of contact are and what to expect going forward. For example, how often will you touch base with them via phone or email? Who can they talk to if they have questions or concerns? Setting clear expectations (and following through!) will foster a trusting relationship with your customer.

Learn how our sales and customer success teams at Lucidchart have perfected this handoff in this article .

4. Create a comprehensive customer profile

Once you have a selection process in place and you have identified and assigned your key accounts, you’ll need to develop in-depth customer portfolios.

The strategic account manager has to know their customer inside and out. To do this, they need to conduct research on the client company to build out a comprehensive profile.

Investigate and assess the company’s:

  • Business and markets
  • Goals and initiatives
  • Stakeholder roles and responsibilities
  • Key decision makers
  • Analyst reports
  • Competition

The aim is to understand your customer’s pain points and goals in order to identify opportunities for added value and collaboration. Our thorough customer model overview template can help.

5. Conduct a needs assessment

With your portfolio of customer research, the next step is to conduct a needs assessment.

  • What are the organization’s pain points?
  • Where do your needs or goals overlap and how can you help each other progress?
  • Are there any problems looming that you can anticipate and address for them?

Use your data to find ways you can help them, and assess opportunities for collaboration and partnership. Strategic accounts are long-term investments. Instead of a typical 3-12 month transactional lifecycle, you are creating a strategy for the next 1-3 years. Keep that in mind as you assess strategic needs and opportunities.  

Remember: The ultimate goal of strategic account management is to grow with your customer.

6. Draft a strategic plan and proposal

Based on your needs assessment, drill down to the best strategic opportunities and draft an account plan. This plan is your strategic roadmap for the next 1-3 years. Once you polish the plan, approach your customer with your proposal.

Your proposal should include things like:

  • Strategic recommendations (e.g., potential partnerships with other companies, creative solutions, etc.)
  • Specific long-term goals with short-term benchmarks
  • Resource requirements

This is your chance to demonstrate to the client that you’ve gone above and beyond to understand and address their needs and that your company is invested in their success.

7. Set a cadence for contacts, meetings, and follow-ups

Once you have a strategic plan in place, set a regular cadence for ongoing communication with your key accounts.

Outline a schedule for each touchpoint, meeting, and follow-up to ensure your customer is in the loop and has the opportunity to give feedback, communicate changes, or ask questions.

This schedule will help you stay updated on what your customer needs, how they are using your product or solution, and how you can help. Clear communication is vital to a strong working relationship with your customers. Our customer journey map template is a perfect way to start.

8. Monitor performance

Continually monitor and measure your performance on each account. What progress have you made on your short-term and long-term goals? How do your results measure against your KPIs?

Monitoring performance is not only important to ensure you deliver on your end but also to track how well the key account fulfills its obligations to you. While you want to drive value for the client, the goal is one of mutual long-term benefit. If the relationship no longer holds the same strategic value for your organization, it’s better to identify that sooner rather than later.

Measure your account performance continually so you can keep the plans on track and pivot or reassess as needed.

Lucid can help with your strategic account management

Strategic account management is complex. With so many moving parts, it is easy for data, insights, or people to fall through the cracks. Yet, key accounts represent the most valuable customers, so you can’t afford to drop the ball.

Lucidchart helps sales teams manage their processes seamlessly. From account maps to process flows , Lucidchart helps you visualize relationships and stay on track as you move through the account management process.

account mapping

With our Salesforce integration , you can import your CRM data directly into Lucidchart to create account maps. Account maps help managers and teams:

  • Identify key relationships in an organization.
  • Track the progression of a sale or relationship.
  • Transition accounts between reps and teams.
  • Document a shareable account plan.

Key accounts are 60% to 70% more likely to close, and key accounts make up the lifeblood of many companies.

Don’t miss out on your best relationships. By implementing a formal strategic account management process, you can reap the benefits of long-term partnerships for many years to come.

account business model definition

 Lucidchart serves as a dynamic roadmap to help your team close bigger deals faster.

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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Conceptualising Business Models: Definitions, Frameworks and Classifications

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The business model concept is gaining traction in different disciplines but is still criticized for being fuzzy and vague and lacking consensus on its definition and compositional elements. In this paper we set out to advance our understanding of the business model concept by addressing three areas of foundational research: business model definitions, business model elements, and business model archetypes. We define a business model as a representation of the value logic of an organization in terms of how it creates and captures customer value. This abstract and generic definition is made more specific and operational by the compositional elements that need to address the customer, value proposition, organizational architecture (firm and network level) and economics dimensions. Business model archetypes complement the definition and elements by providing a more concrete and empirical understanding of the business model concept. The main contributions of this paper are (1) explicitly...

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Purpose – The aim of the work is to contribute to the theoretical debate on business model innovation (Chesbrough, 2010; Zott et al., 2011) examining the interplay with a social innovation perspective (Rubalcaba et al., 2013; Russo Spena et al., 2015; Osburg and Schmidpeter, 2013). Specifically the study aims to analyze the relationship between business model innovation for service firms and efforts to improve the well-being of society. Design/methodology approach – Using quantitative survey data collected from a sample of 184 Northern European service firms, this research explores the relationships among social innovation, service innovation and business model innovation. Findings – The findings suggest that social innovation and business model innovation are positively related. More specifically, firms that invest effort in business model innovation – which usually involves a holistic approach to a firm’s business – are likely to put effort into improving the well-being of society...

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The business model is a fashionable theme, but there is much confusion on its meaning and features. This paper provides a systematic literature review of the business model in Strategy and General Management fields, analysing 282 articles and 11 correlated books. We propose a conceptual framework in order to organise the review according to two areas of interest: the ontological aspects (i.e., origins, definitions, components and taxonomies of the business model; the relationship between the business model and strategy); and the evolutionary aspects (i.e., the business model innovation; the open business model; and the sustainable business model). Results suggest that, despite high academic interest, an agreed conceptualisation of the business model is still lacking. Hence, this study aims to uncover, classify and integrate the main units of analysis on business model research, while also identifying future directions and perspectives.

Feri Machmudi

This article provides a broad and multifaceted review of the received literature on business models in which the authors examine the business model concept through multiple subject-matter lenses. The review reveals that scholars do not agree on what a business model is and that the literature is developing largely in silos, according to the phenomena of interest of the respective researchers. However, the authors also found emerging common themes among scholars of business models. Specifically, (1) the business model is emerging as a new unit of analysis; (2) business models emphasize a system-level, holistic approach to explaining how firms "do business"; (3) firm activities play an important role in the various conceptualizations of business models that have been proposed; and (4) business models seek to explain how value is created, not just how it is captured. These emerging themes could serve as catalysts for a more unified study of business models. In recent years, the business model has been the focus of substantial attention from both academics and practitioners. Since 1995, there have been at least 1,177 articles published in Acknowledgments: We gratefully acknowledge the very helpful comments and suggestions of the editor and of two anonymous reviewers on earlier drafts of this article. Chris Zott and Lorenzo Massa acknowledge the support of IESE in sponsoring this research. Raffi Amit is grateful to the Wharton eBusiness Initiative and to the Robert B. Goergen Chair for financial support of this research.

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Account Management 101 – A Complete Guide for Key Account Managers

Milind katti.

COO & Co-Founder, DemandFarm

Account Management: A Comprehensive Guide

Effective account management is essential for businesses to build and maintain long-lasting relationships with their customers. In this complete account management 101 guide, we’ll explore various aspects of account management as listed below to defend & grow your key accounts.

Definition: What is Account Management?

What is the role of account management, account management vs sales – what’s the difference, what does an account manager do (roles, responsibilities & skills), account management process, account management model, top account management challenges in 2023, the mutual benefits of sales account management, digitalizing account management in 2023, strategic analysis of key accounts, fine-tuning the account management strategy.

Often companies battle to upkeep their clientele in all possible ways. And more often, companies try to switch their focus from account marketing to sales process through customer services. But according to a study done by Gartner, customer service doesn’t drive revenue, but customer improvement might do the trick.

And that is where account management comes into play. Adding to the build-up, a study by Global Partners Training says that 61% of companies report that strategic account management or key account management programs helped them to upsurge their revenue and customer satisfaction. This report attests to the relevance of a working account marketing program in every business.

In addition, keeping the best clients who can offer you a predictive revenue and promising profit source to plan business upfront. However, the process comprises a lot of activities and this guide leads you to have a clear understanding of the key components of Account Management .

KAM Glossary: 65+ Crucial Account Management Terms Explained

Account management is a continuous strategic process of managing & nurturing key customer relationships, through the business journey. It is a mechanism to uncover the true potential of your customer accounts.

The account manager ’s role in key account management involves overseeing the sales process, planning business continuity, and discovering cross-sell & up-sell growth opportunities coherently.

‍ The goal is to maximize client retention by employing appropriate rapport-building strategies and innovative resource-gathering practices. However, the objective of account management is not limited to just retaining the best clients. The clients who have been with the company and taken part in its successful journey are invaluable assets. Hence, building a winning relationship with them is the ingredient of success for businesses of all kinds. This subsequently implicates that your sales business cannot afford to miss a chance of developing an affluent account management strategy. In that process, a strategic account manager has to take the responsibility to shape the most customer-oriented business models with the best offers and resources.

Thanks to technology, today we have plenty of account planning tools with multiple features to run an effective sales account management program, that can propel your business to new heights.

Must Watch:  Liangbi David Shen, Head of Revenue Operations at Cambridge Mobile Telematics sharing their experience around building processes & strategies for Account Management. 

What is the importance and the role of account management?

According to one of the thought leaders in strategic account management , Olivier Riviere, the key thing you keep in mind to have a firm grasp on account management is “True key accounts have a special strategic meaning for the company, beyond their size. Make a clear distinction between large accounts and key accounts.” Observing the account management process for quite a while may not easily translate the process well enough in many cases.

It is a long and cyclic process that takes time, effort, and money. However, those value accounts are likely to depart from the business relation anytime. In other words, it may be snatched by other businesses similar to you.

The client who has been with you for years would be a coveted lead for your competitors. Hence, the chance to lose them is high and it completely relies on how good your customer account management strategy is.

Account Management vs Sales – What’s the difference?

Is account management the same as sales?

The perspective differences between these two propositions are far and wide. The very difference between the role of an account manager and a sales manager can be illustrated with the example of a nomad merchant and an online global store. A nomad merchant aims to sell out the commodities through any means to the customers that he comes across and the merchant’s sales proposition to achieve Sales intelligence, Sales Transformation , and Sales acceleration keeps varying.

Guide:  Comprehensive Career Path for a Key Account Manager

The online store on the other hand reaches a far wider customer audience. The online shop owner equips the shop and supports the customer with all possible facilities. Likewise, account management finds the scope for future benefits rather than the benefit of a one-time deal. Not surprisingly, the art of account management and identifying key accounts is a complex process.

You have to carry out a broad business prospect to afford and manage such accounts because they are going to get benefit from your time and effort in the long term. So, it is your responsibility to identify whether they deserve it or not.‍ ‍

To win the account management program you have to equip your business with the right talent resource and adequate facilities. An account manager is an important resource that you require to carry out an effective strategic account planning program.

Listen Now: The Shift Podcast on Digital Key Account Management

Role of an account manager.

An account manager is exclusively designated to handle and maintain the most precious clients. They strive to manage valuable accounts and build and keep sustainable relationships with clients. Also, the account manager has to take the responsibility to mitigate the challenges, solve the problems and find new opportunities to enhance client relationships. But, it is not their job to deal with the problem encountered by the clients or their business operations.

A key account manager should have regular communication with all the internal teams to make sure the client’s requirements are fulfilled and to continue an interdependent partnership a clear code is essential. In other terms, an account manager should also take the role of a client success manager in building the client success roadmap.

Responsibilities of an Account Manager

Key account managers foster valuable clients and help to find more opportunities to build relationships. They play a prominent role in the business process to enhance business prospects with the best clients with long-term engagement.

  • They work with the accounts to find new opportunities and evolving challenges
  • They take part in the problem-solving process with strategic solutions
  • They employ innovative techniques to build rapport with the potential customers
  • They serve as a representative for the key accounts and contact points for the clients

Skills Required for effective Account Management

On the go, to perform all these tasks and excel in account management it is essential to have some skill sets. You cannot afford to make anyone an account manager, they should possess some sort of account management skills . A few of them are listed below.

  • Good listening and understanding capacity
  • Collaborative and Customization ability
  • Leadership and Ownership capability
  • Management and Business expertise
  • Dynamic Business Analytical knowledge
  • Excellent Communication and Accounting skills

Account Management Process : A Workflow for Account Management

1. identifying key accounts.

At times, when you have a surge of amazing customers with great business potential, it is common to think that you can make them all your key accounts . But, not all of them are your key account partners. You have to strategically observe your customers and find – who are that few?

Tamara Schenk, research director of CSO insights commented; “ Companies should focus on the current state of account strategy implementation and next steps, as well as any needed adjustments of the strategic account plan. ” Analyze the ratio of revenue to the cost of your customer from the first deal itself and estimate the prospective benefits that you can acquire from them.

Picture the growth curve that each of your customers can contribute to your business. Plus, the mutual benefits you can get in terms of revenue, profit, and leads in the long run. Then finalize the partners that you would like to keep an extended relationship with.

Besides, in the process of identifying key accounts, there are a few factors that you can keep as a checklist. If you can match your customer with the list that helps you to understand the relationship, benefits, product, and cultural similarity, future business prospects, business process, revenue, partnership, location, etc. The companies that meet most of the parameters in the list can be taken up in your key accounts list. Having this in place will also help you with white space analysis of your key accounts to retain and grow them.

White space analysis for account management

2. Developing Valuable Account Relationships

Once you have identified your key account management partners, it’s time to develop the relationship from a futuristic perspective. For that, a lot of strategic analysis and step-by-step orchestrations are involved.

Unlike a sales process, account management is designed for a long relationship. So, it requires a meticulous understanding of the whole story that is going to happen between you and your key account partner. And from the analysis, you can figure out what kind of relationship you are supposed to have and now you are at what stage?

The account relationship status can be classified as follow, you can identify the stages from here, In this first stage, you have to be more tactical in dealing. Your customer probably has plenty of your kind to fulfill their requirements. Hence, you have to understand the business potential and formulate a tactical strategy to acquire a long-lasting partner.

Must Watch:  Jenny Smith Byers, VP Client Services at TaskUs shares their experience around building & scaling processes for Key Account Management.

‍ When the relationship grows into an operational level with mutual communication and frequent interaction about business cooperation, you can fine-tune your strategies. And that fine-tuning should please the customers to stick a little longer.

However, you have to keep analyzing the potential and the revenue-to-cost ratio at each point before being generous to acquire them. Then, when you and your customer come and agree with mutual consent to take forward the business you have reached a promising account management contract. Your business interaction would take off from the operational stage to a more functional base. Further, you can have a mutually beneficial future and potential growth with the account.

3. Nurturing Key Account Relationships

For retaining and growing your existing key accounts, just developing these stakeholder relationships is not enough. You need to take a step forward and invest time and resources into nurturing the relationships with the people in your key accounts.

This would require you to ensure that they are happy even after the deal has closed by resolving any obstacles they might face with respect to your offering. Carrying out Stakeholder Mapping for your key accounts helps you stay in touch with the stakeholders not only opens up avenues for upselling and cross-selling opportunities but could also provide your R&D team insights on any improvements that can be incorporated into your product/service based on their feedback. The customer statistics report by Groove states that the probability of closing a deal with your existing happy client is 14 times higher than selling to an absolute new customer.

This can help you and your account to get into a long-term operational and functional understanding, thereby forging a strategic relationship.

In fact, nurturing these relationships will guarantee that your existing customers provide and keep providing references to other potential clients thereby aiding your business growth. The Gallup Poll reports that an engaged customer represents a 23% premium in wallet share and revenue growth over an un-engaged one.

As Shep Hyken, the customer service expert at Shepard puts it, “When a customer walks away thinking, ‘Wow! I love doing business with them and would like to tell others about it.’ is when you would have successfully completed your account management process.”

Account Management Model / Technique

Choosing the right account management model that fits may vary depending on the business proposition of the companies you might be engaging with. It is based on your B2B sales process, your selling models, scope, competitive advantage, and business capacity.

1. Building long-term Account Relationships

The importance of your sales process is far-reaching in terms of client relationships in account management. Suppose the sales strategy of a company does not require forging healthy client relationships and fails to initiate customer interaction.

To illustrate, a customer service agency that creates new tickets for every customer inquiry is a business that has only a transactional relationship with customers and they don’t prefer to keep their users in contact. In such cases, account management is not for them. Rather, account management is a continuous process that demands strategic business techniques.

Hence, to frame out an account management model for your business, you have to redefine the business strategically. For that, having diversified business models in strategic capacities is essential. This helps your business in discovering an even more diverse business scope for your key accounts.

Additionally, you need a unique selling proposition to formulate a better account management model. Companies may tend to follow a common business proposition, but with a unique business proposition, you can position yourself far higher than your competition in the long run.

2. Growing Key Accounts

Your Business USP is your asset!

Every business has unique selling propositions and has additional services/products to cross-sell. If your business cannot thrive in up-selling and cross-selling or the customer doesn’t have any intention to indulge in another deal, account management becomes pointless. So, growing your potential in multilevel selling propositions is necessary.

Download Now:  Your Guide to Cross-selling and Up-selling

A good account manager should utilize all the possibilities as soon as the client makes a transactional relationship. Identification of these white-space opportunities will not only make the job of key account stakeholders easier but will also boost your profitability.

Identifying white space opportunities for account management

If you can expand the business all through the different corridors of the clients’ core and supporting business, your account management strategy can take home the trophy. Moreover, customers always seek the best for the best price and service. The quality of resources and advantages that you can provide for your clients is your business’s competitive advantage. A mutually benefiting, yet compelling account management program, can help you in making the customers’ decisions inclined towards you more than your competitor.

Besides, the business capacity of the company is another key determiner of successful account management. The staff capacity, supportability, scalability, and resource availability play a leading role to carry out an effective account management business model.

Account management comes with its own set of complications. A few are discussed below.

  • Managing remote relationships: With remote work becoming more common, account managers may face challenges in building and maintaining relationships with customers who are located in different parts of the world. This requires strong communication skills and the ability to build rapport through virtual channels.
  • Balancing personalization and scale: Account managers need to strike a balance between personalization and scale when managing multiple accounts. This means developing strategies to personalize communications and tailor services to individual customers, while still maintaining efficiency and scalability.
  • Adapting to new technologies: Digitalization is the need of the hour. This is not exactly a challenge but nevertheless, Account managers will need to adapt to digital key account management tools and platforms to stay competitive.
  • Shifting Customer Requirements: When the Statement of Work (SOW) in terms of resources and efforts required for a certain task is not understood properly which in turn inhibits customer success which is the top priority for account managers. According to Forrester Research, 72% of account managers have reported that customer success is their top priority , and not being able to manage that can be a bit frustrating.
  • Maintaining profitability: While account management is focused on building long-term relationships with customers, it’s also important to maintain profitability. Account managers need to balance the need to meet customer needs with the need to generate revenue and maintain margins.
  • When the number of deals being handled by the key account manager increases,  and multiple deals are being executed at the same time, it becomes difficult for the right person to be at the right place and at the right time resulting in loss of business thereby straining the relationship with key accounts.
  • The deals tend to get extended due to various reasons internal to the account and can result in loss of time and revenue.

challenges account planning

Masterclass: Why do companies fail with key account management?

8 account management best practices for enterprise sales.

The necessity of an effective account management process only looks great when you know, that over 80% of your sales are generated from 20-30% of your clients. Thus, it demands greater care for these accounts that add value. So, the best way to keep such clients is to have an outstanding Account Planning program. Hence, let’s check some of the best practices of account management .

1. Deploy dedicated account managers to set the focus on relationship building. Set them with definite objectives to follow that align with the business process.

2. Develop key accounts identifying parameters to pick the right accounts that fit and bring promising benefits with potential growth prospects to your company.

3. Draft a transparent account transition policy from sales to accounting customers and make the move from the departments smooth.

4. Draw a detailed customer profile to understand the customer and their business value. Also, markup the goals and points.

5. Drive a need assessment run with the data you have and find out the opportunities to expand your and your client’s business to new verticals.

6. Design a proposal with a detailed plan to define the best resources and offers that you have for the accounts and approach them upfront with benefits and benchmarks.

7. Dedicate an account calendar to follow up with your accounts regularly. Get them into the loop to exchange resources, update offers, and communicate business.

8. Demonstrate periodic Performance Analysis and upkeep a policy to measure the goals with your Account management KPIs .

Account management offers numerous benefits as a mutually beneficial relationship program that is not limited to good rapport and revenue, but can beget several productive and profitable growth prospects as well.

  • Effective sales resource utilization can enhance your revenue and profitability exponentially
  • Opens new doors of opportunities to grow customer loyalty and revenue stream
  • Builds strong account relationships and thereby strengthens account control
  • Improved customer retention with strategic account operation and customer service.

The benefits of efficient key account management are not limited to any of these points. It offers surprising advantages with a comprehensive account management strategy. Companies can use this to reap greater profitability and gain exponential growth with steady revenue.

Global Account Management for the global customer

In this digital age of 2023, customers are looking for the perfect digital customer experience. They expect to get the product or service they choose from a variety of options at their disposal across the channel they prefer. 2023 is about building account-centric value propositions and communication plans and ensuring that the message is delivered to all the global stakeholders in a global account in a coordinated fashion.

This calls for re-evaluation and redefinition of a customer from a fairly passive recipient role as a buyer to someone who is actively engaged in the process of co-creation of value. As customers take on roles other than only buyers, marketing can change from outbound to inbound marketing, sales can partly be done by inside sales, and both can be automated.

Account Management for the long haul

Digitalization paves the way for a measurable business model in the form of “customer journey scorecards” that help account managers track the development within an account through various phases. According to SAMA, moving the focus from value quantification as a sales tool, toward value verification as a tool creates long-term engagement with accounts and creates value for customers.

Automation of Account Management

Automation of marketing and sales is another by-product of the digitalization of account management that lets you manage multiple marketing activities across channels such as website, social media, emails, etc., and automate repetitive functions such as the marketing calendar, internal collaborations, and digital asset creation. Not only this, the software platforms let you tap into the vast amount of customer data to select, nurture, and predict the behavior of the stakeholders within your key account ecosystem and score them accordingly.

Must Watch: The Shifting Landscape of Strategic Account Management (ft. SAMA)

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About The Author

Milind is the COO & Co-Founder of DemandFarm. He co-founded DemandFarm to build smart software technology to bring Account Planning and Relationship Intelligence into your CRM, making Key Account Management data-driven, predictable and scalable.Milind has close to 25 years of experience in sales & marketing. He is an Electronics & Communication Engineer with MBA in Marketing. He enjoys long-distance running, loves reading history, and above all else, he is a humanist.

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Business Model Management pp 19–49 Cite as

Business Model Concepts in Literature

  • Bernd W. Wirtz 2  
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Part of the Springer Texts in Business and Economics book series (STBE)

A variety of business model concepts can be distinguished in the literature. In the following chapter, the three basic theoretical approaches of the business model concept are presented along with the different business model concepts associated with them. In addition, a chronological synopsis of the different developments is provided.

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  • Corporate Finance

Business-to-Business (B2B): What It Is and How It’s Used

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

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Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

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What Is Business-to-Business (B2B)?

Business-to-business (B2B), also called B-to-B, is a form of transaction between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business-to-business refers to business that is conducted between companies, rather than between a company and individual consumer. Business-to-business stands in contrast to business-to-consumer (B2C) and business-to-government (B2G) transactions.

Key Takeaways

  • Business-to-business (B2B) is a transaction or business conducted between one business and another, such as a wholesaler and retailer.
  • B2B transactions tend to happen in the supply chain, where one company will purchase raw materials from another to be used in the manufacturing process.
  • B2B transactions are also commonplace for auto industry companies, as well as property management, housekeeping, and industrial cleanup companies.
  • Meanwhile, business-to-consumer transactions (B2C) are those made between a company and individual consumers.

Lara Antal / Investopedia

Understanding Business-to-Business (B2B)

Business-to-business transactions are common in a typical supply chain , as companies purchase components and products such as other raw materials for use in the manufacturing processes. Finished products can then be sold to individuals via business-to-consumer transactions.

In the context of communication, business-to-business refers to methods by which employees from different companies can connect with one another, such as through social media . This type of communication between the employees of two or more companies is called B2B communication.

B2B E-Commerce

Late in 2018, Forrester said the B2B e-commerce market topped $1.134 trillion—above the $954 billion it had projected for 2018 in a forecast released in 2017. That's roughly 12% of the total $9 trillion in total US B2B sales for the year. They expect this percentage to climb to 17% by 2023 . The internet provides a robust environment in which businesses can find out about products and services and lay the groundwork for future business-to-business transactions.

Company websites allow interested parties to learn about a business's products and services and initiate contact. Online product and supply exchange websites allow businesses to search for products and services and initiate procurement through e-procurement interfaces. Specialized online directories providing information about particular industries, companies and the products and services they provide also facilitate B2B transactions. 

Special Considerations

Business-to-business transactions require planning to be successful. Such transactions rely on a company’s account management personnel to establish business client relationships. Business-to-business relationships must also be nurtured, typically through professional interactions prior to sales, for successful transactions to take place.

Traditional marketing practices also help businesses connect with business clients . Trade publications aid in this effort, offering businesses opportunities to advertise in print and online. A business’s presence at conferences and trade shows also builds awareness of the products and services it provides to other businesses.

Example of Business-to-Business (B2B)

Business-to-business transactions and large corporate accounts are commonplace for firms in manufacturing. Samsung, for example, is one of Apple's largest suppliers in the production of the iPhone. Apple also holds B2B relationships with firms like Intel, Panasonic and semiconductor producer Micron Technology.

B2B transactions are also the backbone of the automobile industry. Many vehicle components are manufactured independently, and auto manufacturers purchase these parts to assemble automobiles. Tires, batteries, electronics, hoses and door locks, for example, are usually manufactured by various companies and sold directly to automobile manufacturers.

Service providers also engage in B2B transactions. Companies specializing in property management, housekeeping, and industrial cleanup, for example, often sell these services exclusively to other businesses, rather than individual consumers.

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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.

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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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OpenAI teases an amazing new generative video model called Sora

The firm is sharing Sora with a small group of safety testers but the rest of us will have to wait to learn more.

  • Will Douglas Heaven archive page

OpenAI has built a striking new generative video model called Sora that can take a short text description and turn it into a detailed, high-definition film clip up to a minute long.

Based on four sample videos that OpenAI shared with MIT Technology Review ahead of today’s announcement, the San Francisco–based firm has pushed the envelope of what’s possible with text-to-video generation (a hot new research direction that we flagged as a trend to watch in 2024 ).

“We think building models that can understand video, and understand all these very complex interactions of our world, is an important step for all future AI systems,” says Tim Brooks, a scientist at OpenAI.

But there’s a disclaimer. OpenAI gave us a preview of Sora (which means sky in Japanese) under conditions of strict secrecy. In an unusual move, the firm would only share information about Sora if we agreed to wait until after news of the model was made public to seek the opinions of outside experts. [Editor’s note: We’ve updated this story with outside comment below.] OpenAI has not yet released a technical report or demonstrated the model actually working. And it says it won’t be releasing Sora anytime soon. [ Update: OpenAI has now shared more technical details on its website.]

The first generative models that could produce video from snippets of text appeared in late 2022. But early examples from Meta , Google, and a startup called Runway were glitchy and grainy. Since then, the tech has been getting better fast. Runway’s gen-2 model, released last year, can produce short clips that come close to matching big-studio animation in their quality. But most of these examples are still only a few seconds long.  

The sample videos from OpenAI’s Sora are high-definition and full of detail. OpenAI also says it can generate videos up to a minute long. One video of a Tokyo street scene shows that Sora has learned how objects fit together in 3D: the camera swoops into the scene to follow a couple as they walk past a row of shops.

OpenAI also claims that Sora handles occlusion well. One problem with existing models is that they can fail to keep track of objects when they drop out of view. For example, if a truck passes in front of a street sign, the sign might not reappear afterward.  

In a video of a papercraft underwater scene, Sora has added what look like cuts between different pieces of footage, and the model has maintained a consistent style between them.

It’s not perfect. In the Tokyo video, cars to the left look smaller than the people walking beside them. They also pop in and out between the tree branches. “There’s definitely some work to be done in terms of long-term coherence,” says Brooks. “For example, if someone goes out of view for a long time, they won’t come back. The model kind of forgets that they were supposed to be there.”

Impressive as they are, the sample videos shown here were no doubt cherry-picked to show Sora at its best. Without more information, it is hard to know how representative they are of the model’s typical output.   

It may be some time before we find out. OpenAI’s announcement of Sora today is a tech tease, and the company says it has no current plans to release it to the public. Instead, OpenAI will today begin sharing the model with third-party safety testers for the first time.

In particular, the firm is worried about the potential misuses of fake but photorealistic video . “We’re being careful about deployment here and making sure we have all our bases covered before we put this in the hands of the general public,” says Aditya Ramesh, a scientist at OpenAI, who created the firm’s text-to-image model DALL-E .

But OpenAI is eyeing a product launch sometime in the future. As well as safety testers, the company is also sharing the model with a select group of video makers and artists to get feedback on how to make Sora as useful as possible to creative professionals. “The other goal is to show everyone what is on the horizon, to give a preview of what these models will be capable of,” says Ramesh.

To build Sora, the team adapted the tech behind DALL-E 3, the latest version of OpenAI’s flagship text-to-image model. Like most text-to-image models, DALL-E 3 uses what’s known as a diffusion model. These are trained to turn a fuzz of random pixels into a picture.

Sora takes this approach and applies it to videos rather than still images. But the researchers also added another technique to the mix. Unlike DALL-E or most other generative video models, Sora combines its diffusion model with a type of neural network called a transformer.

Transformers are great at processing long sequences of data, like words. That has made them the special sauce inside large language models like OpenAI’s GPT-4 and Google DeepMind’s Gemini . But videos are not made of words. Instead, the researchers had to find a way to cut videos into chunks that could be treated as if they were. The approach they came up with was to dice videos up across both space and time. “It’s like if you were to have a stack of all the video frames and you cut little cubes from it,” says Brooks.

The transformer inside Sora can then process these chunks of video data in much the same way that the transformer inside a large language model processes words in a block of text. The researchers say that this let them train Sora on many more types of video than other text-to-video models, varied in terms of resolution, duration, aspect ratio, and orientation. “It really helps the model,” says Brooks. “That is something that we’re not aware of any existing work on.”

“From a technical perspective it seems like a very significant leap forward,” says Sam Gregory, executive director at Witness, a human rights organization that specializes in the use and misuse of video technology. “But there are two sides to the coin,” he says. “The expressive capabilities offer the potential for many more people to be storytellers using video. And there are also real potential avenues for misuse.” 

OpenAI is well aware of the risks that come with a generative video model. We are already seeing the large-scale misuse of deepfake images . Photorealistic video takes this to another level.

Gregory notes that you could use technology like this to misinform people about conflict zones or protests. The range of styles is also interesting, he says. If you could generate shaky footage that looked like something shot with a phone, it would come across as more authentic.

The tech is not there yet, but generative video has gone from zero to Sora in just 18 months. “We’re going to be entering a universe where there will be fully synthetic content, human-generated content and a mix of the two,” says Gregory.

The OpenAI team plans to draw on the safety testing it did last year for DALL-E 3. Sora already includes a filter that runs on all prompts sent to the model that will block requests for violent, sexual, or hateful images, as well as images of known people. Another filter will look at frames of generated videos and block material that violates OpenAI’s safety policies.

OpenAI says it is also adapting a fake-image detector developed for DALL-E 3 to use with Sora. And the company will embed industry-standard C2PA tags , metadata that states how an image was generated, into all of Sora’s output. But these steps are far from foolproof. Fake-image detectors are hit-or-miss. Metadata is easy to remove, and most social media sites strip it from uploaded images by default.  

“We’ll definitely need to get more feedback and learn more about the types of risks that need to be addressed with video before it would make sense for us to release this,” says Ramesh.

Brooks agrees. “Part of the reason that we’re talking about this research now is so that we can start getting the input that we need to do the work necessary to figure out how it could be safely deployed,” he says.

Update 2/15: Comments from Sam Gregory were added .

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A girl recording a runway with an iPhone.

Five Takeaways From The Times’s Investigation Into Child Influencers

Mothers are running Instagram accounts for underage girls aspiring to stardom. Many encounter a dark underworld dominated by men, including pedophiles.

A girls’ fashion show in New York this month. Credit... Natalie Keyssar for The New York Times

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Jennifer Valentino-DeVries

By Jennifer Valentino-DeVries and Michael H. Keller

  • Feb. 22, 2024

Instagram does not allow children under 13 to have accounts, but parents are allowed to run them — and many do so for daughters who aspire to be social media influencers.

What often starts as a parent’s effort to jump-start a child’s modeling career, or win favors from clothing brands, can quickly descend into a dark underworld dominated by adult men, many of whom openly admit on other platforms to being sexually attracted to children, an investigation by The New York Times found.

Thousands of so-called mom-run accounts examined by The Times offer disturbing insights into how social media is reshaping childhood, especially for girls, with direct parental encouragement and involvement.

Nearly one in three preteens list influencing as a career goal, and 11 percent of those born in Generation Z , between 1997 and 2012, describe themselves as influencers. But health and technology experts have recently cautioned that social media presents a “profound risk of harm” for girls . Constant comparisons to their peers and face-altering filters are driving negative feelings of self-worth and promoting objectification of their bodies, researchers found.

The pursuit of online fame, particularly through Instagram, has supercharged the often toxic phenomenon, The Times found, encouraging parents to commodify their daughter’s images. These are some key findings.

Parents are the driving force behind the accounts. Some offer the sale of photos, exclusive chat sessions and even the girls’ worn leotards to mostly unknown male followers.

The child influencers can earn six-figure incomes from monthly subscriptions and other interactions with followers, according to interviews. Some can demand $3,000 from companies for a single post. Big followings look impressive to brands and bolster chances of getting discounts, products and other financial incentives, and the accounts themselves are rewarded by Instagram’s algorithm with greater visibility on the platform.

As the accounts gain followers, they also draw a higher proportion of males. Interacting with the men opens the door to abuse.

One calculation performed by an audience demographics firm found 32 million connections to male followers among the 5,000 accounts examined by The Times. In addition, an analysis using image classification software from Google and Microsoft indicates that suggestive posts are more likely to receive “likes” and comments.

Some of the male followers flatter, bully and blackmail girls and their parents to get racier images, and some have been convicted of sex crimes. The Times monitored separate exchanges on Telegram, the messaging app, where men openly fantasize about sexually abusing the children they follow on Instagram and extol the platform for making the images so readily available.

“It’s like a candy store 😍😍😍,” one of them wrote. “God bless instamoms 🙌,” wrote another.

Account owners who report explicit images or potential predators to Instagram are typically met with silence or indifference.

Meta, Instagram’s parent company, found that 500,000 child Instagram accounts had “inappropriate” interactions every day, according to an internal study in 2020 quoted in legal proceedings. The platform’s policy prohibits convicted sex offenders, and the company said it removed two accounts after The Times pointed them out.

In a statement, Andy Stone, a Meta spokesman, said that parents were responsible for the accounts and their content and could delete them anytime. “Anyone on Instagram can control who is able to tag, mention or message them, as well as who can comment on their account,” he added, noting a feature that allows parents to ban comments that contain certain words.

Some parents refuse to give in to creepy “bullies,” but others regret ever opening an account.

A mother in Australia, whose daughter is now 17, said she worried that a childhood spent sporting bikinis online for adult men had scarred her. She warned mothers to avoid her mistakes. “I’ve been stupidly, naïvely, feeding a pack of monsters, and the regret is huge,” she said. But a mother in Alabama said parents couldn’t ignore the reality of this new economy. “Social media is the way of our future, and I feel like they’ll be behind if they don’t know what’s going on,” she said.

Though rare, there have been criminal prosecutions against parents accused in child sexual abuse cases.

Even the most unsettling images of sexualized child influencers tend to fall into a legal gray area. To meet the federal definition of so-called child pornography, the law generally requires a “lascivious exhibition” of the anal or genital area, though courts have found the requirement can be met without nudity or sheer clothing.

Jennifer Valentino-DeVries is an investigative reporter at The Times who often uses data analysis to explore complex subjects. More about Jennifer Valentino-DeVries

Michael H. Keller is a Times reporter who combines traditional reporting and computer programming. His work has examined technology’s impact on society and shortcomings of the criminal justice system. More about Michael H. Keller

A Parent’s Guide to Kids and Social Media

Does your child have an unhealthy relationship with social media? This is what problematic use could look like .

We asked experts for one practical strategy that parents can use with their kids to help mitigate the harms of social media. Here’s what they told us .

There are many tools that allow parents to monitor and set limits on their children’s screen time. Here’s what to know about them .

If you’ve already given your teen full access to social media, these three strategies can help them cut back .

Is social media addictive? Here is what the science says .

A new book argues that banning social media isn’t the answer to online safety. Instead, the author says parents should emphasize the importance of digital literacy and privacy .

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