The business model vs business plan are intertwined. Let’s look at the differences between a business model and a business plan in more detail. The business plan’s center is the business model. A business model is a framework for designing and illustrating how a company might produce and capture value.
A business plan is a document that explains how a company can make money. This plan outlines the strategies that will be used to create the company and aligns the strategy with the business model.
We’ll also go over business model components that can be used when creating a business model canvas. The business model canvas is a tool that aids in the clear and organized understanding of a company model. Click here to know what an entrepreneur must do after creating a business plan.
What is the main difference between a business model and a business plan?
Most entrepreneurs begin with a clear vision to develop a flawless ideal plan. Start with a written explanation rather than chasing an ideal blueprint. This description should include information about who you are, your thoughts, and why you are in that particular line of work.
Consider the following scenario:
E-commerce is your business model if you sell jewelry online. You intend to offer jewelry as part of your business plan. Business plans can be time-consuming and lengthy. As a result, we must appropriately format the plan. A business plan is a document that details future projections such as techniques and objectives to be met.
Business models are well-structured business proposals that have a simple and time-saving outline. The fundamental objective of a one-page business model is to show how a company works. A business model becomes quick, concise, and portable as a result of this. I’ll look at the crucial distinction from two angles:
- Stakeholders, investors, and other third parties are examples of external resources.
- Top management, owners, and shareholders are all internal resources.
To avoid common mistakes entrepreneurs do on business plans, read this!
External Resources: Business Model vs. Business Plan?
A solid plan is required if you wish to attract investors and build your business using external resources. This enables investors to comprehend the various aspects of your company.
If I had to talk about the most important component of a business strategy, it would be a set of projections for the next three to five years. Whether or not your business concept is scalable is important to investors.
While investors will want to know what kind of business model you want to establish, you should also know what kind of business model you want to build. The fundamental concept is to use a business plan to highlight your company’s future projections and address the resources required to get there.
So, if you want other people to know about your firm and invest in it, the ideal tool is a business plan.
Internal Resources: Business Plan Vs Business Model?
A business model is one of the most effective ways to understand your company. The business model canvas and the lean startup canvas, for example, are the best tools for a startup.
Each of these tools will assist you in establishing a distinct type of business. Rather than a business strategy, business model frameworks are best for understanding or designing a business model that can help you expand.
In a guest post on TechCrunch, Alan Gleeson, the General Manager of Palo Alto Software, Ltd, explained the distinction between a business model and a business plan:
“It’s important to distinguish between a business model and a business plan. A business plan is a written document that explains the business opportunity, whereas a business model is a one-page visual representation or a basic spoken statement.”
So, if you’re a tech startup wanting to raise venture capital, your business plan should include a PowerPoint slide deck and an executive summary that focuses on Venture Capital.
This planning method provides various advantages to the entrepreneur, including the capacity to examine operations, maintain an internal focus, and manage cash flow. Read on the step by step process of how to write a business plan.
How To Write A Business Model
A good Business Model explains a company’s marketing, operations, and distribution methods. It also entails examining the organizational structure and making changes to maintain a competitive advantage.
- Operational Outline– On a flip chart, creates a graphical representation of business activities using circles and labels.
As illustrated below, define the interrelationships between them to help your team boost sales, distribute products, target customers, and generate income.
- Business Model Formatting– Use a template to format your business model. You can include information on various customer categories and how your products and services are beneficial to them.
Calculate the overall cost of production, personnel, and materials. Additionally, make a list of your business’s suppliers and partners.
- Operational Business Model– Use the “Bricks and Mortar” Business Model to attract local clients who want to pick and select from your store’s items and services.
If your clients come from different parts of the world, use the Internet to reach out to them. Also, consider how you’ll use firm resources and keep profits up. Concentrate on attracting new customers and identifying potential hazards or challenges to the company.
- Additional Add-Up Values– Recognize the many techniques for providing items and services to your clients. Maintain customer relationships by segmenting them and focusing on potential consumers.
Business Model Types
Let’s break down the many Business Model Examples into sections.
1. Advertising– The advertising model entails creating content and exposing it to readers and viewers in the form of a visual commercial. YouTube and the New York Times are two examples.
2. Affiliate– The affiliate model makes use of links placed in content that may be accessed over the internet. TopTenReviews.com and TheWireCutter.com are two examples.
3. Brokerage-Brokerage models are mostly utilized by real estate agencies and involve brokerage transaction fees imposed by the brokers on either the buyer or the seller, or both. Century 21 and Orbitz are two examples.
4. Crowdsourcing– In exchange for access to additional content, a big number of people provide content to your site. YouTube and Dell are two examples.
5. Freemium– Freemium is a business model that offers free basic services but charges for premium ones. LinkedIn and Mailchimp are two examples.
6. Franchise– A franchise is a means of creating and maintaining a business that is sold. McDonald’s and Allstate are two examples.
Examples of Business Models
Consider two competing business models in which two companies rent and sell movies. After investing $4 million in their movie inventories, both companies made $5 million in revenue. This translates to a gross profit of $5 million minus $4 million, or $1 million, for each company. They also share the same gross profit margin, which is computed by dividing gross profit by revenues by 20%.
However, with the advent of the internet, things have changed. Instead of renting or selling physical copies, Company B intends to stream movies online. This adjustment has a favorable impact on the company model. The licensing payments remain unchanged, but the cost of keeping inventory falls dramatically. In reality, the shift saves $2 million in storage and distribution expenditures.
The company’s new gross profit is $5 million minus $2 million, or $3 million. 60 percent is the new gross profit margin. Company A, on the other hand, fails to update its business plan, resulting in a reduced gross profit margin. As a result, the company’s revenues begin to decline. Company B isn’t producing any more money, but it has transformed its business model, which has resulted in significant cost savings.
How To Write A Business Plan?
Every business needs a business plan to guide its growth and success. It also aids in the search for investors and business partners. It has some elements such :
1. Executive Summary– The executive summary is a summary of the company plan that includes the mission and statement, primary data, products and services, location, and staff.
2. Company Description– This section contains detailed information about a business, such as customers, business problems, product types, and services provided.
3. Market analysis– this aids in the comprehension of the target market, its trends, and the present market’s potential for expansion.
4. Organization and Management– This diagram shows the organizational structure, along with the department’s vision and mission, as well as the company’s overall operation.
5. Marketing and Sales– Marketing entails various marketing techniques that are essential in the firm, whereas sales are in charge of covering the return on investment.
6. Funding Requests– Funding requests can be submitted online or in person.
7. Appendix and Glossary– For supporting documentation and data references, every organization should supply an appendix and glossary.
Types of Business Plans
Depending on the nature of their business, businesses use a variety of business plans.
1. Startup Business Plan– This plan is for businesses that are just getting started. Market analyses, products, and services are given, and financial analysis and the expected management team are all included.
2. Internal Business Plan– These plans detail the company’s actual position, marketing, hiring, and technical costs, as well as the operational costs and profitability.
3. Strategic Business Plan– This plan outlines the company’s objectives, including a timeline for implementation, objectives, and important success elements, as well as strategies for achieving them.
4. Feasibility Business Plan– This document includes a description of the products and services, as well as the capital requirements and target demographics.
5. Activities Business Plan– These are internal plans that detail the company’s primary operations as well as staff responsibilities.
6. Growth Business Plan– This plan gives potential investors a detailed overview of the projected growth strategy and investment.
Business Plan Types
Let’s look at some business plan examples in each section of the company.
- Personal Services, Non-Profit Organizations
- Hotels and Hospitality
- Children’s Education
- Manufacturing and Online Business
- Construction and Engineering
- Consulting, Health, and Beauty
- Food and Farming, Medical and Healthcare
- Travel and Transportation sector
- Computers and the Internet
This plan aids in understanding the company’s profile and description, as well as specific investor information and risk considerations. It also covers market research, sales, and marketing strategies, operations, and financial analyses, among other things.
Differences between a business plan and a business model
So, how are a business plan and a business model different? Allow me to give you a quick recap.
- A business model known as a subset of business plan
- A business plan is extensive and has many pages, whereas a business model is a short document with few pages—it can even be depicted diagrammatically on a single page. The canvass is known as the Business Model Canvass (BMC).
- A business plan is a document that is used to guide management, operations, and decision-making in a business – a document that serves as the blueprint and a guide for every aspect of a business. A business model canvass is a document that shows who your customer is, what value you will offer the customer, and how you can do that at reasonable costs, whereas a business model canvass is a document that shows who your customer is, what value you will offer the customer, and how you can do that.
- The business model explains how a firm makes money, whereas the business plan explains the organization’s strategy and predicted financial results in the future.
- The business model demonstrates how a company fits into the value chain of the industry in which it works, as well as how profitable its relationships with suppliers, clients, and partners are. The business plan translates a company’s positioning (as described by the business model) into a sequence of strategic activities and calculates the financial ramifications of those actions.
The only distinction between a Business Model and a Business Plan is that they are both components of a successful Strategic Planning process. It’s all about VALUE in a business concept! What kind of value are you providing, for whom are you creating it, and how are you distributing it to your target?
Time, infrastructure, labor, technology, competencies, and capital are all resources that must be considered when developing a business plan. They both contribute to the expansion of a company. When you use the proper one, your business will have a clearer procedure and superior products and services.