It’s very common to make confusion on what’s the difference between Business Model and Business Plan. But, in fact, they are similar only in name. Their functions and purposes are quite different and, actually, complementary.
While the business model refers to a one-page representation of how a company creates, delivers, and captures value, the business plan is an in-depth description on a long textual document form about how your company is structured and plan to achieve strategic and financial objectives. This business plan is a document that contains every data of the business – usually including its model.
Let’s separate them both, to make it simple.
Business Model Definition
Your company’s business model is all about the way a company creates, delivers, and captures value. For example, a restaurant franchise is a business model. A Software-as-a-Service is another one.
What it’s commonly mistaken with the business plan is not the business model itself. It’s, indeed, the business modeling tool. And this tool provides a base to design a business model.
It’s, in fact, by modeling your business through this kind of tool that you’ll be able to identify your they main construction blocks of a business, who they relate to each other and combine to form a unique strategy.
It’s with the business model tool that you may identify the key resources for your business to succeed, which key activities it must perform, who it has to interact with, and by which means and channels.
Usually, this business model tool is a framework, made up of a single page, that allows you to recognize your own business under several perspectives. According to the type of business, you may take a look at different modeling options, such as Business Model Canvas, Value Propositions Canvas, Lean Canvas, and others.
Each of them fits a different purpose. For example, if your business is brand new, the Business Model Canvas is likely to be the better option. On the other hand, for early validation of your startup, the Lean Canvas must be the most appropriate. And, to pivot your product, it’s a good idea to check the Value Proposition Canvas.
In short, if you aim to understand your business better, from inside, or make predictions for growing your venture, then your need to work on your business model, not make a business plan. So, now, let’s check what the business plan is for.
Business Plan Definition
A business plan is a written document that contains detailed information of the business, product/service, market, and the entrepreneur vision for the company’s future.
It is basically the most accurate portrait of the field, products and services, customers, competitors, suppliers, all the operational and financial goals of the company, its marketing and sales strategy.
Its purpose is to display the strengths and weaknesses of the business and to project the gains and losses of the organizations, in order to identify the viability and sustainability of the idea.
The business plan is often a long document, made up of several pages. In general, it contains:
- Table of Contents;
- Executive Summary;
- Business and product/service description;
- Market analysis;
- Competitive Analysis;
- Marketing Plan;
- Operational and Management Plan;
- Financial Plan;
- Supporting data and documents.
The goal of the business plan is to determine whether your idea is sustainable or not. It also shows the weaknesses to be repaired, as well as the strengths to be potentialized. It is a kind of script, to reduce the chance of failure.
The business plan is a core document if you are looking for partners, in order to demonstrate profitability. Its focus is, indeed, to provide executives, investors, and any other stakeholders a full overview of the business.
So, it is especially important when you are seeking loans, sources of financing, and investments. It is the best way to demonstrate that your business is trustworthy and solid enough for credit.
Business Model vs Business Plan
the difference between Business Model and Business Plan lies in key points like how they should be developed, where should the focus be, how to organize ideas and what are their main objectives.
Business Models and Business Plans are important documents to help you plan and organize your business strategy. It can be either a document for early-stage companies that need to validate hypothesis or big companies that need to plan ahead, capture investment or even make an IPO.
Whatever the case is, it is very important to understand that these are different terms, with different purposes and have different tools to develop them. To summarize here, the key terms that are commonly confused between each other:
Business model – provides a rationale for how a business creates, delivers and captures value, and examines how the business operates, its underlying foundations, and the exchange activities and financial flows upon which it can be successful.
Business Plan – a formal document that typically describes the business and industry, market strategies, sales potential, and competitive analysis as well as the company’s long-term goals and objectives.
Revenue Model – Outlines the ways in which your company will make money (e.g. revenue streams).
Did you better understand the difference between Business Model and Business Plan? Comment below!