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The difference between a business model and a business plan

By Samantha Garner | December 9, 2017

When you’re getting ready to start your small business, you want to create as solid a foundation as you can – and that involves education and planning. You might have heard that you should start with a business plan, or a business model. That’s great! But what are they, exactly, and how are they different from one another?

Business model

The business model is a blueprint for the business, outlining how you’re going to run your business, and how you’re going to make money.

There are five elements of a business model:

  • Business concept: A short description of an opportunity, including a description of your average customer; the benefit of your product or service to the customer; the product or service; and the way you’re going to get your product or service to the customer.
  • Value chain position: Your business’ position on the chain of activities through which products and services pass to get from you all the way to the end user.
  • Calculating customer value: An estimate of the value of the tangible benefits your customers will receive by purchasing your product or service.
  • Revenue sources and cost drivers: Identifying your sources of revenue, and activities that come at a cost.
  • Competitive advantage: The state when customers perceive your products or services to be superior to your competition.

Business plan

Where a business model is a blueprint, a business plan is a roadmap. A business plan is a formal written document that includes a description of the business you want to run, your business goals, and the plan for reaching those goals.

A business plan is a detailed document that contains sections such as: Marketing Plan, Startup Expenses and Capitalization, Management and Organization, Products and Services, and Operational Plan.

A business plan is usually developed around the answers to three common questions:

  • Where are we now?
  • Where do we want to be?
  • How are we going to get there?

And is usually written for one or more of these five reasons:

  • To test the feasibility of your business idea and work out any bugs on paper first.
  • To develop strategies ahead of time for marketing, finance, operation and human resources, instead of when you’re in the fast-paced start-up stage.
  • To get funding, such as a bank loan.
  • To attract investors.
  • To have a roadmap to follow for at least the first year in business.

Why does your small business need both a business model and a business plan?

It’s easy to come up with business ideas, but just because you build a company, that doesn’t mean customers will come. A great deal of time and effort should be spent planning before your new company’s products and services ever reach the market. You need a good foundation and planning before you invest all your time and money.

To get started, check out our free One-Page Business Plan – happy planning!

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