How are a business model and business plan different?

Last week, we talked about the importance of a business model. But how is it different from a business plan?

First, let’s talk a bit more about the business model.

Business model

The business model is a blueprint for your business. It’s an outline, showing 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 longer than a business model. It’s a formal, detailed 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 contains sections like: 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?

It’s 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. 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!