A business model is a holistic framework to design how a business might create and capture value. A business plan is a document explaining how a business might become viable. Where a business model is made to be tested, a business plan’s primary goal is to gain investments.
Aspect
Business Model
Business Plan
Definition
A Business Model is a strategic framework that outlines how a business creates, delivers, and captures value. It focuses on the core components of a business’s operations and revenue generation.
A Business Plan is a comprehensive document that outlines a company’s goals, strategies, financial projections, and operational details. It is often used for fundraising and as a roadmap for the business.
Purpose
The primary purpose of a business model is to describe the fundamental logic of how a business will make money and create value for customers.
A business plan serves as a detailed blueprint that provides guidance on how a business intends to operate and grow. It is often used for attracting investors or lenders.
Components
Key components of a business model include the value proposition, customer segments, revenue streams, channels, key resources, and cost structure.
A business plan typically includes sections on the executive summary, company description, market analysis, marketing strategy, financial projections, and operational plan.
Focus
A business model emphasizes the core aspects of value creation and capture, simplifying complex business operations into key building blocks.
A business plan delves into comprehensive details, including market research, competition analysis, financial forecasts, and strategic milestones.
Flexibility
Business models are often more flexible and adaptable to changes in the market and business environment. Entrepreneurs can pivot easily based on customer feedback or market shifts.
Business plans can be rigid and may require extensive updates when the business encounters unexpected challenges or opportunities, potentially leading to delays.
Timing
Business models are typically developed and iterated upon early in the business development process, helping entrepreneurs validate their ideas quickly and efficiently.
Business plans are usually created when the business is seeking external funding or when a more detailed operational roadmap is required for established businesses.
Use Cases
Business models are useful for conceptualizing and testing business ideas, often at the startup or early stages of a venture.
Business plans are commonly used for attracting investors, securing loans, or presenting a comprehensive growth strategy for established businesses.
Visual Representation
Business models are often represented using visual tools like the Business Model Canvas, which provides a quick overview of key components.
Business plans are primarily presented as text-based documents with detailed narratives and financial tables.
Focus on Innovation
Business models encourage innovation and experimentation as they allow entrepreneurs to explore various ways to create and capture value.
Business plans may prioritize risk mitigation and detailed planning over rapid innovation, potentially leading to slower adaptability.
Investor Appeal
Investors may appreciate a clear and compelling business model that demonstrates a strong value proposition and revenue potential.
Investors often require a comprehensive business plan to evaluate the financial viability, growth strategy, and risk mitigation of a business.
Longevity
Business models can evolve and adapt to market changes, allowing businesses to stay relevant over the long term.
Business plans may become outdated and less relevant once a business is operational, often requiring frequent updates.
Resource Requirements
Developing a business model typically requires fewer resources and is suitable for resource-constrained startups.
Creating a comprehensive business plan can be resource-intensive in terms of time and expertise, often involving multiple team members or consultants.
Execution Guidance
A business model provides strategic direction and helps in making decisions that align with the core value proposition and revenue generation.
A business plan serves as a step-by-step guide for executing strategies, including marketing, operations, and financial management.
Presentation Format
Business models can be presented in a concise and visual format that quickly conveys the essence of the business’s value proposition.
Business plans typically involve detailed narratives and financial projections, which can be lengthy and text-heavy.
Return on Investment (ROI)
ROI on developing a business model can be relatively high, as it provides a clear understanding of how the business intends to create value and generate revenue.
ROI on creating a business plan may be realized over the long term if it successfully attracts investors or lenders and helps secure funding.
Table of Contents
The key difference between a business model and a business plan
It is easy to confuse a business model with a business plan. Yet those tools have specific functions, in some cases similar, in most other cases completely different.
Indeed, while a business model is a framework to understand the way an organization works, a business plan is a document that helps to understand the future strategy of an organization and its expected performance in a three to five years time frame.
While in some cases, a business plan can also serve the purpose of better understanding your own business, and in some other cases, the business model can be comprised within the business plan.
Indeed, as an investor, I want to know exactly how your business works or how you think it will work in the future. Keeping a distinction between those tools is critical.
In particular, I want to focus on the critical difference from two perspectives:
external (investors, stakeholders, and other parties)
internal (owners, top management, shareholders)
External: business plan or business model?
If you’re looking for a tool whose aim is to show how attractive your business is, a business plan is the most suited for that.
Indeed, suppose you want to attract investors and grow your business via external resources.
In that case, a detailed business plan is the most effective way to allow those investors to understand the several parts of your business.
Also, the business plan is a way to show where you see the business in the future. Indeed, one key ingredient of a business plan is a set of projections for three-five years.
While investors will also want to know what kind of business model you want to build (depending on whether or not your business model will be scalable will make or break the interests of investors).
The primary tool to show where your business will be in the future and to address the kind of resources needed to get there is the business plan. In short, for external subjects to know about your business and invest in it, the business plan is the best tool.
Internal: business plan or business model?
Among the tools to leverage on to understand your business, a business model is one of the most effective.
Indeed, the business model is a framework (usually a one-page) that allows you to understand how your business works from several perspectives.
Depending on what kind of business you’re trying to build or where you want to steer your organization, you might want to look at a few tools, such as:
Each of those tools will help you to build a different kind of business.
For instance, in a start-up phase, the business model canvas and the lean startup canvas are the most suited.
In a phase of scale-up, the lean startup is better suited than the business model canvas.
Instead, if you’re trying to blitzscale your business, the Blitzscaling Canvas will be your best companion.
In conclusion, if you’re looking for a way to understand better your business in the present or how to design a business model that can help you grow, the business model frameworks are the most suited to the business plan.
In some cases, though, a business plan might also work for that purpose, especially a one-page business plan.
Key takeaway and resources
A business plan is a tool that is most suited to shot external stakeholders where your business is headed and why they should finance or invest in its future.
The business model instead, is a framework that helps you assess how your business works from several angles and the kind of actions you can take in the now.
A one-page business plan is a simple tool to clear your mind. It focuses on three questions: What core problem am I solving? Who are my potential key customers? Where do I find them? It helps define the problem, profile the key customer, and find the key distribution channel.
Key Highlights:
Business Model vs. Business Plan: A business model is a comprehensive framework for creating and capturing value in a business, while a business plan is a document that outlines how a business can become viable. The primary goal of a business plan is often to secure investments.
Key Difference: The main distinction between a business model and a business plan lies in their functions. A business model explains how an organization operates, while a business plan focuses on the future strategy and expected performance over three to five years.
External Perspective: For external stakeholders like investors and partners, a detailed business plan is essential. It helps them understand various aspects of the business and provides projections for the future. Investors also want to know about the scalability of the business model.
Internal Perspective: When looking to understand the current state of your business or design a business model, tools like the Business Model Canvas, Lean Startup Canvas, and others are more effective. These tools offer insights into how the business operates and can guide decision-making.
Choosing the Right Tool: The choice between a business model and a business plan depends on your goals and the stage of your business. For startups, the Lean Startup Canvas and Business Model Canvas are useful. In a scale-up phase, Lean Startup tools might be more suitable, and for rapid growth, the Blitzscaling Canvas can be valuable.
Key Takeaway: A business plan is best suited for presenting your business to external stakeholders and securing financing, while a business model is a framework for understanding your business from multiple angles and making informed decisions in the present.
Resources: Various tools, such as the Business Model Canvas and Lean Startup Canvas, can help you analyze and improve your business model. A one-page business plan can also be effective in clarifying your business’s core problem, target customers, and distribution channels.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
The Cynefin Framework gives context to decision making and problem-solving by providing context and guiding an appropriate response. The five domains of the Cynefin Framework comprise obvious, complicated, complex, chaotic domains and disorder if a domain has not been determined at all.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
The SWOT analysis is commonly used as a strategic planning tool in business. However, it is also well suited for personal use in addressing a specific goal or problem. A personal SWOT analysis helps individuals identify their strengths, weaknesses, opportunities, and threats.
The Pareto Analysis is a statistical analysis used in business decision making that identifies a certain number of input factors that have the greatest impact on income. It is based on the similarly named Pareto Principle, which states that 80% of the effect of something can be attributed to just 20% of the drivers.
A failure mode and effects analysis (FMEA) is a structured approach to identifying design failures in a product or process. Developed in the 1950s, the failure mode and effects analysis is one the earliest methodologies of its kind. It enables organizations to anticipate a range of potential failures during the design stage.
A Blindspot Analysis is a means of unearthing incorrect or outdated assumptions that can harm decision making in an organization. The term “blindspot analysis” was first coined by American economist Michael Porter. Porter argued that in business, outdated ideas or strategies had the potential to stifle modern ideas and prevent them from succeeding. Furthermore, decisions a business thought were made with care caused projects to fail because major factors had not been duly considered.
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.
A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.
Agile Business Analysis (AgileBA) is certification in the form of guidance and training for business analysts seeking to work in agile environments. To support this shift, AgileBA also helps the business analyst relate Agile projects to a wider organizational mission or strategy. To ensure that analysts have the necessary skills and expertise, AgileBA certification was developed.
A SOAR analysis is a technique that helps businesses at a strategic planning level to:
Focus on what they are doing right.
Determine which skills could be enhanced.
Understand the desires and motivations of their stakeholders.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.
A DESTEP analysis is a framework used by businesses to understand their external environment and the issues which may impact them. The DESTEP analysis is an extension of the popular PEST analysis created by Harvard Business School professor Francis J. Aguilar. The DESTEP analysis groups external factors into six categories: demographic, economic, socio-cultural, technological, ecological, and political.
A paired comparison analysis is used to rate or rank options where evaluation criteria are subjective by nature. The analysis is particularly useful when there is a lack of clear priorities or objective data to base decisions on. A paired comparison analysis evaluates a range of options by comparing them against each other.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
