business-model-vs-business-plan

Business Model Vs Business Plan: When And How To Use Them

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. 

Key difference between a business model and a business plan

It easy to confuse a business model for 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 which aim is to show how attractive is your business, a business plan is the most suited for that. Indeed, if you want to attract investors and grow your business via external resources 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 better understand 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, than the business plan.

In some cases, though a business plan might also work for that purpose, especially the 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.

Below you can find the example on how to build a one-page business plan as well:

one-page-business-plan
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.

Methodologies & Frameworks

Startup Resources

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here

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