differences between a business model and a business plan

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Business Plan vs. Business Model

Back to Business Plans

Written by: Carolyn Young

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on February 19, 2023 Updated on December 11, 2023

If you’re starting a business , you have a business model, whether you know it or not. A business model is the foundation of any business idea; it basically outlines how the concept offers value and potential for growth. Essentially, a solid business model ensures that the business will make money. 

A business plan , on the other hand, is the business owner’s plan to put that model into action. It’s much more detailed and includes financial projections, objectives, management decisions and further steps. 

Still unsure? Have no fear, this handy guide lays out the differences between a business plan and a business model so that you know exactly what you and your business need to succeed.  

• Business Model

In simple terms, a business model is how the business will make money. Selling ice to eskimos, for instance, is a bad business model. Selling team jerseys to rabbit sports fans, on the other hand, is a solid business model. 

The components of a business model are best illustrated by Swiss entrepreneur Alexander Osterwalder’s Business Model Canvas, which is a visual representation with nine sections. Four sections represent internal elements of a business that enable it to function and are related to costs. 

Four other sections represent external elements that enable the business to bring in revenue and are related to the customer. The ninth section is the business’ value proposition. 

Value Proposition

The value proposition is at the heart of your business model. Your value proposition, which should be no more than two sentences long, needs to answer the following questions:

• What are you offering
• Whose problem does it solve
• What problem does it solve
• What benefits does it provide
• How is it better than competitor products

Key Activities

Key activities are all the activities required to run the business and create the proposed value. These can include product development and distribution and any other necessary activities.  

Cost Structure

The cost structure is a sum of all you’ll need to spend to make the business function. It’s the costs you’ll incur to run the business and bring in revenue. 

Key Partners

Key partners are external partners involved in delivering value, such as vendors and suppliers, or maybe a bank. 

Key Resources

Key resources are any necessary practical elements that come with a cost. These might include your office space, employees, and equipment like computers. 

Revenue Streams

Revenue streams are the ways in which you receive payment from customers. You may have more than one revenue stream, such as via direct sales and subscriptions.

Customer Segments

Customer segments are the groups of people to whom you provide goods or services. In other words, your target market. Maybe your products are aimed at younger women, for instance, or older men. Whatever your target segments, you should build customer personas of each group so that you know how and where to reach them with your marketing.

Customer Relationships

Customer relationships refer to how you interact with your customers to deliver value. Your interactions may be online only, by phone, in-person, or all of the above. 

Channels refer to how you reach your customers, such as social media, internet search, direct sales calls, trade shows, and so on. 

To Summarize

If you’re just starting a business, the Business Model Canvas is a great way to understand and examine your business model. One thing to remember is that the elements you put in your Canvas will be based on assumptions that will at some point be tested in the market and adapted as needed. 

Another thing to remember is that you do not need to do a Business Model Canvas. It’s merely an exercise that can help provide insight into your business model.  

• Business Plan

A business plan is a detailed document that describes how the business will function in all facets. The key is in the “plan” part of the name. It will specify how you’ll launch your business, gain customers, operate your company, and make money. A business plan, however, is not a static document . 

The initial version will be based largely on assumptions, supported by research. As you run your business you’ll constantly learn what works and what does not and make endless tweaks to your plan.

Thus, creating a business plan is not a one-time action – it’s a dynamic and continuous process of crafting and adapting your vision and strategy. 

You’ll present your business plan to potential backers, though in recent years some investors have begun to embrace the Business Model Canvas as a tool to assess a business’ potential. 

A strong business plan includes eight essential components .

1. Executive Summary 

The executive summary is the initial section of your business plan , written last, summarizing its key points. Crucial for capturing investors’ and lenders’ interest, it underscores your business’s uniqueness and potential for success. It’s vital to keep it concise, engaging, and no more than two pages.

2. Company Description/Overview

This section provides a history of your company, including its inception, milestones, and achievements. It features both mission (short-term goals and driving force) and vision statements (long-term growth aspirations). Objectives, such as product development timelines or hiring goals, outline specific, short-term targets for the business.

3. Products or Services Offered

Detail the product or service you’re offering, its uniqueness, and its solution to market problems. Explain its source or development process and your sales strategy, including pricing and distribution channels. Essentially, this section outlines what you’re selling and your revenue model.

4. Market Analysis 

• Industry Analysis : Research your industry’s growth rate, market size, trends, and future predictions. Identify your company’s niche or sub-industry and discuss adapting to industry changes.
• Competitor Analysis : Examine main competitors , their unique selling points, and weaknesses. Highlight your competitive advantages and strategies for maintaining them.
• Target Market Analysis : Define your target market , their demographics, needs, and wants. Discuss how and where you’ll reach them and the potential for market shifts based on customer feedback.
• SWOT Analysis : Break down your company’s strengths, weaknesses, opportunities, and threats. Detail your unique attributes, potential challenges, market opportunities, and external risks, along with strategies to address them.

5. Marketing and Sales Strategies

• Marketing and Advertising Plan : Use insights from your target market analysis to decide advertising channels, emphasizing platforms that best reach your audience, like TikTok over Instagram. Develop a concise value proposition to be central to all marketing, detailing how your product addresses specific needs.
• Sales Strategy and Tactics : Define where and how you’ll sell, such as online, in-store, or through direct sales calls. Sales tactics should highlight the customer’s needs, presenting your solution without overly aggressive promotion.
• Pricing Strategy : Decide on pricing based on market positioning, whether you aim to be a discount or luxury option. Ensure prices cover costs and yield profit, and position your product in a manner that aligns with the chosen price range. Justify your chosen pricing strategy in this section.

6. Operations and Management 

• Operational Plan : Outline daily, weekly, and monthly operations, specifying roles, tasks, and quality assurance methods. Include supplier details and order schedules, ensuring clarity on key business functions and responsibilities.
• Technology Plan : For tech-based products, detail the development plan, milestones, and staffing. For non-tech companies, describe the technology tools and software you’ll employ for business efficiency.
• Management and Organizational Structure : Define who’s in charge, their roles, and their backgrounds. Discuss your management strategy and forecast the development of your organizational hierarchy.
• Personnel Plan : List current and future hires, specifying their roles and the qualifications necessary for each position. Highlight the significance of each role in the business’s operations.

7. Financial Plan 

• Startup Costs : Clearly detail every anticipated cost before starting operations. This will be vital for understanding the initial investment required to get the business off the ground.
• Sales Projections : Estimate monthly sales for the first year, with an annual forecast for the next two years.
• Profit and Loss Statement : An overview of revenue minus costs, resulting in either a profit or loss.
• Cash Flow Statement : Provides clarity on the business’s liquidity by showing cash inflows and outflows over a specific period.
• Balance Sheet : Displays the company’s net worth by detailing its assets and liabilities.
• Break-even Analysis : Understand at which point revenues will cover costs, helping to predict when the business will start making a profit.
• Funding Requirements and Sources : Enumerate the required capital and the sources of this funding. This should also include the purpose for which these funds will be used at different stages.
• Key Performance Indicators (KPIs) : Identify the metrics vital for measuring the company’s performance. Use these indicators to spot challenges, understand where improvements can be made, and pivot strategies as necessary. Ensure that each KPI aligns with the business’s objectives and offers actionable insights for growth.

Remember, although the financial section might seem daunting, it is pivotal for understanding the economic feasibility of your business. Proper financial planning helps in making informed decisions, attracting investors, and ensuring long-term sustainability. Don’t hesitate to engage financial experts or utilize tools and software to ensure accuracy and comprehensiveness in this section.

8. Appendices

The appendices section of a business plan is a repository for detailed information too extensive for the main document. This can include resumes of key personnel, full market research data, legal documents, and product designs or mockups. By placing this data in the appendices, it keeps the main plan concise while allowing stakeholders access to deeper insights when needed. Always ensure each item is clearly labeled and referenced at the relevant point in the main document.

As you can see, business models and business plans have some similarities, but in the main they are quite different. Your business model explains the foundational concept behind your business, while a business plan lays out how you’ll put that model into action and build a business. 

When you’re starting a business, it’s best to have both, as the work of getting them done involves learning about your business from every angle. The knowledge you’ll gain is likely to be invaluable, and could even be the difference between success and failure. 

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Business Plan vs. Business Model: What's the Difference?

Dive into the nuances of Business Plans & Models. Uncover their key differences, applications, and tips for strategic growth. Master your business journey today!

November 28, 2023

In the world of business, two terms often emerge as foundational elements to startup founders, seasoned entrepreneurs, and everyone in between: the Business Plan and the Business Model. Both are crucial, yet their roles, purposes, and impacts are distinct, and understanding these differences can mean the difference between the success and failure of an enterprise.

In a landscape where innovation is rampant and industries are constantly evolving, having clarity about one's business direction is indispensable. It's akin to a sailor knowing the direction of the wind and having a map. While the wind's direction can be equated to the broader strategy of the sailor (the Business Model), the map which plots out the course in detail is akin to the Business Plan.

Yet, with these tools being so pivotal, it's alarming how often they are misunderstood or used interchangeably. Some entrepreneurs pour weeks into crafting the perfect business plan, only to realize they haven’t clarified their fundamental business model. Others sketch out a brilliant business model on the back of a napkin but falter when asked for the detailed strategy and projections that a business plan requires.

This guide aims to dissect the nuances between a Business Plan and a Business Model, highlighting their unique roles in the entrepreneurial journey and offering insight into how each can be harnessed most effectively. By the end of this exploration, readers will have a clear roadmap (pun intended!) for their own business endeavors, understanding when, why, and how to leverage each tool.

Definition of Key Terms - Understanding Business Plan and Business Model

In order to delve deep into the distinctions between a Business Plan and a Business Model, it's imperative that we first lay down clear definitions for each term. This ensures that as we progress, we're aligned in understanding and can avoid any ambiguities. So, let's start by putting these cornerstone concepts under the microscope.

Business Plan

A Business Plan can be envisioned as a detailed blueprint for setting up a business and ensuring its success. It's a comprehensive document that articulates what a business intends to achieve and the strategies it will deploy to make those aspirations a reality. Let's break down the typical components:

• Executive Summary: A snapshot of your business, providing a concise overview of what the business is about, its mission, and how it stands out in the market.
• Company Description: An in-depth look at the company, detailing its formation, mission, objectives, and overarching goals.
• Market Analysis: A study of the industry landscape, understanding potential competitors, target audience, market trends, and opportunities.
• Organizational Structure: A delineation of the company's hierarchy, roles, responsibilities, and the dynamics of how operations will be conducted.
• Product or Service Line: A detailed description of the product or service the company offers, its benefits, lifecycle, and relevance in the market.
• Marketing and Sales Strategies: Outlining the approach for promoting the product/service, attracting customers, and the strategies for sales conversion.
• Funding Requirements: If seeking external investment, a clear layout of the capital needed, the reasons, and the strategy for effective utilization.
• Financial Projections: Forecasts for the business, including projected income statements, balance sheets, cash flow statements, and break-even analysis.

Business Model

A Business Model is akin to the conceptual foundation of a business. It succinctly defines how a company plans to generate revenue, make a profit, and ensure sustainability in a competitive market. Core components of a business model include:

• Value Proposition: What makes the company’s offering unique and desirable? How does it solve a problem or fill a need in the market?
• Customer Segments: Who are the primary target customers? What are their needs and how will the business cater to them?
• Channels: Through which avenues will the product/service be delivered to the customers?
• Customer Relationships: How does the business intend to interact with its customers, ensuring retention and loyalty?
• Revenue Streams: The avenues through which the company will make money. This can include sales, subscriptions, licensing, and other revenue models.
• Key Resources: Assets required to run the business, which can be physical, intellectual, human, or financial.
• Key Activities: The main operations and tasks that need to be performed to ensure the business runs smoothly.
• Key Partnerships: Collaborations, alliances, and affiliations that will be essential in supporting the business operations.
• Cost Structure: A clear breakdown of the business’s expenses and financial obligations.

With these definitions at our fingertips, it becomes easier to discern the distinct role each plays in the grand scheme of establishing and running a business. As we progress further, we will delve into how these elements differ in scope, objective, and application.

Main Differences - Navigating the Nuances Between Business Plan and Business Model

Having delineated clear definitions for both a Business Plan and a Business Model, it's now time to pinpoint their distinctive differences. While both tools are essential to a business's success, they serve varied purposes and are used at different stages of the entrepreneurial journey. Let's explore the primary differences between the two:

• Business Model: This represents the broader concept of the business's structure and its fundamental modus operandi. It's an overview of how the business plans to function at its core, capturing, delivering, and creating value.
• Business Plan: This is a comprehensive document that dives deep into the strategy required to make the vision (often illustrated by the business model) a reality. It details everything from operations, marketing, sales, and finances to ensure the business is on the right track.
• Business Model: Its primary aim is to define the method through which the company creates, delivers, and captures value. It's about answering the "What, Why, and For Whom" of the business.
• Business Plan: This seeks to showcase the feasibility of the business model, detailing how the business will operate, generate revenue, manage costs, and expand. The business plan is more about the "How, When, and Where."
• Business Model: While it is primarily crafted for internal stakeholders to align their vision and operations, it also serves as an overview for potential investors, partners, and other external parties who are interested in understanding the company's foundational strategy.
• Business Plan: This is a tool tailored for both internal decision-makers and external stakeholders. When seeking investments, partnerships, or loans, a well-drafted business plan becomes indispensable. It provides the detailed insight that external parties often require before committing resources or capital.

Flexibility

• Business Model: Given its higher-level perspective, the business model is often more adaptable. As market conditions change, customer preferences evolve, or new opportunities emerge, the business model can be adjusted to pivot or capitalize on these shifts.
• Business Plan: Though not rigid, a business plan is more static compared to a business model. While it should be periodically updated as milestones are achieved, market conditions change, or business goals evolve, it typically requires a more formal revision process.

In essence, while the business model is about conceptualizing the heart and soul of the enterprise, the business plan is about putting flesh to that skeleton, bringing it to life with details, strategies, and actionable steps. Grasping these nuanced differences is vital for entrepreneurs as they chart the course of their business journey.

When to Use Which - The Strategic Application of Business Plan and Business Model

The distinctions between a Business Plan and a Business Model are clear, but knowing when to deploy each can be equally as crucial. Their application at the right junctures can enhance clarity, attract resources, and drive effective implementation. Here's a guide on when to use which:

Starting Up a Business

• Business Model: Before any detailed planning commences, it's pivotal for entrepreneurs to draft a Business Model. This helps in conceptualizing the very essence of the business: what value it offers, who it caters to, and how it will generate revenue. Using tools like the Business Model Canvas can provide a visual and concise representation of this.
• Business Plan: Once the fundamental business concept is clear, the Business Plan comes into play. This document will map out the strategy to realize the business model, offering detailed steps, financial projections, marketing strategies, and more. It's a roadmap for how the business will operate and grow.

Seeking Investments

• Business Model: Investors will want a snapshot of your business's core. They want to know why your business exists and how it stands out. Thus, presenting a clear business model is paramount.
• Business Plan: Alongside understanding your business's essence, investors also need reassurance on its feasibility and growth potential. This is where the Business Plan becomes crucial. It offers detailed projections, strategies, and plans that can instill confidence in potential investors, showing them the roadmap to returns on their investment.

Iterating on Business Ideas

• Business Model: In rapidly changing industries or for startups practicing the lean startup methodology, frequent iterations might be needed. Every time there's a significant pivot or change in direction, the Business Model should be revisited and possibly adjusted.
• Business Plan: While the Business Model might be revised more frequently, it's not always necessary to overhaul the entire Business Plan. However, if the pivot is significant enough to alter operations, marketing strategies, or financial forecasts, then a revision of the Business Plan is warranted.

Periodic Review and Expansion

• Business Model: While the core of a business might remain steady, it's beneficial to revisit the Business Model periodically, especially when considering expansion into new markets, launching new products, or diversifying revenue streams.
• Business Plan: As businesses hit milestones, they should update their Business Plan. This could be done annually or during strategic inflection points like mergers, acquisitions, or significant market shifts. A current Business Plan is also invaluable when seeking further investments, opening new branches, or exploring partnerships.

In summation, while the Business Model encapsulates the very soul of the enterprise, the Business Plan serves as the detailed blueprint for bringing that vision to fruition. Knowing when to focus on each, and how to leverage them effectively, can guide businesses through their initial setup, growth, challenges, and expansions. Both tools, when used strategically, are the compass and map guiding a business towards its envisioned success.

Real-world Examples - Illustrating the Nuances of Business Plan and Business Model

A theoretical understanding of the distinction between Business Plans and Business Models is one thing, but observing them in practice can offer an invaluable perspective. Let’s explore some real-world examples that showcase these tools in action:

• Business Model: At its core, Airbnb’s model is about connecting people with spaces to rent to those looking for accommodations. Their value proposition revolves around offering unique, homely, and affordable accommodations compared to traditional hotels. Their primary revenue stream comes from charging hosts a commission on each booking.
• Business Plan: When Airbnb sought investments, they presented a detailed startup business plan that included their marketing strategy, growth projections, financial details, and expansion plans into new markets. This plan articulated how they intended to move from their foundational model to a global powerhouse in the hospitality industry.
• Business Model: Uber’s primary model is a platform connecting drivers with passengers. Their value proposition is offering a convenient, affordable, and reliable alternative to traditional taxis. Revenue primarily comes from taking a cut from each ride a driver completes.
• Business Plan: Uber’s rapid expansion into cities worldwide didn’t happen by chance. It was part of a strategic plan that included targeted marketing campaigns, strategies to onboard drivers, handling regulatory challenges, and financial projections for each new market.
• Business Model: Netflix started as a DVD rental-by-mail service, pivoting to streaming as technology and consumer preferences evolved. Their value proposition revolves around offering an extensive library of content for a fixed monthly price, without ads. Revenue comes from monthly subscriptions.
• Business Plan: When Netflix decided to pivot from DVD rentals to streaming, and later into producing original content, it would have required detailed planning. Their business plan would outline content acquisition strategies, technological infrastructure needs, financial forecasts for the new ventures, and a marketing strategy to promote their evolving services.
• Business Model: Dropbox’s model is based on providing cloud storage solutions for individuals and businesses. Their value proposition is offering a simple, reliable, and accessible means to store digital content. They employ a freemium model where basic services are free, but advanced features come at a cost.
• Business Plan: As Dropbox sought to grow, especially in the competitive cloud storage market, they needed a comprehensive plan. This would include strategies for user acquisition, scaling their technological backend, partnerships with other software providers, and financial plans for managing their freemium model efficiently.

In essence, these examples vividly illustrate how the foundational concept of a business (Business Model) is different from the detailed strategy for its operation and growth (Business Plan). While the model captures the essence, the plan dives into specifics. Both are integral at different stages, and as seen with companies like Netflix, they need to be revisited and revised as the company evolves.

Navigating the Business Landscape with Precision

Throughout this exploration of Business Plans and Business Models, one thing remains abundantly clear: both are indispensable tools in the toolkit of every entrepreneur and business leader. However, understanding the nuanced differences between the two and knowing how to deploy each effectively can significantly impact a company's success.

A Business Model provides the visionary blueprint of a company – it's the big picture that showcases what the company stands for, its primary methods of generating revenue, and how it intends to deliver value to its target market. It’s the foundation upon which a company is built, a reflection of its core identity.

On the other hand, a Business Plan dives into the specifics, detailing the strategies, operations, financial projections, marketing approaches, and other key components necessary to bring the business model to life. It's the roadmap, detailing the route a business needs to take to achieve its goals.

In the rapidly changing world of business, where consumer preferences evolve, technologies disrupt traditional operations, and markets are continually in flux, having a robust business model is crucial. But it’s the detailed business plan that allows businesses to navigate these complexities with precision, foresight, and strategic acumen.

Drawing inspiration from real-world examples, we've seen how giants like Netflix and Uber have effectively utilized both these tools. They've conceptualized innovative business models and then deployed detailed business plans to capture market share, adapt to changes, and remain at the pinnacle of their respective industries.

In conclusion, as an entrepreneur or business leader, think of the business model as your compass, giving direction and purpose. The business plan is your map, detailing the terrain and showing the path forward. With both in hand, you're not only set for the journey but also equipped to tackle the challenges and capitalize on the opportunities that lie ahead.

Key Takeaways

Foundational Differences: A Business Model provides an overview of how a company creates, delivers, and captures value, whereas a Business Plan delves into the detailed strategies, operations, and financial projections for realizing the model.

Strategic Application: The Business Model sets the core vision and foundation for a business, while the Business Plan acts as a roadmap, detailing steps for achieving business goals and milestones.

Real-world Applications: Successful companies, such as Airbnb, Uber, Netflix, and Dropbox, have effectively conceptualized innovative business models and employed comprehensive business plans for strategic execution and growth.

Necessity for Adaptation: Both the business model and business plan should be revisited and revised periodically to ensure alignment with evolving market realities and business objectives.

Call to Action: Entrepreneurs and businesses should constantly reflect on, refine, and update their models and plans, engage with experts, commit to continuous learning, and actively share insights to ensure sustained success.

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Business Plan vs Business Model Canvas Explained

6 min. read

Updated December 15, 2023

It might be stating the obvious, but planning and preparation are keys to success in business.

After all, entrepreneurs put in hard work to develop their product, understand the market they plan to serve, assess their competitive landscape and funding needs, and much more.

Successful business owners also take time to document their strategies for guiding the growth of their companies. They use these strategies to take advantage of new opportunities and pivot away from threats.

Two common frameworks for documenting strategies – the business model canvas and the business plan – are also among the easiest to get confused.

Though they can complement each other, a business model canvas and a business plan are different in ways worth understanding for any entrepreneur who’s refining their business concept and strategy.

Let’s start by digging deeper into what a business model canvas is. 

• What is a business model canvas?

You may have heard the term “business model” before. Every company has one. 

Your business model is just a description of how your business will generate revenue. In other words, it’s a snapshot of the ways your business will be profitable.

Writing a business plan is one way of explaining a company’s business model. The business model canvas takes a different approach.

A business model canvas is a one-page template that explains your business model and provides an overview of your:

• Relationships with key partners
• Financial structure
• And more…

While the business model is a statement of fact, the business model canvas is a strategic process—a method for either documenting or determining your business model.

It’s meant to be quickly and easily updated as a business better understands what it needs to be successful over time. This makes it especially useful for startups and newer businesses that are still trying to determine their business model.

You can think of a business model canvas as a condensed, summarized, and simplified version of a business plan. It’s a great way to quickly document an idea and get started on the planning process.

The business plan is a way to expand on the ideas from the canvas and flesh out more details on strategy and implementation.

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Components of a Business Model Canvas

The simplest way to think about your business model canvas is to map it out visually. A business model canvas covers nine key areas:

• Value proposition : A company’s unique offering in the market and why it will be successful.
• Key activities: The actions that a company takes to achieve its value proposition.
• Customer segments : The types of people or businesses that are likely to want a company’s products or services.
• Channels : How a company reaches customers through marketing and distribution efforts.
• Customer relationships: How a company interacts with customers and maintains important relationships.
• Revenue streams: The ways in which a company makes money.
• Key resources: The assets such as property, equipment and staffing that a company needs to perform its key activities.
• Key partners: The relationships with suppliers, vendors, customers and other stakeholders a company must maintain in order to be successful.
• Cost structure: The major drivers of company expenses that will need to be tracked and managed.

[Want an even simpler alternative? Try downloading our free one-page plan template and start building your plan in less than 30 minutes.]

To get a better sense of how a business model canvas documents business strategy, consider a company like Netflix. The streaming company’s business model is based on generating subscription revenue through its content library and exclusive content.

If Netflix executives were to create a business model canvas, it would map out how the company leverages key resources, partnerships, and activities to achieve its value proposition and drive profitability. The business model is the destination.

The great thing about a business model canvas is that you can quickly document business ideas and see how a business might work at a high level. As you do more research, you’ll quickly refine your canvas until you have a business idea you think will work.

From there, you expand into a full business plan.

• What is a business plan?

If a business model canvas captures what a company looks like when it’s operating successfully, then a business plan is a more detailed version along with a company’s blueprint for getting there.

Think of your business plan as a process of laying out your goals and your strategies for achieving them.

The business plan is more detailed, and changes over time. It examines each aspect of your business, from operations to marketing and financials.

The plan often includes forward-looking forecasts of a company’s projected financial performance. These are always educated guesses. But these forecasts can also be used as a management tool for any growing business.

Comparing actual results to the forecast can be a valuable reality check, telling a business if they’re on track to meet their goals or if they need to adjust their plan.

A business plan is also a must for companies hoping to receive a bank loan , SBA loan , or other form of outside investment . Anyone putting up funds to help you grow will want to see you’ve done your homework.

So a business plan is how you not only prepare yourself, but also show your audience that you’re prepared.

Components of a business plan

While there are several different types of business plans meant for different uses, well-written plans will cover these common areas:

• Executive summary : A brief (1-2 pages) overview of your business.
• Products and services : Detailed descriptions of what you’re selling and how it fills a need in the market.
• Market analysis : Assessing the size of your market, and information about your customers such as demographics (age, income level) and psychographics (interests, values).
• Competitive analysis : Documenting existing businesses and solutions your target customers are finding in the market.
• Marketing and sales plan : Your strategies for positioning your product or service in the market, and developing a customer base.  
• Operations plan : Describing how you will run the business from day to day, including how you will manage inventory, equipment, and staff.
• Organization and management team: Detailing the legal structure of the business, as well as key members, their backgrounds and qualifications.
• Financial Plans : Business financials that measure a company’s performance and health, including profit & loss statements, cash flow statements and balance sheets. Effective financial plans also include forward-looking sales forecasts and expense budgets.

How a business plan and business model canvas inform business strategy

Avoid the trap of using the two terms interchangeably. As we’ve shown, the two have different focuses and purposes. 

The business model canvas (or our one-page plan template ) is a great starting point for mapping out your initial strategy. Both are easy to iterate on as you test ideas and determine what’s feasible.

Once you have a clearer sense of your idea, you can expand the canvas or one-page plan into a business plan that digs into details like your operations plan, marketing strategy, and financial forecast.

When you understand how – and when – to use each, you can speed up the entire planning process. That’s because the business model canvas lays out the foundation of your venture’s feasibility and potential, while the business plan provides a roadmap for getting there.

The work of business planning is about connecting the dots between the potential and the process.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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• How both inform your strategy

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Business Model Vs. Business Plan: What’s the Difference?

There’s a big misconception about the whole business model vs. business plan debate because both terms have been wrongly used. Today, we’ll look into what they’re really for and why they’re needed for the business.

Strategy has always been a building block of business. In the ever-competitive and highly volatile industry, you have to come up with a sustainable advantage over your competitors. Few lucky entrepreneurs successfully start on the right foot, but luck often runs out while keeping a great momentum. This is where a solid business strategy comes to play.

You can’t just launch your startup without establishing where it’s heading. You need a business strategy to identify which direction you’ll operate towards. This is why a business plan and a business model are essential factors in a company’s success. But because they seemingly have a similar purpose, they’re mistakenly used interchangeably. The truth is, one cannot exist without the other.

To truly understand the difference between a business model vs. a business plan, we’ll need to define what they are and what they’re used for. 

What is a Business Model?

A business model is the company’s rationale and plans for making a profit. It explains how a company delivers value to its customers at a specific cost. A business model would include details about the company’s products and services, its target market, and all expenses related to the operations and production.

Why is it necessary?

It’s considered a roadmap for a business to achieve its financial goal in a given period. It maps out how you can sustain the value you deliver to your customers. Entrepreneurs use it as a tool to study, test, and estimate cost and revenue streams.

They can make quick hypothetical changes to the business model to determine how a financial decision can impact their long-term operations . This allows business owners to anticipate and adapt to trends and challenges in their industry.  

Consequently, a strong business model also helps attract investors, recruit talent, and motivate employees. The management and staff are often motivated by how well a company adheres to the business model.  

Types of Business Model

When it comes to different kinds of business models, there are several options for a company. For example, a software company might go with a subscription model because it’s easier to sell their product through a license subscription. On the other hand, retail companies might go for the accessories model because it’s more straightforward.

In determining which type of business model to use, companies choose the style that best suits their operations and industry. A growing method is using a combination of business models to create a hybrid system for the business.

The following are some of the most widely used types of business models:

• Subscription
• Transactional
• Retail sales

Creating a Business Model

Now that we’ve established what a business model is, it’s time to learn how to create one for your startup. Your business model has to answer all the critical questions about your business.

Here are the key components you must include in your business model:

• Key Objectives
• Target Market
• Product Value
• Product Pricing
• Required Funding
• Growth Opportunity

Keep in mind, the business model has to be updated regularly to fit your goals. All companies undergo a stage of maturity that directly affects the business model it follows. 

For early-stage startups, the business model would ideally be simple and straightforward. Most business owners would even opt for a flat organization where staff could communicate their concerns directly to the owner. This, of course, will change as the company expands.

Now that we’ve learned what a business model is, it’s time to move on to the next part of the business model vs. business plan discussion. So, let’s discuss what is a business plan.

What is a Business Plan?

A business plan is a written document that details a company’s goals and its strategies to achieve them . It’s considered the “blueprint of the business” because it summarizes all the essential aspects of the company such as finance, marketing, and operations.

It serves as a reference for the company owner and the management in making major business decisions. It can also be presented to investors when the owner is raising capital. It’s beneficial for startups who have no proven track record since a business plan can pitch its full potential.     

A business plan is not only helpful to a business in its early stage, but it also helps it pivot during unforeseen circumstances. In a volatile industry, a company needs to adapt quickly and efficiently. Hence, update the goals and methods should accordingly.

Creating a Business Plan

So, what should a business plan include?

Business plans vary according to industry, but there is a general format for writing a business plan. You can expand or shorten this template based on long-term goals.  

• Executive Summary
• Business Description
• Market Analysis
• Product Development
• Marketing Strategies
• Operations and Management
• Financial Plans

You can choose from a wide selection of business plan templates when it comes to the actual writing. Remember to keep it concise and avoid jargon in the content. You will present your business plans to investors and stakeholders; hence, they need to get a clear idea of it in one reading.

Business Model vs. Business Plan: How to Use Them 

At this point, we’ve established that both a business model and a business plan are essential to success. However, both can only take your business so far. How well you execute and follow them is a whole other story. It’s challenging to start a startup , let alone maintain it.

If you want to avoid common startup mistakes , you need to build your business on a strong foundation. Hire the best people, invest in reliable tools, and sign up for mentoring.

Speaking of mentors, Full Scale founders Matt DeCoursey and Matt Watson are incredibly passionate about helping entrepreneurs succeed. They’ve created Full Scale to assist startup owners in launching and managing their companies.

Full Scale is an offshore software development company that offers a wide array of services for startups. We offer the best talent and resources needed to begin your entrepreneurial journey.

We have seasoned project managers, marketing specialists, and technology experts at your service. We’ll take care of all the hassles out of your daily operations so you can focus on your core competencies.

Want to learn more about Full Scale? Get your FREE consultation today!

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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. 

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:

• FourWeekMBA Busines Model 
• Business Model Canvas
• Blitzscaling Business Model Innovation Canvas
• Value Proposition Canvas
• Lean Startup Canvas

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.

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

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 .

Case Studies

Case Study 1: Nike – Business Model vs. Business Plan

• Nike utilizes its business model to create, deliver, and capture value. It focuses on the core components of a business’s operations and revenue generation.
• When considering external stakeholders like investors, Nike might develop a detailed business plan to showcase its future strategies and financial projections.

Case Study 2: Coca-Cola – Business Model vs. Business Plan

• Coca-Cola employs digital marketing channels like social media and email marketing to better communicate its products and engage with consumers.
• Coca-Cola may use a business model framework to understand how it creates and delivers value through marketing , while a business plan could be used to outline future marketing strategies and financial goals.

Case Study 3: Amazon – Business Model vs. Business Plan

• Amazon uses technology not only for its e-commerce platform but also integrates customer feedback into its product design, enhancing its business model .
• In the process of attracting investors or lenders, Amazon might create a comprehensive business plan to demonstrate its long-term growth strategy , financial viability, and risk mitigation.

Case Study 4: Tesla – Business Model vs. Business Plan

• Tesla leverages technology to shape its electric vehicles, constantly improving features and performance based on user feedback and data collected from their vehicles.
• Tesla could use a business model to understand how it delivers value through innovation and customer feedback. Simultaneously, a business plan might outline its future growth strategies and financial projections.

Case Study 5: Airbnb – Business Model vs. Business Plan

• Airbnb operates a two-sided platform that connects hosts and travelers, creating interactions that generate value for both parties.
• To secure investments for expansion or growth , Airbnb may develop a business plan that outlines its financial outlook, expansion strategies, and risk management, while its business model emphasizes how interactions drive its value.

Case Study 6: Uber – Business Model vs. Business Plan

• Uber’s platform connects riders and drivers, creating a multi-sided marketplace driven by network effects .
• Uber could use a business model to understand the dynamics of its marketplace. When seeking investors or funding, it might present a comprehensive business plan highlighting its growth potential, financial projections, and strategies to address market challenges.

Case Study 7: Apple – Business Ecosystem vs. Business Plan

• Apple’s App Store has evolved into a thriving business ecosystem that benefits both the company and app developers.
• While the business ecosystem concept is central to Apple’s strategy , the company may use a business plan to outline its future ecosystem development, financial projections, and governance design for potential investors.

Case Study 8: Ethereum – Business Ecosystem vs. Business Plan

• Ethereum’s blockchain platform facilitates the creation of decentralized applications (dApps) and smart contracts within a larger business ecosystem .
• Ethereum might use a business model to understand how its ecosystem creates and captures value. For attracting investors or funding, a business plan could illustrate its growth strategies, financial outlook, and governance design.

Key Difference – Business Model vs. Business Plan

• A business model is a strategic framework for understanding 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 outlining a company’s goals, strategies, financial projections, and operational details, often used for fundraising and as a roadmap for the business.

Choosing the Right Tool

• The choice between a business model and a business plan depends on the goals and stage of the business. While a business model helps understand the present and guide innovation , a business plan is primarily for external stakeholders, showcasing future strategies and financial projections.

Connected Business Frameworks

Business Engineering

Tech Business Model Template

Web3 Business Model Template

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Technological Modeling

Transitional Business Models

Minimum Viable Audience

Business Scaling

Market Expansion Theory

Speed-Reversibility

Asymmetric Betting

Growth Matrix

Revenue Streams Matrix

Revenue Modeling

Pricing Strategies

Cynefin Framework

SWOT Analysis

Personal SWOT Analysis

Pareto Analysis

Failure Mode And Effects Analysis

Blindspot Analysis

Comparable Company Analysis

Cost-Benefit Analysis

Agile Business Analysis

SOAR Analysis

STEEPLE Analysis

Pestel Analysis

DESTEP Analysis

Paired Comparison Analysis

Related Strategy Concepts:  Go-To-Market Strategy ,  Marketing Strategy ,  Business Models ,  Tech Business Models ,  Jobs-To-Be Done ,  Design Thinking ,  Lean Startup Canvas ,  Value Chain ,  Value Proposition Canvas ,  Balanced Scorecard ,  Business Model Canvas ,  SWOT Analysis ,  Growth Hacking ,  Bundling ,  Unbundling ,  Bootstrapping ,  Venture Capital ,  Porter’s Five Forces ,  Porter’s Generic Strategies ,  Porter’s Five Forces ,  PESTEL Analysis ,  SWOT ,  Porter’s Diamond Model ,  Ansoff ,  Technology Adoption Curve ,  TOWS ,  SOAR ,  Balanced Scorecard ,  OKR ,  Agile Methodology ,  Value Proposition ,  VTDF

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

Tech entrepreneur and passionate about business

In the business world, understanding the distinction between a business model and a business plan is paramount.

While a business model serves as a blueprint for value creation and revenue generation, a business plan offers a comprehensive roadmap for achieving company goals.

This article explores the purpose, scope, similarities, and differences between these essential tools, providing practical applications and real-world examples.

By grasping when and how to utilize business models and plans, businesses can effectively communicate their vision, attract investors, and ensure long-term success.

Key Takeaways

• A business model outlines how a company creates, delivers, and captures value, while a business plan provides a detailed roadmap for achieving the company's goals and objectives.
• Key components of a business model include the value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure.
• Business models are more flexible and adaptable to changes in the market or business environment, while business plans tend to be more rigid and may require updates or revisions.
• Business models are typically developed in the early stages of a business to clarify the fundamental strategy, while business plans are usually created when seeking external funding or preparing for significant growth or expansion.

Definition and Components

A business model encompasses the various components that quantifiably outline how a company creates, delivers, and captures value. Strategic analysis is a crucial aspect of developing a business model, as it involves understanding the market, competition, and identifying opportunities for differentiation.

Value proposition development is another key component, as it defines the unique value that a company offers to its customers. This involves identifying customer needs, crafting a compelling value proposition, and aligning it with the company's capabilities and resources.

Purpose and Scope

The purpose and scope of a business model is to outline how a company intends to create and capture value, guiding its fundamental strategy and revenue generation. It plays a crucial role in decision-making by providing a clear framework for understanding the key elements of value creation and revenue generation.

The advantages of a business model include its simplicity, flexibility, and adaptability to changes in the market or business environment. However, it also has limitations, such as its high-level and abstract nature, which may make it less suitable for detailed operational planning.

Despite these limitations, a well-defined business model can serve as a guidepost for strategic decision-making and help align the company's activities with its overall goals and objectives.

Flexibility and Stage of Development

When considering the flexibility and stage of development, it is important to recognize that business models can be more easily adapted and adjusted in response to market or business environment changes. Business models are designed to be adaptable in changing markets, allowing companies to evolve and adjust their strategies as needed.

This flexibility is crucial for businesses, especially in today's rapidly changing and competitive landscape. On the other hand, business plans tend to be more rigid and may require updates or revisions when circumstances change.

Business models are typically developed in the early stages of a business to clarify the fundamental strategy, while business plans are usually created when seeking external funding or when the business is preparing for significant growth or expansion.

Similarities and Differences

In the comparison of business model and business plan, it is important to highlight the similarities and differences between these two essential tools for business development.

• Both provide a roadmap for the business, outlining its goals, strategies, and plans for achieving them.
• Both require a clear understanding of the business and its market, involving strategic thinking and planning.

However, there are some key differences. Business models focus on value creation, revenue generation, and cost structure, while business plans are more comprehensive and detailed, incorporating financial projections and operational plans.

Understanding these similarities and differences is crucial for businesses to ensure strategic alignment and successful implementation.

While business models offer flexibility and adaptability in response to market changes, business plans provide a detailed framework for operational and financial management.

Applications and Examples

Examples of the applications and uses of business models and business plans include:

• Concept validation: Business models are utilized to validate the viability of a business concept, identify key strategic elements, and understand the core drivers of value creation.
• Strategic planning: Business models provide a framework for revenue generation, cost structure, and customer segments, which are essential for strategic planning.
• Fundraising: Business plans are used for fundraising purposes, such as startups seeking venture capital or restaurants seeking bank loans.
• Day-to-day operations: Business plans also guide day-to-day operations, ensuring that the business operates efficiently and effectively.
• Attracting investors: Both business models and business plans are important for attracting investors, as they provide a clear understanding of the business's potential and growth opportunities.
• Ensuring long-term success: Business plans are crucial for ensuring the long-term success of the business by outlining goals, strategies, and financial projections.

Examples of business models include:

• Netflix's subscription-based model
• Airbnb's marketplace model
• Dropbox's freemium model

Examples of business plans include:

• Startups seeking venture capital
• Restaurants seeking bank loans
• Retail stores expanding to new locations

Real-world case studies include:

• Netflix's shift from DVD rentals to streaming
• Airbnb's early funding and global expansion
• Tesla's electric vehicle strategy.

Importance in Business Development

The importance of business models and business plans in business development lies in their ability to provide a strategic roadmap for achieving long-term success. These tools offer several benefits and limitations for strategic decision making:

Benefits:

• Clear Direction: Business models and plans help define the company's goals, objectives, and strategies, providing a clear direction for the organization.
• Resource Allocation: They assist in allocating resources effectively by identifying key activities, partners, and resources required for success.
• Investor Confidence: Business models and plans are essential for attracting investors and securing funding by demonstrating a well-thought-out strategy and potential profitability.

Limitations:

• Rigidity: Business plans can be inflexible, making it challenging to adapt to unexpected market changes or evolving customer needs.
• Uncertainty: Both business models and plans rely on assumptions about the future, introducing an element of uncertainty and risk.
• Implementation Challenges: Translating strategic plans into actionable steps can be complex, requiring effective execution strategies and management.

Key Considerations for Using Them

When considering the use of business models and business plans, it is important to carefully evaluate their applicability and effectiveness in achieving the organization's objectives. Two key considerations in this evaluation process are timing considerations and strategic alignment.

Timing considerations involve determining when to develop and use a business model or business plan. For example, a business model may be developed in the early stages of a business to clarify the fundamental strategy, while a business plan may be created when seeking external funding or preparing for significant growth.

Strategic alignment refers to ensuring that the business model or business plan is in line with the organization's overall strategic goals and objectives. It is essential to assess whether the proposed model or plan supports the company's mission, vision, and long-term strategy.

To summarize these considerations, the table below provides a comparison of timing considerations and strategic alignment for business models and business plans:

Frequently Asked Questions What Are Some Common Mistakes to Avoid When Developing a Business Model or Business Plan?

Common mistakes when developing a business model or plan include neglecting market research, underestimating competition, overestimating revenue projections, and failing to adapt to changing circumstances. Important factors to consider are feasibility, scalability, and market demand.

How Often Should a Business Model or Business Plan Be Updated?

The updating frequency of a business model or business plan depends on the specific circumstances and needs of the business. Regular updates are beneficial as they ensure alignment with market changes and help maintain a strategic focus.

What Are the Key Factors to Consider When Choosing Between a Business Model or Business Plan?

Factors to consider when choosing between a business model or business plan include the stage of development, flexibility needed, and the level of detail required. It is important to assess the purpose and scope of each tool in order to make an informed decision.

How Do Business Models and Business Plans Differ for Different Industries or Sectors?

Different industries and sectors have different approaches to business models and business plans in the digital age. The impact of technology on these strategies is significant, as it requires businesses to adapt and innovate to stay competitive.

Can a Business Model and Business Plan Be Used Together, or Is One More Important Than the Other?

When considering the importance of a business model and integrating a business plan, it is crucial to understand that both play complementary roles in a company's success. The business model outlines the core strategy for value creation and revenue generation, while the business plan provides a detailed roadmap for achieving the company's goals and objectives. Therefore, it is essential to use them together to ensure a comprehensive approach to business development and long-term success.

In conclusion, understanding the difference between a business model and a business plan is crucial for successful business development.

A business model outlines the core elements of revenue generation and cost structure.

A business plan, on the other hand, provides a detailed roadmap for achieving goals.

Both tools play a vital role in attracting investors, guiding day-to-day operations, and ensuring long-term success.

By utilizing these essential tools effectively, businesses can communicate their vision and achieve their desired outcomes.

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Business Model vs Business Plan What’s the Difference?

Free Business Model Canvas Template

• January 2, 2024

The idea of starting a business comes easier than actually starting a business, isn’t it? Business plan, business model, marketing, and whatnot.

Are you confused between a business plan and a business model? Worry not many entrepreneurs started with just an idea without knowing anything about business terminologies.

Business plans and business models are sometimes mistakenly interchanged. Although they sound similar, they are not the same. Let’s see what they mean, their differences, and their types.

Here are the points we are going to go through:

• What Is A Business Model
• What Is A Business Plan

Types Of Business Models

Types of business plans, what is a business model.

A business model  is a mechanism that directs how you create, deliver, and attain value in the market; it’s the profit-generating plan of your company. Simply put, it’s how you sell your product to make money.

• Defining your offerings
• Identifying and describing your target audience
• Stating your sales strategy
• Predicting expenses along the way

Don’t find customers for your products, find products for your customers. – Seth Godin

What Is A Business Plan?

A business plan is a document that outlines your entire business operations. From product launches to setting milestones to planning an exit strategy, it includes every step of your business journey. It says what a company does, its vision and goals, and its strategies to achieve them.

• Executive summary
• Company Overview
• Mission statement
• Vision statement
• Problem statement
• Products and services
• Market analysis
• Customers analysis
• Competitors analysis
• SWOT analysis
• Marketing and sales plan
• Operations plan
• Financial plan

There are online business plan tools that help you to write business plans in a standardized format which helps the whole business ecosystem to understand the business.

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• Business Model: Your business model focuses on optimizing the internal and external operations of your company to earn maximum profits. It explains your relationship with dealers, distributors, service partners, customers, and target audience.
• Business Plan: Conversely, your business plan focuses on how you set goals , create strategies, make predictions, and manage labor to sustain and scale your business . It also outlines your relationship with your customers, competitors, industry, and the market.

Adopting The Right Business Model(s) Helps You:

• Gain A Competitive Edge: Incorporating a unique business model amazes your audience and attract them to be your first-time customer. It also provides you with a competitive edge over other companies in your industry.
• Ensure Sustainability And Scalability: A business model pushes an entrepreneur to have monthly updates and what exactly your next month should look like. Most businesses get close due to poor financial management, which is why a business model is required. From economic storms to any unexpected difficulties, a business model ensures both sustainability and scalability.
• Inspires Trust In Investors: Investors know what is the failure rate of any small business , which is why incorporating a business model will give a sense of security. They will also know that you have a strategy and what is your profitability expectations from the upcoming years.

Writing A Great Business Plan Helps You:

Test the viability of your business idea:

A business plan defines the target audience and their willingness to pay for your product or service. This way your business idea will get the validation of whether to go ahead with it or not.

If you have no idea about how to write a business plan , worry not, Upmetrics – the business planning software is here to the rescue!

Acquire Funding:

If you want funds from banks, investors, or other parties, then you will require proper financial goals, plans, and projections. So, an ideal business plan will help you out with impressing investors.

Plan For Exit:

The business plan includes strategies and a timeline to accomplish any task, which helps in planning the exit of your business too. While handing over your business or closing it directly, meeting the financial goals is also important, which are very specific in the business plan.

Some of the other advantages of writing an ideal business plan are:

• Identify market gaps and threats
• Organize and plan business processes
• Forecast financial estimates and market trends
• Create strategies to achieve objectives

While Adopting A Business Model, You:

First, consider the scalability of your business, then measure the value you offer. List down your competitors, segment your customers, see the market potential, and then choose a business model.

Here are other points to consider:

• Aim to receive validation from prospective customers
• Modify assumptions to match customer preferences
• Focus on the current financial position

While Creating A Business Plan, You:

Answer a few questions first like where you think your business will be in 10–15 years, what is your expected income, or what are your projections.

• Aim to find factual information through research
• Support assumptions through data from customer analysis
• Focus on the current and future financial position

How many business models there can be since new models are created all the time? Here are some of the most recognizable business models:

• Brick-and-mortar
• Bricks-and-clicks
• Razor and blade
• Subscription
• Advertising

If you feel none of the above business models suits your vision, you can build a custom business model for your company via business planning software.

As your business grows, it is advisable to modify your business model to accommodate the changes in the economy, customer buying behavior, industry trend, etc.

Nine Key Elements

• Customer Segments: Who are you selling your product to? Identify the top three revenue-generating segments in the market.
• Value Proportion: How are you solving your customer’s problems? Describe the product or service you are offering.
• Revenue Streams: How do you receive payments for your offerings? Think advertisements, direct sales of products, etc. List your top three revenue streams.
• Channels: How do you reach your customers and sell your offerings? Think stores, wholesalers, door delivery, etc.
• Customer Relationships: How do you communicate with your customers? How do you offer support? Think self-service, personal assistance, telephonic support, etc.
• Key Activities: What are your daily business activities? State the activities that are vital for operating your business.
• Key Resources: What do you need to run your business? List all the physical, financial, intellectual, and human resources you need. For instance, a SaaS company needs human expertise, equipment, etc.
• Key Partners: Who are your business partners ? What are their responsibilities? What are the only activities they can do?
• Cost Structure: What are your key costs? Considering your activities and resources, list your important expenses. Do you follow a cost-driven structure or a value-driven one?

• Traditional business plan : This is a detailed 40-page business plan. It is ideal if you want to record all your business activities without leaving anything up for assumption.
• Lean business plan: A lean business plan is half the size of a traditional business plan and is common among most modern-day businesses.
• SBA business plan: SBA business plan This is a specific business plan that banks and investors require you to submit if you are looking for funding.
• Startup business plan: A startup business plan includes all the steps you need to take before and during establishing your startup.

Planning To Grow Your Business?

Although some functions of a business model and a business plan do overlap, you cannot replace one with another. Both focus on different outcomes and are must-haves in your business arsenal.

Planning to run a company requires you to use online business plan tools to maximize your chances of success. Try Upmetrics for your business, and join 110K entrepreneurs who trusted us.

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About the Author

Riya Shah is a skilled content writer experienced in various areas of writing, currently working with Upmetrics. Fascination with reading led her to be a writer. Highly creative, focused, imaginative, and passionate. Read more

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Business Model Vs Business Plan – What is the Difference?

Do you want to know the difference between a and a business plan? If YES, here is a detailed comparison and analysis and how each is used. A business plan and a business model look amazingly similar like two peas in a pod, but they are equally different, just like two peas in a pod. They are both part of each other but play different roles thus making the line between them seem dim.

A business plan and a business model both contain , customer retention strategy, revenue generation strategies, and overall, they are used to outline the vision of the company. So what then differentiates a business plan from a business model and how can you make a clear distinction of both?

Business Model Vs Business Plan

What is a business model.

A business model is a company’s outlined plan for making profit. It identifies the products or services the business will sell, the target market it has identified , and the expenses it anticipates. A business model also shows the destination of the business, how it is meant to work, and what it is meant to become.

A business model ascertains how your business makes money. It identifies the services that your customers value and shows how funds are generated for the services your business renders to your customers. A small business can have more than one method of generating income, and it is the duty of the business model to simplify the money process by focusing on the largest income generator.

For instance, a gas station sells gas to customers, but it also provides other services such as a car wash, lube station, etc. The business model only recognizes the majority income generator, which is the sale of gas. Therefore, the business model will reflect the sale of gas to the customer, which generates income at the time of the customer’s purchase.

The business model summarily simplifies and makes revenue-generation easy to understand by focusing on the key generator, highlights exactly how you intend to acquire, retain, and service your customers. The business model can come in different distinct models like:

• Franchise model
• Direct sales model
• Advertising model
• Subscription based model
• Lowcost model
• Freemium model
• Affiliate model
• Production model

The business model is basically at the center of the business plan, as it describes how the company is positioned within its industry’s value chain, and how it organises its relations with its suppliers, clients, and partners in order to generate profits. The business plan translates this positioning in a series of strategic actions and quantifies their financial impact.

What is a BUSINESS PLAN

A business plan is a formal written document that contains business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved. A business plan acts like a GPS. It shows you the roadmap of how you intend to get to your destination as a business person.

It highlights the market opportunities you want to take advantage of, the existing competition, the strength and experience of your team, a detailed description of the products and services you intend to offer, and a roadmap that shows exactly how you intend to execute your plans in the market.

A business plan is a document presenting the company’s strategy and expected financial performance for the years to come.

The business plan provides the details of your business. It takes the focus of the business model and builds upon it. It explains the equipment and staff needed to meet the details of the business model. It also explains the marketing strategy of your small business, or how your business will attract and retain customers, and deal with the competition.

Furthermore, the business plan explains the financial stability of your small business at a particular point in time, as well as in the forecasted future. Overall, the business plan supports the business model and explains the steps needed to achieve the goals of that model

The business plan pays close attention to your goals, projects the cash flow, profits or losses, and ultimately shows how long and what would be required to enable the business break-even.

A sample structure of a business plan is seen below:

• Executive Summary
• Business Description
• Service or Product Line
• Market Analysis & Strategies
• Organization & Management
• Funding Request
• Financial Assumptions
• Financial Projections

Differences Between a Business Plan and a Business Model

Some of the major differences between a business plan and a business model are outlined thus;

• A business model aims at highlighting the profit making potentials of a business, while a business plan highlights every aspect of the business.
• The business plan explains in details the steps needed to achieve the goals of your business model.
• Another difference is that business plans are usually written at the beginning of a business or a business initiative, while a business model is relevant at any time, and can be written at any time.
• Again, business models are less expensive to put together, and may represent a fictional future goal. As a goal, they may be both complete and entirely unprofitable or even infeasible, quite unlike your business plan.
• A business model is centered around Value; while business plan is centered around Resources. The business plan thus lays out how to manage these resources over time to materialize the business model, grow and scale the business.
• A model explains how you will make money: for example, by selling advertising, by earning a commission, by adding a markup to services, working with partners, selling direct, charging by the hour, with additional services, etc. While a business defines specific activities, it includes timeframes, budgets, owners, dependencies and impact.

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The Bottom Line

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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Business Model Vs Business Plan: What’s The Difference

Sculpting success in the realm of commerce hinges on two critical blueprints:  the business model and the business plan . As if peering through a dual-lens, one unveils the anatomy of value creation, while the other charts a course for achieving it. This isn’t about mere documents; it’s the lifeblood of strategic foresight and operational vision.

Here’s the crux: although they waltz together in strategic symbiosis, these entities each spin a unique narrative of your venture’s voyage. One sketches the architecture of your enterprise, laying bare the revenue streams and value proposition.

The other, a meticulous roadmap, presents meticulous market analysis, financial projections, and the operational plan set to navigate the turbulent tides of commerce.

By journey’s end, you’ll not just differentiate between the two but harness their combined power.

Delve into concepts like competitive advantage, customer segmentation, and scalability. Decode the mesmerizing narrative behind a robust strategic planning foundation. Sales forecasting, funding requirements, investor pitch decks.

The differences between business model vs business plan

The business model is the foundation of a company, while the business plan is the structure. So, a business model is the main idea of the business together with the description of how it is working.

The business plan goes into detail to show how this idea could work. A business model can also be considered the mechanism that a company has to generate profits. At the same time, the business plan also does its part in being the way a company can present its strategy. It is also used to show the financial performance that is expected for the near future.

Comparing how business models and business plans work to help you in different ways is important. A business model can help you be sure that the company is making money. It helps to identify services that customers value. It also shows the reciprocation of funds for the activity that a business renders to its customers.

Any business can have different ways of generating income, but the goals of the business model should aim to simplify the money process. It does this by focusing on the large income generators.

So, we now understood that a basic business model is a gateway to show how an organization is functioning. A business plan is a document that shows the strategy of an organization together with the expected performance details.

We can find the details of a company when we check its business plan. What it does is offer more info about the business model. It does this by explaining the teams needed to meet the demand of the business model. It explains the equipment needed, as well as resources that need to be obtained to start creating. Explaining the marketing goals , and how the business is going to attract and retain more customers over the competition , will be part of the model.

Another interesting thing when it comes to comparing business models and business plans is that they cannot function without each other. Just remember this, the business model is going to be the center of the business plan.

Business plan

When comparing using a business model versus a business plan, we also need to understand each one better to draw some final conclusions. One of the first goals of a company could be to define its business model.

The business plan is going to be the detailed part that includes all the information and steps like Mayple’s marketing plan template, organization, products or services, sales plan, business proposal for investors , and so on. Some useful questions that you can use when developing your business plan are:

• What do we have now?
• What do we want to have in the future?
• What do we need in order to be there?

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Business Model vs. Business Plan

You might be wondering what the difference is between a business plan and a business model. The truth is, they are different things with different purposes. 

The main difference between a business plan and business model is that a business plan outlines your goals and strategy to grow your company, while a business model shows you how to generate revenues. Read on to learn more about this subject, including what types of business models there are and how to figure out which type best suits your situation.  

What is a Business Model?

What is a Business Plan?

What Should Be Included in a Business Plan?

During the business planning process, especially if you are trying to attract investors, there are 10 essential elements of a business plan which you must include as follows:

• Executive Summary
• Company Description
• Customer Analysis
• Market Analysis
• Competitive Analysis
• Marketing Strategy & Plan
• Operations Plan
• Management Team
• Financial Plan (Performance & Forecasting)

For each of these sections, you should provide an in-depth description of your research, analysis, and expected financial performance. You can learn more about the components of a business plan and review our repository of 100+ business plan examples to help you get started on writing your own business plan.  

What Should Be Included in a Business Model?

A business model should include the details of every way in which your business makes money. It’s important not to leave anything out, even if it seems insignificant. Every dollar counts!   

How Does a Business Model Differ from a Business Plan?

Business models outline how your company generates revenues. On the other hand, business plans focus on the specifics of how the business will achieve sales and growth over a given period of time, typically five years. Business plans discuss your business model among other things and are critical if you want to gain investments to grow your business.  

The business model strategy is very different from a business plan. While they overlap a bit, the critical difference is that a business plan outlines the goals and business strategy while the basic business model shows you how to make money. 

Your needs will change over time so it’s important to be able to switch between these two documents when needed. For example, if your goal is long-term growth then you may want more information about what type of strategy would work best for this situation or which resources might help get there faster. On the other hand, if you’re looking for some immediate income then paying attention to the various types of models available could give you an idea of where to start with generating enough sales quickly without too much cost upfront.  

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

OR, Let Us Develop Your Plan For You

Since 1999, Growthink’s business plan consulting team has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how our professional business plan consultants can create your business plan for you.  

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What is a strategic business plan, business plan vs. business model.

• The Importance of a Business Plan
• The Chief Elements of Business Models

Every successful business starts with a concept, a plan and a product or service that customers are willing to pay money to obtain. Business strategies are never conducted in a vacuum, however, and for a business to be successful, there must be a business plan and a business model generated. These two terms are unfortunately used interchangeably, but in reality, they are two very different documents that cannot exist without one another. It is essential that a business owner understand the use of a business model vs a business plan.

Business Plan vs. Business Model

At its simplest, a business plan is a written description of the future of a business. It's a document that not only gets a business concept on paper but also outlines the people and steps that will be involved to lead the business to success. The business plan is where you discuss the industry and the need for a particular product or service, the business structure and how you will achieve success.

The business plan also talks about the market in which the business will operate, lays out the competition and what the plans are to position the business as a leader. Lastly, the business plan lays out the ever-important financial plan, discussing things such as income and cash flow, loans and obligations and when and how investors can expect to see a return.

A business model, on the other hand, is a business's rationale and plan for making a profit. If the business plan is a road map that describes how much profit the business intends to make in a given period of time, the business model is the skeleton that explains how that money will be made. A model covers everything from how a company is valued within an industry to how it will interact with suppliers, clients and partners to generate profits.

There are several different kinds of business models. A software company, for instance, might be based on a subscription model, which generates revenue from customers that renew subscriptions annually for a license to use the software. An example of an accessories model would be a razor company or computer printer company that guarantees future income through the sale of razor blades and printer cartridges.

Interdependence

While it's true that a business plan and business model are two separate documents, the reality is that the business plan cannot live without the business model. While a business plan can describe the structure of a business's financial goals, the business model explains how the money will flow - from customer generation to marketing to sales, and finally, to customer retention. The business model must have room to grow and adapt. Consequently, if the business model changes, so must the business plan.

The Need to Adapt and Change

One of the most prominent examples of a business model changing is currently occurring in the computer software industry. About 10 years ago, the way to purchase software programs was to go to the store and buy a CD-ROM to download the application and license to your computer. Today, the advent of cloud-based subscription services makes it possible for customers to download software and renew licenses remotely over the internet.

This transition to the Software as a Service (SaaS) subscription model has caused many businesses to change their plans. Companies affected by this shift include computer companies that no longer need to build machines with CD-ROM drives in them and software companies that no longer need to make or sell software in physical form.

As a result, software companies have had to change their business plans, including costs and infrastructure costs for cloud storage and bandwidth, as well as maintain a cloud operations team 24 hours a day, seven days a week. These ongoing efforts can increase costs and reduce margins, but they're a necessary adaptation to changing customer needs and market technology with the new business model.

• The Business Plan Shop: Business Model Vs. Business Plan
• Wikipedia: Business Model
• Harvard Business Review: What is a Business Model?
• Entrepreneur: An Introduction to Business Plans

John began his 25-year career in the editorial business as a newspaper journalist in his native Connecticut before moving to Boston in 2012. He started fresh out of college as a weekly newspaper reporter and cut his teeth covering news, politics, police, and even a visit from a waterskiing squirrel. He went on to work in the newsrooms of several busy daily newspapers, and developed a love for detailed storytelling, focusing on the lives and diverse tales that all people have to offer. Moving on to the business arena later in his career, John worked as a managing editor for a healthcare publishing company and a technology software firm. He’s used his background in broadcast journalism as a webinar moderator, voice-over specialist, and podcast narrator. John also holds a master’s degree as an elementary school teacher and spent 10 years working with and tutoring students of various ages and backgrounds, including multilingual students and students with special needs of all ages.

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Business plan vs. business model

Understanding the difference between a business model and a business plan is crucial for entrepreneurs and business managers. While these two terms are often used interchangeably, they refer to distinct aspects of a business’s strategy and operations.

What is a business model

A business model is a conceptual framework that outlines how a company creates, delivers, and captures value. It’s a strategic plan for earning profits, detailing the products or services the business will sell, the target market it aims to reach, and the expected costs and revenue streams. Essentially, it’s a blueprint that defines the way a company operates and makes money.

Examples of business models

• Subscription model : This model is prevalent in companies like Netflix or Spotify . Customers pay a recurring fee, usually monthly or annually, to continuously access a service. This model provides steady, predictable revenue for the business and convenience for the customer.
• Freemium model : Popularized by companies such as Dropbox , this model offers basic services for free while charging for advanced or premium features. It’s a way to attract a large user base quickly, with the hope of converting a portion of those users into paying customers.
• E-commerce model : Companies like Amazon and Alibaba operate under this model, selling products directly to consumers or other businesses through online platforms. This model has revolutionized retail by offering a wide range of products with the convenience of online shopping and home delivery.
• Advertising model : Platforms like Facebook and Google use this model, where the primary revenue stream comes from advertising. These companies offer free services to users and sell targeted advertising space to businesses, leveraging the vast amount of user data they collect.
• Direct sales model : This traditional model involves selling products directly to consumers, bypassing intermediaries. Companies like Avon and Tupperware use this model, often combining it with network marketing strategies.
• Franchise model : In this model, a business (the franchisor) allows individuals (franchisees) to trade under the business’s name and sell its products or services. The franchisee will then pay an initial fee, alongside ongoing royalties to the franchisor. Examples include fast-food chains like McDonald’s and Subway .
• Gig economy model : Platforms like Uber and Airbnb exemplify this model. They provide a marketplace where individuals offer services (like ridesharing or lodging) to others. The platform facilitates these transactions and earns a commission from each booking.

Each of these models has its unique characteristics and strategies for creating value and generating revenue. The choice of a business model depends on various factors including the industry, target market, and the nature of the product or service offered.

What is a business plan

A business plan is a comprehensive document that outlines the vision, goals, and roadmap for a business’s growth and success. It is a detailed plan that includes information about the business idea, market analysis, marketing and sales strategies, financial projections , and operational plans.

The business plan serves several purposes: it helps in securing funding from investors or banks, guides the management in strategic decision-making, and sets a course for the business’s development. It typically covers a period of three to five years and is regularly updated as the business evolves.

What’s in a business plan?

A business plan is a comprehensive document that outlines a company’s vision, strategy, and the steps it will take to achieve its goals. Here are the key components typically found in a business plan:

• Executive summary : This is an overview of the business plan, highlighting the business concept, key financials, and what sets the business apart. It’s meant to grab the reader’s attention and summarize the main points.
• Company description : Provides detailed information about the business, including its history, structure, objectives, and the products or services it offers. This section also defines the target market and the problem or need the business intends to address.
• Market analysis : This section involves thorough research on the industry, market trends, target market demographics, and the competitive landscape. It demonstrates an understanding of the market environment in which the business will operate.
• Organization and management : Outlines the business’s organizational structure, detailing the ownership, management team, and board of directors (if applicable). This section may also include biographies of key team members.
• Products or services : Describes in detail the products or services offered by the business, focusing on the benefits to customers. It may also cover the product’s life cycle, intellectual property issues, and any research and development activities.
• Marketing and sales strategy : Explains how the business will attract and retain customers. This includes marketing plans, sales strategies, pricing policies, advertising, and promotions.
• Funding request : If the business plan is being used to secure funding, this section details the amount of funding needed, how it will be used, and the preferred terms.
• Financial projections : Provides financial forecasts, including income statements, cash flow statements, and balance sheets for the next three to five years. These projections are crucial for demonstrating the business’s potential for profitability.
• Appendix : Includes supporting documents such as resumes, permits, leases, legal documentation, detailed market research studies, and references.

Each section plays a crucial role in illustrating the business’s strategy, operational plans, and financial health, making the business plan an essential tool for guiding the company’s direction and securing external funding.

Types of business plans

• Startup business plans : These are created for new businesses seeking funding from investors or banks. They focus on the business idea, market opportunity, unique value proposition, revenue model, and initial financial projections. They often include detailed information about the founding team, the problem they are solving, and their approach to capturing market share.
• Growth business plans : Aimed at existing businesses looking to expand. These plans outline strategies for entering new markets, launching new product lines, or scaling operations. They include market research on new potential markets, financial projections based on expansion, and a roadmap for implementation.
• Operational business plans : Designed for internal use, these focus on operational improvements. They might include plans for improving efficiency, reducing costs, or implementing new systems or technologies. These plans often have detailed timelines and milestones for the operational changes.
• Strategic business plans : These are high-level plans that set out the strategic direction of the company. They focus on long-term goals and objectives, major initiatives to achieve these goals, and allocation of resources. They are typically used by senior management to guide the overall direction of the business.
• Feasibility business plans : Used to assess the viability of a new product, service, or business idea. They include market research, cost analysis, and initial financial projections to determine whether the concept is worth pursuing.

Each type of business plan serves a different purpose and is tailored to the specific needs and stage of the business. Whether for a new startup, a growing business, or an established company seeking new strategies, a well-crafted business plan is crucial for outlining the path to success.

Business model vs. business plan: What’s the difference?

While a business model is a conceptual framework outlining how a company creates value, a business plan is a more detailed and practical document that sets out specific business goals and the strategies to achieve them. The business model is the core concept around which a business plan is developed.

To further distinguish between a business model and a business plan, let’s consider them from various perspectives:

Metaphorical comparison

• Business model : Think of the business model as the blueprint of a house. It’s an overarching design that outlines the structure and functionality of the house – the type of house, its layout, the flow between rooms, etc.
• Business plan : The business plan is like the construction plan for building the house. It includes detailed specifications, materials, timelines, and the steps needed to build the house as per the blueprint.
• Business model : Its primary purpose is to identify how the business will create and deliver value to customers, and how it will extract economic value for itself. It’s about the company’s strategy for operating in the market.
• Business plan : The purpose of a business plan is to provide a detailed roadmap for realizing the business model. It’s used for operational planning, securing financing, and guiding the company’s growth and development.

Scope and detail

• Business model : Generally, business models are more abstract and high-level. They provide an overall picture of how the business intends to function in the market.
• Business plan : Business plans are detailed and comprehensive. They delve into specifics like market research, financial projections, marketing strategies, and operational details.
• Business model : Primarily designed for internal understanding and strategic direction of the company.
• Business plan : Often created with external audiences in mind, such as investors, banks, or potential partners, to convey the company’s strategy and operational plans.

Functionality

• Business model : It’s a conceptual tool used to explore and articulate the business strategy and innovative approaches to the market.
• Business plan : Serves as a practical tool for execution, guiding the day-to-day operations and long-term objectives of the business.

By considering these different aspects, it becomes clear that while a business model and a business plan are closely related, they serve distinct functions and have different focuses within the business structure and strategy.

This table outlines the main differences between a business model and a business plan across various criteria:

Transform your business strategy with Brixx

The business model serves as the conceptual blueprint for creating and capturing value, while the business plan provides a detailed roadmap for implementation.

Brixx emerges as an essential financial forecasting tool in this process. It offers a suite of features that effectively bridges the gap between the strategic planning of your business model and the practical execution of your business plan. Key features include dynamic financial modeling, strategic planning and forecasting, comprehensive cash flow management, scenario analysis, collaborative planning capabilities, and in-depth reporting and analysis.

For entrepreneurs and business managers looking to seamlessly integrate their business model with an actionable business plan, Brixx offers the perfect solution. Discover how Brixx’s business planning software can transform your business strategy into a tangible success story. Try Brixx today and take the first step towards a more streamlined and efficient business planning process.

Is a business model more important than a business plan, or vice versa?

Both are equally important but serve different purposes. The business model provides the strategic foundation, while the business plan outlines the tactical execution of that strategy.

Can a business operate without a formal business plan?

Yes, particularly in the early stages or in very small operations. However, as a business grows, a formal business plan becomes crucial for guiding strategy, securing financing, and managing operations effectively.

Should startups focus more on their business model or business plan?

Startups should first develop a solid business model to understand their value proposition and market fit. Once this is established, a detailed business plan is essential for guiding growth and securing funding.

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A complete Guide on Business Model vs Business Plan

• August 19, 2020
• Entrepreneurship Venture Capital Funding

Introduction

Business Model and Business plan are interrelated to each other. Lets see a brief difference between business model vs business plan. Business Model acts as a centre for the business plan .

A business model is a framework used to design and depicts how a business might create and capture value. The business plan is a document explaining how a business might become profitable.

A business model is made to be tested while a business plan’s primary goal is to gain investments. If I talk about stages, designing a business model comes first, then we create a plan.

This plan describes strategies involved to build the business and match the plan with the business model.

In this blog, I will start with the difference then some key considerations involving why we should opt, how to write, and some examples of business models and business plans.

We would also be covering components of the business model that can be used while designing a business model canvas. The business model canvas is a tool which helps you to understand a business model in a clear and structured way.

What are the main differences between the business model and the business plan?

Most entrepreneurs start with a strong vision to work on a perfect ideal plan. Instead of chasing an ideal plan, begin with a written description. This description should include who you are, what your ideas are, and why you are in that particular business.

Let’s take an example: If you are selling jewellery online, e-commerce is your business model. Your business plan is to sell jewellery.

Business Plans can be long and time-consuming. So, we need to format the plan properly. A business plan is a document containing detailed future projections such as tactics, goals to cover.

Business Models are structured proposals of a business containing an outline that is easy and less time-consuming. A one-page business model explains how an organization is working with the main idea.

This makes a business model fast, concise, and portable. I will discuss the critical difference from two perspectives:

• External resources including stakeholders, investors, and other parties
• Internal resources including top management, owners, and shareholders

External Resources: Business model vs Business Plan?

If you want to attract investors and grow your business through external resources, a detailed plan is needed. This allows investors to understand the several parts of your business.

If I talk about the main ingredient of a business plan is a set of projections for three-five years. The interests of investors depend on whether your business model is scalable or not.

While investors will also want to know what kind of business model you want to build. The main idea is to show your business future projections and to address the kind of resources needed to get there through a business plan.

So, for external subjects to know about your business and invest in it, the business plan is the best tool.

Internal Resources: Business plan vs Business model?

To understand your business, a business model is one of the most effective. For instance, in a start-up phase, the business model canvas and the lean startup canvas are the most suited.

Each of those tools will help you to build a different kind of business. If you want to understand or design a business model that can help you grow, the business model frameworks are the most suited, vs business plan.

According to   Alan Gleeson , who is the General Manager of Palo Alto Software, Ltd recently answered the difference between business model & business plan in a guest post on TechCrunch : –

“It is worth clarifying the business model vs business plan. A business plan details the business opportunity in a document whereas a business model represents a one-page visual representation or a simple verbal description”.

So if you are a technology-based startup who is looking to raise venture capital, then your business plan should focus on the Venture Capital with a PowerPoint slide deck and an executive summary.

However, if you are a coffee shop looking for a modest investment then the information should include a simple business plan.

Modern business planning is agile, flexible, concise, and more about goal setting than bound physical documents.

This planning process brings numerous benefits for the entrepreneur, such as an ability to look at the operations, to ensure internal focus and cash flow management.

• Business Model Canvas vs Business Plan

Business Model Canvas and Business Plans are useful for an organization to grow. It depends on which stage of the project your company is working in.

Let us discuss the difference between the two and when they should be prepared for the growth of the business.

Business Model Canvas and Business Plan serve a very different purpose. If you are still checking and testing out different ways to roll out your business, BMC is the right place to start.

But, if you are looking for a loan from a bank or an investment for your business, a BMC is inadequate. Rather you should have a business plan. Business Model Canvas helps you, the founder, to figure out the business model and design it accordingly.

Business Plan is for an external stakeholder to analyze your business. The Business Model Canvas functions as a guide. It helps in quick communication between the owners of the business and its stakeholders.

So, let’s take an example of a startup business to understand it clearly. In the startup world, everything is highly changeable. Your business model or target audience can be changed in a month after you started.

And, can you imagine, you spent 3-5 weeks to write a full Business Plan & now you need to rewrite it again because some of the core points have changed? So, for a Startup business model canvas is highly preferred.

If you’re working on a project for more than one year and you’re thinking of asking for funding to an investor, you should work hard to write a great business plan, including an investor pitch.

• Business Model
• Purpose of Business Model

Business Models are necessary for the smooth functioning of every organization. They help in maintaining a close relationship with the customer.

Business Models focus on customer feedback that includes the problems and needs of the customers once the product or service is distributed to them.

How to write a Business Model?

A good Business Model describes the marketing, operations, and distribution strategies of a company. It also includes the analysis of the organizational structure and amending them to sustain a competitive edge.

1. Operational Outline- Design a pictorial view of business operations on a flip chart with circles and labels.

Define the interrelation between them to promote sales, distribute products, target customers, and revenue generation for your team as shown below.

2. Formatting Business Model – Format your business model on a template. You can include the details about different types of customers and how your products and services are valuable to them.

Prepare the total cost incurred for production, employees, and material. Further, prepare a  list of suppliers and partners involved in your business.

3. Operational Business Model – Adopt the “Bricks and Mortar” Business Model to attract local customers who want to choose the products and services provided by your store.

If the customers are from different geographical regions, then target the audience through the Internet. Also, plan to utilize company resources and maintain business profits. Focus on getting new customers and potential risks or threats to the business.

4. Additional Add up Values – Recognize the different methods for serving your customers with products and services. Maintain customer relations based on various segments and target potential customers.

Business Model Example

Let us discuss the different Business Model Examples in different segments.

1. Advertising- Advertising model includes content creation and displaying it in the visual form of advertisement to the readers and viewers. Examples are YouTube, New York Times.

2. Affiliate- Affiliate model uses links embedded in the content through the internet. Examples are TopTenReviews.com, TheWireCutter.com.

3. Brokerage- Brokerage models are mainly used by real estate agencies that involve brokerage transaction fees levied either to the buyer or seller or both by the brokers. Examples are century 21, Orbitz.

4. Crowd sourcing- A large number of people are contributing content for your site in exchange for access to other content. Examples are YouTube, Dell.

5. Freemium- Freemium provides free primary services and charges for premium services. Examples are LinkedIn, Mail chimp.

6. Franchise- Franchise is selling a methodology for starting and running a business. Examples are McDonald’s, Allstate.

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Components of business model  canvas.

There are different components and elements of a business model. These are known as the main building blocks of a business which provides information regarding customers, finance, infrastructure & offers related to business.

1. Customer Segments- It defines the customer according to the segment based on the products and services offered to them.

2. Value Propositions- These add up the value to the products and services offered to the customer based on their performance, brand status, design, costing, accessibility, and newness.

3. Distribution Channels – They act as a medium between the customer and the organization. A quick, easy, and the most efficient channel is always for the distribution of products and services.

4. Customer Relationships- It helps in maintaining customer relationships according to segments to achieve financial success and stability.

5. Revenue Streams – This strategy provides a way in which a company can engage its customers to buy its products and services.

6. Key Resources- Key resources such as human, financial, intellectual, and physical provide value to the customers.

7. Key Activities – Relevant Key activities are necessary for every business as they help in maintaining revenue streams to make an efficient business model.

8. Partnerships- Partnerships with high-quality suppliers and partners reduce the risks to maintain efficient and streamlined operations.

9. Cost Structure – Cost structure is the total cost that will be incurred for the establishment of a particular business.

Business Model Canvas  

Business Model Canvas is a pictorial representation that provides a brief idea about your proposed business. They also include a visualizing description of business models and their values.

Business Model Canvas comprises all business components such as customer segments, value proposition, revenue streams, channels, Customer relationships, Key resources and activities, Partners, and Structure of Cost.

Business Plan

Purpose of the business plan.

The main purpose of a business plan is to focus on achieving business goals, secure outside financing, mapping growth, and including the right talent for the organization.

It acts as a blueprint for expanding and running a business in the right direction at every step. It also prepares for the future with clarity about the goals and achievements.

Every company should adopt a business plan as it acts as a decision-making tool by formatting the business goals and its intended audience.

How to write a business plan?  

Business Plan provides a road map for the growth and success of every business. It also helps to find investors and business partners. It  includes some components as

1. Executive Summary- It is the brief of the business plan that includes mission and statement, primary information, products and services, location, and employees.

2. Company Description- This includes detailed information about a company such as customers, business problems, nature of products, and services catered.

3. Market Analysis- It helps in understanding the target market, its trends, the potential for growth in the existing market.

4. Organization and Management- This depicts the organizational chart with vision and mission regarding the department and functioning of the company.

5. Marketing and Sales- Marketing involves different marketing strategies required in the business while the sales are responsible for covering the return on investments.

6. Funding Requests- Funding requests can be online or in a substantial manner.

7. Appendix and Glossary- Every business should provide appendix and glossary for the supporting documents and references to the data.

• Business Plan Examples

Let us discuss some business plan examples in the different sections of the business.

• Construction and Engineering
• Travel and Transport sector
• Hotels and Hospitality
• Children’s Education
• Computers and the Internet
• Consulting, Health, and Beauty
• Food and Farming, Medical and Healthcare
• Personal Services, Non-Profit Organizations
• Manufacturing and Online business.

For instance, let us consider a business plan for the Manufacturing sector. The manufacturing is mainly adopted by the companies who want to start new manufacturing, production, or fabrication business.

This plan helps in knowing the business profile and description, detailed investor information, risk factors involved. It also includes products, and services to be used, market research, sales and marketing strategies, operations, and financial analysis.

Types of Business Plan  

There are various business plans adopted by organizations depending on their nature of business.

1. Startup Business Plan- It is for the enterprises that want to start their business. This mainly includes market evaluations, products and services provided, financial analysis, and projected management team.

2. Internal Business Plan- These plans describe the operational costs and profitability, the company’s actual position, marketing, hiring, and technical costs.

3. Strategic Business Plan- This plan includes the company’s goals in the form of implementation schedule, objectives, and critical success factors and how to achieve them.

4. Feasibility Business Plan- It consists of the description of products and services, required capital, and target demographics.

5. Operations Business Plan- They are part of internal plans that include the company’s main operations with employee responsibilities.

6. Growth Business Plan- This plan provides an in-depth description of the proposed growth plan and investment for its potential investors.

So, the difference between a Business Model and a Business Plan is that they are both parts of an effective Strategic Planning process. A business model is all about VALUE!

What value are you creating, whom are you creating this value for, how are you delivering this value to said target?A great business plan is contingent on RESOURCES – time, infrastructure, manpower, technology, competences & capital.

They both help a business to grow. Using the right one means that your company can have a clearer process and better products and services.

As I said above, the business model is like a destination, and the planning is how you will reach your destination. So, let me add that the planning I recommend isn’t just a map or a route; it’s a GPS, real-time traffic and weather information.

And in that analogy, the business model is the destination. Hence, having an effective Strategic Plan is a powerful business advantage that dramatically increases the odds of success.

Alcor private equity and Venture capital firm  also empowers founders and businesses to grow their companies at all stages.

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How does a business plan differ from a business model canvas?

Business plans and business model canvas are two key decision making tools that entrepreneurs need to know (and use!). Despite sounding similar, however, they do differ significantly and shouldn't be confused.

This in-depth guide covers all you need to know about the two documents, including what they contain, their similarities and differences and the tools you can use to create either of them.

Ready? Let’s get started!

In this guide:

What is a business plan?

What is the business model canvas, business plan vs. business model canvas: what do they have in common.

• Business plan vs. business model canvas: what are the differences?

What tools can you use to write a business plan?

What tools can you use to write a business model canvas.

A business plan is a document providing detailed information about your business and its objectives for the years to come (usually 3-5 years).

To keep it short and simple, a business plan consists of two parts: 

• A financial forecast which provides information about the expected growth and profitability of your business, your potential funding requirements, and cash flow projections.
• A written part which provides the context and details needed to assess the relevance of the forecast: company overview, description of products and services, market analysis, strategy, operations, etc.

Formal business plans are usually written: to secure financing, to get buy-in from stakeholders (board members, investors, business partners) on the plan of action for the coming years, to convince suppliers to do business with the company, or to communicate the company's vision to staff members.

Financial savvy businesses regularly track their actual financial performance against the forecast included in their business plan and re-assess their progress against what was planned, and update their plans as needed.

Need a convincing business plan?

The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

In simple terms, a business model is how a company makes money, and the business model canvas is a tool to help entrepreneurs find a coherent business model for their business (or for new products or services).

A business model can be broken down into two parts:

• The first part deals with what a business is about. This relates to what the business sells - and all the activities that go into creating this. That means research, designing, raw material sourcing and costs, production, and testing. 
• The second part is concerned with selling what the business is about - the product or service it has invested in. These activities include everything from marketing to distribution and the sale transaction process. 

The business model canvas can be used to visualize a business model idea. It is a visual chart that includes simple, yet effective graphical illustrations that highlight every aspect of the potential business' operations.

It outlines the infrastructure, value proposition, and customers, including the target market, customer relations and marketing approach, revenue streams, and profit margins.

The business model canvas helps stakeholders brainstorm business model ideas. For example, they can come up with multiple business models and test them against each other to see which ones are viable and which ones aren’t.

As a result, this tool is only useful for those looking to start a business, launch a new product, or change their business model.

Since we’ve covered business goals and strategies in relation to both a business plan and a business model canvas, it stands to reason that there are at least some similarities between the two. 

In essence, both relate to the way a business functions and there is some overlap between the two. Some of the similarities between the two include:

Outlining business strategy

Both a business plan and a business model canvas outline key strategies that the business intends to use in day-to-day operations.

This includes key aspects such as how a business might create and distribute a product or service and identify corresponding revenue streams.

Decision-making tools

Since both tools help formulate some aspects of business strategy, they are useful in the decision-making process. 

With key business processes highlighted, and ultimate goals set out from the onset, decision-makers within the business have an easier time determining what their next steps should be. 

As such, these tools are used to help stakeholders make more accurate choices when tasked with making decisions. Therefore, businesses that utilise these tools are likely to have successful outcomes.

Indefinite methods

Neither a business plan nor a canvas offers any guarantees. Instead, they are tools that help test out and present your business idea to other stakeholders or managers.

Just because you’ve used these tools, it doesn’t mean that your business idea will pan out or your forecast will go as predicted.

In all likelihood, mapping out your strategy on a business model canvas may help you realize your business idea isn’t destined to be a success. 

An idea can seem good in an abstract form, but when you’re forced to consider all its intricacies, you may understand it won’t work. The good thing about business plans and models is that they can help you determine the viability of your idea before you go through with it.  

Business plan vs. business model canvas plan: what are the differences?

There are major key differences between business plans and business model canvasses. 

Let’s take a look at them in more detail!

Different scopes

As mentioned previously, a business model canvas is a strategic tool that helps find the best busines model for a business or product/service idea.

The business plan can only be drawn once you know what business model will be used. The role of the business plan is then to show how much it will cost to launch the business or product, and how much money it could make, and what it will take in terms of concrete resources (people, equipment, etc.).

Different length

The business model canvas is meant to fit on a single piece of paper ("the canvas").

A business plan, however, goes into much more detail. You can expect a typical business plan to be somewhere between 15 to 30 pages.

Different audiences

A business model canvas can be used to bounce off ideas, iron things out, and create a definite model for the business to follow. As such, it is primarily used by the internal team, typically the business founders and others involved in starting the business (or a product team in a large organization). 

A business plan is used internaly - by the management team and the board, and sometimes shared with the wider staff - but it’s not limited to this audience. It is also used with external stakeholders, like banks or investors in order to secure financing. And sometimes suppliers who need it to create their impression of the business’s potential for success before getting involved. 

One-off vs. recurring use

Typically, business model canvases are used prior to starting a business or when a change is needed to the existing business model. 

It is a tool used to visually represent the business idea before it comes to fruition. This means that the idea can be tested practically to decide whether it is viable or not.

Business plans go further, rather than being simple one-off go/no-go decision making tools, business plans are used continously and maintained up to date.

One key concern is knowing whether or not the company is on track to deliver what it planned in its business plan. To do so, managers compare the actual financials to what was planned in the forecast. And then re-plan if needed.

Business plans are also used to make key operational decisions. For example: should you hire a team of marketers or outsource to an agency? To make an informed decision, entrepreneurs can model both scenarios and decide based on the most promissing forecast.

Similarly, business plan are used to anticipate key risks. For example: what happens if sales are 20% below expectations?

As you can see business plan are fairly different from canvasses.

In this section, we will review three solutions for writing a professional business plan:

• Using Word and Excel
• Hiring a consultant to write your business plan 
• Utilizing an online business plan software

Create your business plan using Word or Excel

Writing a business plan using Word and Excel is not the best option.

First of all, this option is only recommended if you have a degree in finance or accounting and expertise in financial modelling. You are likely to make mistakes otherwise, and as a result banks or investors are unlikely to trust the accuracy of your financial forecast.

Using Word to draft the plan also means starting from scratch and formatting the document yourself once written - a process that is quite tedious. There are also no instructions or examples to guide you through what to write in each section.

Hire a consultant to write your business plan

This option is only feasible if you have the required finances - you probably need to budget at least £1.5k ($2.0k) for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the initial meetings with lenders).

Despite the expensive price tag that comes with it, outsourcing your business plan to a consultant can be a good idea. Consultants are experienced in writing business plans and adept at creating financial forecasts without errors. Furthermore, outsourcing to a consultant saves you time and allows you to focus on the day-to-day operations of your business.

Use an online business plan software for your business plan

Another alternative is to use online business plan software .

There are several advantages to using specialized software:

• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can be inspired by already written business plan templates
• You can easily make your financial forecast by letting the software take care of the financial calculations for you without errors
• You get a professional document, formatted and ready to be sent to your bank
• The software will enable you to easily track your actual financial performance against your forecast and update your forecast as time goes by

If you're interested in using this type of solution, you can try our software for free by signing up here .

To get started, you need the canvas itself which can be downloaded here .

Once you have the canvas you can either print multiple copies of it to compare alternative business models on paper, or draw it on a white board to brainstorm with your team.

We hope this guide helped you get a clear understanding of how the business model canvas differs from a business plan, and when you one or the other. Don't hesitate to contact our team if you have any questions regarding business planning.

Also on The Business Plan Shop

• Practical example of a business plan outline
• Business Model vs. Business Plan?
• Business plan vs budget
• Why do you need a business plan?
• Location and facilities in a business plan

Know someone struggling with their business plan? Share this article and give them a nudge in the right direction!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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Business Plan vs. Business Model Canvas: What’s the Difference?

The main difference between Business Plan and Business Model Canvas is that a business plan is like a detailed story about your business, while a business model canvas is a simple visual chart.

Before we move to more differences, let’s first understand Business Plan and Business Model Canvas:

• Business Plan : A business plan is like a roadmap that shows how a business will work and grow. It includes goals, strategies, and how money will be used.
• Business Model Canvas : A business model canvas is a simple chart that shows how a business creates, delivers, and captures value. It helps understand how all the pieces of a business fit together.

Now, let’s get to Business Plan vs Business Model Canvas:

Major differences between Business Plan and Business Model Canvas

So, these are the main differences between the entities.

• Budgeting vs. Financial Planning
• Brief vs. Debrief
• Branding vs. Marketing

You can see other “differences between…” posts by clicking here .

If you have a related query, kindly feel free to let me know in the comments below.

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The Difference Between a Business Model and a Business Plan

By Samantha Garner, GoForth Institute

When you’re getting ready to start your small business, 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 components in 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.

Do you need both a business model and a business plan?

A business model and a business plan work in tandem. You need a good foundation and planning before you invest your time and money. To get started, check out our free  One-Page Business Plan . 

Samantha Garner is GoForth Institute's Director, Communications.  Contact Samantha by email:  [email protected]

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