Having both, A Business Model & A Business Plan will SAVE your Biz + Make you Profitable

Aug 21

Most small businesses imagined that the business plan is the KEY driver for the business and not the business model, me including! It is great to have a business plan, either you have a one page business plan or a 500 page. In this article, I want to discuss the differences between having a business plan and having a business model. You tell me if you can see the comparison! Deal?

Ok, let’s get to it.

What it is a Business Plan?

Basically, a Business Plan is a document that outlines a company’s reasoning for being in business, strategy for earning revenue and predictions of financial performance for the foreseeable future. Business plans are often used as a way to give investors, lenders, shareholders and other interested parties an overview of a company. For this reason, they are usually comprehensive documents that cover the following:

Executive summary: The executive summary briefly describes the specialty of a company and the plan for achieving its success.

Mission statement: This is one or two sentences that detail a company’s overarching philosophy.

Company's basic information: There is typically an entire section that outlines the company's name, industry, location and starting date.

Owner's credentials: Because business plans are often for securing funding from lenders or investors, they often include the work experience, credentials and even resumes of the owners.

Products and services: A business plan usually has detailed descriptions of the services and products that the company offers.

Marketing plan: Aside from highlighting a company's products and services, business plans detail the strategy for effectively marketing them.

Financial information: If company leaders are seeking funding, they have to include relevant financial information in their business plans, such as bank statements, the amount of funding they seek, the reasoning for needing funding and the repayment plan.

What is a business model?

A business model is a structure that a company uses to generate profits and build value. It outlines how business leaders operate a company and deliver products and services to customers. The firm’s model is its positioning within the value chain of its industry and the organizational structure of its relationships with partners, clients and suppliers. Some of the basic elements of a business model are the following:

Basic business concept: This is a brief summary of the company's basic purpose. It may regard factors like its average consumer, the product or service, the benefit the product or service can offer the consumer and the method of delivery for products and services.

Value chain position: The value chain position refers to the company's role in the supply chain or the process that gets products and services to the consumer.

Benefits provided: A business model usually contains an estimate of the tangible benefits that the product or service can offer customers.

Cost drivers and revenue sources: This aspect of a business model identifies which activities cost money and which activities are sources of revenue.

Competitive advantage: When a company has a competitive advantage, it has distinguished itself from competitors. Consumers perceive the company’s products and services as superior to others.

Business model vs. business plan

Here are some differences between a business model and a business plan:

Focus

Business models are descriptions of how a business plans to deliver products and services to customers. They focus on specific sales funnels, marketing strategies and similar areas. In contrast, business plans are more comprehensive explanations of every facet of a business. While they include sales and marketing information, they also include financial information, revenue predictions and mission statements.

Audience

Business leaders often create business plans for an audience of potential investors and other stakeholders. For example, they may present a business plan to raise funds, apply for grants or update investors on business progress. In contrast, business models are primarily for executives and internal members within a company. These schemes help team members coordinate activities.

Relation to products and services

Both plans and models relate to products and services. Plans convey the products and services a company seeks to develop and provide. Models discuss how businesses want to produce and deliver or sell those products and services to customers.

Examples of business models

Some common types of business models include:

Brick-and-mortar

Brick-and-mortar stores use a physical building to deliver goods to customers. Examples of brick-and-mortar stores include local coffee shop and local food stores. These models rely on in-person interaction rather than online transactions.

Production

This is the most basic type of business model because the company simply sells the services or products that it produces. When using this business model, a company seeks to generate enough revenue to cover the costs associated with the production, storage and distribution of its products and services. It also seeks to increase revenue and decrease expenses to earn profits. (I will talk more about the business model in next month’s blog!)

Franchise

In a franchise business model, an established brand allows an independent company to use its business model and branding. The independent company may attract more business by associating itself with a popular, trusted company. It pays the larger company a franchise fee and royalties for this privilege.

Subscription

With a subscription business model, a company earns revenue by charging consumers, also known as subscribers, at regular intervals. Many companies offering software as a service (SaaS) like music streaming services or human resources management systems have subscription-based business models. The primary advantage of this model is that companies are usually able to accurately predict their future revenue.

Credit Resource: Indeed Career Guide

Thank you all for reading!