Why the Business Model is Even more Important than the Business Plan

What’s a business model? How does it relate to a business plan? Are they different or the same? Well, they are not the same but they are not two completely different things either. They dwell together or in other words they synchronize. A business model is like a destination; a business plan is how you’re going to get there. A business plan details the business opportunity you are seeking to exploit. A Business model defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. To sum up, the Business plan is static and the Business model is dynamic. Here’s a brief analysis:

 

Business Plan

A Business Plan is a formal statement of goals which are centred at a business to look ahead and which allocates resources, focuses on key points and prepares for problems and opportunities.

Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But, even an existing business which is going to undergo a major change or going to start a new venture needs a business plan. So, essentially a business plan can be externally or internally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders who include investors, customers, donors and clients of non-profit’s services. Internally focused business plans target intermediate goals required to reach the external goals.

The content and format of the business plan is not fixed and it is determined by the goals and audience. A typical business plan contains:

  1. Executive Summary

  2. Business Description

  3. Business Environment Analysis

  4. Industry Background

  5. Competitor Analysis

  6. Market Analysis

  7. Marketing Plan

  8. Operations Plan

  9. Management Summary

  10. Financial Plan

  11. Attachments and Milestones

As far as the presentation of a Business Plan is concerned, it can be presented in any of the following formats for the same business plan:

  1. A detailed written presentation aimed at convincing stakeholders.

  2. An internal operational plan meant to be used by the management.

  3. An elevator pitch: a three-minute summary often used as a teaser to buy your way into an appointment with an investor.

  4. An oral presentation which can be a slide show aimed at evoking interest from the investors or analysts.

A Business plan is not necessarily confidential as nowadays there are open business plans who have unlimited audience.

 

Business Model

The term ‘business model’ is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. You can innovate as much as you want while creating business models but the most important thing to be kept in mind while formulating them is that they should be realistic. A business model describes how your company creates, delivers and captures value.

Let’s understand everything with the help of a simple example. Suppose, you are going to start a company and you created some slides on the basis of collection of facts about sales, marketing, pricing, solution, competitors, etc. But once you have made this, you are not going to reconsider this collection of facts. In fact having made this, you will try to create some preliminary user and customer data based on the feedback of the critical hypothesis you previously made. You finally try to summarize all this in a PowerPoint presentation. This will be called a business model and the initial collection of facts which you made is called a business plan.

It should be mentioned here that while a business plan is static and doesn’t change, a business model is designed for rapid change to reflect upon what you find outside the building in talking to customers. So, it’s dynamic as we discussed in the beginning. The reality is that no plan really survives, one needs to talk to the customers and thus come up with a Business model.

Let us discuss some of the components of a business model. The first and foremost thing is how to reach potential customers.  As Ralph Waldo Emerson said, “Build a better mousetrap, and the world will beat a path to your door.” Among the other components, the second most important is differentiating your product from others previously existing in the market. Also, one needs to appropriately analyse the total costs along with the competitive landscape before deciding the pricing. Other components of a Business model include selling, distribution, supporting customers and most importantly achieving customer satisfaction.

Thus, we’d like to sum up everything by this quote-

“Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.”

Contributed by Shashank Garg

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