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.
Your business plan includes these sections:
- 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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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.
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!
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
Types Of Business Models
How many business models there can be since new models are created all the time? Here are some of the most recognizable business models:
- Razor and blade
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
business model canvas includes nine key elements that help you create a business model. Those are:
- 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 activities only 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?
Types Of Business Plans
Before you start writing a business plan, you should pick the right one that’s based on your unique needs. Some of the most recognizable types of business plans are:
- 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.