Business Model vs Business Plan - Explained
What's the Difference?
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What is a Business Model?
The business model is the method by which a business delivers value and receives value.
The business model is mapped out using the various strategic and operational elements of the business. This map allows key parties to use the information to make decisions.
The business model is a fundamental concept/tool in entrepreneurship and is the subject of great attention in entrepreneurial circles. In fact, many entrepreneurs see the business model as more beneficial than the business plan. They believe that developing a full business plan is too detailed and cumbersome for a startup venture.
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Why is the Business Model Better than the Business Plan?
The business plan is a mass of information that bases calculations and projections in one section on assumptions from another section. Changes in any one aspect of the business can greatly alter the accuracy and overall usefulness of the plan. The answer to this is the boiling down of elements of the business plan into a useful tool (an operational assessment) that can guide decision-making and actions within the early-stage, startup venture.
This is what the business model does. It makes the information about the company easier to use in making decisions.
While the business model advocates recognize the value of the business plan, they put greater emphasis on the business model as a useful tool for guiding the entrepreneur in the early stages of a start-up. Personally, I believe that the business model argument has a great deal of merit.
What is the Value of the Business Plan?
While the business model is slowly becoming the go-to instrument for business planning, the business plan still has a great deal of value. This is particularly true for business funding. A new business cannot get a business loan from a commercial lender without producing a business plan, complete with financial projections. Likewise, investors still want to see a detailed analysis of the business. While a business model provides a working model, it generally does not go into the depth required by equity investors. The point of this paragraph is to demonstrate that maintaining a well-constructed business plan is still critical to a new business.