A business model is not necessarily similar to a business plan. Some people make the misconception regarding the two as the same. Before we go into detail let us differentiate the terms ‘model’ and ‘plan’. A model is simply a hypothetical (testable) description of a process. A plan is a series of steps to be carried out or goals to be accomplished. On that premise alone it is apparent that a business model and a business plan are not the same. In this article, we shall comprehensively look at the difference between those two.
By Definition
The difference between the two can be shown by virtue of their definitions.
A business model is the means by which a business makes money. In essence, it is the description of the process by which a business successfully operates. It combines product details, financial details, revenue sources and consumer dynamics.
A business plan is a comprehensive description of how a business will achieve its goals. It is essentially a roadmap that details what a business is, what it seeks to achieve and how it will achieve it. Some of the major parts covered in a business plan are the marketing, operational and financial aspects.
Components
We can differentiate between a business model and business plan by looking at the components of each.
A business model has components such as the following, key partners, key activities, value proposition, customer relationships, customer segments, key resources, distribution channels, cost structure and revenue streams. By looking at these components you can see that the business model is the heart of the business plan.
A business plan comprises of components such as the executive summary, company description, market analysis, management structure, products, marketing and sales plan, and financial summary or analysis. The components mentioned for the business model form the basis of the business plan. Check this website for business plan components.
Descriptive Terms Used
Some refer to the business model as the blueprint whereas they refer to the business plan as the roadmap. Some say that the business model is the foundational profile of a business whereas the business plan is the structural profile of a business. These terms are very descriptive because they really give you a perspective. Consider the construction of a building. The actual structure and frame of the building is built upon the foundation. The business model highlights the how and where of where the business is run. The business plan is all about what you are doing or seeking to do – the whole reason why you running or starting a business. These are some of the terms used to explain and thus show the difference between a business model and a business plan.
Examples
We can cite examples to show the difference between the two as follows:
Examples of business models can be direct sales or franchising. Other common examples, especially for online businesses are subscription or freemium models. As you can see these examples add more weight to the definition and component details we discussed earlier. How is money made – that is what the business model is all about.
A business plan example can be a Gym and Fitness Business Plan. This can be a business plan that is meant for use as a tool to source funding. The business plan touches on all aspects that pertain to the business in its entirety.
Uses
A business model differs from a business plan in terms of uses.
A business model is mainly concerned with how the business will make money. It can be used to assess the business’ performance or potential to make money. This makes its main use to be a tool for monitoring and evaluating a business’ sales, revenue and profit performance. A business model always has to be reviewed so that it can be tweaked as and when needs be. For instance, a business can start off using the direct sales model but as time goes on sales might decrease or flatten out. As a panacea, adopting or adding a new business model e.g. the advertising model might help.
The business plan is a roadmap of a business spanning from what it is to what it seeks to achieve and how. The uses of a business plan are varied especially considering that a business plan is normally in the form of a document. The main use of a business plan is to source funding from prospective investors or financiers. A business plan can also be used as a reference document during the building of a business – no wonder it is called a roadmap. Even when a business is looking to enter strategic partnerships with other businesses the business plan is used. Of course, a separate proposal can be drafted but a business plan can be used.
Depictions Of The Two
A business model can be depicted using a business model canvas. A business model canvas is basically a diagram that can fit on just one page. A well-drafted business model canvas will clearly illustrate how a business makes money and all the related details.
A business plan, no matter how much you want to summarize, will require a document. Come to it think of it there are certain aspects of the business plan that might not be easy to summarize. For instance, a cash flow projection for a year or so makes sense if it is represented in full – that might need a page or more.
Overall, depicting the two differs in that the business model can be depicted using a business model canvas diagram. The business plan will normally require a number of pages.
Clearly the business model and business plan are two different entities. Despite being different they are intricately connected to each other. In other words they cannot do without each other. One builds on or is built on the other i.e. the business plan is built on the business model. In some way they also feed into each other too. So never make the mistake of regarding the two as similar.
