The Differences Between a Business Plan & Business Model
- A good business idea without a sound, focused strategic plan leaves an operational vacuum that the competition quickly fills. As a result, you need to explain in a step-by-step format how you intend to turn your dream idea into a healthy, profitable business. A business plan is a document in which an entrepreneur indicates a start-up's operating goals, the reasons why these goals are attainable and specific steps to reach them. A business plan includes various sections, including the executive summary, business description, industry background and financial plan.
- Remember that lenders and potential investors may not have a clue about your business. Even if you believe the business is a "sure win," meaning it cannot fail, you still need to back the theory up with sound, verifiable facts. Banks will sift through your firm's business plan to evaluate the company's profit trends over a specific period of time, such as two or five years. Lenders also will focus on how your company intends to derail the strategic campaigns that rivals generally mount to deny market access to new entrants.
- An integral part of corporate strategy, a business model indicates the steps and methodologies that a company relies on to lure customers, gain market share and thrive in the long term. Put more simply, a business model describes how the firm makes money. Defining a corporate business model is the product of accounting acumen, strategic insight and financial savvy. Although it is a collective effort, the establishment of short-term and long-term business models remains the purview of top leadership, a process in which senior executives have the final say.
- In modern economies, the rivalry taking place in global markets is perhaps the best illustration for the significance of competing business models. In other words, the economic competition results from the fact that each firm applies its own strategies, hoping to erode its rivals' market foothold. Investors and consumers favor this competition because it pits company versus company, and rivals hunting for more revenues may ultimately reduce their prices.
- Granted, business plan and business model are separate concepts. However, both terms interrelate in economic activities. An already established company may write up a business plan before entering a new market. It can then use in the new market a business plan that it relies on to thrive in other economic sectors.