Business Plan vs Business Model: What’s the Difference?

Understanding Key Terms: Definition of Business Plan and Business Model

Business Plan

A business plan is a comprehensive document outlining your business's goals, strategies, and operational plans. It’s the company’s roadmap to growth and success, providing a 360-degree overview of your business. Business plans are often used in the context of fundraising and strategic decision-making.

Typically, a business plan includes:

Executive Summary

Short overview of the business and its goals. The executive summary is the TL;DR version of your business plan.

Business Description

A snapshot of the business idea, including customer needs, unique value proposition, and solutions.

Market Analysis

Research the target market, including industry trends, competitive landscape, risk, and opportunities.

Marketing & Sales Strategy

A plan for attracting new customers and retaining existing customer base.

Financial Plan

Expected income, expenses, and profitability over a set period. An excellent tool to support your financial projections is the unit economics model.

Operations Plan

Details of daily operations, resource allocation, talent capital, and logistics.

Business Model

A business model outlines how a company creates, delivers, and captures value by addressing customers’ problems and needs. Typically, the business model is part of the business plan.

Components of the Business Model

The components of a business model are some of the key components of the Lean Canvas:

• Customer Segment or target customers
• Unique Value Proposition
• Revenue Stream
• Traction Channels
• Cost structure

Business Model Types

There is a good variety of business models. Those that are most relevant to software products nowadays are:

• License-based product
• Subscription
• Freemium
• Open source software
• Pay as you go

Key Differences Between a Business Model and a Business Plan

1. Scope

The business model focuses very specifically on the value chain of the business, emphasizing business operations and generating revenue.

The business plan is broader in scope and covers goals and objectives, market analysis, and a marketing and sales plan in addition to the business model.

2. Objective

The business model aims to outline how the business will generate profit and sustain itself. It’s primarily centered on value creation and capturing opportunities.

The business plan is a detailed roadmap for how the business will achieve its goals and objectives. It is used in decision-making and long-term planning.

3. Intended Audience

The business model is addressed mainly to internal stakeholders. Being a more operational instrument, it matters to the marketing, sales, and product teams focused on operational work. Occasionally, it may be shared with partners and advisors for feedback on improving the model's effectiveness.

The business plan is mainly for external stakeholders like:

• Investors
• Banks
• Business partners, current or future

Internal teams can also use it to communicate the high-level strategy and ensure alignment between different teams and organizations within the company.

4. Adaptability/Flexibility

The business model is more flexible and can be adjusted based on real-world customer feedback, the evolving competitive landscape, industry trends, and other changes. A company may often have multiple business models, especially when transitioning from one to another. For example, when transitioning from a license-based to a subscription-based product, companies often have two offerings while the newer one is adjusted and ready for prime time.

When to Use a Business Model vs. Business Plan?

Here is a guide for when to use a business model and when you need a comprehensive business plan:

When to Use a Business Model?

• Early stages of a business
  A key component of getting to product-market fit is nailing the business model.

• Pivoting or Revising a strategy
  Creating a new or adjusting the existing business model is key to pivoting your business idea.

• Evaluation new opportunities
  Each new opportunity is like starting a mini-startup and goes through a similar flow. You must understand how that new avenue will create value for your customers and your company. This may include changing your business model, or you may discover that the existing business model also covers the new opportunity.

• Internal decision-making
  The business model is a good framework when making decisions internally.

When to Use a Business Plan?

• Fundraising
  When looking for an investment, the other party needs an in-depth understanding of your business to evaluate whether there is a match between your needs and theirs.

• Partnerships or mergers
  Similar to investments, when creating strategic partnerships or mergers, both parties need to understand how the other party operates, what its objectives are, etc.

• Launching a new business line or a major initiative
  Starting a new business line or initiative in your company is similar to creating an internal startup. As the new initiative needs to be successful within the context of the existing company, having a business plan that aligns with both objectives is even more important.

• Managing growth and scale
  The business model is a key component of achieving product-market fit, but after that, scaling and growing your business is a matter of the business plan.

• Long-term strategic planning
  The business plan is a great way to capture and communicate your long-term strategy in an actionable way.

How to Adjust Your Business Model and Plan for Market Changes?

Complacency is one of the biggest enemies of successful companies. Achieving a product-market fit is not a one-off event. To retain it, you need to continuously nurture and invest in it.

Different events may trigger you to review your business model or business plan. Many of these will come together, one reinforcing the effect of the other, but let’s review them one by one:

Market Shifts

Changes in how other market players solve the customer problem will affect customers’ expectations. The best option is to drive those shifts to stay ahead of the pack and not play a catch-up game. Creating such a shift is a great example of business model innovation.

Technological Innovation

New technologies often unlock new business opportunities. To leverage those, you need to adjust your business plan and model.

Cloud technologies, for example, led to the emergence of subscription-based products. The rise of smartphone application stores created the in-app purchase business model.

Customer Needs

Customer needs are never static. What once was considered a delighter and would help you win over other competitors will soon be considered a table stake and a must-have for entering the market. Once you solve your customer's biggest problem, the second most important product becomes the new #1 problem.

Addressing new customer problems may require changes to the business plan and/or business model. For example, creating a content management system that is sold as a subscription will soon require a marketplace of plugins that third-party vendors can use to add additional value. Your CMS suddenly turns from a product to a platform.

Economic Conditions

Economic downturns or economic booms are another reason to reconsider your business plan. Each of these might lead to a decreased or increased need for your product, which may need to be factored in:

• Will your product or service support 10x more customers over a night?
• How can you solve the same product at half the price to account for the reduced purchase power of your customer base?
• Can you reduce operational costs without sacrificing product quality to improve your marketing? Or where can you invest more to increase your growth?

Regulatory Changes

Regulatory changes may happen due to new technologies, political swings, global threats, etc. Examples:

• AI technologies force countries to consider what regulations should be introduced to preserve other rights, such as intellectual property and privacy.
• Climate change is pushing governments to create stimuli for companies to create sustainable businesses and move away from fossil fuels.

Can a startup/business succeed by only having a well-defined business model?

In the world of probabilities, startups have become successful by luck or by doing the right things at the right time without being intentional about them and without having a business plan or a business model.

Icanpreneur’s mission is to significantly increase entrepreneurs' chances of success. Even competently executed startups with a business strategy, a plan, and a model still have a 90% chance of failure. The risk goes higher if they decide to skip steps.

FAQ