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Business Model vs Business Plan

Business Model vs Business Plan

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.  As you see from these lectures, 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.

 

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. This text focuses around the building of a business and uses the business plan as a teaching model.  However, the tools derived during business planning (e.g., the feasibility analysis, the business model, the marketing plan) are extremely valuable standalone documents.

 

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.

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