The Difference Between a Business Model and a Business Plan

Entrepreneur Library

The Difference Between a Business Model and a Business Plan

By Samantha Garner, GoForth Institute

When you’re getting ready to start your small business, you might have heard that you should start with a business plan, or a business model. That’s great! But what are they, exactly, and how are they different from one another?

Business model

The business model is a blueprint for the business, outlining how you’re going to run your business, and how you’re going to make money.

There are five components in a business model:

Business concept: A short description of an opportunity, including a description of your average customer; the benefit of your product or service to the customer; the product or service; and the way you’re going to get your product or service to the customer.
Value chain position: Your business’ position on the chain of activities through which products and services pass to get from you all the way to the end user.
Calculating customer value: An estimate of the value of the tangible benefits your customers will receive by purchasing your product or service.
Revenue sources and cost drivers: Identifying your sources of revenue, and activities that come at a cost.
Competitive advantage: The state when customers perceive your products or services to be superior to your competition.

Business plan

Where a business model is a blueprint, a business plan is a roadmap. A business plan is a formal written document that includes a description of the business you want to run, your business goals, and the plan for reaching those goals.

A business plan is a detailed document that contains sections such as: Marketing Plan, Startup Expenses and Capitalization, Management and Organization, Products and Services, and Operational Plan.

A business plan is usually developed around the answers to three common questions:

Where are we now?
Where do we want to be?
How are we going to get there?

And is usually written for one or more of these five reasons:

To test the feasibility of your business idea and work out any bugs on paper first.
To develop strategies ahead of time for marketing, finance, operation and human resources, instead of when you’re in the fast-paced start-up stage.
To get funding, such as a bank loan.
To attract investors.
To have a roadmap to follow for at least the first year in business.

Do you need both a business model and a business plan?

A business model and a business plan work in tandem. You need a good foundation and planning before you invest your time and money. To get started, check out our free One-Page Business Plan.

Samantha Garner is GoForth Institute's Director, Communications. Contact Samantha by email: samantha@goforthinstitute.com