Business Models vs. Business Plans

 Differences, Similarities, and Roles of Business Models and Business Plans

1. Introduction 

In today’s business environment, having a clear business strategy and execution plan is essential. For a company to grow and succeed, it must effectively develop and utilize two core outputs: the business model and the business plan. While the business model provides a blueprint for how a company creates, delivers, and captures value, the business plan includes specific strategies, action plans, and financial forecasts, providing detailed operational guidance (Osterwalder & Pigneur, 2010). This article analyzes the differences, similarities, and roles of the business model and business plan, highlighting their significance.

2. Definitions of Business Models and Business Plans

2.1 Definition of Business Model A business model defines how a company creates, delivers, and captures value. Below are definitions provided by scholars:

• Paul Timmers (1998): A business model is a structure that shows the flow of products, services, and information, including roles and potential profits of various business actors, and sources of revenue.
• A. Afuah & C. Tucci (2001): A business model is a system that explains how a company delivers value to customers and converts that value into profit.
• Henry Chesbrough & Richard S. Rosenbloom (2002): A business model is a framework that includes the structure, activities, and governance necessary to transform technological potential into economic value.
• Joan Magretta (2002): A business model tells the story of how a company works, delivers value to customers, and generates profit.
• Michael Morris et al. (2005): A business model is a conceptual tool that explains how a company creates, delivers, and captures value, including strategic choices, value networks, customer interfaces, value propositions, key resources, functional processes, and revenue models.
• Alexander Osterwalder et al. (2005): A business model is a blueprint that explains how a company creates, delivers, and captures value.
• Scott M. Shafer et al. (2005): A business model is a representative way to explain the core logic of how a company creates, delivers, and captures value.
• Mark W. Johnson et al. (2008): A business model consists of four elements—value proposition, profit formula, key resources, and key processes—that explain how a company creates value, delivers it, and generates profit.
• David J. Teece (2010): A business model is the logic for delivering value to customers and converting that value into profit.
• Christoph Zott & Raphael Amit (2010): A business model is an activity system designed by a company to create and capture value.
• Ramon Casadesus-Masanell & Joan Enric Ricart (2010): A business model is a set of policies, assets, and governance structures chosen by a company, and the results they produce.
• Charles Baden-Fuller & Mary S. Morgan (2010): A business model describes how a company operates, creates value, and generates revenue.

A representative concept of a business model is the Business Model Canvas (BMC), proposed by Osterwalder & Pigneur (2010). This model breaks down a business into nine key elements:

1. Customer Segments
2. Value Proposition
3. Channels
4. Customer Relationships
5. Revenue Streams
6. Key Activities
7. Key Resources
8. Key Partners
9. Cost Structure These elements provide a clear concept of how a company operates in the market and generates revenue.

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2.2 Definition of Business Plan A business plan is a document that outlines the strategies and action plans a company uses to realize its business idea (Smith & Smith, 2000). A typical business plan includes:

3. Company Overview
4. Market Analysis
5. Product/Service Description
6. Marketing Strategy
7. Operations Plan
8. Financial Plan
9. Risk Analysis Thus, the business plan is a document that offers specific action plans based on the business model.

3. Differences Between Business Models and Business Plans

Category	Business Model	Business Plan
Purpose	Defines how value and profit are created	Documents business execution strategies and plans
Structure	Includes the 9 elements of the Business Model Canvas	Includes market analysis, operational plans, financial plans, etc.
Focus	Core operational methods and profit structure	Specific execution strategies and funding plans
Flexibility	Can be quickly modified to respond to changes	Needs to remain stable and detailed to convince investors
Audience	Management, team members, partners	Investors, government agencies, financial institutions

3.1 Difference in Execution Strategy and Flexibility While the business model defines the core operational principles of a company, the business plan includes detailed execution strategies and funding plans (Morris et al., 2005). The business model is flexible and can quickly adapt to market changes, while the business plan must remain specific and structured to provide reliability to investors and stakeholders.

3.2 Difference in Investment and Strategic Use

• The business model is primarily used internally to set corporate strategies and demonstrate sustainability.
• The business plan is mainly used for attracting investment and securing funding. For instance, startups must prepare a business plan that includes a clear financial forecast and growth strategy when seeking venture capital (Wasserman, 2008).

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4. Similarities Between Business Models and Business Plans

Both the business model and business plan are essential tools for ensuring a company’s sustainability and growth. Key similarities include:

1. Defining Company Strategy: Both concepts explain how a company will gain a competitive edge in the market.
2. Market and Customer Analysis: Both include customer segmentation, market size analysis, and competitive analysis.
3. Value Proposition: Both require companies to define the core value they provide to customers.
4. Consideration of Financial Sustainability: Both involve considering long-term revenue models and cost structures. 

5. Roles of Business Models and Business Plans

5.1 Role of Business Model The business model defines the fundamental way a company generates revenue.

• It is used internally to set strategic direction.
• It can be quickly modified to adjust to market changes (Teece, 2010).

Examples:

• Netflix successfully transitioned from a DVD rental model to a subscription-based streaming model.
• Apple diversified its revenue streams by adding an app store and services to its hardware sales model.

5.2 Role of Business Plan The business plan is used to demonstrate the feasibility of a business and assist in securing investments.

• Startups must prepare a business plan when seeking venture capital (VC) or bank loans.
• It also helps to increase credibility when applying for government grants.

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6. Conclusion

Business models and business plans are complementary concepts:

• The business model defines the company’s core operations, emphasizing flexibility and innovation.
• The business plan includes specific strategies, funding plans, and execution details, serving as a crucial tool to convince investors. To successfully manage a business, both the business model and business plan must be used in tandem.

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References

• Osterwalder, A., & Pigneur, Y. (2010). Business model generation: A handbook for visionaries, game changers, and challengers. Wiley.
• Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43(2-3), 172-194.
• Morris, M., Schindehutte, M., & Allen, J. (2005). The entrepreneur’s business model. Journal of Business Research, 58(6), 726-735.
• Wasserman, N. (2008). The founder’s dilemma. Harvard Business Review, 86(2), 102-109.