Very often, we read about the advantages and disadvantages of different business models. We also hear about the plans of successful businesses. It is common that some people interchange these terms, and this can be confusing at times. There are different types of business models; each of which has a unique plan. Due to this close relationship between the two, it is easy to get confused. Read on to know the difference between a business plan and a business model.
A business model is a framework that helps to design how a business can create and capture value. So, this can also be called a business model framework, and its primary purpose is to test the idea. Now, a business plan is a document that explains the viability of the business model. It is used for securing investments. The key differences between the two are explained below in detail.
Key Differences Between Business Model And Business Plan
A business model is a tool used for understanding how an organization works; while a business plan is used for understanding the future strategy of the organization. Apart from this, the latter can also be used for predicting performance based on current expectations. Besides, the business plan helps to better understand businesses, in some cases, it also comprises the business plan. In a nutshell, there is no clear-cut bifurcation between the two, and the difference between them primarily depends on the type of business.
Finally, they are used for two different purposes, and it is explained in the next section.
- For External Purpose: By external purpose, we mean stakeholders, investors, and other parties who are interested in the business. In this case, you use a business plan to show the attractiveness of your venture. This is the most effective way for business growth through external sources. This is because it lets them understand the different areas of your business. Through this, you can show, and they can assess where the business will stand in the future along with its scalability.
- For Internal Purpose: By internal purpose, we mean owner, shareholders, and top management. In this case, a business model is the most effective tool to understand the working of your business. It is a framework that lets you look at and learn the business from different perspectives.
On a final note, there are other tools like business model canvas, value proposition canvas, and lean startup canvas, etc., and they are used on the type of business you are building.