Difference between business model and business plan

In this series of 19 short articles, StratPad’s founder discusses the fundamentals of starting and running a small business.

Today he talks about the difference between a business model and a business plan:

Q: A lot of people don’t know the difference between business models and plans. Can you help clear this up?

A: Sure. A business model is simply a discussion of how you make money. If you sell widgets, you’re going to be buying widgets from somewhere, at some cost. You’re going to be adding some value, a paint job or something else, to the widget at another cost and then you’re going to be selling it at a price. That should end up making you a profit on the sale of that particular widget. That is your business model. Multiply that by 10,000 widgets and now you’ve got a business.

A business model is quite different from a business plan. A business plan is a goal with a series of steps to achieving that particular goal. As an early stage company your goal might be to uncover or refine your business model. So your business model might be, you have a suspicion that selling a certain color of widgets to a certain set of customers with a certain set of marketing plans is going to work.

Your business plan says that over the next three months, you’re going to have these particular tests to determine what color, what group of customers, and what the marketing plan is.

The business model is more the idea of how you plan to make money, the business plan is about exactly how you’re going to go about doing it.

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