Business model versus business plan

Is your business plan holding you back?

Everyone needs a business plan – right? Wrong, wrong, wrong, wrong.

A business model is better.

Your business model fits on a single piece of paper (A4/letter). It says what you produce, who you sell it to, who does what to whom and for how much. It will also set the vision/mission and show funding requirements, basic budget and exit strategies. 

The emphasis on the single piece of paper (one-sided only please) came about because that is about the most tolerance most experienced investors have for reading a proposal.

Then we had the excesses of business plans. A classic example is the 150 page IPO product disclosure statement that utterly fails to say what the business does, how it intends to make a profit, and how it intends to pay back investors. I read a number of those in the last decade and secretly think that the people who wrote them deserve some kind of literary award – 150 pages of hype that doesn’t actually say anything – that’s a superhuman effort right there.

Yet everywhere you go people say – what’s your business plan? You must have a business plan or you’ll fail. These people generally don’t work in startups and don’t understand startups, or even business in general.

A business plan or business case is needed for a purpose – such as for your bank so you can borrow, or for equity funders, or for employees.

A business plan covers the same topics as the business model, but in much greater detail. This in itself is not a problem. The problem is that it takes a long time to prepare and can become a distraction from your real business. Also, because it was such a monumental task to pull it together, then it just gets taken as gospel, whereas it was really just a first pass guess.

Using a business model allows for quick and frequent changes when you find the market has changed. It encourages you to focus on the fundamentals and the core drivers of the business. It can be understood readily by anyone who joins your company, or who wants to invest in your company.

Most of all, the ability to put it all on one page is the best possible demonstration that you actually understand the business you are getting into.