Augmenting the business plan with business models

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  • 1. 1Business modelsas part of thebusiness plan
  • 2. 2Comparing business models to business plans• They are not one in the same• Your business model is the core concept uponwhich you build your business plan• Many business plans gloss over the businessmodel in favor of lengthy financial projectionsand operational details• Without a solid business model, theseprojections and details are premature.
  • 3. 3Comparing business models to business plansSection Purpose WeaknessExecutive summarySummarizes the key points of thebusiness plan, including a briefdescription of the product, marketopportunity, and funds soughtNoneBackground informationExplains the history of the concept,purpose, and management teamNoneMarketing planExplains the marketing methods,segments, and so onCan presuppose the valueproposition, marketability, andability of product to generateprofitable salesOperations planShows management expertise andoperational systemsSpends significant energyexplaining how company willdeliver on sales that may neverhappenFinancial planShows expected profitability of thecompany under various scenariosMay assume sales targets willsimply happen when more proofis needed to show how sales willoccurRisk analysisExplains potential risks and howthey’ll be mitigatedNone
  • 4. 4Business plans don’t cover everything• Most entrepreneurs already know that they need a solidbusiness plan because the first step to funding any businesstypically requires handing over your business plan to a bankeror investor• Bankers love business plans in large part because they canskim the executive summary and jump right to the financials.Bankers love numbers because it makes them feel that theirloan is secure.• Unfortunately, anyone who has read more than ten businessplans knows that many of them are nothing more than pie-in-the-sky guesses.• The typical business plan presupposes the existence of astrong business model. If the business model on which theplan is based is flawed, the marketing plan and operationalexecution spelled out in the business plan are meaningless.
  • 5. 5Augmenting the business plan• An excellent business plan can’t fix a flawed business model• Don’t think of your business plan as the all-encompassing concept,vision, marketing plan, execution strategy, and financial plan for thebusiness. Instead, think of your business plan as the execution planfor your business model.• Too much of a business plan is spent explaining how the businessmodel will work instead of why it will work.• In order to create a successful business, you need a solid businessmodel and a good business plan.
  • 6. 6Creating a business model plan• A business model plan combines the components of a businessplan with business model analysis. This document augments orsubstitutes for the traditional business plan and has the followingbasic layout:• Background: Follow the traditional structure of the business plan for thissection.• Breakdown of the business model into the eight crucial areas:• Market attractiveness• Unique value proposition• Profit model• Sales performance• Ongoing competitive advantage• Innovation factor• Avoidance of pitfalls• Graceful exit from the business
  • 7. 7Creating a business model plan• Operational overview: Follow the traditional structure of thebusiness plan for this section.• Financial analysis, including proformas: Follow the sameformat as a traditional business plan with additional emphasis onjustifying your sales projections rather than the “we will sell thismuch because I said so” method.• Risk analysis: Some risk analysis is covered in various sectionsof the business model analysis. Risks related to marketing arecovered in the marketability sections. Competitive risks arecovered in the competitive advantage section and so forth.Eliminate the duplication and focus on presenting a brief overviewof the general market risks — such as economic recession,government intervention, and so on — rather than the companyspecific risks. The company specific risks are addressed by thebusiness model.• Business model score: This section is optional. To add weight toyour self-evaluation of the business model, you can have aCertified Business Model Analyst score your model on a scale of 0to 100.
  • 8. 8Creating a business model planTraditional business plans over-emphasize some areas andunder-emphasize other areas.In a Business Model Plan, the business model garners muchgreater attention
  • 9. 9Creating a business model planThe advantage of a business model plan over a business planalone is the increased focus on how the business willcreate profitable revenue streams and the decreased focuson how the business will operate when it’s generatingrevenue. If you focus on what matters — profitable revenue— the rest tends to take care of itself.You can download a sample business model plan athttp://businessmodelinstitute.com/BusinessModelPlanSample.pdf