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Augmenting the business plan with business models

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Augmenting the business plan with business models

  1. 1. 1 Business models as part of the business plan
  2. 2. 2 Comparing business models to business plans • They are not one in the same • Your business model is the core concept upon which you build your business plan • Many business plans gloss over the business model in favor of lengthy financial projections and operational details • Without a solid business model, these projections and details are premature.
  3. 3. 3 Comparing business models to business plans Section Purpose Weakness Executive summary Summarizes the key points of the business plan, including a brief description of the product, market opportunity, and funds sought None Background information Explains the history of the concept, purpose, and management team None Marketing plan Explains the marketing methods, segments, and so on Can presuppose the value proposition, marketability, and ability of product to generate profitable sales Operations plan Shows management expertise and operational systems Spends significant energy explaining how company will deliver on sales that may never happen Financial plan Shows expected profitability of the company under various scenarios May assume sales targets will simply happen when more proof is needed to show how sales will occur Risk analysis Explains potential risks and how they’ll be mitigated None
  4. 4. 4 Business plans don’t cover everything • Most entrepreneurs already know that they need a solid business plan because the first step to funding any business typically requires handing over your business plan to a banker or investor • Bankers love business plans in large part because they can skim the executive summary and jump right to the financials. Bankers love numbers because it makes them feel that their loan is secure. • Unfortunately, anyone who has read more than ten business plans knows that many of them are nothing more than pie-in- the-sky guesses. • The typical business plan presupposes the existence of a strong business model. If the business model on which the plan is based is flawed, the marketing plan and operational execution spelled out in the business plan are meaningless.
  5. 5. 5 Augmenting 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 the business. Instead, think of your business plan as the execution plan for your business model. • Too much of a business plan is spent explaining how the business model will work instead of why it will work. • In order to create a successful business, you need a solid business model and a good business plan.
  6. 6. 6 Creating a business model plan • A business model plan combines the components of a business plan with business model analysis. This document augments or substitutes for the traditional business plan and has the following basic layout: • Background: Follow the traditional structure of the business plan for this section. • 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. 7. 7 Creating a business model plan • Operational overview: Follow the traditional structure of the business plan for this section. • Financial analysis, including proformas: Follow the same format as a traditional business plan with additional emphasis on justifying your sales projections rather than the “we will sell this much because I said so” method. • Risk analysis: Some risk analysis is covered in various sections of the business model analysis. Risks related to marketing are covered in the marketability sections. Competitive risks are covered in the competitive advantage section and so forth. Eliminate the duplication and focus on presenting a brief overview of the general market risks — such as economic recession, government intervention, and so on — rather than the company specific risks. The company specific risks are addressed by the business model. • Business model score: This section is optional. To add weight to your self-evaluation of the business model, you can have a Certified Business Model Analyst score your model on a scale of 0 to 100.
  8. 8. 8 Creating a business model plan Traditional business plans over-emphasize some areas and under-emphasize other areas. In a Business Model Plan, the business model garners much greater attention
  9. 9. 9 Creating a business model plan The advantage of a business model plan over a business plan alone is the increased focus on how the business will create profitable revenue streams and the decreased focus on how the business will operate when it’s generating revenue. If you focus on what matters — profitable revenue — the rest tends to take care of itself. You can download a sample business model plan at http://businessmodelinstitute.com/BusinessModelPlanSam ple.pdf

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