Developing Business Plan With Business Model Canvas

Business Model vs Business Plan: What’s the Difference?

A business model is nothing more than a representation of how a company does business and makes money without having to describe the complex details of its strategy, processes, workflows, or systems. A business plan generally incorporates a business model, explaining how the model should be implemented and executed to achieve the business’s goal.

Though the two documents have a few critical differences, namely in structure and application, the topics they cover—such as financial projections, goals, and operational framework—are largely the same.

Financial projections

• A business model typically includes a rough financial model, focusing on sources of revenue, pricing strategy and cost structure, but it won’t dive deeply into formal financial statements or long-term projections.

• A business plan provides comprehensive and detailed financial performance relevant to both internal and external stakeholders, such as investors, lenders or potential business partners.

Operational details

• A business model describes operations in broad terms and focuses on strategic activities essential for delivering the value proposition to customers rather than the day-to-day operations.

• A business plan often gets into the actionable details of the operational processes including workflow descriptions, inventory management and production timelines.

Why Is There a Need for a Business Model Canvas?

The Business Model Canvas or BMC was invented and developed by Alexander Osterwalder a Swiss business theorist in collaboration with his supervisor as part of his doctoral thesis in 2004. The concept quickly became widely known after publishing their book ‘Business Model Generation in 2010.

The Business Model Canvas provides a visual framework for developing, describing and innovating business models. It consists of 9 essential parts or building blocks:

1. The value proposition of what is offered to the market;

2. The segment(s) of clients that are addressed by the value proposition;

3. The communication and distribution channels to reach clients and offer them the value proposition;

4. The relationships established with clients;

5. The key resources needed to make the business model possible;

6. The key activities necessary to implement the business model;

7. The key partners and their motivations to participate in the business model;

8. The revenue streams generated by the business model (constituting the revenue model);

9. The cost structure resulting from the business model.

Source: Medium

Explain The 9 Blocks of The Business Model Canvas

Let’s take a closer look at each section of the Business Model Canvas.

Value proposition

To compete and be profitable, business founders need to spend time challenging themselves to describe unique product features and service bundles that can solve customers’ pain points and set them apart from competitors. Values here can be qualitative (e.g. design, user experiences) or quantitative (e.g. price, speed of service).

This block answers:

• What problem are we solving, or what need are we fulfilling for customers?

• Why should customers choose us over others?

• Differentiation or cost leadership?

Customer segments

A company can’t sell everything for everyone. To satisfy customers better, a business needs to identify who would be their key customers and may group them into distinct segments with common needs, buying behaviour and other characteristics.

This block answers:

• Who are the primary customers?

• What are their characteristics, needs, and behaviours?

• Consider mass market, niche market, segmented, diversified and multi-sided platform

Channels

Without proper communication, a company may not reach their target customers and deliver them a value proposition.

This block answers:

• What are the marketing tools?

• Which distribution channels do customer segments want to be reached?

• What channels work best or the most efficient

Customer relationships

Depending on business types, the relationship a company aims to establish with specific customer segments can range from personal to automated to ensure acquisition, retention, and growth.

This block answers:

• What type of relationship do customers expect (personalized, automated, customer assistance, communities or co-creation)?

• How will we manage customer acquisition, retention, and upselling?

Key resources

This is where anything that helps a business become successful (e.g. equipment, machines, labs, patents, recipes, experiences) comes into play.  Key resources can be owned or leased by the company or acquired from key partners.

This block answers:

• What assets do we need (physical, intellectual, human, process, system or financial)?

Key activities

This section links directly to the value proposition a business identifies, it helps outline the core activities or the most important actions a business needs to operate successfully.

This block answers:

• What must we do to create and deliver our value proposition?

• Consider types of offerings: production, problem-solving or platform/network?

Key partners

A company can’t operate on their own. They need a network of partnerships with suppliers, advisors, mentors, investors, a lawyer, and an accountant to make the business model work.

Four types of partnerships:

• Strategic alliances between non-competitors

• Strategic partnerships between competitors

• Joint ventures to develop new businesses

• Buyer-supplier relationships to ensure reliable supplies

This block answers:

• Who are our key partners and suppliers?

• What do we need from them, and why are they crucial?

Revenue streams

Revenue streams represent the income a business generates from each customer segment. The revenue sources can be primary, secondary and additional ones coming from customised solutions to certain customer segments.

 This block answers:

• How does the company generate revenue from its customers? (e.g. asset sales, subscription fee, renting or leasing, licensing, brokerage fee or advertising).

• What pricing mechanisms are used? (fixed or dynamic pricing).

Cost structure

The cost structure describes all costs incurred to operate a business model. Such costs are usually associated with delivering value, maintaining customer relationships, and generating revenue.

This block answers:

• What are the biggest costs involved in delivering the value proposition?

• Are we focused on minimizing costs (cost-driven) or adding value (value-driven)?

Download the free Business Model Canvas template.

Business Model Canvas Examples

Source: Boardmix

Source: Boardmix

Source: Boardmix

Bottom Line

In short, creating a business plan using the Business Model Canvas offers a strategic, visual approach to understanding and articulating the fundamental aspects of a business. Not only does the Business Model Canvas serve as a high-level blueprint, a dynamic tool for designing and refining business models, focusing on the key areas that drive business success, but it also allows entrepreneurs and business leaders to innovate and optimize their business models by providing a clear and simplified overview.

Together, a compelling business and the Business Model Canvas create a powerful framework that can prepare businesses for better growth, navigating through challenges, seizing opportunities, ensuring alignment between vision and execution.

References

Alexander, O n.d., What is a business model?, Strategyzer, available at <https://www.strategyzer.com/library/what-is-a-business-model>.

Strategyzer, n.d., The 9 building blocks of the Business Model Canvas, Strategyzer, available at <https://www.strategyzer.com/business-models-the-toolkit-to-design-a-disruptive-company#1-3-The-9-building-blocks-of-The-Business-Model-Canvas>.

Shopify 2023, Business Model vs. Business Plan: Key Differences, Shopify, available at <https://www.shopify.com/au/blog/business-model-vs-business-plan>.

Tunca, C 2020 n.d., What is Business Model Canvas?, Duquesne University SBDC, available at <https://www.sbdc.duq.edu/Blog-Item-What-is-Business-Model-Canvas>.