Entering the market? Business model trumps business plan.
We should really use the business model to guide our launch and early development of the venture, Cornwall writes. It is a tool that makes change and updating simple and highly effective.
A man stands in front of a bike store in Fredericksburg, Va. Both the business model and the business plan are important tools for the entrepreneur's arsenal, Cornwall writes.
Suzanne Carr Rossi/The Free Lance-Star/AP/File
There has been a growing debate about business plan versus business model. The lines are being drawn. However, I would chime in to say that both sides of this debate are right, and sides are both wrong. To mix metaphors, let’s not throw the baby out with the bath water, even though that may be one ugly baby!
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Jeff is the Jack C. Massey Chair in Entrepreneurship and Director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn.
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We have moved to much more of a focus on business modeling here at Belmont University. Why? Because my own experience as an entrepreneur and as an entrepreneurship educator is that the business plan is just a tool.
In that past, we did not teach much about business models because they were considered to be something that each of us developed a skill for in our own way. So we taught what is easiest to teach — something concrete and easy to evaluate. A business plan has a format and a process that lends itself to educational settings, especially considering that many who teach entrepreneurship have never launched a business and have not really learned to develop business models.
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But then a few years ago, some valid and elegantly simple tools came along to help conceptualize and teach business models. The most popular of these is Osterwalder’s Business Model Canvas. But there are many others coming out and many are trying to improve upon Osterwalder’s work. Since we have started using more of these tools, our students here at Belmont now can much more easily conceptualize a business model. They can see all of the moving parts and identify things that just don’t make sense before the codify it into a business plan.
We have framed most of our curriculum around the business model. Students love it, faculty find it easier to teach the array of topics within a more unifying framework, and we are getting more and more successful student business launches coming out of our program.
Have we abandoned the business plan? Absolutely not!!! It is still a critical tool that entrepreneurs must learn. Why? It is the most commonly used tool to communicate a business model to a banker or investor.
Is a business plan a useful guide for an entrepreneur to launch a business? Not really. It is too rigid.
Those of us from the trenches know how often we look back at a business plan, often just a few months after launch, and just shake our heads at how wrong we were about so many assumptions. That is why we should really use the business model to guide our launch and early development of the venture. It is a tool that makes change and updating simple and highly effective.
But we still need to know how to make that snapshot picture of the business model we call the business plan. The financial world still looks at business plans and always will, unless you are a highly-experienced serial technology entrepreneur who can raise money simply due to your relationships and reputation. But those are a rare breed.
One of the problems with entrepreneurship education is that we get too caught up in mimicking what goes on in places like Silicon Valley. That is NOT the type of entrepreneurial experience that our students will face when they graduate. If fact, 99% of them will NEVER experience that world. But its cool, its sexy, and its complicated, so we academics love to put our spotlights on it.
For the rest of us, we need to know how to develop a fluid and dynamic business model that we will refine as we enter the market and engage real customers. We need to be ready, willing and able to pivot on signifiant aspects of our early model.
But, we do need to know how to put this information we develop in our business models into a business plan when we are ready to talk to somebody about money.
Both the business model and the business plan are important tools for our arsenal!
There. I feel better now. Time to get my grades in!
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