Business models are developed by visualizing all of the "working parts" that make up a business. A traditional business plan, on the other hand, is most often a formal, written document that provides details about how an entrepreneur intends the business to operate.
Learning to develop a sound business model helps ensure that everything that is critical to the success of the business is in place and working in harmony.
Developing the business model depends fundamentally on engaging real customers very early in the creation of the business so we have a better chance of offering what the market really wants.
One of the biggest benefits I have seen from using business modeling over writing a traditional business plan is that it allows for adaptation. We use what we learn from the very beginning of the start-up to make changes in our business model as we uncover who our customers really are, what they really want, and how best to put everything in place to ensure that we deliver what we promise to them.
This process is known as "pivoting" the business model.
We all start with a clear plan in mind of what our business will be. The problem is, most of the time our plan is either only partially right or just plain wrong. Successful start-ups become a series of pivots to the business model we started with as we learn more and more about where our business really fits best in the marketplace.
"As a founder, keeping your company alive requires you to think creatively and independently because more often than not, conditions on the ground will change so rapidly that any original well-thought-out plan quickly becomes irrelevant," explains business model guru Steve Blanks.
A note of caution: Pivot with purpose
One of the flaws of the old business planning approach to start-ups was that many entrepreneurs got so wrapped up in the process of developing the "perfect business plan" that they never got to the point where they were able to pull the trigger and actually start the business. This became known as "paralysis by analysis."
I am beginning to see a similar problem surface when using the business modeling approach to guiding business creation.
It seems that people are beginning to believe that since pivoting is good for a start-up, more pivoting is somehow better. When they follow this logic, we see many entrepreneurs get so wrapped up with pivoting that they forget the goal is to get the business model right so that you can move forward.
Adjustments to the business model are important, but once the market tells us that we are finally offering the right product to the right customer, it is time to slow down the pivoting and focus on growing the business.
Never forget that the ultimate goal is not to develop the perfect business plan or the most elegant business model, it is to identify a need in the market and build a profitable business that meets this need. Business plans and business models are just tools that help entrepreneurs achieve success.