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Business owners are often confused about the difference between a Business Model and a Business Plan. Although they are related, there are also distinct differences, and both deserve serious consideration as part of the business’s Strategic Planning process.

First, let’s define Strategic Planning as – the process for setting goals, determining actions to achieve goals, and mobilizing resources to execute the planned actions. This sounds simple and appropriate; however, most small businesses don’t have a Strategic Plan. By default, businesses that do not develop and follow a Strategic Plan evolve over time rather than take control of their own future. As a result, these businesses generally underperform their potential and, all too often, do not survive. The Strategic Plan provides clarity of direction and a means of measuring the business’s degree of success; with no Strategic Plan the odds of success are dramatically diminished. The Strategic Plan embodies both the Business Model and the Business Plan. So, what is a Business Model, and what is a Business Plan?

A Business Model captures the key elements of the company’s plan for how the organization will create, deliver, and capture value, in economic, social, cultural or other contexts. For example, a traditional business model for a retail business might be to use a chain of brick-and-mortar stores with media advertising to generate revenue and profits. An alternate business model for retail could use an on-line B-to-B web-site with search engine optimization (SEO) to generate sales and a brick-and-mortar distribution warehouse for order fulfillment. Therefore, it is appropriate to think of the business model as a conceptual representation of how the company intends to do business; thus, the Business Model can be thought of as the skeleton and vital organs of the entity you know as your business.

A Business Plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. Think of the it as the muscles, connective tissue, and skin that overlay on the skeletal structure and vital organs represented by the Business Model; the Plan brings the Business Model to life. Business plans can be developed for a variety of audiences and may be externally or internally focused.

• Externally focused plans express targets and goals that are important to external stakeholders (i.e. owners, investors, lenders, strategic partners, etc.) along with plans for achieving those targets and goals. The external plan normally covers the next 3 to 5 years, which is the time frame during which stakeholders would expect to realize a return on their investment.
• Internally focused business plans express operational performance goals and specific action plans for achieving those goals thereby assuring accomplishment of the organization’s goals as represented in the “external” business plan. The internal plan provides company management with a plan for achieving the external stakeholder expectations. Included in the internal business plan should be the company’s operating budget. The internal plan can be as short as 1 year (annual budget), or can project several future years, but normally will only look 1 to 3 years into the future.

So the answer to the question about the difference between a Business Model and a Business Plan is that they are both part of an effective Strategic Planning process. The Business Model defines the business structure (what the company will look like and how it will operate). The Business Plan defines the expected operational results from effective utilization of the Business Model and effective execution of a set of action plans. Having an effective Strategic Plan is a very powerful business advantage that dramatically increases the odds of success. The lack of an effective Strategic Plan can lead to problems, chaos, and failure.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Good parents know that part of their “job” is to teach their children how to navigate life’s risks and handle its responsibilities. One of the fundamental lessons is how to safely cross the road – stop, look and listen. This is a life lesson so basic that it applies to a lot more than just getting to the Starbucks across the street.

Good business owners know that part of their job is to prepare their company for growth – to minimize the risks, understand and accept the responsibilities, and provide a logical plan. When going to the next level they take time to position themselves for success by stopping, looking and listening.

Stop

A lot of owners are surprised to learn there are danger zones for small businesses when they expand. They only see growth as a positive step forward; not understanding that if not done correctly it’s actually high risk. Many successful companies have failed because they didn’t plan for the new problems, responsibilities and challenges which come with the next level.

They didn’t take the time to stop and think about what it really means. It requires improved management skills and an increased understanding of business issues. The management and personnel issues are more complicated. There’s an increase in tax and government regulations. Also, developing a working knowledge of the financials is vital.

They didn’t take the time to stop and think about what it really means. It requires improved management skills and an increased understanding of business issues. The management and personnel issues are more complicated. There’s an increase in tax and government regulations. Also, developing a working knowledge of the financials is vital.

Look

Look at where the company has been, is currently and where it’s going. Owners believe that what they did in the past got them to the current point of being able to expand and it will serve them well in the future. So, they think their good to go.

However, that’s not what usually happens. There’s a tipping point where the ignored problems of the past and present increase exponentially in the future. As a company grows the weaknesses become more pronounced and do more damage. A classic example is with finances.

If an owner didn’t develop an understanding of margins, profit and loss in the past, and doesn’t think he needs to learn it in the present, he may put himself out of business in the future by expanding. Financial ignorance has closed thousands of business during a growth phase – generating revenue isn’t making a profit and the more customers it has the faster a company can lose money.

Listen

The bigger a company grows the more people it needs for its success. Success isn’t a solo act and smart owners know it. They understand that growth requires them to shift from a one person management approach to a team one. They seek out others’ ideas, listen to them and are open to change.

Many owners are resistant to this step, believing they know better or it implies weakness to ask for help. However, this thinking is dangerous to a business, as no one person can be expected, by others or himself, to know everything.

Past success doesn’t guarantee future success – we all know people stuck in their glory days. Owners become stuck in their past successes when they don’t understand that growth in the business requires them to grow too. It’s important for both children and adults to acquire the ability to stop, look and listen.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

We have all heard the comment that “When you’re up to your chin in alligators, it’s hard to remember why you drained the swamp!” Why has that saying been so enduring? Could it be that we can all relate to being so overwhelmed by the demands of the day that we never accomplish the really important issues?

In his seminal book, First Things First, Stephen R. Covey published a diagram of the relationship between the Urgent and the Important. The Urgent AND Important (Quadrant I) represents the “alligators” in our swamp and they have a tendency to grow bigger and reproduce so that acting on the Urgent gets us nowhere but deeper in alligators.

But that is where most independent business owners live their lives – in the swamp of alligators. They arrive at their business each day and immediately dive headlong into the swamp. Somehow being “active” in problem-solving seems to give them purpose for being there. Unfortunately, that is a Reactive management style.

The drain at the bottom of the swamp represents the Important – the Proactive antidote to the Reactive management style. These are the issues that are Important but NOT Urgent (Quadrant II) and the reality is that all the important issues of life reside in Quadrant II.

Date Night with your spouse: Important but not Urgent. Chances are slim that your spouse would leave you because you canceled out on one date night.

Activities with your kids: Important but not Urgent. Your children won’t call Children’s Protective Services if you miss their ball game or dance recital.

Reading important literature or attending religious services: Important but not Urgent. Your religious leader will not call you to see if you had read your scripture during your quiet time.

Proactively planning and structuring your business to avoid problems and maximize profitability: Important but not Urgent. Your banker is not going to call you to ask you what your Break-Even Point is and if you’re meeting it or exceeding it. (Until you start missing your obligations to the bank.)

The paradox is that the only way to kill the alligators in Quadrant I is to drain the swamp by camping out in Quadrant II. Alligators can’t live without the water in the swamp, and you can’t kill them by jumping into the water with them! They will eat you alive!

Similarly, the only way to get control of a business or a life is to focus on the Important issues in Quadrant II that are not generally considered Urgent. However, putting a sense of Urgency on these Important issues is often the difference between success and failure in business.

These are the Important Steps to Take

• Purpose, Vision, Mission, Core Values
• Business Plan, Marketing Plan, Operational Plan
• Organizational Structure
• Incentive Plans to spur Productivity
• Innovation to meet changing market needs
• Developing your Unique Value Proposition to Supercharge your Marketing
• Personal Health and Wellness
• “Golden Hours” to Reflect on your Business and Life

The biggest obstacle to taking these important steps is becoming too comfortable fighting fires and trying to kill the alligators. Breaking old habits is difficult and trial and error is the most expensive route to a better place. Fortunately there are proven management tools that can clear away the underbrush and give business owners the leverage to finally drain their swamp and take their life back running a profitable business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

As business owners, we sometimes feel that we have a pretty clear vision of where we want to take our respective businesses. Unfortunately, for the most part, it is usually all in our heads. We attempt to communicate it to our employees, and actually feel for the most part, that we have done a pretty good job with it. In truth, many times that is simply not the case. Sometimes our vision can change, depending on the many things we find that are going on in our business; things like increasing or decreasing revenues, gross margins and net profits.

There are a number of other elements which we must consider, beyond just our vision, that actually help form the “business roadmap”. Many times we ask our clients to share their “business road map” otherwise known as their business plan or strategic plan, with us. What we find for the most part, is if there is actually a written document, it was created for the express purpose of sharing with a financial institution in order to obtain a line of credit, equipment or SBA loan. When the client pulls it out of the drawer, or takes it off the shelf, they have to blow the dust off of it. This is a very good indicator that the last time it was looked at or used was soon after initial preparation.

Whether you call it a business plan or a strategic plan doesn’t make much difference. What does matter is how you put it together and how you utilize and update it. Though most of the ones we review are very professionally prepared documents, with very good charts, graphs, demographics, competitive and market share analyses, they lack any of the other necessary components to make them function as a “living, breathing tool for use in our business”.

What the roadmap must do, in addition to conveying ownerships “vision”, is that it must also covey “focus and direction”. It must describe precisely how we are going to achieve our vision, and on what timeline and at what margins and net profitability.

Probably the simplest analogy might be to imagine that we were going to take a trip. Would we just go get in the car and start driving, without first deciding on a destination? Oddly enough, that is really the way many business operate today. If you fail to pick a destination, you can actually wind up anywhere.

Having the “Vision, Focus and Direction” in writing can provide many benefits for the business owner. It can be updated and revised as market conditions or other situations change. It can also be shared with the core management team and help make certain that your entire team is singularly focused and that everyone on the team is pulling in the same direction.

Read more From Behind the Desk here.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Change Management:

As businesses and organizations work to be front runners in their respective industries and remain ahead of their competitors, there is an inevitable need for change; Change in business culture, business strategy, and business processes are critical to the positive growth and evolution of a company. Success in this endeavor relies upon the regular use of proper change management to improve focused elements such as process throughput efficiency and system performance effectiveness, in addition to improvement of more broad scale elements inclusive of organizational effectiveness; all having the goal of improving overall performance. Whether it is for a departmental based process or for an overall organization, change can provide an avenue for great opportunity; however, it can also be a source of stress resulting in hesitation (or even outright refusal) to embrace the necessary changes. The proper change management platform is key to assuring changes are made efficiently and effectively. Without it, the efforts of those leading the change can often fall short of the intended objective, which can result in a negative monetary impact as well as a loss in credibility. Creating the proper platform in managing change consists of the following elements, which will be described in more detail below:

• Development of a defined “Management of Change” process
• Creating a positive change implementation environment

The Management of Change Process:

The Change Management (or Management of Change) process provides a mechanism for requesting, determining attainability of, planning for, implementing, and evaluating changes to key operational aspects whether they are focused or broad scale. A defined Management of Change process is essential through the proper documentation, approval, control and effective implementation of change. Changes managed in this manner provide versatility in their application allowing success to be realized in more localized areas of processes, systems, procedures, material, technology, and equipment, in addition to more broad scale areas of departments, organizations, and personnel.

A defined Management of Change process should provide for proper change execution while maintaining the dual goals of supporting the change process along with enabling traceability of the desired changes. The Management of Change process should provide for proper planning of change execution inclusive of defining the elements affected by the change, reason for change, end-goal of the change, approvals required for change execution, path of change execution, and effectiveness monitoring of the change after implementation. Changes that are properly managed provide realization of success and work to assure growth and forward progress.

Creating a Positive Environment for Change:

The key to successful management of change is not only defining the governing process for managing changes but to also foster a positive environment where change is embraced rather than feared. Changes that do not address the human factor can often fail, resulting in ill effects to growth and progress. In successfully managing the implementation of change one must address the real world human elements such as buy-in, acceptance, motivation, anticipation, fear, and uncertainty.

While it is often necessary to organizational improvement and assuring company growth and sustainability, change will not be embraced by everyone. However, rather than eliminating the human factor, one must properly manage the human factor through fostering a positive environment for change. While changes should be made efficiently and decisively for the overall improvement of the business, they should not be made in a vacuum. Affected personnel should be involved in the controlled implementation of change through the use of change management teams where appropriate. When people understand the reason for the change and can serve in a team capacity in effecting the change, they are more likely to embrace change. Successful management of change execution and implementation can be better realized through cultivating a positive environment of readiness rather than a negative one of resistance.

No matter the size or industry focus of the business, change is an inevitable factor in forward growth and progress. Through use of a defined mechanism for change management combined with fostering a positive environment for change, success can be realized when implementing the changes necessary for process and system improvement, and overall business growth and sustainability.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: