Startup Junkies

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Business Plans vs. Business Models

Business Plan: A document investors make you write that they don’t read.
Business Model: A single diagram that describes your business
– Steve Blank

It’s important to understand what business plans and business models are. Practically everyone understands what a business plan is while far fewer grasp what a business model is. This is because a business model is far more conceptual. It normally describes in a graphical shorthand how a business makes money. While this may sound simple the challenge is in the execution. What details are to be included? Which ones are to be excluded? Coming up with a simple graphic explanation of the company’s business model can take the management team a week or two to complete.

These days the business model is usually far more important than the business plan. Frankly, no one has ever taken the business plan all that seriously. Investors and lenders all understand that it’s the product of the founders wearing their rose-colored glasses. It’s their best case scenario even though they swear up and down that it’s a conservative forecast.

Of course it is.


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