Wednesday, October 20, 2010

Business Plans vs. Business Models

In starting a new venture, most start by trying to write the business plan because everyone tells you how much you need one. So you sit down to write the business plan and you start through your checklist. Typically this is how it goes:

“Management team -- well so far, there’s only me, so I’ll just add two more positions to be determined later. Next, it’s Problem to be Solved. Well, that’s an interesting question. I’m solving so many problems, I’ll just say, we’re going to save the customer time, and make it easier for him to do his job. That should cover it. “

If the above description sounds familiar it should because most everyone starts by trying to write the business plan but there’s just not enough information to carry it through at the early stage. There are too many decisions still to be made. There’s too much information not yet accumulated.

Instead of working on the business plan from day one, work on the business model. Focus on how you are going to generate revenue and what will be your core costs. If you figure out this, then you have the key elements of a business plan. You can fill in the other pieces based on the business model. For example, the management team positions will become clear once you know the business model. The problem you are solving is much clearer and so it goes with the other elements of the plan.

Best regards,
Hall T.