Business Models versus Business Plans: Quick Guide

Regardless of your past experience, starting a business can be challenging – especially for first-time entrepreneurs. The planning process introduces a lot of terminology. Terms like “business plan” and “business model” get tossed around often, and it’s not always clear what each means.

Is there a difference? The short answer is yes. Understanding the distinction (and how to develop each) is critical for new business owners looking to succeed in today’s market. This updated guide will explain what a business plan is, what a business model is, how they differ, and how you can create both effectively to drive growth in 2025 and beyond.

What Is a Business Plan?

A business plan is a detailed document describing how your business will operate, its objectives for growth and financial success, and your strategy to achieve those objectives. In essence, it articulates the why and how behind your business. Think of it as a roadmap: in the words of the U.S. Small Business Administration, a good business plan serves as a “roadmap for how to structure, run, and grow your new business”. This roadmap guides you (and others) through each stage of starting and managing the business. Importantly, a business plan isn’t just for internal use – it’s often crucial for securing funding or partnerships. As the SBA notes, “Your business plan is the tool you’ll use to convince people that working for you—or investing in your company—is a smart choice”. In short, the business plan explains why the business exists and how it will succeed, giving potential investors or partners confidence in your vision.

Why bother with a business plan in 2025?

Simply put, planning pays off. Recent research found that entrepreneurs who create detailed business plans are 16% more likely to achieve viability and growth than those who don’t. Moreover, a 2023–2024 survey showed 88% of small businesses believe in maintaining a “living” business plan that they update regularly as conditions change. (Even so, about 11% of businesses still operate with no formal plan at all.) Companies with active planning processes tend to be more agile and confident: businesses that plan and adapt on an ongoing basis grow 30% faster than those that don’t. The takeaway for a first-time entrepreneur is that writing a business plan is still a critical step – not a relic of the past. It forces you to think through key aspects of your venture and significantly improves your odds of success.

What Goes into a Business Plan?

So, what does a solid business plan actually include? While formats can vary, most comprehensive plans share a few key components.

Executive Summary and Mission Statement

A high-level snapshot of your business idea and why it will be successful. This section briefly covers your mission, your product or service, basic info about the company’s leadership and location, and a summary of your growth plans and financial needs. It’s essentially the elevator pitch for the plan, often written last but placed first.

Company Description

An overview of your company’s background and structure. This outlines what problem your business solves and who you plan to serve. It also highlights your competitive advantages – what gives your company an edge (experienced team, innovative product, unique location, etc.).

Products or Services

A description of what you sell or deliver, and how it benefits customers. Explain your product/service in detail, its unique value proposition, and where it is in its lifecycle. If applicable, include plans for product development, intellectual property (patents, trademarks), or any R&D efforts.

Market Analysis and Marketing Strategy

Research-based insights into your industry, target market, and competitors, along with your marketing and sales plan. A strong plan demonstrates that you understand your market’s trends, customer needs, and competitive landscape. It then details how you’ll attract and retain customers – for example, your branding, pricing, sales channels, and promotion strategies. This section shows that you have a plan to gain market share and adapt to market conditions.

Organization and Management

An outline of your business’s organizational structure and key team members. It should specify your legal structure (e.g. LLC, S-corp) and include an org chart or description of who’s in charge of what. Highlight the experience or expertise of your leadership team and staff, since that can reassure investors that you can execute the plan.

Operations Plan (Facilities, Equipment, & Processes)

 A summary of how you will actually run the business day-to-day. Include details about your location (office, store, or home-based), needed facilities or equipment, suppliers, production process, and any relevant operating workflows. Essentially, this covers the “how we deliver” aspect – the logistics and systems behind your product or service delivery. In a startup, this might include milestones for setting up your website, supply chain, or storefront.

Staffing and HR Plan

Many business plans also project your personnel needs – how many employees (and what skills) you’ll need to hire as you grow. Outline any roles critical to operations and when you plan to bring people on board. Investors will want to see that you’ve considered the costs and challenges of staffing up. (In a very small business, this might be part of the operations or company description section.)

Financial Plan and Projections

Perhaps most important, a detailed look at the numbers. This includes your startup costs and capitalization (how much money you need to launch), your projected income statements, cash flow, and balance sheets for the next 3–5 years, and key assumptions behind those projections. Also include a break-even analysis and any funding request if you’re seeking investors or loans. The financial section should demonstrate not only how much funding you need but how you’ll use it and when the venture will likely become profitable. Solid financial projections build confidence that your business can be viable.

These components ensure your plan covers all facets of how the business will work and where it is headed. A well-crafted business plan serves as both an internal guide and an external sales tool. It forces you to think through every critical element of your new venture. As Info Entrepreneurs (a Canadian Business Network resource) puts it, a strong business plan helps you “ensure that you meet certain key targets and manage business priorities” as you grow.

Tips for Writing an Effective Business Plan

 From our experience at The Alternative Board (TAB), we recommend a few best practices when drafting your plan:

• Tailor the plan to your audience. Are you writing it primarily for potential investors/lenders, or as an internal roadmap? Emphasize the aspects that matter to your intended readers. For example, investors care about market opportunity, traction, and ROI; whereas an internal plan might go deeper into operational details and team development. You might actually prepare a slimmed-down version for external use (often called a pitch deck or executive summary) and keep a longer version for yourself.

• Aim high with vision, but stay realistic with goals. It’s great to articulate an inspiring long-term vision, but your short-term goals and forecasts should be grounded in reality. Don’t assume you’ll capture an unrealistically large market share overnight or hit hockey-stick growth without data to back it up. Use conservative, research-backed estimates – you can always adjust up if things go better than expected. Investors will appreciate a realistic outlook.

• Include data and research to support your strategy. A plan filled with assumptions or generalities won’t inspire confidence. Wherever possible, use factual market research, survey results, or industry benchmarks to justify your sales projections, pricing model, and growth strategy. For instance, specify the number of potential customers in your target area, cite trends in consumer behavior, or reference competitor performance. Concrete data makes your plan more credible.

• Mind the format and clarity. A business plan can be lengthy, but it must be easy to read and understand. Use clear language – avoid overloading it with jargon or technical terms that might alienate readers. Break up long sections with headings or bullet points. Remember, if your plan is too dense or too technical, busy readers will probably not read the file to completion. Make it engaging and accessible.

Finally, recognize that a business plan is not a static document. In 2025, successful entrepreneurs treat their business plans as living documents that should be revisited and revised regularly. Conditions change fast – new competitors emerge, customer preferences shift, economic factors fluctuate. Your plan should be updated as you learn what works and what doesn’t. In fact, in a recent survey, 65% of business owners said they have an active plan in progress that they update over time. Set aside time (perhaps every quarter or biannually) to compare your projections against actual results and refine your plan accordingly. This continuous planning approach keeps you on track and prepared to adjust course when needed. As one survey respondent noted, an updated plan “helps me know where my business is going”, providing clarity and confidence in decision-making.

What Is a Business Model?

If a business plan is the detailed roadmap, the business model is the engine and structure that the plan is built around. A business model describes the fundamental way your company creates value and makes money. It’s essentially the answer to a few core questions: Who are your customers? What exactly are you offering them? And how does that generate revenue? 

As one entrepreneurship guide succinctly puts it, “a business model is the mechanism through which the company generates its profits”. It defines how the company is positioned in the value chain of its industry (e.g. are you a manufacturer, a distributor, a retailer, etc.) and how you work with suppliers, partners, and customers to conduct business. In other words, the model is a high-level blueprint for how value flows through your business.

The Business Model

A business plan serves as a detailed statement of purpose and operations. As the Business Plan Shop notes, a business model “is the mechanism through which the company generates its profits,” defines “how the company is positioned within its industry’s value chain,” and the ways in which it works “with its suppliers, clients, and partners in order to generate profits.”

Think of a business model as the architecture of your business. It doesn’t usually delve into minute operational details or financial projections – that’s what the plan is for. Instead, the model lays out the big picture of what you do and how it results in profit. For example, are you a subscription-based software service selling monthly licenses online? Or perhaps a brick-and-mortar retail store that buys wholesale and resells to consumers? Those are two different business models. Your business model choice will inform everything else – from your marketing approach to your cost structure.

Key Elements of a Business model 

Business models can be described in various frameworks. One traditional view breaks it down into a few key components. For instance, GoForth Institute identifies five core elements of a business model:

• A description of your product or service’s benefits and a profile of your typical target customer (who are you serving, and what value are you providing them?).

• The role your business plays in the industry value chain (for example, are you the manufacturer, the wholesaler, the retailer, a service provider, a platform, etc.?). This is essentially where you fit in the process of delivering value to the end customer.

• The value proposition for the customer, i.e. the specific benefit or advantage your offering delivers. This addresses why the customer would choose your product/service over alternatives – what problem you solve or need you fulfill, and how you do it better or differently than others.

• Sources of revenue (how the business will earn money) and the basic cost drivers (major costs of operation). In other words, how do you make money and what costs will you incur to do so? This could include your pricing model, sales channels, and expected volume needed to break even.

• Your identifiable competitive advantage. What gives you an edge that can’t be easily copied? This might be proprietary technology, a unique partnership, a strong brand, operational efficiency, exclusive access to a resource, or some other moat that will enable you to sustain profits.

All of these elements help explain how the new business will make money and thrive. Another popular framework for describing a business model is the Business Model Canvas, which is widely used in modern entrepreneurship. The Business Model Canvas, developed by Alexander Osterwalder, breaks the model into nine building blocks: Key Partners, Key Activities, Key Resources, Value Propositions, Customer Relationships, Channels, Customer Segments, Cost Structure, and Revenue Streams. It’s essentially a one-page chart where each of those elements is defined for your business. The canvas approach emphasizes that a business model isn’t just about your product and customer; it also forces you to think about infrastructure (partners, activities, resources) and finances (costs and revenues) in one holistic view.

Common Types of Business Models

Business models come in many flavors. As an entrepreneur, part of the challenge is choosing the model that best fits your product or service and gives you a path to profitability. Here are some common business model categories and what they entail.

Manufacturer

A business that produces a product from raw materials or components and sells it. The sale could be direct to consumers or via a middleman. Example: A company manufacturing eco-friendly water bottles and selling them wholesale to retail stores, or directly through an online store.

Distributor/Wholesaler

This model involves purchasing goods from a manufacturer in bulk and then selling them (often in smaller quantities) to retailers or directly to the public. The distributor acts as an intermediary in the value chain. Example: A regional food distributor buys snacks from many producers and supplies them to local supermarkets.

Retailer

A business that buys finished goods from manufacturers or wholesalers and sells them to end consumers (usually at a markup). Retail can be through physical storefronts (brick-and-mortar), online e-commerce sites, or a combination of both. Example: A boutique clothing store that purchases apparel from designers (or distributors) and sells to shoppers in a mall, or a web store like Amazon selling myriad products to consumers.

Franchise

A franchise isn’t so much what you sell but how you operate. In a franchise model, an entrepreneur (franchisee) buys the right to operate under an established brand and business system from a franchisor. The franchisee pays fees or royalties, and in return, they get to use the parent company’s trademarks, products, and proven business model. Example: Opening a fast-food restaurant under the McDonald’s brand – you follow their format and menu (the franchisor’s model) and benefit from their marketing and support, while paying them a percentage of sales.

Subscription Model

A business that charges customers a recurring fee (monthly, yearly, etc.) to access a product or service. This model has exploded in popularity across many industries beyond its traditional domains (magazines and utilities). Example: A software-as-a-service (SaaS) company offering a cloud app for a monthly subscription, a subscription box service delivering curated products to subscribers each month, or streaming services like Netflix. Subscription models build steady, repeat revenue and long-term customer relationships. In fact, the subscription economy has been booming — in recent years, subscription-based businesses grew around 60%, far outpacing the ~10% average growth in their industries. Successful subscription businesses in 2025 focus heavily on personalization, customer retention, and adding value to reduce churn.

E-commerce (Online Sales)

 This refers to selling products or services online, which can be a model on its own or combined with others. Many traditional models (retail, subscription, etc.) now have e-commerce versions. Example: A direct-to-consumer brand that sells exclusively through its website, or a seller using an online marketplace like Etsy or eBay.

Marketplace/Platform

A specific e-commerce subtype is a marketplace platform model, where the business itself doesn’t own the inventory but provides a platform for buyers and sellers to transact (earning commissions or fees). Example: Uber or Airbnb operate as platforms – Uber connects riders with drivers (taking a cut of each fare), and Airbnb connects travelers with property hosts. Platform models can scale quickly by leveraging network effects.

Brick-and-Mortar vs. Home-Based

These terms describe where and how you deliver value. A brick-and-mortar model relies on a physical location where customers come for service or purchases (e.g. a salon, a retail shop, a restaurant). A home-based business operates primarily out of a home office or workshop – often leveraging online sales or local service delivery. For instance, a home-based bakery might sell custom cakes via an online order system and deliver locally, rather than having a retail storefront. The choice here affects your cost structure and customer experience but can be combined with other models (you could run a home-based e-commerce business, for example).

There are certainly other models and many hybrids. Some companies even run multiple business models in parallel (for example, Amazon has an e-commerce retail model, a marketplace platform model with third-party sellers, and a subscription model with Amazon Prime). The right model for you depends on your industry, your resources, and your strategic goals. The critical thing is that you consciously choose a model that plays to your strengths and is sustainable. In our experience at TAB, entrepreneurs who align their model with a real customer need and a clear revenue logic tend to find it much easier to write effective business plans and attract financing. On the other hand, if your business model is fuzzy or fundamentally flawed, even the best-written plan won’t save it. Don’t be afraid to iterate on your model until it makes sense – many successful businesses pivoted their model early on when they discovered a better way to serve their customers.

How to Develop Your Business Model

Now that we’ve covered what a business model is and looked at examples, the next question is: How do you create the right business model for your startup? Developing a business model is a process of answering those fundamental “who/what/how” questions about your venture and making sure the pieces fit together. Here are some practical steps for crafting a sound business model.

Identify your target customer and their problem/need.

Start by clearly defining who you intend to serve. Who is your ideal customer? What do they value, and what pain points do they have that your business could solve? This may involve some market research or customer interviews. The goal is to pinpoint a real problem or need in the market. For example, if you’re planning a food delivery service, is your target market busy urban professionals craving healthy meals on weeknights? The business model must revolve around a specific customer segment – you can’t be everything to everyone. Knowing your customer deeply is the first step in figuring out how your business will create value.

Define your value proposition.

Given your target customer, articulate what exactly you will offer them and why it’s compelling. Your value proposition is the unique benefit or solution your product/service provides. It should answer the customer’s question: “What’s in it for me?” and “Why should I choose you over other options?” If you can’t succinctly explain how you solve a customer’s problem or improve their situation, you may need to refine your idea. For instance, your value proposition might be something like: “A healthy meal kit service that saves busy professionals time on dinner prep while providing gourmet-quality, dietitian-designed recipes.” This clearly addresses a need with a promised benefit. A strong value proposition is at the heart of every great business model – it drives customer interest and willingness to pay.

Map out your revenue streams and pricing.

Next, determine how your business will make money. What are your primary revenue streams? Will customers pay per product sold, per usage, via a subscription fee, through advertising, a commission, or some other mechanism? Choose a revenue model that aligns with your value proposition and customer behavior. For example, if you’re offering a software tool, will you sell one-time licenses, or go with a SaaS subscription model, or perhaps a freemium model with optional upgrades? Set initial pricing by considering customer willingness to pay, competitor pricing, and your costs. Your revenue model and pricing should allow for a sustainable profit margin after costs. (It’s okay if this evolves – many startups test different pricing or models early on.) The key is to have a clear idea of where your sales will come from and roughly how much you’ll charge. This step often goes hand-in-hand with the next: understanding costs.

Outline your cost structure and key resources.

Every model has costs associated with delivering the value. Identify the major cost centers of your business: Will you have significant manufacturing costs? Inventory? Software development? Marketing acquisition costs? Employee salaries? Knowing your main expenses is crucial to ensure your revenue can eventually exceed costs.

Also, list the key resources you need to deliver your product or service – these could be physical, human, financial, or intellectual. For instance, a food delivery service’s key resources might include a web/app platform, delivery vehicles (or drivers), and kitchen facilities or partnerships with restaurants. Understanding your cost drivers and resource needs will also feed into your business plan’s financial section later. At this stage, estimate whether the costs to acquire a customer and deliver the service will be comfortably lower than what you earn from that customer – that’s the essence of a viable model.

Decide on distribution and key partners.

Figure out the best way to reach your customers and deliver your value. These are your distribution channels and possibly strategic partners. Will you sell directly online, through retail stores, via a mobile app, or through third-party distributors? Choose channels that match where your target customers are and how they prefer to buy. Sometimes partnering can strengthen a model – for example, a small software startup might partner with a larger firm to resell or bundle their product, expanding reach. Identify any key partnerships you’ll need (suppliers, manufacturers, shipping/logistics providers, etc.) that are critical to making your model work. In many models, building a reliable supplier network or securing a distribution partner is a make-or-break element. Write down the key partners and relationships you’ll rely on (such as wholesale suppliers, technology providers, or referral partners) and how they fit into your value chain.

Plan your customer relationships and marketing approach.

Think about how you will acquire, retain, and interact with your customers. This includes your marketing and sales strategy (which will be in your business plan, but it should align with the model). Are you acquiring customers through online ads, word-of-mouth, a salesforce, or perhaps through a subscription that auto-renews? Also consider what kind of relationship customers expect – do they need personal support (as in consulting businesses) or a self-serve automated experience (as in e-commerce)? For instance, an enterprise software company might have a direct sales team and account managers for ongoing client support, whereas an e-commerce shop relies on good web UX and automated emails. This step ensures your model addresses not just the first sale, but the ongoing way you’ll keep customers happy (e.g. loyalty programs, community building, customer service).

Define your competitive advantage.

By now you should also clarify what will set you apart in the market. What is your unfair advantage or differentiation? We mentioned this in the model elements, but it’s worth being explicit: identify something that is either unique to your business or not easily replicated by competitors. It could be an innovative technology, a patent, a exclusive contract with a supplier, a founder’s specialized expertise, or even just a head start in a new niche. This advantage should be something that helps attract customers and/or keeps competition at bay, anchoring your business model. Writing this down will help later when you articulate your business strategy (closely related to model) and when pitching to investors why you’ll win.

Test and refine the model.

Once you have an initial model mapped out (covering customers, value prop, revenue, costs, etc.), it’s vital to validate your assumptions. Talk to some potential customers to see if your value proposition resonates and if the price point seems reasonable. Analyze competitors to ensure your model is competitive (did you find a sweet spot they’re missing?). If possible, conduct a small-scale pilot or create a minimum viable product (MVP) to test the market’s response. For example, you might start with a simple landing page or take pre-orders to gauge interest. Collecting feedback at this stage can reveal flaws or opportunities in your model. You might learn that customers want a subscription instead of one-off purchase, or that acquiring customers costs more than expected, forcing a model tweak. Use this information to adjust your business model before committing to it in your full business plan. Remember that business modeling is often an iterative process – the first version of your model is not set in stone. Nearly every successful startup has refined or even pivoted its model in response to market feedback. By testing early, you can avoid executing a plan based on faulty assumptions.

Business Plan vs. Business Model: How They Work Together

It’s clear by now that business plans and business models are closely related but distinctly different tools. For a first-time entrepreneur, it’s critical to know how to leverage both. Here’s a quick recap of the difference and the relationship between them:

• The business model is the concept and strategy of your business at a high level – it’s about the identity of your business (what you do, for whom, and how that yields profit). It’s the idea and structure that you will test and validate. You might summarize it in a few paragraphs or a canvas diagram. It’s often more internally focused at the start, used to clarify your thinking and make sure the idea “works” on paper.

• The business plan is the detailed execution roadmap – it translates the business model into a concrete plan of action, complete with market research, operational plans, and financial forecasts. It’s a comprehensive document that you can show to others (banks, investors, partners) to demonstrate you have a viable and well-thought-out path forward. It answers how you will implement the model step by step.

At TAB, we’ve seen firsthand how clarifying the distinction between a business plan and a business model empowers entrepreneurs. Once you have the right model in place and a solid plan to execute it, you’ll move forward with confidence. You’ll also be in a much stronger position to secure funding – lenders and investors can tell when a founder really understands their business at both the model and plan level. So, take the time to get these fundamentals right. And don’t hesitate to tap into trusted peers or advisors for help; an outside perspective can ensure your plan is realistic and your model is robust.

A business model and a business plan are two different tools in the entrepreneur’s toolkit – one defines how you create and capture value, the other details how you will deliver on that vision. Both are essential. Use your business model to hone your big-picture strategy and make sure you’re building a venture that can make money. Use your business plan to map out the route, anticipate challenges, and convince others that the idea can be turned into a profitable, growing business. With an up-to-date plan in hand and a proven model under the hood, you’ll be well-equipped to navigate the exhilarating journey of growing your own business.