Before you create your business plan, make sure you have the right business model

Depending on what your company is trying to do to be successful, and how you define success, you may or not need a detailed business plan to demonstrate your path forward. You will still need to understand your business model though and the factors that go into making a specific business model a success. A business model can serve as a guide to indicate when you have strayed off course or it can lay the framework for a business plan. By analyzing your business model, you can see new opportunities for growth by adjusting just one factor. That factor may be to enhance the main idea behind the company, but growth often lies in a change to the basic business model.

Certainly, a great idea can be a differentiator for customers, but disruption in industries often comes not from a new idea, for example; selling books (Amazon), renting videos (Netflix) or providing a ride (Uber), but in how that is delivered to the market. In order to maximize the potential of your company you should create a business model, which not only outlines the idea and its value proposition, but also identifies your costs, your revenue streams, your customer segments and how your will reach them. A detailed business model is a great thing for laying out your overall strategy, but for new or rapidly growing businesses, you should look to use something like the business model canvas or the lean canvas to quickly demonstrate the key aspects of your company. These canvases are a light-weight tool to visually show your business model and identify opportunities for growth.

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These business model canvases can be hashed out in a group brainstorming session or used as the visual first page in a pitch deck to provide a comprehensive view of the companies’ potential. Once you have identified the key aspects of your business you can begin to test different business models by adjusting one area to see how it affects your overall costs and revenue. Should you sell through a distributor channel or direct? Who do you need to partner with to achieve success? If you sell to a different customer segment, say installers instead of the end-user, does that affect your costs? Can you offer your product as a service with recurring revenue instead of as a good?

Once you have identified the type of business you will be ready to begin understanding the steps you need to take to grow your business and the metrics you will use to measure success. You will also start to understand how you need to execute to achieve success. If you are bringing a new product or service to the market, what you sell is only one aspect of success. Key partners and how you will reach your market segment are just as important, possibly more important.

As you iterate through various business models, you can begin to understand the trade-offs and work to maximize the value you capture. As your business model solidifies through feedback from customers, you can begin to develop your business plan which details how you will implement your business model and scale your company. Too many companies make assumptions about the best business model and jump straight to spending a lengthy amount of time on a detailed business plan. When you need to alter some aspect of your business model, the business plan becomes worthless and will need to be reworked. The time spent on the business plan could have better been invested in other aspects of the operation. As a priority, spend some time analyzing your business model and testing new assumptions about it that will lead to growth. Only as you are ready to scale, should you spend time on the detailed business plan that you can provide to investors with confidence.

Chris Downey