OER-CRAFT

Business model and business plan

BL_1  

 Title:
Business model and business plan
 Keywords
Planning, canvas, lean startup, business plan, market, product.
 Author:
AE
 Languages:
English
 Objectives/goals:

To identify which is the most suitable business model for our business. Explore the main elements of a business plan. To identify the elements needed to develop our business plan


 Description:

Currently, there is a growing debate about the convenience of a suitable business model and business plan when creating or expanding your business. Do you need both? Should there be linkages between both business tools? In such a changing business environment, do we need them?

This training fiche aims at shedding a light on these issues. While it is important to learn to identify the most useful business model to fulfil your business goals, it might be also relevant to explore what components, if any, should be part of your business plan, be it before starting your activity or in a later stage.

Someone said that there is no good wind for those that do not know where they want to sail to. The business plan and business model you pick might serve as a compass to guide your initiative.



 Contents

Business plan has traditionally been considered an essential tool to create and develop your business, not only because it is useful to write down your ideas, but also because it is a key document when searching for funding or applying for any public aid.

Nevertheless, current trends show that, though necessary it might be, the business plan, as such, is not enough for the success of your initiative. In many authors and entrepreneurs’ views, it is in many cases a rigid document and it does not adapt to a changing and globalised business environment as we said earlier.

However, from our point of view, it might be a good idea to have a clear and well-crafted business model in which you can show your business opportunities and demonstrate your product added value, the solutions you offer to your customers. Let’s get into more detail:

Your business model. There are certainly a number of tools to be used to develop and validate your business model, always depending on the degree of maturity of your initiative. We provide some general information on some of the tools below. Their use again depends on your sector, the activity you perform, your needs, etc. Ultimately, you will need to do some trials to validate which tool is more appropriate.

Canvas Model -> It’s a business model tool developed by Alexander Osterwalder that are summarized in the following steps:

• Customer segment or to whom are you addressing your product. The customer is at the core of this model, therefore you need to develop a deep knowledge on them.

• Value proposition, or what are you going to offer. Closely linked to the first step, this second one suggests a seamless and profound reflection on what difference your product makes.

• Distribution channels, or how are you going to reach your customers, how are you going to deliver your products.

• Customer relationships, or what sort of bonds are you going to create with your customers. It is about the service you are going to provide to them.

• Revenues or incomes, or how is your product or your service valued by your customers, how much they are willing to pay for them. It is also relevant to estimate how the business is getting the income, regularity, etc.

• Key resources, in terms of what is needed to provide value to customers, such as, machinery, human resources, etc.

• Key activities, in relation to all what it takes to provide value to the customer.

• Key partners, sometimes they are not given the relevance they deserve. They are critical on the medium and long term. We talk about funding organisations, investors, suppliers and those stakeholders that have an impact on your business.

• Cost structure, what it needs to be paid and when.

Lean startup model -> Originally conceived for technology start-ups, this model based on the Eric Ries book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Business, has these main features:

• Its main objective is to reduce as much as possible the inner risk when launching a new product.

• It is about ongoing learning always bearing in mind the reactions of the market where the product is launched. That’s why it is important to keep communication channels with the customers wide opened to get their feedback about how they perceive the new product or service.

• Launching the MVP or Minimum Viable Product, as soon as possible, with the lowest cost involved so as to get market feedback the sooner the better. In this way you either validate or improve your product, reducing production costs.

Once you have verified your business model using one of the tools summarized above, or any other, you can translate that model into your business plan.



Business Plan. It is commonly considered as the traditional tool when creating a business. Still, it is a suitable way to know, improve and develop your business idea. On top, as we said earlier, it represents your business card for potential investors, public administration, funding entities and stakeholders. Having said that, you have to be honest, as you can write anything on the paper. Bear in mind that you are dealing with your time and money and, may be, with others’ time and money.



The elements that should be part of your business plan are:

• Promoters.

If you are a sole trader, this section can be substituted with a personal reflection on whether you are ready for such an experience and if you have the skills and the knowledge needed. On the other hand, if you have partners on board, you must prove that your business initiative needs them by showing skill and functional complementarity.

• Business opportunity and sector analysis.

Any business stems from the detection of an opportunity. In your business plan, you must state clearly the customer problems or needs and how you are going to meet them.

In addition to this, you must specify the economic value of the opportunity you are willing to put in practice. Some questions you need to resolve at this stage are:

o What do customers do in an inefficient way?

o What needs could be met in a better way?

o What is the economic value of my solution?

At the same time, in order to define the sector and its growing potential, you should accurately describe the market where you are going to compete, entry barriers and any aspect you might consider relevant.

• Product and Production Plan.

In this section you will have to explain in detail what makes your business different, what sort of innovations you add, your product / service advantages and whether or not there are already the same type of products or services in the market. In relation to the production plan, it is critical, among other factors, to identify the resources you need to produce your goods and your production capacity limits.

• Market, customer and competition analysis

You will have to make references to you real and potential market, if you need to develop market segmentations and what are the consequences. Competitors identification is yet again crucial. At this stage, you need to undertake a thorough study on their products / services, how they reach their customers and why their customers purchase their goods.

• Marketing and communication plan

This section is as important as the others. It focuses on the tools you are going to employ to market your product or service. In relation to Marketing Plan, we advise you to have a look to the training fiche in the platform.

• Economic and Financial Plan

Figures and figures, estimates and forecasts. Once we have reached this stage, it is imperative you figure out initial investment in as much detail as possible and how you are going to fund it. We agree that estimates are estimates, but nevertheless, the closer to reality you get, the better. It is a good idea to get comfortable with terms such as assets and liabilities (balance), profit and loss statements, cash flow plan and break-even point, or the point where you start to make profits.



 Results

At the end of this training fiche your attention should have been drawn to the most convenient business model for your project.

Likewise, this training fiche is a wakeup call to stop and think about relevant aspects of your Project or business. Be aware, though you have to keep on pedalling, otherwise, you might fall.

You should be able to search for links between your business model and your business plan, in order to get the best and develop a strategic vision of where your business should be. Come on, pave the way to success!



 Indicators

Once it is clear what direction you want to take, you can establish a set of indicators to rocket your project to success. The followings can be useful:

Have you produced your SWOT analysis?

-> SWOT is an acronym of strengths, weaknesses, opportunities and threats. This matrix on one hand, will enable you to identify your market threats and opportunities and on the other, it will help you acknowledge your business strengths and weaknesses.

Have you got an Empathy Map?

->This tool developed by XPLANE will aid your business with a deeper knowledge of your customer, their expectations and needs. In addition, it has become a perfect accompaniment of your Canvas business model, described above and below.

Have you developed your business canvas?

->It offers a powerful visualisation of the direction of your business Project. It helps by proposing strategic reflections and somehow it obliges you to answer the following questions:

o

  

Have you got a value proposition?

o

  

Is there a customer segment willing to purchase the value proposition at the fixed price?

o

  

Have you identified your customers?

o

  

What sort of relationship have you built with them?

o

  

Do you really know your cost structure?

o

  

Do you really know your revenue structure?

Finally, have you drafted your business plan? Are you ready to test all those estimates and predictions you have been working with? Do you really know your market, customers, your product, the funding you need…? It’s reflection - action time.



 Learning Outputs
Online and face-to-face learning


 Bibliography

Alexander Osterwalder and Yves Pigneur. 

Business Model Generation (2010) Eric Ries.

 The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Business. (2011) 
 
 https://www.gov.uk/write-business-plan 
 http://ec.europa.eu/environment/eco-innovation/files/docs/getting-funds/business_plan_guidelines.pdf 
 
 Related Training Material: 
 
 Andalucía Emprende business tools: 
 
 http://www.andaluciaemprende.es/herramientas-de-gestion/desarrollo-de-ideas-de-negocio/. 
 
 Business model development 
 http://andaluciaemprende.es/herramientas-de-gestion/estrategiaempresarial/. 
 
 Business strategy definition. CRECE project manual: 
 http://programacrece.es/