Company Description/Overview
Products/Services Offered
Market Analysis
Marketing and Sales Strategies
Operations and Management
Financial Plan
Appendices
In simple terms, a business model is how the business will make money. Selling ice to eskimos, for instance, is a bad business model. Selling team jerseys to rabbit sports fans, on the other hand, is a solid business model.
The components of a business model are best illustrated by Swiss entrepreneur Alexander Osterwalder’s Business Model Canvas, which is a visual representation with nine sections. Four sections represent internal elements of a business that enable it to function and are related to costs.
Four other sections represent external elements that enable the business to bring in revenue and are related to the customer. The ninth section is the business’ value proposition.
The value proposition is at the heart of your business model. Your value proposition, which should be no more than two sentences long, needs to answer the following questions:
Key activities are all the activities required to run the business and create the proposed value. These can include product development and distribution and any other necessary activities.
The cost structure is a sum of all you’ll need to spend to make the business function. It’s the costs you’ll incur to run the business and bring in revenue.
Key partners are external partners involved in delivering value, such as vendors and suppliers, or maybe a bank.
Key resources are any necessary practical elements that come with a cost. These might include your office space, employees, and equipment like computers.
Revenue streams are the ways in which you receive payment from customers. You may have more than one revenue stream, such as via direct sales and subscriptions.
Customer segments are the groups of people to whom you provide goods or services. In other words, your target market. Maybe your products are aimed at younger women, for instance, or older men. Whatever your target segments, you should build customer personas of each group so that you know how and where to reach them with your marketing.
Customer relationships refer to how you interact with your customers to deliver value. Your interactions may be online only, by phone, in-person, or all of the above.
Channels refer to how you reach your customers, such as social media, internet search, direct sales calls, trade shows, and so on.
If you’re just starting a business, the Business Model Canvas is a great way to understand and examine your business model. One thing to remember is that the elements you put in your Canvas will be based on assumptions that will at some point be tested in the market and adapted as needed.
Another thing to remember is that you do not need to do a Business Model Canvas. It’s merely an exercise that can help provide insight into your business model.
A business plan is a detailed document that describes how the business will function in all facets. The key is in the “plan” part of the name. It will specify how you’ll launch your business, gain customers, operate your company, and make money. A business plan, however, is not a static document .
The initial version will be based largely on assumptions, supported by research. As you run your business you’ll constantly learn what works and what does not and make endless tweaks to your plan.
Thus, creating a business plan is not a one-time action – it’s a dynamic and continuous process of crafting and adapting your vision and strategy.
You’ll present your business plan to potential backers, though in recent years some investors have begun to embrace the Business Model Canvas as a tool to assess a business’ potential.
A strong business plan includes eight essential components .
The executive summary is the initial section of your business plan , written last, summarizing its key points. Crucial for capturing investors’ and lenders’ interest, it underscores your business’s uniqueness and potential for success. It’s vital to keep it concise, engaging, and no more than two pages.
This section provides a history of your company, including its inception, milestones, and achievements. It features both mission (short-term goals and driving force) and vision statements (long-term growth aspirations). Objectives, such as product development timelines or hiring goals, outline specific, short-term targets for the business.
Detail the product or service you’re offering, its uniqueness, and its solution to market problems. Explain its source or development process and your sales strategy, including pricing and distribution channels. Essentially, this section outlines what you’re selling and your revenue model.
Remember, although the financial section might seem daunting, it is pivotal for understanding the economic feasibility of your business. Proper financial planning helps in making informed decisions, attracting investors, and ensuring long-term sustainability. Don’t hesitate to engage financial experts or utilize tools and software to ensure accuracy and comprehensiveness in this section.
The appendices section of a business plan is a repository for detailed information too extensive for the main document. This can include resumes of key personnel, full market research data, legal documents, and product designs or mockups. By placing this data in the appendices, it keeps the main plan concise while allowing stakeholders access to deeper insights when needed. Always ensure each item is clearly labeled and referenced at the relevant point in the main document.
As you can see, business models and business plans have some similarities, but in the main they are quite different. Your business model explains the foundational concept behind your business, while a business plan lays out how you’ll put that model into action and build a business.
When you’re starting a business, it’s best to have both, as the work of getting them done involves learning about your business from every angle. The knowledge you’ll gain is likely to be invaluable, and could even be the difference between success and failure.
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How to make a good business plan: step-by-step guide.
A business plan is a strategic roadmap used to navigate the challenging journey of entrepreneurship. It's the foundation upon which you build a successful business.
A well-crafted business plan can help you define your vision, clarify your goals, and identify potential problems before they arise.
But where do you start? How do you create a business plan that sets you up for success?
This article will explore the step-by-step process of creating a comprehensive business plan.
A business plan is a formal document that outlines a business's objectives, strategies, and operational procedures. It typically includes the following information about a company:
Products or services
Target market
Competitors
Marketing and sales strategies
Financial plan
Management team
A business plan serves as a roadmap for a company's success and provides a blueprint for its growth and development. It helps entrepreneurs and business owners organize their ideas, evaluate the feasibility, and identify potential challenges and opportunities.
As well as serving as a guide for business owners, a business plan can attract investors and secure funding. It demonstrates the company's understanding of the market, its ability to generate revenue and profits, and its strategy for managing risks and achieving success.
A business plan may seem similar to a business model canvas, but each document serves a different purpose.
A business model canvas is a high-level overview that helps entrepreneurs and business owners quickly test and iterate their ideas. It is often a one-page document that briefly outlines the following:
Key partnerships
Key activities
Key propositions
Customer relationships
Customer segments
Key resources
Cost structure
Revenue streams
On the other hand, a Business Plan Template provides a more in-depth analysis of a company's strategy and operations. It is typically a lengthy document and requires significant time and effort to develop.
A business model shouldn’t replace a business plan, and vice versa. Business owners should lay the foundations and visually capture the most important information with a Business Model Canvas Template . Because this is a fast and efficient way to communicate a business idea, a business model canvas is a good starting point before developing a more comprehensive business plan.
A business plan can aim to secure funding from investors or lenders, while a business model canvas communicates a business idea to potential customers or partners.
A business plan is crucial for any entrepreneur or business owner wanting to increase their chances of success.
Here are some of the many benefits of having a thorough business plan.
A business plan encourages you to think critically about your goals and objectives. Doing so lets you clearly understand what you want to achieve and how you plan to get there.
A well-defined set of goals, objectives, and key results also provides a sense of direction and purpose, which helps keep business owners focused and motivated.
A business plan requires you to consider different scenarios and potential problems that may arise in your business. This awareness allows you to devise strategies to deal with these issues and avoid pitfalls.
With a clear plan, entrepreneurs can make informed decisions aligning with their overall business goals and objectives. This helps reduce the risk of making costly mistakes and ensures they make decisions with long-term success in mind.
Investors and lenders often require a business plan before considering investing in your business. A document that outlines the company's goals, objectives, and financial forecasts can help instill confidence in potential investors and lenders.
A well-written business plan demonstrates that you have thoroughly thought through your business idea and have a solid plan for success.
A business plan requires entrepreneurs to consider potential challenges and risks that could impact their business. For example:
Is there enough demand for my product or service?
Will I have enough capital to start my business?
Is the market oversaturated with too many competitors?
What will happen if my marketing strategy is ineffective?
By identifying these potential challenges, entrepreneurs can develop strategies to mitigate risks and overcome challenges. This can reduce the likelihood of costly mistakes and ensure the business is well-positioned to take on any challenges.
A business plan serves as a framework for measuring success by providing clear goals and financial projections . Entrepreneurs can regularly refer to the original business plan as a benchmark to measure progress. By comparing the current business position to initial forecasts, business owners can answer questions such as:
Are we where we want to be at this point?
Did we achieve our goals?
If not, why not, and what do we need to do?
After assessing whether the business is meeting its objectives or falling short, business owners can adjust their strategies as needed.
The steps below will guide you through the process of creating a business plan and what key components you need to include.
Start with a brief overview of your entire plan. The executive summary should cover your business plan's main points and key takeaways.
Keep your executive summary concise and clear with the Executive Summary Template . The simple design helps readers understand the crux of your business plan without reading the entire document.
Provide a detailed explanation of your company. Include information on what your company does, the mission statement, and your vision for the future.
Provide additional background information on the history of your company, the founders, and any notable achievements or milestones.
Conduct an in-depth analysis of your industry, competitors, and target market. This is best done with a SWOT analysis to identify your strengths, weaknesses, opportunities, and threats. Next, identify your target market's needs, demographics, and behaviors.
Use the Competitive Analysis Template to brainstorm answers to simple questions like:
What does the current market look like?
Who are your competitors?
What are they offering?
What will give you a competitive advantage?
Who is your target market?
What are they looking for and why?
How will your product or service satisfy a need?
These questions should give you valuable insights into the current market and where your business stands.
Provide detailed information about your products and services. This includes pricing information, product features, and any unique selling points.
Use the Product/Market Fit Template to explain how your products meet the needs of your target market. Describe what sets them apart from the competition.
Outline how you plan to promote and sell your products. Your marketing strategy and sales strategy should include information about your:
Pricing strategy
Advertising and promotional tactics
Sales channels
The Go to Market Strategy Template is a great way to visually map how you plan to launch your product or service in a new or existing market.
Document detailed information on your business’ finances. Describe the current financial position of the company and how you expect the finances to play out.
Some details to include in this section are:
Startup costs
Revenue projections
Profit and loss statement
Funding you have received or plan to receive
Strategy for raising funds
Define how your company is structured and who will be responsible for each aspect of the business. Use the Business Organizational Chart Template to visually map the company’s teams, roles, and hierarchy.
As well as the organization and management structure, discuss the legal structure of your business. Clarify whether your business is a corporation, partnership, sole proprietorship, or LLC.
At this point in your business plan, you’ve described what you’re aiming for. But how are you going to get there? The Action Plan Template describes the following steps to move your business plan forward. Outline the next steps you plan to take to bring your business plan to fruition.
Several types of business plans cater to different purposes and stages of a company's lifecycle. Here are some of the most common types of business plans.
A startup business plan is typically an entrepreneur's first business plan. This document helps entrepreneurs articulate their business idea when starting a new business.
Not sure how to make a business plan for a startup? It’s pretty similar to a regular business plan, except the primary purpose of a startup business plan is to convince investors to provide funding for the business. A startup business plan also outlines the potential target market, product/service offering, marketing plan, and financial projections.
A strategic business plan is a long-term plan that outlines a company's overall strategy, objectives, and tactics. This type of strategic plan focuses on the big picture and helps business owners set goals and priorities and measure progress.
The primary purpose of a strategic business plan is to provide direction and guidance to the company's management team and stakeholders. The plan typically covers a period of three to five years.
An operational business plan is a detailed document that outlines the day-to-day operations of a business. It focuses on the specific activities and processes required to run the business, such as:
Organizational structure
Staffing plan
Production plan
Quality control
Inventory management
Supply chain
The primary purpose of an operational business plan is to ensure that the business runs efficiently and effectively. It helps business owners manage their resources, track their performance, and identify areas for improvement.
A growth-business plan is a strategic plan that outlines how a company plans to expand its business. It helps business owners identify new market opportunities and increase revenue and profitability. The primary purpose of a growth-business plan is to provide a roadmap for the company's expansion and growth.
The 3 Horizons of Growth Template is a great tool to identify new areas of growth. This framework categorizes growth opportunities into three categories: Horizon 1 (core business), Horizon 2 (emerging business), and Horizon 3 (potential business).
A one-page business plan is a condensed version of a full business plan that focuses on the most critical aspects of a business. It’s a great tool for entrepreneurs who want to quickly communicate their business idea to potential investors, partners, or employees.
A one-page business plan typically includes sections such as business concept, value proposition, revenue streams, and cost structure.
Here are some additional tips for creating a business plan:
A template can help you organize your thoughts and effectively communicate your business ideas and strategies. Starting with a template can also save you time and effort when formatting your plan.
Miro’s extensive library of customizable templates includes all the necessary sections for a comprehensive business plan. With our templates, you can confidently present your business plans to stakeholders and investors.
Avoid overestimating revenue projections or underestimating expenses. Your business plan should be grounded in practical realities like your budget, resources, and capabilities.
Provide as much detail as possible in your business plan. A specific plan is easier to execute because it provides clear guidance on what needs to be done and how. Without specific details, your plan may be too broad or vague, making it difficult to know where to start or how to measure success.
Conduct thorough research to fully understand the market, your competitors, and your target audience . By conducting thorough research, you can identify potential risks and challenges your business may face and develop strategies to mitigate them.
It can be easy to become overly focused on your vision and ideas, leading to tunnel vision and a lack of objectivity. By seeking input from others, you can identify potential opportunities you may have overlooked.
A business plan is a living document. You should update it regularly to reflect market, industry, and business changes. Set aside time for regular reviews and revisions to ensure your plan remains relevant and effective.
Starting or growing a business can be challenging, but it doesn't have to be. Whether you're a seasoned entrepreneur or just starting, a well-written business plan can make or break your business’ success.
The purpose of a business plan is more than just to secure funding and attract investors. It also serves as a roadmap for achieving your business goals and realizing your vision. With the right mindset, tools, and strategies, you can develop a visually appealing, persuasive business plan.
Ready to make an effective business plan that works for you? Check out our library of ready-made strategy and planning templates and chart your path to success.
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9 min. read
Updated May 10, 2024
If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan — or at least the very basic components of one.
The origin of formal business plans is murky. But they certainly go back centuries. And when you consider that 20% of new businesses fail in year 1 , and half fail within 5 years, the importance of thorough planning and research should be clear.
But just what is a business plan? And what’s required to move from a series of ideas to a formal plan? Here we’ll answer that question and explain why you need one to be a successful business owner.
A business plan lays out a strategic roadmap for any new or growing business.
Any entrepreneur with a great idea for a business needs to conduct market research , analyze their competitors , validate their idea by talking to potential customers, and define their unique value proposition .
The business plan captures that opportunity you see for your company: it describes your product or service and business model , and the target market you’ll serve.
It also includes details on how you’ll execute your plan: how you’ll price and market your solution and your financial projections .
If you’re asking yourself, ‘Do I really need to write a business plan?’ consider this fact:
Companies that commit to planning grow 30% faster than those that don’t.
Creating a business plan is crucial for businesses of any size or stage. It helps you develop a working business and avoid consequences that could stop you before you ever start.
If you plan to raise funds for your business through a traditional bank loan or SBA loan , none of them will want to move forward without seeing your business plan. Venture capital firms may or may not ask for one, but you’ll still need to do thorough planning to create a pitch that makes them want to invest.
But it’s more than just a means of getting your business funded . The plan is also your roadmap to identify and address potential risks.
It’s not a one-time document. Your business plan is a living guide to ensure your business stays on course.
Related: 14 of the top reasons why you need a business plan
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Numerous studies have established that planning improves business performance:
The planning process significantly impacts business growth for existing companies and startups alike.
Read More: Research-backed reasons why writing a business plan matters
No two business plans are alike.
Yet there are similar questions for anyone considering writing a plan to answer. One basic but important question is when to start writing it.
A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business.
But the reality can be more nuanced – it depends on the stage a business is in, or the type of business plan being written.
Ideal times to write a business plan include:
Read More: The best times to write or update your business plan
As is often the case, how often a business plan should be updated depends on your circumstances.
A business plan isn’t a homework assignment to complete and forget about. At the same time, no one wants to get so bogged down in the details that they lose sight of day-to-day goals.
But it should cover new opportunities and threats that a business owner surfaces, and incorporate feedback they get from customers. So it can’t be a static document.
Related Reading: 5 fundamental principles of business planning
For an entrepreneur at the ideation stage, writing and checking back on their business plan will help them determine if they can turn that idea into a profitable business .
And for owners of up-and-running businesses, updating the plan (or rewriting it) will help them respond to market shifts they wouldn’t be prepared for otherwise.
It also lets them compare their forecasts and budgets to actual financial results. This invaluable process surfaces where a business might be out-performing expectations and where weak performance may require a prompt strategy change.
The planning process is what uncovers those insights.
Related Reading: 10 prompts to help you write a business plan with AI
Thinking about a business plan strictly in terms of page length can risk overlooking more important factors, like the level of detail or clarity in the plan.
Not all of the plan consists of writing – there are also financial tables, graphs, and product illustrations to include.
But there are a few general rules to consider about a plan’s length:
A good practice is to write your business plan to match the expectations of your audience.
If you’re walking into a bank looking for a loan, your plan should match the formal, professional style that a loan officer would expect . But if you’re writing it for stakeholders on your own team—shorter and less formal (even just a few pages) could be the better way to go.
The length of your plan may also depend on the stage your business is in.
For instance, a startup plan won’t have nearly as much financial information to include as a plan written for an established company will.
Read More: How long should your business plan be?
The contents of a plan business plan will vary depending on the industry the business is in.
After all, someone opening a new restaurant will have different customers, inventory needs, and marketing tactics to consider than someone bringing a new medical device to the market.
But there are some common elements that most business plans include:
Read More: Use this business plan outline to organize your plan
A business plan isn’t a one-size-fits-all document. There are numerous ways to create an effective business plan that fits entrepreneurs’ or established business owners’ needs.
Here are a few of the most common types of business plans for small businesses:
Since your objective will ultimately inform your plan, you need to know what you’re trying to accomplish before you start writing.
While a business plan provides the foundation for a business, other types of plans support this guiding document.
An operational plan sets short-term goals for the business by laying out where it plans to focus energy and investments and when it plans to hit key milestones.
Then there is the strategic plan , which examines longer-range opportunities for the business, and how to meet those larger goals over time.
Read More: How to use a business plan for strategic development and operations
If a business plan describes the tactics an entrepreneur will use to succeed in the market, then the business model represents how they will make money.
The difference may seem subtle, but it’s important.
Think of a business plan as the roadmap for how to exploit market opportunities and reach a state of sustainable growth. By contrast, the business model lays out how a business will operate and what it will look like once it has reached that growth phase.
Learn More: The differences between a business model and business plan
Now that you understand what a business plan is, the next step is to start writing your business plan .
The best way to start is by reviewing examples and downloading a business plan template. These resources will provide you with guidance and inspiration to help you write a plan.
We recommend starting with a simple one-page plan ; it streamlines the planning process and helps you organize your ideas. However, if one page doesn’t fit your needs, there are plenty of other great templates available that will put you well on your way to writing a useful business plan.
Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
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Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.
Investopedia / Ryan Oakley
Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.
Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."
Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.
There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.
Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.
While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.
While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.
Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.
The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.
These are some of the most common elements in many business plans:
The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.
Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.
A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.
How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.
The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.
Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.
A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.
Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."
U.S. Small Business Administration. " Write Your Business Plan ."
The Leading Source of Insights On Business Model Strategy & Tech Business Models
A business model is a holistic framework to design how a business might create and capture value. A business plan is a document explaining how a business might become viable. Where a business model is made to be tested, a business plan’s primary goal is to gain investments.
Aspect | ||
---|---|---|
A is a strategic framework that outlines how a business creates, delivers, and captures value. It focuses on the core components of a business’s operations and revenue generation. | A is a comprehensive document that outlines a company’s goals, strategies, financial projections, and operational details. It is often used for fundraising and as a roadmap for the business. | |
The primary purpose of a business model is to describe the of how a business will make money and create value for customers. | A business plan serves as a that provides guidance on how a business intends to operate and grow. It is often used for attracting investors or lenders. | |
Key components of a business model include the . | A business plan typically includes sections on the . | |
A business model emphasizes , simplifying complex business operations into key building blocks. | A business plan delves into , including market research, competition analysis, financial forecasts, and strategic milestones. | |
Business models are often and adaptable to changes in the market and business environment. Entrepreneurs can pivot easily based on customer feedback or market shifts. | Business plans can be and may require extensive updates when the business encounters unexpected challenges or opportunities, potentially leading to delays. | |
Business models are typically developed and iterated upon , helping entrepreneurs validate their ideas quickly and efficiently. | Business plans are usually created when the business is or when a more detailed operational roadmap is required for established businesses. | |
Business models are useful for , often at the startup or early stages of a venture. | Business plans are commonly used for for established businesses. | |
Business models are often represented using visual tools like the , which provides a quick overview of key components. | Business plans are primarily presented as with detailed narratives and financial tables. | |
Business models encourage as they allow entrepreneurs to explore various ways to create and capture value. | Business plans may prioritize over rapid innovation, potentially leading to slower adaptability. | |
Investors may appreciate a clear and compelling business model that demonstrates a . | Investors often require a comprehensive business plan to evaluate the of a business. | |
Business models can evolve and adapt to market changes, allowing businesses to stay relevant over the long term. | Business plans may become outdated and less relevant once a business is operational, often requiring frequent updates. | |
Developing a business model typically and is suitable for resource-constrained startups. | Creating a comprehensive business plan can be in terms of time and expertise, often involving multiple team members or consultants. | |
A business model provides and helps in making decisions that align with the core value proposition and revenue generation. | A business plan serves as a for executing strategies, including marketing, operations, and financial management. | |
Business models can be presented in a that quickly conveys the essence of the business’s value proposition. | Business plans typically involve , which can be lengthy and text-heavy. | |
ROI on developing a business model can be , as it provides a clear understanding of how the business intends to create value and generate revenue. | ROI on creating a business plan may be if it successfully attracts investors or lenders and helps secure funding. |
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It is easy to confuse a business model with a business plan . Yet those tools have specific functions, in some cases similar, in most other cases completely different.
Indeed, while a business model is a framework to understand the way an organization works, a business plan is a document that helps to understand the future strategy of an organization and its expected performance in a three to five years time frame.
While in some cases, a business plan can also serve the purpose of better understanding your own business, and in some other cases, the business model can be comprised within the business plan .
Indeed, as an investor, I want to know exactly how your business works or how you think it will work in the future. Keeping a distinction between those tools is critical.
In particular, I want to focus on the critical difference from two perspectives:
If you’re looking for a tool whose aim is to show how attractive your business is, a business plan is the most suited for that.
Indeed, suppose you want to attract investors and grow your business via external resources.
In that case, a detailed business plan is the most effective way to allow those investors to understand the several parts of your business.
Also, the business plan is a way to show where you see the business in the future. Indeed, one key ingredient of a business plan is a set of projections for three-five years.
While investors will also want to know what kind of business model you want to build (depending on whether or not your business model will be scalable will make or break the interests of investors).
The primary tool to show where your business will be in the future and to address the kind of resources needed to get there is the business plan. In short, for external subjects to know about your business and invest in it, the business plan is the best tool.
Among the tools to leverage on to understand your business, a business model is one of the most effective.
Indeed, the business model is a framework (usually a one-page) that allows you to understand how your business works from several perspectives.
Depending on what kind of business you’re trying to build or where you want to steer your organization, you might want to look at a few tools, such as:
Each of those tools will help you to build a different kind of business.
For instance, in a start-up phase, the business model canvas and the lean startup canvas are the most suited.
In a phase of scale-up, the lean startup is better suited than the business model canvas.
Instead, if you’re trying to blitzscale your business , the Blitzscaling Canvas will be your best companion.
In conclusion, if you’re looking for a way to understand better your business in the present or how to design a business model that can help you grow, the business model frameworks are the most suited to the business plan .
In some cases, though, a business plan might also work for that purpose, especially a one-page business plan.
A business plan is a tool that is most suited to shot external stakeholders where your business is headed and why they should finance or invest in its future.
The business model instead, is a framework that helps you assess how your business works from several angles and the kind of actions you can take in the now.
Below you can find an example on how to build a one-page business plan as well:
Case Study 1: Nike – Business Model vs. Business Plan
Case Study 2: Coca-Cola – Business Model vs. Business Plan
Case Study 3: Amazon – Business Model vs. Business Plan
Case Study 4: Tesla – Business Model vs. Business Plan
Case Study 5: Airbnb – Business Model vs. Business Plan
Case Study 6: Uber – Business Model vs. Business Plan
Case Study 7: Apple – Business Ecosystem vs. Business Plan
Case Study 8: Ethereum – Business Ecosystem vs. Business Plan
Key Difference – Business Model vs. Business Plan
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Related Strategy Concepts: Go-To-Market Strategy , Marketing Strategy , Business Models , Tech Business Models , Jobs-To-Be Done , Design Thinking , Lean Startup Canvas , Value Chain , Value Proposition Canvas , Balanced Scorecard , Business Model Canvas , SWOT Analysis , Growth Hacking , Bundling , Unbundling , Bootstrapping , Venture Capital , Porter’s Five Forces , Porter’s Generic Strategies , Porter’s Five Forces , PESTEL Analysis , SWOT , Porter’s Diamond Model , Ansoff , Technology Adoption Curve , TOWS , SOAR , Balanced Scorecard , OKR , Agile Methodology , Value Proposition , VTDF
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Dive into the nuances of Business Plans & Models. Uncover their key differences, applications, and tips for strategic growth. Master your business journey today!
November 28, 2023
In the world of business, two terms often emerge as foundational elements to startup founders, seasoned entrepreneurs, and everyone in between: the Business Plan and the Business Model. Both are crucial, yet their roles, purposes, and impacts are distinct, and understanding these differences can mean the difference between the success and failure of an enterprise.
In a landscape where innovation is rampant and industries are constantly evolving, having clarity about one's business direction is indispensable. It's akin to a sailor knowing the direction of the wind and having a map. While the wind's direction can be equated to the broader strategy of the sailor (the Business Model), the map which plots out the course in detail is akin to the Business Plan.
Yet, with these tools being so pivotal, it's alarming how often they are misunderstood or used interchangeably. Some entrepreneurs pour weeks into crafting the perfect business plan, only to realize they haven’t clarified their fundamental business model. Others sketch out a brilliant business model on the back of a napkin but falter when asked for the detailed strategy and projections that a business plan requires.
This guide aims to dissect the nuances between a Business Plan and a Business Model, highlighting their unique roles in the entrepreneurial journey and offering insight into how each can be harnessed most effectively. By the end of this exploration, readers will have a clear roadmap (pun intended!) for their own business endeavors, understanding when, why, and how to leverage each tool.
In order to delve deep into the distinctions between a Business Plan and a Business Model, it's imperative that we first lay down clear definitions for each term. This ensures that as we progress, we're aligned in understanding and can avoid any ambiguities. So, let's start by putting these cornerstone concepts under the microscope.
A Business Plan can be envisioned as a detailed blueprint for setting up a business and ensuring its success. It's a comprehensive document that articulates what a business intends to achieve and the strategies it will deploy to make those aspirations a reality. Let's break down the typical components:
A Business Model is akin to the conceptual foundation of a business. It succinctly defines how a company plans to generate revenue, make a profit, and ensure sustainability in a competitive market. Core components of a business model include:
With these definitions at our fingertips, it becomes easier to discern the distinct role each plays in the grand scheme of establishing and running a business. As we progress further, we will delve into how these elements differ in scope, objective, and application.
Having delineated clear definitions for both a Business Plan and a Business Model, it's now time to pinpoint their distinctive differences. While both tools are essential to a business's success, they serve varied purposes and are used at different stages of the entrepreneurial journey. Let's explore the primary differences between the two:
In essence, while the business model is about conceptualizing the heart and soul of the enterprise, the business plan is about putting flesh to that skeleton, bringing it to life with details, strategies, and actionable steps. Grasping these nuanced differences is vital for entrepreneurs as they chart the course of their business journey.
The distinctions between a Business Plan and a Business Model are clear, but knowing when to deploy each can be equally as crucial. Their application at the right junctures can enhance clarity, attract resources, and drive effective implementation. Here's a guide on when to use which:
In summation, while the Business Model encapsulates the very soul of the enterprise, the Business Plan serves as the detailed blueprint for bringing that vision to fruition. Knowing when to focus on each, and how to leverage them effectively, can guide businesses through their initial setup, growth, challenges, and expansions. Both tools, when used strategically, are the compass and map guiding a business towards its envisioned success.
A theoretical understanding of the distinction between Business Plans and Business Models is one thing, but observing them in practice can offer an invaluable perspective. Let’s explore some real-world examples that showcase these tools in action:
In essence, these examples vividly illustrate how the foundational concept of a business (Business Model) is different from the detailed strategy for its operation and growth (Business Plan). While the model captures the essence, the plan dives into specifics. Both are integral at different stages, and as seen with companies like Netflix, they need to be revisited and revised as the company evolves.
Throughout this exploration of Business Plans and Business Models, one thing remains abundantly clear: both are indispensable tools in the toolkit of every entrepreneur and business leader. However, understanding the nuanced differences between the two and knowing how to deploy each effectively can significantly impact a company's success.
A Business Model provides the visionary blueprint of a company – it's the big picture that showcases what the company stands for, its primary methods of generating revenue, and how it intends to deliver value to its target market. It’s the foundation upon which a company is built, a reflection of its core identity.
On the other hand, a Business Plan dives into the specifics, detailing the strategies, operations, financial projections, marketing approaches, and other key components necessary to bring the business model to life. It's the roadmap, detailing the route a business needs to take to achieve its goals.
In the rapidly changing world of business, where consumer preferences evolve, technologies disrupt traditional operations, and markets are continually in flux, having a robust business model is crucial. But it’s the detailed business plan that allows businesses to navigate these complexities with precision, foresight, and strategic acumen.
Drawing inspiration from real-world examples, we've seen how giants like Netflix and Uber have effectively utilized both these tools. They've conceptualized innovative business models and then deployed detailed business plans to capture market share, adapt to changes, and remain at the pinnacle of their respective industries.
In conclusion, as an entrepreneur or business leader, think of the business model as your compass, giving direction and purpose. The business plan is your map, detailing the terrain and showing the path forward. With both in hand, you're not only set for the journey but also equipped to tackle the challenges and capitalize on the opportunities that lie ahead.
Foundational Differences: A Business Model provides an overview of how a company creates, delivers, and captures value, whereas a Business Plan delves into the detailed strategies, operations, and financial projections for realizing the model.
Strategic Application: The Business Model sets the core vision and foundation for a business, while the Business Plan acts as a roadmap, detailing steps for achieving business goals and milestones.
Real-world Applications: Successful companies, such as Airbnb, Uber, Netflix, and Dropbox, have effectively conceptualized innovative business models and employed comprehensive business plans for strategic execution and growth.
Necessity for Adaptation: Both the business model and business plan should be revisited and revised periodically to ensure alignment with evolving market realities and business objectives.
Call to Action: Entrepreneurs and businesses should constantly reflect on, refine, and update their models and plans, engage with experts, commit to continuous learning, and actively share insights to ensure sustained success.
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There’s a big misconception about the whole business model vs. business plan debate because both terms have been wrongly used. Today, we’ll look into what they’re really for and why they’re needed for the business.
Strategy has always been a building block of business. In the ever-competitive and highly volatile industry, you have to come up with a sustainable advantage over your competitors. Few lucky entrepreneurs successfully start on the right foot, but luck often runs out while keeping a great momentum. This is where a solid business strategy comes to play.
You can’t just launch your startup without establishing where it’s heading. You need a business strategy to identify which direction you’ll operate towards. This is why a business plan and a business model are essential factors in a company’s success. But because they seemingly have a similar purpose, they’re mistakenly used interchangeably. The truth is, one cannot exist without the other.
To truly understand the difference between a business model vs. a business plan, we’ll need to define what they are and what they’re used for.
A business model is the company’s rationale and plans for making a profit. It explains how a company delivers value to its customers at a specific cost. A business model would include details about the company’s products and services, its target market, and all expenses related to the operations and production.
It’s considered a roadmap for a business to achieve its financial goal in a given period. It maps out how you can sustain the value you deliver to your customers. Entrepreneurs use it as a tool to study, test, and estimate cost and revenue streams.
They can make quick hypothetical changes to the business model to determine how a financial decision can impact their long-term operations . This allows business owners to anticipate and adapt to trends and challenges in their industry.
Consequently, a strong business model also helps attract investors, recruit talent, and motivate employees. The management and staff are often motivated by how well a company adheres to the business model.
When it comes to different kinds of business models, there are several options for a company. For example, a software company might go with a subscription model because it’s easier to sell their product through a license subscription. On the other hand, retail companies might go for the accessories model because it’s more straightforward.
In determining which type of business model to use, companies choose the style that best suits their operations and industry. A growing method is using a combination of business models to create a hybrid system for the business.
The following are some of the most widely used types of business models:
Now that we’ve established what a business model is, it’s time to learn how to create one for your startup. Your business model has to answer all the critical questions about your business.
Here are the key components you must include in your business model:
Keep in mind, the business model has to be updated regularly to fit your goals. All companies undergo a stage of maturity that directly affects the business model it follows.
For early-stage startups, the business model would ideally be simple and straightforward. Most business owners would even opt for a flat organization where staff could communicate their concerns directly to the owner. This, of course, will change as the company expands.
Now that we’ve learned what a business model is, it’s time to move on to the next part of the business model vs. business plan discussion. So, let’s discuss what is a business plan.
A business plan is a written document that details a company’s goals and its strategies to achieve them . It’s considered the “blueprint of the business” because it summarizes all the essential aspects of the company such as finance, marketing, and operations.
It serves as a reference for the company owner and the management in making major business decisions. It can also be presented to investors when the owner is raising capital. It’s beneficial for startups who have no proven track record since a business plan can pitch its full potential.
A business plan is not only helpful to a business in its early stage, but it also helps it pivot during unforeseen circumstances. In a volatile industry, a company needs to adapt quickly and efficiently. Hence, update the goals and methods should accordingly.
So, what should a business plan include?
Business plans vary according to industry, but there is a general format for writing a business plan. You can expand or shorten this template based on long-term goals.
You can choose from a wide selection of business plan templates when it comes to the actual writing. Remember to keep it concise and avoid jargon in the content. You will present your business plans to investors and stakeholders; hence, they need to get a clear idea of it in one reading.
At this point, we’ve established that both a business model and a business plan are essential to success. However, both can only take your business so far. How well you execute and follow them is a whole other story. It’s challenging to start a startup , let alone maintain it.
If you want to avoid common startup mistakes , you need to build your business on a strong foundation. Hire the best people, invest in reliable tools, and sign up for mentoring.
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Sculpting success in the realm of commerce hinges on two critical blueprints: the business model and the business plan . As if peering through a dual-lens, one unveils the anatomy of value creation, while the other charts a course for achieving it. This isn’t about mere documents; it’s the lifeblood of strategic foresight and operational vision.
Here’s the crux: although they waltz together in strategic symbiosis, these entities each spin a unique narrative of your venture’s voyage. One sketches the architecture of your enterprise, laying bare the revenue streams and value proposition.
The other, a meticulous roadmap, presents meticulous market analysis, financial projections, and the operational plan set to navigate the turbulent tides of commerce.
By journey’s end, you’ll not just differentiate between the two but harness their combined power.
Delve into concepts like competitive advantage, customer segmentation, and scalability. Decode the mesmerizing narrative behind a robust strategic planning foundation. Sales forecasting, funding requirements, investor pitch decks.
A framework for creating economic value and capturing a portion of that value. | A formal document detailing a business’s objectives, strategies, target market, and financial forecasts. | |
To define how a company creates, delivers, and captures value in economic, social, cultural, or other contexts. | To guide management in running the business and to persuade external parties, like investors, to fund the business. | |
– Value proposition – Customer segments – Channels – Revenue streams – Cost structure | – Executive summary – Market analysis – Organization and management plan – Sales strategies – Financial projections | |
Typically more flexible, subject to adjustment as the company grows or market conditions change. | Tends to be a more rigid document, often used for a specific purpose, like seeking investment or a bank loan. | |
Primarily internal; used by founders and management to understand and operate the business. | Both internal management and external stakeholders, including investors, banks, and potential partners. |
The business model is the foundation of a company, while the business plan is the structure. So, a business model is the main idea of the business together with the description of how it is working.
The business plan goes into detail to show how this idea could work. A business model can also be considered the mechanism that a company has to generate profits. At the same time, the business plan also does its part in being the way a company can present its strategy. It is also used to show the financial performance that is expected for the near future.
Comparing how business models and business plans work to help you in different ways is important. A business model can help you be sure that the company is making money. It helps to identify services that customers value. It also shows the reciprocation of funds for the activity that a business renders to its customers.
Any business can have different ways of generating income, but the goals of the business model should aim to simplify the money process. It does this by focusing on the large income generators.
So, we now understood that a basic business model is a gateway to show how an organization is functioning. A business plan is a document that shows the strategy of an organization together with the expected performance details.
We can find the details of a company when we check its business plan. What it does is offer more info about the business model. It does this by explaining the teams needed to meet the demand of the business model. It explains the equipment needed, as well as resources that need to be obtained to start creating. Explaining the marketing goals , and how the business is going to attract and retain more customers over the competition , will be part of the model.
Another interesting thing when it comes to comparing business models and business plans is that they cannot function without each other. Just remember this, the business model is going to be the center of the business plan.
When comparing using a business model versus a business plan, we also need to understand each one better to draw some final conclusions. One of the first goals of a company could be to define its business model.
The business plan is going to be the detailed part that includes all the information and steps like Mayple’s marketing plan template, organization, products or services, sales plan, business proposal for investors , and so on. Some useful questions that you can use when developing your business plan are:
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Business plan, business model, strategies, financial forecasts, and whatnot!
Starting a business means encountering new terms every day, but not exactly knowing when to use what!
Two such terms are business plan and business model. People often use them interchangeably, and it’s okay if you do too. Today we’ll change that so you know which to use when.
In this article, we’ll conduct a thorough business plan vs. business model comparison to understand their meanings and know their purpose.
So, let’s kick-start this journey now.
A business model is a mechanism that directs how you create, deliver, and attain value in the market; it’s the profit-generating plan of your company.
This involves identifying your value proposition, targeting specific customer segments, defining revenue streams, leveraging key resources, and forming strategic partnerships.
Simply put, it’s how you sell your product to make money.
The essential elements of a business model are:
A business plan is a comprehensive document that outlines your entire business operations. It covers everything from launching products and setting milestones to planning an exit strategy, detailing every step of your business journey. A business plan describes what a company does, its vision & goals, and its strategies.
Essentially, a business plan serves as a roadmap for how your business will operate, grow, and achieve success.
Here are the core components of a business plan:
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Now that you know the exact meaning of a business model and business plan, it’s time to understand the difference.
Your business model focuses on optimizing the internal and external company operations to earn maximum profits. It explains your relationship with dealers, distributors, service partners, customers, and target audience.
Conversely, your business plan focuses on how you set business goals, create strategies, make predictions, and manage labor to sustain and scale your business. It also outlines your relationship with your customers, competitors, industry, and the market.
Adopting the right business model(s) help you:.
Gain a competitive edge
Incorporating a unique business model amazes your audience and attracts them to be your first-time customers. It also provides you with a competitive edge over other businesses in your industry.
Ensure sustainability and scalability
A business model pushes an entrepreneur to have monthly update meetings and plan what the next month should exactly look like. Many businesses shut down due to poor financial management, which is why a business model is required.
From economic storms to unexpected difficulties, a business model ensures both sustainability and scalability.
Inspires trust in investors
Investors know the failure rate of small businesses, which is why incorporating a clear business model provides a sense of security. They will also know that you have a strategy and what your profitability expectations are for the upcoming years.
Test the viability of your business idea
A business plan defines the target customers and their willingness to pay for your product or service. This way, your business idea will be validated, helping you decide whether to move forward with it or not.
Acquire funding
If you want funds from banks, investors, or other parties, then you’ll require proper financial details like goals, plans, and projections. A good business plan will help you impress investors.
Plan for exit
A business plan includes strategies and a timeline to accomplish any task, which helps in planning your business’s exit too. While handing over your business or closing it directly, meeting the financial goals is also important—which are very specific in the business plan.
Other advantages of writing an ideal business plan include:
First, consider the scalability of your business, then measure the value you offer. List down your competitors, segment your customers, see the market potential, and then choose a business model.
Here are other points to consider:
Answer a few questions first, like where you think your business will be in 10–15 years, what’s your expected income, or what are your projections.
A business model outlines how a company creates, delivers, and captures value. Understanding different types of business models can help identify the best approach for their businesses, ensuring growth. Some of the types of business models are:
Each type of business plan serves a unique role, whether it’s for a startup looking to enter the market, an existing business planning for growth, or a company looking to improve its operational efficiency. Here is an overview of the most common types of business plans:
There’s no standard answer for business plan vs. business model; the choice entirely depends on your business’s specific needs and objectives.
Additionally, planning is an ongoing process. You can’t create a business plan or a business model and rely on that for years to come!
So, to keep your business model and business plan updated, explore a business plan app like Upmetrics . It has a business model canvas template, sample business plans, and an AI assistant to help you plan as many times as you need.
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Can i write a business plan without a business model.
No, a business plan is like a roadmap for your business—but it also needs direction. This direction comes from a business model. A business model explains how you’ll make money by defining its target market, value proposition, revenue streams, cost structure, and distribution channels. So, writing a business plan after making a business model is advisable.
Well, no! For funding an investor would want to know everything about your business like the management team, competitive landscape, industry analysis, financial projections, and more. So, having a business plan for funding is necessary.
Create a business model and a business plan when you’re starting a new business or launching a new product or service. However, you need to create or alter both documents if there are any shifts in the current business operations.
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You might be wondering what the difference is between a business plan and a business model. The truth is, they are different things with different purposes.
The main difference between a business plan and business model is that a business plan outlines your goals and strategy to grow your company, while a business model shows you how to generate revenues. Read on to learn more about this subject, including what types of business models there are and how to figure out which type best suits your situation.
During the business planning process, especially if you are trying to attract investors, there are 10 essential elements of a business plan which you must include as follows:
For each of these sections, you should provide an in-depth description of your research, analysis, and expected financial performance. You can learn more about the components of a business plan and review our repository of 100+ business plan examples to help you get started on writing your own business plan.
A business model should include the details of every way in which your business makes money. It’s important not to leave anything out, even if it seems insignificant. Every dollar counts!
Business models outline how your company generates revenues. On the other hand, business plans focus on the specifics of how the business will achieve sales and growth over a given period of time, typically five years. Business plans discuss your business model among other things and are critical if you want to gain investments to grow your business.
The business model strategy is very different from a business plan. While they overlap a bit, the critical difference is that a business plan outlines the goals and business strategy while the basic business model shows you how to make money.
Your needs will change over time so it’s important to be able to switch between these two documents when needed. For example, if your goal is long-term growth then you may want more information about what type of strategy would work best for this situation or which resources might help get there faster. On the other hand, if you’re looking for some immediate income then paying attention to the various types of models available could give you an idea of where to start with generating enough sales quickly without too much cost upfront.
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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.
In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.
A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.
The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.
The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.
The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.
The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.
Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.
Here’s a step-by-step guide on how to create a business canvas model.
Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.
While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.
Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.
Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.
Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.
Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.
Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.
Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.
There are nine building blocks in the business model canvas and they are:
Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.
When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.
Let’s look into what the 9 components of the BMC are in more detail.
These are the groups of people or companies that you are trying to target and sell your product or service to.
Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.
After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.
There are different customer segments a business model can target and they are;
Use STP Model templates for segmenting your market and developing ideal marketing campaigns
Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.
In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.
There are several types of customer relationships
You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.
This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.
Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.
There are two types of channels
Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.
A revenue stream can belong to one of the following revenue models,
There are several ways you can generate revenue from
What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.
These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.
There are 3 categories of key activities;
This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.
There are several types of key resources and they are
Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.
Types of partnerships are
In this block, you identify all the costs associated with operating your business model.
You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.
Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).
This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.
A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.
Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).
One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,
Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.
What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.
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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.
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It’s very common to make confusion on what’s the difference between Business Model and Business Plan. But, in fact, they are similar only in name. Their functions and purposes are quite different and, actually, complementary. While the business model refers to a one-page representation of how a company creates, delivers, and captures value, the business plan is an in-depth description on a long textual document form about how your company is structured and plan to achieve strategic and financial objectives. This business plan is a document that contains every data of the business – usually including its model. Let’s separate them both, to make it simple.
Your company’s business model is all about the way a company creates, delivers, and captures value. For example, a restaurant franchise is a business model. A Software-as-a-Service is another one. A razor-and-blade , a subscription company , a Freemium internet tool, a e-commerce marketplace . Each of that is a business model, with its own peculiarities. What it’s commonly mistaken with the business plan is not the business model itself. It’s, indeed, the business modeling tool . And this tool provides a base to design a business model. It’s, in fact, by modeling your business through this kind of tool that you’ll be able to identify your they main construction blocks of a business, who they relate to each other and combine to form a unique strategy. It’s with the business model tool that you may identify the key resources for your business to succeed, which key activities it must perform, who it has to interact with, and by which means and channels . Usually, this business model tool is a framework, made up of a single page, that allows you to recognize your own business under several perspectives. According to the type of business, you may take a look at different modeling options, such as Business Model Canvas , Value Propositions Canvas, Lean Canvas , and others. Each of them fits a different purpose. For example, if your business is brand new, the Business Model Canvas is likely to be the better option. On the other hand, for early validation of your startup, the Lean Canvas must be the most appropriate. And, to pivot your product, it’s a good idea to check the Value Proposition Canvas. In short, if you aim to understand your business better, from inside, or make predictions for growing your venture, then your need to work on your business model, not make a business plan. So, now, let’s check what the business plan is for.
A business plan is a written document that contains detailed information of the business, product/service, market, and the entrepreneur vision for the company’s future. It is basically the most accurate portrait of the field, products and services, customers, competitors, suppliers, all the operational and financial goals of the company, its marketing and sales strategy. Its purpose is to display the strengths and weaknesses of the business and to project the gains and losses of the organizations, in order to identify the viability and sustainability of the idea. The business plan is often a long document, made up of several pages. In general, it contains:
The goal of the business plan is to determine whether your idea is sustainable or not. It also shows the weaknesses to be repaired, as well as the strengths to be potentialized. It is a kind of script, to reduce the chance of failure. The business plan is a core document if you are looking for partners, in order to demonstrate profitability. Its focus is, indeed, to provide executives, investors, and any other stakeholders a full overview of the business. So, it is especially important when you are seeking loans, sources of financing, and investments. It is the best way to demonstrate that your business is trustworthy and solid enough for credit.
the difference between Business Model and Business Plan lies in key points like how they should be developed, where should the focus be, how to organize ideas and what are their main objectives.
Business Models and Business Plans are important documents to help you plan and organize your business strategy. It can be either a document for early-stage companies that need to validate hypothesis or big companies that need to plan ahead, capture investment or even make an IPO .
Whatever the case is, it is very important to understand that these are different terms, with different purposes and have different tools to develop them. To summarize here, the key terms that are commonly confused between each other:
Business model – provides a rationale for how a business creates, delivers and captures value, and examines how the business operates, its underlying foundations, and the exchange activities and financial flows upon which it can be successful. Business Plan – a formal document that typically describes the business and industry, market strategies, sales potential, and competitive analysis as well as the company’s long-term goals and objectives. Revenue Model – Outlines the ways in which your company will make money (e.g. revenue streams). Did you better understand the difference between Business Model and Business Plan? Comment below!
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Very interesting. Concise and comprehensive at the same time.
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Use this free business plan template to write your business plan quickly and efficiently.
A good business plan is essential to successfully starting your business — and the easiest way to simplify the work of writing a business plan is to start with a business plan template.
You’re already investing time and energy in refining your business model and planning your launch—there’s no need to reinvent the wheel when it comes to writing a business plan. Instead, to help build a complete and effective plan, lean on time-tested structures created by other entrepreneurs and startups.
Ahead, learn what it takes to create a solid business plan and download Shopify's free business plan template to get started on your dream today.
This business plan outline is designed to ensure you’re thinking through all of the important facets of starting a new business. It’s intended to help new business owners and entrepreneurs consider the full scope of running a business and identify functional areas they may not have considered or where they may need to level up their skills as they grow.
That said, it may not include the specific details or structure preferred by a potential investor or lender. If your goal with a business plan is to secure funding , check with your target organizations—typically banks or investors—to see if they have business plan templates you can follow to maximize your chances of success.
Our free business plan template includes seven key elements typically found in the traditional business plan format:
This is a one-page summary of your whole plan, typically written after the rest of the plan is completed. The description section of your executive summary will also cover your management team, business objectives and strategy, and other background information about the brand.
This section of your business plan will answer two fundamental questions: “Who are you?” and “What do you plan to do?” Answering these questions clarifies why your company exists, what sets it apart from others, and why it’s a good investment opportunity. This section will detail the reasons for your business’s existence, its goals, and its guiding principles.
What you sell and the most important features of your products or services. It also includes any plans for intellectual property, like patent filings or copyright. If you do market research for new product lines, it will show up in this section of your business plan.
This section includes everything from estimated market size to your target markets and competitive advantage. It’ll include a competitive analysis of your industry to address competitors’ strengths and weaknesses. Market research is an important part of ensuring you have a viable idea.
How you intend to get the word out about your business, and what strategic decisions you’ve made about things like your pricing strategy. It also covers potential customers’ demographics, your sales plan, and your metrics and milestones for success.
Everything that needs to happen to turn your raw materials into products and get them into the hands of your customers.
It’s important to include a look at your financial projections, including both revenue and expense projections. This section includes templates for three key financial statements: an income statement, a balance sheet, and a cash-flow statement . You can also include whether or not you need a business loan and how much you’ll need.
What do financial projections look like on paper? How do you write an executive summary? What should your company description include? Business plan examples can help answer some of these questions and transform your business idea into an actionable plan.
Inside our template, we’ve filled out a sample business plan featuring a fictional ecommerce business .
The sample is set up to help you get a sense of each section and understand how they apply to the planning and evaluation stages of a business plan. If you’re looking for funding, this example won’t be a complete or formal look at business plans, but it will give you a great place to start and notes about where to expand.
A lean business plan format is a shortened version of your more detailed business plan. It’s helpful when modifying your plan for a specific audience, like investors or new hires.
Also known as a one-page business plan, it includes only the most important, need-to-know information, such as:
💡 Tip: For a step-by-step guide to creating a lean business plan (including a sample business plan), read our guide on how to create a lean business plan .
It’s tempting to dive right into execution when you’re excited about a new business or side project, but taking the time to write a thorough business plan and get your thoughts on paper allows you to do a number of beneficial things:
A business plan can be as informal or formal as your situation calls for, but even if you’re a fan of the back-of-the-napkin approach to planning, there are some key benefits to starting your plan from an existing outline or simple business plan template.
A blank page can be intimidating to even the most seasoned writers. Using an established business planning process and template can help you get past the inertia of starting your business plan, and it allows you to skip the work of building an outline from scratch. You can always adjust a template to suit your needs.
If you’ve never sat through a business class, you might never have created a SWOT analysis or financial projections. Templates that offer guidance—in plain language—about how to fill in each section can help you navigate sometimes-daunting business jargon and create a complete and effective plan.
In some cases, you may not need to complete every section of a startup business plan template, but its initial structure shows you you’re choosing to omit a section as opposed to forgetting to include it in the first place.
There are some high-level strategic guidelines beyond the advice included in this free business plan template that can help you write an effective, complete plan while minimizing busywork.
If you’re writing a business plan for yourself in order to get clarity on your ideas and your industry as a whole, you may not need to include the same level of detail or polish you would with a business plan you want to send to potential investors. Knowing who will read your plan will help you decide how much time to spend on it.
Understanding the goals of your plan can help you set the right scope. If your goal is to use the plan as a roadmap for growth, you may invest more time in it than if your goal is to understand the competitive landscape of a new industry.
Writing a 10- to 15-page document can feel daunting, so try to tackle one section at a time. Select a couple of sections you feel most confident writing and start there—you can start on the next few sections once those are complete. Jot down bullet-point notes in each section before you start writing to organize your thoughts and streamline the writing process.
Planning is key to the financial success of any type of business , whether you’re a startup, non-profit, or corporation.
To make sure your efforts are focused on the highest-value parts of your own business planning, like clarifying your goals, setting a strategy, and understanding the target market and competitive landscape, lean on a business plan outline to handle the structure and format for you. Even if you eventually omit sections, you’ll save yourself time and energy by starting with a framework already in place.
What is the purpose of a business plan.
The purpose of your business plan is to describe a new business opportunity or an existing one. It clarifies the business strategy, marketing plan, financial forecasts, potential providers, and more information about the company.
If you need help writing a business plan, Shopify’s template is one of the most beginner-friendly options you’ll find. It’s comprehensive, well-written, and helps you fill out every section.
The five essential parts of a traditional business plan include:
There are several free templates for business plans for small business owners available online, including Shopify’s own version. Download a copy for your business.
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Jun 19, 2024
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Use our business plan tool, download a detailed business plan template, tips to help you write your business plan.
Whether you've just started out or have been running your business for years, business planning can be the key to your success. Having a business plan:
It will help you to develop a shorter business plan to:
Use this template if you are seeking finance for your business or want to include more detail in your business plan.
Business plan template
Does your business plan have more than one purpose? Will you use it internally, or will you share it externally, for example with potential investors or banks?
Deciding what the purpose is, can help you develop your plan for the right audience. If the plan has been developed for third parties, you will need to determine what they’ll be most interested in.
Use our detailed business plan template if you are seeking finance.
Lenders and investors will want to know if your finances are in order and your business is in a strong financial position. They'll want to know how much money you currently have, how much money you need and how much you expect to make in the near future. While a bit of extra funding will help you ensure you’re covered for unexpected costs, be realistic and avoid asking for more than you need.
If you're starting out and don't have financial information yet, our template provides resources to help you get your finances ready.
Summarise the main points of your business plan using as few words as possible. You want to get to the point but not overlook important facts. This is your opportunity to sell yourself, but don't overdo it. The summary should include details about your business, market, goals and what makes you different from other businesses.
Don't leave your business plan to the last minute. It takes time, research and careful preparation to develop an effective business plan.
If you aren't confident in completing the plan yourself, consider getting a professional to look over it and provide advice.
There are a number of government services available to help you plan, start or grow your business. These services can provide general advice, workshops, seminars and networking events, and can even match you with a mentor or business coach.
Get expert help from a business adviser in your area .
As your business changes, your plan will need to change to ensure your business is still heading in the right direction. Having your plan up-to-date can keep you focused on where you are heading.
It's a good idea to keep a record of each version of your business plan.
Having an understanding with third parties when distributing a plan could be enough protection for some businesses. But if you have innovative business practices, products or services, you may want people to sign a confidentiality agreement to protect your innovations.
It may also be a good idea to include some words in your plan asking the reader not to disclose the details of your plan.
Find out what you need to register for when starting a business., was this page helpful, thanks for sharing your feedback with us..
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Updated: May 29, 2024, 5:39pm
What is an organizational structure, 4 common types of organizational structures, 3 alternative organizational structures, how to choose the best organizational structure, frequently asked questions (faqs).
Every company needs an organizational structure—whether they realize it or not. The organizational structure is how the company delegates roles, responsibilities, job functions, accountability and decision-making authority. The organizational structure often shows the “chain of command” and how information moves within the company. Having an organizational structure that aligns with your company’s goals and objectives is crucial. This article describes the various types of organizational structures, the benefits of creating one for your business and specific elements that should be included.
Employees want to understand their job responsibilities, whom they report to, what decisions they can and should make and how they interact with other people and teams within the company. An organizational structure creates this framework. Organizational structures can be centralized or decentralized, hierarchical or circular, flat or vertical.
Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined responsibilities.
Conversely, with a decentralized organizational structure, teams have more autonomy to make decisions and there may be cross-collaboration between groups. Decentralized leadership can help companies remain agile and adapt to changing needs.
A hierarchical organization structure is the pyramid-shaped organization chart many people are used to seeing. There is one role at the top of the pyramid and the chain of command moves down, with each level decreasing in responsibilities and authority.
On the other hand, a circular organization chart looks like concentric circles with company leadership in the center circle. Instead of information flowing down to the next “level,” information flows out to the next ring of management.
A vertical organizational chart has a clear chain of command with a small group of leaders at the top—or in the center, in the case of a circular structure—and each subsequent tier has less authority and responsibility. As discussed below, functional, product-based, market-based and geographical organizational structures are vertical structures.
With a flat organization structure, a person may report to more than one person and there may be cross-department responsibilities and decision-making authority. The matrix organizational structure described below is an example of a flat structure.
There are many benefits to creating an organizational structure that aligns with the company’s operations, goals and objectives. Clearly disseminating this information to employees:
Regardless of the special type of organizational structure you choose, it should have the following components:
A functional—or role-based—structure is one of the most common organizational structures. This structure has centralized leadership and the vertical, hierarchical structure has clearly defined roles, job functions, chains of command and decision-making authority. A functional structure facilitates specialization, scalability and accountability. It also establishes clear expectations and has a well-defined chain of command. However, this structure runs the risk of being too confining and it can impede employee growth. It also has the potential for a lack of cross-department communication and collaboration.
Along with the functional structure, the product- or market-based structure is hierarchical, vertical and centralized. However, instead of being structured around typical roles and job functions, it is structured around the company’s products or markets. This kind of structure can benefit companies that have several product lines or markets, but it can be challenging to scale. It can also foster inefficiency if product or market teams have similar functions, and without good communication across teams, companies run the risk of incompatibility among various product/market teams.
The geographical structure is a good option for companies with a broad geographic footprint in an industry where it is essential to be close to their customers and suppliers. The geographical structure enables the company to create bespoke organizational structures that align with the location’s culture, language and professional systems. From a broad perspective, it appears very similar to the product-based structure above.
Similar to the functional structure, the process-based structure is structured in a way that follows a product’s or service’s life cycle. For instance, the structure can be broken down into R&D, product creation, order fulfillment, billing and customer services. This structure can foster efficiency, teamwork and specialization, but it can also create barriers between the teams if communication isn’t prioritized.
With a matrix organizational structure, there are multiple reporting obligations. For instance, a marketing specialist may have reporting obligations within the marketing and product teams. A matrix structure offers flexibility, enables shared resources and fosters collaboration within the company. However, the organizational structure can be complex, so it can cause confusion about accountability and communication, especially among new employees.
Similar to the functional and product-based structure, a circular structure is also centralized and hierarchical, but instead of responsibility and decision-making authority flowing down vertically, responsibility and decision-making authority flow out from the center. A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command.
Unlike vertical structures, this structure facilitates communication between and among all staff. It is the most complex, but it can also be the most productive. Although it can be challenging to know who has ultimate decision-making authority, it can also foster a positive company culture because employees don’t feel like they have “superiors.” This structure can also be more cost-efficient because it reduces the need for middle managers.
There is no one “right” organizational structure. When deciding which structure will work best for your company, consider the following:
A functional organizational structure is one of the most common organizational structures. If you are still determining what kind of structure to use, this organizational structure can be an excellent place to start.
An organizational chart is a graphic that depicts the organizational structure. The chart may include job titles or it can be personalized to include names and photos.
A functional—or role-based—structure is one of the most common organizational structures. The second type—the product- or market-based structure—is also hierarchical, vertical and centralized. Similar to these is the third structure—the process-based structure—which is structured in a way that follows a product’s or service’s life cycle. Lastly, the geographical structure is suitable for businesses with a broad geographic footprint.
Christine is a non-practicing attorney, freelance writer, and author. She has written legal and marketing content and communications for a wide range of law firms for more than 15 years. She has also written extensively on parenting and current events for the website Scary Mommy. She earned her J.D. and B.A. from University of Wisconsin–Madison, and she lives in the Chicago area with her family.
Hardly a day goes by without some new business-busting development related to generative AI surfacing in the media. The excitement is well deserved— McKinsey research estimates that generative AI could add the equivalent of $2.6 trillion to $4.4 trillion of value annually. 1 “ The economic potential of generative AI: The next productivity frontier ,” McKinsey, June 14, 2023.
This article is a collaborative effort by Aamer Baig , Sven Blumberg , Eva Li, Douglas Merrill, Adi Pradhan, Megha Sinha, Alexander Sukharevsky , and Stephen Xu, representing views from McKinsey Digital.
CIOs and chief technology officers (CTOs) have a critical role in capturing that value, but it’s worth remembering we’ve seen this movie before. New technologies emerged—the internet, mobile, social media—that set off a melee of experiments and pilots, though significant business value often proved harder to come by. Many of the lessons learned from those developments still apply, especially when it comes to getting past the pilot stage to reach scale. For the CIO and CTO, the generative AI boom presents a unique opportunity to apply those lessons to guide the C-suite in turning the promise of generative AI into sustainable value for the business.
Generative AI is a type of AI that can create new content (text, code, images, video) using patterns it has learned by training on extensive (public) data with machine learning (ML) techniques.
Foundation models (FMs) are deep learning models trained on vast quantities of unstructured, unlabeled data that can be used for a wide range of tasks out of the box or adapted to specific tasks through fine-tuning. Examples of these models are GPT-4, PaLM 2, DALL·E 2, and Stable Diffusion.
Large language models (LLMs) make up a class of foundation models that can process massive amounts of unstructured text and learn the relationships between words or portions of words, known as tokens. This enables LLMs to generate natural-language text, performing tasks such as summarization or knowledge extraction. Cohere Command is one type of LLM; LaMDA is the LLM behind Bard.
Fine-tuning is the process of adapting a pretrained foundation model to perform better in a specific task. This entails a relatively short period of training on a labeled data set, which is much smaller than the data set the model was initially trained on. This additional training allows the model to learn and adapt to the nuances, terminology, and specific patterns found in the smaller data set.
Prompt engineering refers to the process of designing, refining, and optimizing input prompts to guide a generative AI model toward producing desired (that is, accurate) outputs.
Through conversations with dozens of tech leaders and an analysis of generative AI initiatives at more than 50 companies (including our own), we have identified nine actions all technology leaders can take to create value, orchestrate technology and data, scale solutions, and manage risk for generative AI (see sidebar, “A quick primer on key terms”):
Let’s deliver on the promise of technology from strategy to scale.
As use of generative AI becomes increasingly widespread, we have seen CIOs and CTOs respond by blocking employee access to publicly available applications to limit risk. In doing so, these companies risk missing out on opportunities for innovation, with some employees even perceiving these moves as limiting their ability to build important new skills.
Instead, CIOs and CTOs should work with risk leaders to balance the real need for risk mitigation with the importance of building generative AI skills in the business. This requires establishing the company’s posture regarding generative AI by building consensus around the levels of risk with which the business is comfortable and how generative AI fits into the business’s overall strategy. This step allows the business to quickly determine company-wide policies and guidelines.
Once policies are clearly defined, leaders should communicate them to the business, with the CIO and CTO providing the organization with appropriate access and user-friendly guidelines. Some companies have rolled out firmwide communications about generative AI, provided broad access to generative AI for specific user groups, created pop-ups that warn users any time they input internal data into a model, and built a guidelines page that appears each time users access a publicly available generative AI service.
CIOs and CTOs should be the antidote to the “death by use case” frenzy that we already see in many companies. They can be most helpful by working with the CEO, CFO, and other business leaders to think through how generative AI challenges existing business models, opens doors to new ones, and creates new sources of value. With a deep understanding of the technical possibilities, the CIO and CTO should identify the most valuable opportunities and issues across the company that can benefit from generative AI—and those that can’t. In some cases, generative AI is not the best option.
McKinsey research , for example, shows generative AI can lift productivity for certain marketing use cases (for example, by analyzing unstructured and abstract data for customer preference) by roughly 10 percent and customer support (for example, through intelligent bots) by up to 40 percent. 2 “ The economic potential of generative AI: The next productivity frontier ,” McKinsey, June 14, 2023. The CIO and CTO can be particularly helpful in developing a perspective on how best to cluster use cases either by domain (such as customer journey or business process) or use case type (such as creative content creation or virtual agents) so that generative AI will have the most value. Identifying opportunities won’t be the most strategic task—there are many generative AI use cases out there—but, given initial limitations of talent and capabilities, the CIO and CTO will need to provide feasibility and resource estimates to help the business sequence generative AI priorities.
Providing this level of counsel requires tech leaders to work with the business to develop a FinAI capability to estimate the true costs and returns on generative AI initiatives. Cost calculations can be particularly complex because the unit economics must account for multiple model and vendor costs, model interactions (where a query might require input from multiple models, each with its own fee), ongoing usage fees, and human oversight costs.
Generative AI has the potential to completely remake how the tech function works. CIOs and CTOs need to make a comprehensive review of the potential impact of generative AI on all areas of tech, but it’s important to take action quickly to build experience and expertise. There are three areas where they can focus their initial energies:
A variation of the classic “rent, buy, or build” decision exists when it comes to strategies for developing generative AI capabilities. The basic rule holds true: a company should invest in a generative AI capability where it can create a proprietary advantage for the business and access existing services for those that are more like commodities.
The CIO and CTO can think through the implications of these options as three archetypes:
Each archetype has its own costs that tech leaders will need to consider (Exhibit 1). While new developments, such as efficient model training approaches and lower graphics processing unit (GPU) compute costs over time, are driving costs down, the inherent complexity of the Maker archetype means that few organizations will adopt it in the short term. Instead, most will turn to some combination of Taker, to quickly access a commodity service, and Shaper, to build a proprietary capability on top of foundation models.
Organizations will use many generative AI models of varying size, complexity, and capability. To generate value, these models need to be able to work both together and with the business’s existing systems or applications. For this reason, building a separate tech stack for generative AI creates more complexities than it solves. As an example, we can look at a consumer querying customer service at a travel company to resolve a booking issue (Exhibit 2). In interacting with the customer, the generative AI model needs to access multiple applications and data sources.
For the Taker archetype, this level of coordination isn’t necessary. But for companies looking to scale the advantages of generative AI as Shapers or Makers, CIOs and CTOs need to upgrade their technology architecture. The prime goal is to integrate generative AI models into internal systems and enterprise applications and to build pipelines to various data sources. Ultimately, it’s the maturity of the business’s enterprise technology architecture that allows it to integrate and scale its generative AI capabilities.
Recent advances in integration and orchestration frameworks, such as LangChain and LlamaIndex, have significantly reduced the effort required to connect different generative AI models with other applications and data sources. Several integration patterns are also emerging, including those that enable models to call APIs when responding to a user query—GPT-4, for example, can invoke functions—and provide contextual data from an external data set as part of a user query, a technique known as retrieval augmented generation. Tech leaders will need to define reference architectures and standard integration patterns for their organization (such as standard API formats and parameters that identify the user and the model invoking the API).
There are five key elements that need to be incorporated into the technology architecture to integrate generative AI effectively (Exhibit 3):
In evolving the architecture, CIOs and CTOs will need to navigate a rapidly growing ecosystem of generative AI providers and tooling. Cloud providers provide extensive access to at-scale hardware and foundation models, as well as a proliferating set of services. MLOps and model hub providers, meanwhile, offer the tools, technologies, and practices to adapt a foundation model and deploy it into production, while other companies provide applications directly accessed by users built on top of foundation models to perform specific tasks. CIOs and CTOs will need to assess how these various capabilities are assembled and integrated to deploy and operate generative AI models.
The ability of a business to generate and scale value, including cost reductions and improved data and knowledge protections, from generative AI models will depend on how well it takes advantage of its own data. Creating that advantage relies on a data architecture that connects generative AI models to internal data sources, which provide context or help fine-tune the models to create more relevant outputs.
In this context, CIOs, CTOs, and chief data officers need to work closely together to do the following:
7. create a centralized, cross-functional generative ai platform team.
Most tech organizations are on a journey to a product and platform operating model . CIOs and CTOs need to integrate generative AI capabilities into this operating model to build on the existing infrastructure and help to rapidly scale adoption of generative AI. The first step is setting up a generative AI platform team whose core focus is developing and maintaining a platform service where approved generative AI models can be provisioned on demand for use by product and application teams. The platform team also defines protocols for how generative AI models integrate with internal systems, enterprise applications, and tools, and also develops and implements standardized approaches to manage risk, such as responsible AI frameworks.
CIOs and CTOs need to ensure that the platform team is staffed with people who have the right skills. This team requires a senior technical leader who acts as the general manager. Key roles include software engineers to integrate generative AI models into existing systems, applications, and tools; data engineers to build pipelines that connect models to various systems of record and data sources; data scientists to select models and engineer prompts; MLOps engineers to manage deployment and monitoring of multiple models and model versions; ML engineers to fine-tune models with new data sources; and risk experts to manage security issues such as data leakage, access controls, output accuracy, and bias. The exact composition of the platform team will depend on the use cases being served across the enterprise. In some instances, such as creating a customer-facing chatbot, strong product management and user experience (UX) resources will be required.
Realistically, the platform team will need to work initially on a narrow set of priority use cases, gradually expanding the scope of their work as they build reusable capabilities and learn what works best. Technology leaders should work closely with business leads to evaluate which business cases to fund and support.
Generative AI has the potential to massively lift employees’ productivity and augment their capabilities. But the benefits are unevenly distributed depending on roles and skill levels, requiring leaders to rethink how to build the actual skills people need.
Our latest empirical research using the generative AI tool GitHub Copilot, for example, helped software engineers write code 35 to 45 percent faster. 5 “ Unleashing developer productivity with generative AI ,” June 27, 2023. The benefits, however, varied. Highly skilled developers saw gains of up to 50 to 80 percent, while junior developers experienced a 7 to 10 percent decline in speed. That’s because the output of the generative AI tools requires engineers to critique, validate, and improve the code, which inexperienced software engineers struggle to do. Conversely, in less technical roles, such as customer service, generative AI helps low-skill workers significantly, with productivity increasing by 14 percent and staff turnover dropping as well, according to one study. 6 Erik Brynjolfsson, Danielle Li, and Lindsey R. Raymond, Generative AI at work , National Bureau of Economic Research (NBER) working paper, number 31161, April 2023.
These disparities underscore the need for technology leaders, working with the chief human resources officer (CHRO), to rethink their talent management strategy to build the workforce of the future. Hiring a core set of top generative AI talent will be important, and, given the increasing scarcity and strategic importance of that talent, tech leaders should put in place retention mechanisms, such as competitive salaries and opportunities to be involved in important strategic work for the business.
Tech leaders, however, cannot stop at hiring. Because nearly every existing role will be affected by generative AI, a crucial focus should be on upskilling people based on a clear view of what skills are needed by role, proficiency level, and business goals. Let’s look at software developers as an example. Training for novices needs to emphasize accelerating their path to become top code reviewers in addition to code generators. Similar to the difference between writing and editing, code review requires a different skill set. Software engineers will need to understand what good code looks like; review the code created by generative AI for functionality, complexity, quality, and readability; and scan for vulnerabilities while ensuring they do not themselves introduce quality or security issues in the code. Furthermore, software developers will need to learn to think differently when it comes to coding, by better understanding user intent so they can create prompts and define contextual data that help generative AI tools provide better answers.
Beyond training up tech talent, the CIO and CTO can play an important role in building generative AI skills among nontech talent as well. Besides understanding how to use generative AI tools for such basic tasks as email generation and task management, people across the business will need to become comfortable using an array of capabilities to improve performance and outputs. The CIO and CTO can help adapt academy models to provide this training and corresponding certifications.
The decreasing value of inexperienced engineers should accelerate the move away from a classic talent pyramid, where the greatest number of people are at a junior level, to a structure more like a diamond, where the bulk of the technical workforce is made up of experienced people. Practically speaking, that will mean building the skills of junior employees as quickly as possible while reducing roles dedicated to low-complexity manual tasks (such as writing unit tests).
Generative AI presents a fresh set of ethical questions and risks, including “hallucinations,” whereby the generative AI model presents an incorrect response based on the highest-probability response; the accidental release of confidential personally identifiable information; inherent bias in the large data sets the models use; and high degrees of uncertainty related to intellectual property (IP). CIOs and CTOs will need to become fluent in ethics, humanitarian, and compliance issues to adhere not just to the letter of the law (which will vary by country) but also to the spirit of responsibly managing their business’s reputation.
Addressing this new landscape requires a significant review of cyber practices and updating the software development process to evaluate risk and identify mitigation actions before model development begins, which will both reduce issues and ensure the process doesn’t slow down. Proven risk-mitigation actions for hallucinations can include adjusting the level of creativity (known as the “temperature”) of a model when it generates responses; augmenting the model with relevant internal data to provide more context; using libraries that impose guardrails on what can be generated; using “moderation” models to check outputs; and adding clear disclaimers. Early generative AI use cases should focus on areas where the cost of error is low, to allow the organization to work through inevitable setbacks and incorporate learnings.
To protect data privacy, it will be critical to establish and enforce sensitive data tagging protocols, set up data access controls in different domains (such as HR compensation data), add extra protection when data is used externally, and include privacy safeguards. For example, to mitigate access control risk, some organizations have set up a policy-management layer that restricts access by role once a prompt is given to the model. To mitigate risk to intellectual property, CIOs and CTOs should insist that providers of foundation models maintain transparency regarding the IP (data sources, licensing, and ownership rights) of the data sets used.
Generative AI is poised to be one of the fastest-growing technology categories we’ve ever seen. Tech leaders cannot afford unnecessary delays in defining and shaping a generative AI strategy. While the space will continue to evolve rapidly, these nine actions can help CIOs and CTOs responsibly and effectively harness the power of generative AI at scale.
Aamer Baig is a senior partner in McKinsey’s Chicago office; Sven Blumberg is a senior partner in the Düsseldorf office; Eva Li is a consultant in the Bay Area office, where Megha Sinha is a partner; Douglas Merrill is a partner in the Southern California office; Adi Pradhan and Stephen Xu are associate partners in the Toronto office; and Alexander Sukharevsky is a senior partner in the London office.
The authors wish to thank Stephanie Brauckmann, Anusha Dhasarathy, Martin Harrysson, Klemens Hjartar, Alharith Hussin, Naufal Khan, Sam Nie, Chandrasekhar Panda, Henning Soller, Nikhil Srinidhi, Asin Tavakoli, Niels Van der Wildt, and Anna Wiesinger for their contributions to this article.
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Change is never easy. Since the completion of Broadcom’s acquisition of VMware, we have been all about change. For the VMware Cloud Foundation division, all of this change was necessary to transform our business to deliver faster innovation with more value to customers, and even better profitability and market opportunity for our partners. So, what's changed now, post-acquisition, and why will this benefit your organization?
To recap, we’ve completed our transition from selling perpetual software to subscription licensing only; streamlined what, how, and through whom we will sell our software going forward; and reorganized internally around our VMware Cloud Foundation strategy to streamline execution.
First, subscription is the model all major enterprise software providers are on today. Subscription software is the right model for fueling continuous innovation for customers. This past quarter we finalized the switch fully to subscription software, just like everyone else. We immediately turned this transformation into net new value for our customers. How? Do you want to have deployment flexibility? Now you can. When you purchase VMware Cloud Foundation, you get license portability. This means you will be able to deploy on-premises and then take your subscription at any time to a supported Hyperscaler or VMware Cloud Services Provider environment as desired. You retain your license subscription as you move. Google Cloud will be the first to support VMware Cloud Foundation license portability with other Hyperscaler and partner clouds expected to follow. Read the full Google Cloud announcement here .
How about that portfolio? Offering a few offerings that are lower in price on the high end and are packed with more value for the same or less cost on the lower end makes business sense for customers, partners and VMware. We’re putting all our R&D investment towards fewer offerings, which is a double win for customers.
Finally, we’ve brought all of the product teams into the VMware Cloud Foundation division. We are now better positioned to deliver a single, integrated product across all core technologies with a single vision for where we are taking the VMware Cloud Foundation platform. We also have professional services and global support practically sitting right next to R&D inside the same business division. This gives us a laser focus on building one product with the services and support needed to drive maximum value.
Three changes, but massive impact.
We are now focusing our innovation engine on VMware Cloud Foundation and VMware vSphere Foundation, along with some very strategic add-ons related to security, ransomware protection and recovery, application platform services, and private AI.
VMware Cloud Foundation helps organizations modernize their infrastructure with the best possible TCO. It’s fully software-defined compute, network, storage with automated and simplified operations. VMware Cloud Foundation enables a cloud operating model that provides the benefit of public cloud with the security and performance of on-premises private clouds.
VMware Cloud Foundation provides developers a self-service private cloud experience, which results in greater productivity. Development teams can leverage the embedded Kubernetes runtime and a self-service cloud consumption interface to deploy infrastructure as code. This results in frictionless deployment of business-critical and cloud-native applications. IT teams can maintain compliance against security requirements by building security into the policies deployed with every cluster.
VMware Cloud Foundation provides enterprise-grade resiliency and security. Customers can scale infrastructure and applications seamlessly through a hardened platform that has built-in resilience to ensure mission-critical apps are always available. The intrinsic security built into VMware Cloud Foundation helps significantly reduce the attack surface for lateral threats, and our disaster and ransomware recovery capabilities help customers rapidly and efficiently recover from cyber threats.
Through all of this change we’ve not stopped innovating. Here are updates to both the core platform and our add-on services that we have recently made available or will deliver throughout the rest of Broadcom’s Q2FY24.
Automation for Infrastructure and Application Services: In response to a growing need from VMware customers to deliver and support next-gen cloud-native and AI-powered applications across their private and hybrid clouds, are announcing three new automation capabilities:
Integrated Network Operations Capabilities: The latest integrated network operations capabilities offered exclusively as part of VMware Cloud Foundation help IT users improve their network visibility, gain insights into network performance, and quickly identify and resolve network issues. These new enhancements are available today. Read about them here .
Unified Ransomware and Disaster Recovery : With VMware Live Recovery, customers can protect applications and data from modern ransomware and other disasters across on-premises and public clouds with flexible licensing for changing business needs and threats. VMware Live Recovery will bring together the existing capabilities of VMware Cloud DR, VMware Ransomware Recovery, and VMware Site Recovery Manager, and add new capabilities such as enhanced vSphere replication (1-minute RPO) and seamless extension of on-premises disaster recovery to the public cloud with ransomware recovery. All of this will be delivered with a unified management experience and available through a single add-on subscription for VMware Cloud Foundation, which is expected to become available in Q2FY24.
VMware Private AI Foundation with NVIDIA : unveiled at VMware Explore 2023 Las Vegas , VMware and NVIDIA are working to deliver this new add-on service to VMware Cloud Foundation. We’re almost there, and you can expect an update on availability of the solution this quarter. But you don’t have to wait to learn more. Join the team online for AI Field Day 4 on February 21 from 08:00-10:00 PST to get an update on the capabilities we’re driving and the use cases we’re seeing emerge for VMware Private AI Foundation with NVIDIA.
Broadcom’s strategy is to drive adoption of our full stack VMware Cloud Foundation as the best subscription-based private cloud platform for innovation. We will rely heavily on partners to transition our broad customer base to the new subscription model and help them transform their business with our private cloud infrastructure. This quarter we are welcoming thousands of partners across all routes to market into the Broadcom Advantage Partner Program .
In the channel, we are standardizing pricing so that everyone knows what to expect, all partners are on a level playing field, and partners are competing on value-added differentiation. This will deliver a better customer experience. We’ve also implemented a new customer segmentation model aligned with our simplified portfolio strategy. Here are some important things to know about our customer segmentation model:
It makes business sense for Broadcom to have close relationships with its most strategic VMware customers to make sure VMware Cloud Foundation is being adopted, used and providing customer value. However, we expect there will be a role change in accounts that will have to be worked through so that both Broadcom and our partners are providing the most value and greatest impact to strategic customers. And, partners will play a critical role in adding value beyond what Broadcom may be able to offer itself.
VMware Cloud Service Provider partners will help take VMware Cloud Foundation to an even broader set of corporate and commercial customers and deliver it as a managed service. And because not all customers are ready to consume VMware Cloud Foundation, our thousands of reseller partners will drive adoption of VMware vSphere Foundation. In the corporate segment, we support co-selling with our CSP partners. And our commercial segment is 100% owned and led by reseller partners. This should help reduce channel conflict, which partners have said was an ongoing challenge previously.
When you acquire a company, you look at everything. Broadcom identified things that needed to change, and as a responsible company, made the changes quickly and decisively. The changes that have taken place over the past 60+ days were absolutely necessary. We understand this massive transformation and simplification of the portfolio and our business model has raised many questions and concerns as you continue to evaluate how to maximize value from your VMware software investments. We are proactively working with the sales teams and channel partners to help customers make this transition and encourage customers to engage them to work through the best approach for their businesses.
One thing has not changed…delivering value to you, our customers. You are the reason we build and deliver great software. You drive our innovation. The new VMware Cloud Foundation is the best platform for deploying a private cloud infrastructure that is ubiquitous, flexible and integrated across cloud endpoints.
It will only get better.
About the Author
Activist shareholders are often seen as villains by managers and boards. Their demands for strategic and organizational shifts—which can feel personal to managers—often challenge the soundness of a company’s strategy. However, leaders who treat activist shareholders solely as a risk or an annoyance are making a mistake. Although they may be aiming to protect their companies, they’re missing out on an opportunity to tap one of the few free resources companies have to bring about value‑creating strategic change and build stronger business models.
To better respond to—and take advantage of—the campaigns of activists, leaders must learn to think the way they do. Most activists tend to follow a predefined process to identify and engage target companies.
This article presents the three main components of the activist playbook—linking performance failures to organizational weaknesses, developing a plan of action, and creating a narrative in support of change—and describes how managers can anticipate and respond to activist campaigns.
Treat it as an opportunity, not a threat.
The problem.
Leaders often treat activist shareholders as a key risk factor in running their businesses. In doing so, they miss out on an important opportunity to bring about value-creating strategic change.
To better respond to—and take advantage of—the campaigns of activists, leaders must learn to think the way they do. Most activists tend to follow a predefined process to identify and engage target companies.
This article presents the three main components of the activist playbook—linking performance failures to organizational weaknesses, developing a plan of action, and creating a narrative in support of change—and describes how managers can anticipate and respond to activist campaigns.
Activist shareholders are often seen as villains by managers and boards. Their demands for strategic and organizational shifts—which can feel personal to managers—often challenge the soundness of a company’s strategy. In 2023, more than 23% of Russell 3000 companies identified shareholder activism as a key risk factor in their annual reports, up from 21% the previous year.
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Here are some differences between a business model and a business plan: Focus Business models are descriptions of how a business plans to deliver products and services to customers. They focus on specific sales funnels, marketing strategies and similar areas. In contrast, business plans are more comprehensive explanations of every facet of a ...
A business model is the foundation of any business idea; it basically outlines how the concept offers value and potential for growth. Essentially, a solid business model ensures that the business will make money. A business plan, on the other hand, is the business owner's plan to put that model into action. It's much more detailed and ...
How a business plan and business model canvas inform business strategy. Avoid the trap of using the two terms interchangeably. As we've shown, the two have different focuses and purposes. The business model canvas (or our one-page plan template) is a great starting point for mapping out your initial strategy. Both are easy to iterate on as ...
Business Model: A business model is a company's plan for how it will generate revenues and make a profit . It explains what products or services the business plans to manufacture and market, and ...
The business model is the mechanism through which the company generates its profits, while the business plan is a document presenting the company's strategy and expected financial performance for the years to come. As you can see, the business model is at the center of the business plan.
Example: A business that rents machinery like backhoes, augers and dozers to individuals for their home construction projects is using a leasing business model. 8. Franchise model. A franchise is ...
This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process.
Business plan vs. business model canvas. A business plan may seem similar to a business model canvas, but each document serves a different purpose. A business model canvas is a high-level overview that helps entrepreneurs and business owners quickly test and iterate their ideas. It is often a one-page document that briefly outlines the following:
A business model is a company's core framework for operating profitably and providing value to customers. They usually include the customer value proposition and pricing strategy. A business plan outlines your business goals and your strategies for achieving them. The two documents have a few critical differences, namely their structure and ...
A business model can be broken down into three parts: Everything it takes to make something: Design, raw materials, manufacturing, labor, etc. Everything it takes to sell that thing: Marketing, distribution, delivering a service, and processing the sale. How and what the customer pays: Pricing strategy, payment methods, payment timing, etc.
Business plan vs. business model. If a business plan describes the tactics an entrepreneur will use to succeed in the market, then the business model represents how they will make money. The difference may seem subtle, but it's important. Think of a business plan as the roadmap for how to exploit market opportunities and reach a state of ...
Business Plan: A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a ...
Aspect Business Model Business Plan; Definition: A Business Model is a strategic framework that outlines how a business creates, delivers, and captures value. It focuses on the core components of a business's operations and revenue generation. A Business Plan is a comprehensive document that outlines a company's goals, strategies, financial projections, and operational details.
Infographic: Real-world Examples - Illustrating the Nuances of Business Plan and Business Model Airbnb. Business Model: At its core, Airbnb's model is about connecting people with spaces to rent to those looking for accommodations. Their value proposition revolves around offering unique, homely, and affordable accommodations compared to ...
A business model is the company's rationale and plans for making a profit. It explains how a company delivers value to its customers at a specific cost. A business model would include details about the company's products and services, its target market, and all expenses related to the operations and production.
Traditional business plans use some combination of these nine sections. Executive summary. Briefly tell your reader what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company's leadership team, employees, and location.
Both internal management and external stakeholders, including investors, banks, and potential partners. The business model is the foundation of a company, while the business plan is the structure. So, a business model is the main idea of the business together with the description of how it is working. The business plan goes into detail to show ...
Create a Company Description. After you have the executive summary in place, you can work on the company description, which contains more specific information. In the description, you'll need to ...
1. Focus. Your business model focuses on optimizing the internal and external company operations to earn maximum profits. It explains your relationship with dealers, distributors, service partners, customers, and target audience. Conversely, your business plan focuses on how you set business goals, create strategies, make predictions, and ...
The truth is, they are different things with different purposes. The main difference between a business plan and business model is that a business plan outlines your goals and strategy to grow your company, while a business model shows you how to generate revenues. Read on to learn more about this subject, including what types of business ...
Here's a step-by-step guide on how to create a business canvas model. Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.
Business model - provides a rationale for how a business creates, delivers and captures value, and examines how the business operates, its underlying foundations, and the exchange activities and financial flows upon which it can be successful.Business Plan - a formal document that typically describes the business and industry, market strategies, sales potential, and competitive analysis as ...
This section of your simple business plan template explores how to structure and operate your business. Details include the type of business organization your startup will take, roles and ...
A good business plan is essential to successfully starting your business — and the easiest way to simplify the work of writing a business plan is to start with a business plan template.. You're already investing time and energy in refining your business model and planning your launch—there's no need to reinvent the wheel when it comes to writing a business plan.
Use our detailed business plan template if you are seeking finance.. Lenders and investors will want to know if your finances are in order and your business is in a strong financial position. They'll want to know how much money you currently have, how much money you need and how much you expect to make in the near future.
Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined ...
Maker—builds a foundation model to address a discrete business case. Building a foundation model is expensive and complex, requiring huge volumes of data, deep expertise, and massive compute power. This option requires a substantial one-off investment—tens or even hundreds of millions of dollars—to build the model and train it. The cost ...
Managed Service Providers (MSPs) who are part of Microsoft's Cloud Solution Provider program can use Microsoft 365 Lighthouse as one central place to secure, manage, and grow their customers using Microsoft 365 Business Basic, Business Standard, Business Premium, Defender for Business, and Microsoft 365 for enterprise and education products.
We understand this massive transformation and simplification of the portfolio and our business model has raised many questions and concerns as you continue to evaluate how to maximize value from your VMware software investments. We are proactively working with the sales teams and channel partners to help customers make this transition and ...
The Problem. Leaders often treat activist shareholders as a key risk factor in running their businesses. In doing so, they miss out on an important opportunity to bring about value-creating ...