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Business concept vs. Business Plan

For startups who need seed capital or private equity to launch or get up for speed a detailed business plan is must- most consultant or venture fund officers would suggest. However, entrepreneurs hate to write a concise business plan, most of the hate collect and analyze data, number crunching financial figures and charts. They like to outline their vision on a piece of paper or write it up on their smart phone. Asking them to define their business concept is less threatening. It is almost the same what they would outline anyway on the first place. Business concept is short, structured outline of a new business which helps the entrepreneur and potential supporter to have a deeper understanding of the imagined business venture.

 In the business concept the entrepreneur gives short answers to six basic questions:

  1. What is the need of whom? The need can be existing or creatable, and customers should be identified and segmented.
  2. What is the value proposition? In short, what is the product or service the business would like to offer which might be in a way unique and desirable, fit to the need and attractive.
  3.  What is the business model? The model will reveal the revenue stream of the business. In other words, how the business can generate money.
  4. How would the business operate? It is not just about how would the new venture create the product or service, but also about sales and marketing, managing, and creating the whole ecosystem in and around the business.
  5. How much money will your business can make and how much money do you need to launch your business? Strong questions about just the basics. A little bit of calculation and projections of costs, revenues, break even will help to think it over how much money you should make to survive and how much money you need to start.
  6.  Who will be your partners? Last but not least this one of the most important question. You cannot start your business on your own. You need partners who might be owners as well, and employees most of the cases, subcontractors if you do not want to keep everything inside the venture. Also, you need professionals around you, potential investors. It is crucial to find the right people.


What is a business model?

One of the most frequently mentioned buzzword now days after lean startup is business model. Why? The reason is simple, it explains the essence of a venture.  

The business model answers at least three questions: 1) Why is there a need for this business (what is the value proposition/offer for what market demand)? 2) What kind of business model will the business adopt; for what and from whom will it acquire its revenue? 3) How will the business operate?

The basic business model is the entrepreneur's description about how he/she imagines the business will operate and compete.

Experts have identified and defined numerous business models to choose from or someone would like to play a different ballgame the trick is to create a new one other than these:

  1. Direct sales business model: Using this business model the products/services are advertised and sold directly to the customers, leaving the retailer out of the game.
  2. The traditional commercial business model: the business sells the products/services of other businesses. There are many examples of this from small shops, discount stores, through supermarket chains, to special shops and department stores.  
  3. Subscription business model: This business model sells monthly or annual subscriptions. It is usually used by magazines, newspapers, phone and Internet providers or fitness centers. It could also be used by websites offering information or a continuous service in exchange for a subscription, such as for example online dating services.
  4. The „bait and hook” business model: This business model was made famous by the razor blade industry. Basically they sell the razors for a specific price but their profit really comes from the blades. Since the blades wear out quickly they constantly need to be replaced making the business profitable.
  5. Service from a product model: To use a service perspective in case of more expensive and complex products. In the case the value proposition needs to be re-evaluated. Such an example would be the placement of a copy machine free of charge in exchange for a usage based fee.
  6. Inclusiveness, creativity business model: Traditionally the customer is involved in the production of the product/service, therefore buying the possibility of creating something as well (an experience as an emotional need). Such an example would be IKEA or the majority of the open source code software.
  7. Online auction business model: This business model became famous thanks to the American eBay. The buyers and sellers make contact through the pages of an online auction house.
  8. The „bricks and clicks” business model: It is basically an "offline and online" business model for those companies that have real, physical stores and online web stores at the same time.
  9. „Freemium” business model: This business model is based on the provision of a basic service free of charge, getting their revenue from providing extra services.
  10. Premium business model: These are the companies providing products/services with the latest, most expensive technology. Maserati and Lamborghini, for example, have adopted this business model.
  11. Turning a service industrial. This model conducts and optimizes its service business based on principals used at industrial firms, building in quality assurance steps, e.g. McDonald's.
  12. Connecting product and service: Cars with warrantees, connecting Iphones with ITunes.
  13. Low-budget airline model: The airline offers extremely low airfares after eliminating traditional services (e.g. catering) or only offering them for additional fares. There are even hotels based on this model these days.
  14. Model based on network effect: It can be used when the value of a product or service also depends on the number of customers, e.g. bank cards, mobile phone networks.
  15. Monopoly: When, by eliminating the competition, there is only one company on the market offering a product or service and there is no threat of even a substitute product/service. A monopoly is legal when established by government regulation. Since there is only one company offering, it can have a significant effect on the price and the quality.
  16. Collective business model: It connects similar or related fields by merging their resources, sharing their information, or making their operation more successful in some other way. Such could be for example retail companies, cooperatives, franchise systems, business alliances or networks.
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