Business Strategy vs. Business Model: Understanding the Difference

Setting up and successfully running a business involves differentiating between business strategy vs business model. To reach their goals and achieve success, owners need to adopt the right strategy for their business. Strategic thinking involves selecting among several business models and, sometimes, switching to a new model whenever required.

What is Business Strategy?

A business strategy is a complete contingent plan of action that a business uses to achieve its goals in the market. It lists out the various possible situations a business is likely to find itself in and specifies the set of actions that it should take in each of the situations in order to achieve its goals in the market.

A business strategy allows business owners to make decisions related to manufacturing, operations, and finances. It also helps the business manage risks effectively. It is not concerned with choosing specific goals in the market but only with how to achieve goals once they’ve been set.

After coming up with a business idea and setting targets for the business, an entrepreneurEntrepreneurAn entrepreneur is a person who starts, designs, launches, and runs a new business. Instead of being an employee and reporting to a supervisor must formulate a suitable business strategy to efficiently and effectively achieve the targets. They include, but are not limited to, the following:

• Sourcing new opportunities and utilizing existing opportunities effectively.
• Ensuring efficient resource allocation and resource management.
• Managing risks and effectively hedgingHedgingHedging is a financial strategy that should be understood and used by investors because of the advantages it offers. As an investment, it protects an individual’s finances from being exposed to a risky situation that may lead to loss of value. against future market disruption.

What is a Business Model?

A business model is a structural model of how a business is going to operate in the market and how it is going to make money. It provides a detailed description of all relevant business processes and describes how the business will interact with other market participants.

A business model is essentially a blueprint of how the business will add value and make money in the existing market environment. Most business models can be separated into three distinct parts: planning and manufacture, sales and marketing, and revenue management.

Types of Business Models

1. Hard manufacturer

The business creates value by transforming raw inputs into a finished output. Examples of hard manufacturers include miningMining Asset Valuation TechniquesThe main mining valuation methods in the industry include price to net asset value P/NAV, price to cash flow P/CF, total acquisition cost TAC and agriculture.

2. Soft manufacturer

The business creates value by transforming raw inputs and other outputs into a finished product. Examples of soft manufacturers include automobile manufacturers such as General Motors and Volkswagen.

3. Aggregator

The business creates value by bringing together different products and services. Examples of aggregators include retail businesses such as supermarkets and department stores.

4. Franchise-based

The business creates value by providing a uniform service across different locations. Examples include fast-food restaurants and cinemas.

Related Readings

Thank you for reading CFI’s guide to business strategy vs business model. CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:

• Business PlanBusiness PlanA business plan is a document that outlines how and why a new business is being created. A well-researched and comprehensive business plan is important
• Doing Business As (DBA)Doing Business As (DBA)"Doing Business As" refers to simply operating a business using a name that is different from the actual name of the business owner. In some states
• Mission StatementMission StatementA mission statement defines what line of business a company is in, and why it exists or what purpose it serves.
• Profit ModelProfit ModelA profit model refers to a company’s plan that aims to make the business profitable and viable. It lays out what the company plans to manufacture, how