Entrepreneurship is about creating innovative ideas and transforming them into ventures that generate value. Through the years the only way how entrepreneurs documented their ideas and presented to investors was writing business plans. However, it is widely recognized that business plans immediately become obsolete after first meeting with reality. Business plans are also too long to write, they are seldom updated, almost never read by others (even investors for whom they were written). Nowadays everyone in the entrepreneurship world speaks about business model as more important issue than business plan. There are plenty of materials about what is a business model, how to use them; more than 40 different types of business models appeared since 1985 (M. Porter). However, only a few words said about why and when particular model of business model should be used for idea development and venture creation. This article is aimed at disclosure of mindset behind business model approach to entrepreneurship. Second purpose is to define main ways how business models could be applied to entrepreneurship.

1. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
Mindset behind Business Model Approach to Entrepreneurship
Why do we use Business Models instead of Business Plans?
Vasily Ryzhonkov
Bauman Moscow State Technical University, Moscow
IMIM Business School, Royal Institute of Technology (KTH), Stockholm
Founder of Global Startup Platform, Partner of CrowdSynergy
vryzhonkov@gmail.com
Abstract
Entrepreneurship is about creating innovative ideas and transforming them into ventures that
generate value. Through the years the only way how entrepreneurs documented their ideas and
presented to investors was writing business plans. However, it is widely recognized that business
plans immediately become obsolete after first meeting with reality. Business plans are also too
long to write, they are seldom updated, almost never read by others (even investors for whom they
were written). Nowadays everyone in the entrepreneurship world speaks about business model as
more important issue than business plan. There are plenty of materials about what is a business
model, how to use them; more than 40 different types of business models appeared since 1985 (M.
Porter). However, only a few words said about why and when particular model of business model
should be used for idea development and venture creation. This article is aimed at disclosure of
mindset behind business model approach to entrepreneurship. Second purpose is to define main
ways how business models could be applied to entrepreneurship.
Keywords: entrepreneurship, business model, business plan, business canvas model, NABC, lean
startup, lean canvas, TRIZ, TRL, Alex Osterwalder, Steve Blank.
Copyright € 2012 Vasily Ryzhonkov. All rights reserved. -1-
Authored by Vasily Ryzhonkov.

2. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
1. Introduction
Entrepreneurship world is overloaded with a plenty of materials, guides and methods on how to
build your business. Throughout the years12 business plan was used mainly as an instrument of
developing business ideas and as means of
communication between an entrepreneur and an
investor. Certainly more applications could be named,
but these are the most essential ones. However, almost
every business plan fails after meeting with reality (or
“first customer”3). Many practicians stated the same
thought in a different way (see quotes on the page).
The funniest thing here that 90% of the entrepreneurs have used business plans in companies they
founded but:
- Only in 65% of the ventures (average total about
4 per entrepreneur) business plans are used.
- For 63% of the ventures where plans made, the
plans were made to get funding.
- 67% of the entrepreneurs would not do business plans if they were not “forced to” do
them.4
Thus, business world faces contradiction: on the one hand planning is essential for the
development of an idea; on the other hand plans are too long to write, seldom updated, almost
never read by others. The compromise solution appeared with business model concept5 which
currently replaces business plan approach (see Figure 1 below). Variety of models of business
models appeared since M. Porter in 1985 presented his
Competitive Advantage model. Entrepreneurship world
uses business model concept more and more: from
academia where entrepreneurship courses are taught
(MIT, Stanford, online courses and others) to
entrepreneurs applying it as a guiding principle to start-
up.
1
From 70s to 90s according to Steve Blank “The Four Steps to the Epiphany”, 2006
2
Google Books Ngram Viewer,
http://books.google.com/ngrams/graph?content=business+plan%2Cbusiness+model%2Centrepreneurship%2Cventure+
capital&year_start=1920&year_end=2008&corpus=0&smoothing=3
3
Quote from Steve Blank’s book “The Four Steps to the Epiphany”, 2006
4
Martin Vendel’s Research, KTH, Lectures on Entrepreneurship (Business Planning), 2012
5
Business Model is how an organization creates, delivers, and captures value. (A. Osterwalder)
Copyright € 2012 Vasily Ryzhonkov. All rights reserved. -2-
Authored by Vasily Ryzhonkov.

3. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
However, there is a wide variety of models of business models. Some of them are extremely
popular (e.g. Business Canvas Model6 by A. Osterwalder and Steve Blank, Lean Canvas7 by
Ash Maurya, mixed version8 of previous two), some not being extremely useful and effective too
(e.g. NABC model9 by SRI International, Technology Readiness Level10 by NASA, TRIZ11 and
others). Comprehensive research “The evolution of the Business Model Concept”12 by Anders
Sandelin revealed 44 types of business models which have been produce from 1985 till 2010.
Plenty of materials (articles, books, theses, presentations, video clips) have been made about how
to use each particular model.
Figure 1 – Occurrence frequency of selected phrases in a corpus of books from 1920 till 2008
But being an early stage entrepreneur, it is difficult to understand and choose the most appropriate
model of business model. Basically it’s really hard to figure out:
- Why and when particular model of business model should be used for idea development
and venture creation?
- Which model of business model applies in which case (to which industry or project)?
- What is business model thinking mindset?
- What are common features of business model mindset?
6
http://businessmodelgeneration.com
7
http://leancanvas.com/
8
http://www.businessmodelcreativity.net/business-model-framework/
9
http://www.itu.dk/~jeppeh/DIKP/NABC.pdf
10
http://en.wikipedia.org/wiki/Technology_readiness_level
11
http://en.wikipedia.org/wiki/TRIZ
12
http://tbmdb.blogspot.se/2010/09/evolution-of-business-model-concept.html
Copyright € 2012 Vasily Ryzhonkov. All rights reserved. -3-
Authored by Vasily Ryzhonkov.

4. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
This article is part of a series on business model analysis for entrepreneurs. The first article in the
series presents the mindset behind Business Model Thinking that entrepreneurs should consider
when choosing and applying particular model of business model. Others articles in the series delve
into specific issues.
2. Practical Framework and Mindset behind Business Model Thinking
According to Tim Kastelle13 and Steve Blank in the heart of each business model there is a
question:
HOW DO WE CREATE, DELIVER AND CAPTURE VALUE TO OUR
CUSTOMERS?
Consequently, main purposes of business models and ways how they can be applied are:
1. They can describe different kinds and types of businesses. This is critical if we are trying
to study them analytically.
2. They can be short-hand descriptions of how firms operate – the primary value here is
that you can use the business model to ensure that you have strategic fit across activities.
3. They can be role models – you can use them to describe how you want your organisation
to function.14
4. Business models are hypotheses about how your organisation might be able to create value
for customers15.
Business Model is a kind of a buzzword nowadays. And it’s central to the lean startup approach
developed by Eric Ries16, Steve Blank17, and others. But what exactly a business model approach
is? What makes different business models similar? Why this approach is better or worse than
business plan approach?
Keeping in mind four high-level purposes we can now make a comprehensive list of principles
behind business models. What should be a mindset when we speak about them, apply them for
idea development and venture creation? Below you will find a list of 10 features that are common
when you apply business models in practice – using a mindset of business models thinking.
13
http://timkastelle.org/blog/2012/01/eight-models-of-business-models-why-theyre-important/
14
http://www.lrp.ac/currentissues/43_2-3_April-May_2010.html Long Range Planning, Charles Baden-Fuller and
Mary Morgan
15
http://timkastelle.org/blog/2011/03/how-to-test-a-business-model-like-a-scientist/
16
http://www.startuplessonslearned.com/
17
http://steveblank.com/
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Authored by Vasily Ryzhonkov.

5. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
1. Iterate-iterate-iterate…
Iteration is key word for business model concept. There are two reasons for constant iteration.
1. World changes rapidly – you need to be fast, repeat a cycle often in order to stay
competitive. It’s widely recognized that if your product or service time-to-market is too
long, you easily could lose your competitive advantage. Thus, being a entrepreneur you’re
forced to speed up.
2. Another issue is constant improvement which is derived from lean concept. This is also
connected with scientific approach where you state and formulate hypotheses, make a
research, validate and test hypotheses, change them, execute. This loop is done through
constant iteration.
2. Keep it simple
What made BMC18 really popular is nice and simple representation of business concepts through
powerful pictures and one-page diagram. That’s why description of business models are perfect
substitutes for business plans (which are too long to write, fails after first contact with customer,
seldom updated, almost never read by others). It contains concepts and simple categories that could
be understood by entrepreneurs without business education and MBAs.
To summarize simple categories, one-page diagrams, visualization (pictures, mind maps, canvases)
are those powerful instruments that replace 60-pages business plans full of text.
Figure 2 – Business Model Canvas by A. Osterwalder
18
Business Canvas Model
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Authored by Vasily Ryzhonkov.

6. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
3. Systematic approach
Business model allows you to keep the essence in one place. Business model representations could
be still short and capture everything important. Many entrepreneurs really like business model
canvas representation because it’s concise and
disciplines your brain (will not forget important
things). Methodology behind it provides the “railway
for a mind”. Moreover, you could formulate business
model through comprehensive checklist which almost every solid model has.
4. Main principle is “Value proposition” or “Value creation”.
The heart of each business model since Porter and Drucker is value creation for the customers. It is
considered that for creating a business you need to answer simple questions “What business are
you in?” and “What is the purpose of a business”. And this is exactly what a business model
should answer when used for strategizing.
BUSINESS MODEL IS JUST A MODEL OF A BUSINESS 19
However, it’s important to admit that this approach has a serious limitation if you would like to
apply business model to idea generation and development. Many ideas may not have the purpose
of creating value, or not have the purpose of monetization being social entrepreneurship ideas.
5. You’re wrong by definition
This important concept is embedded inside the business model canvas approach according to Steve
Blank. In the very beginning of entrepreneurship journey you always don’t have enough
knowledge to accomplish and achieve results. Even if you will fill in all aspects of model, first
contact with market, customers will reveal unexamined aspects of the model.
6. You’re subjective by definition.
Humans are subjective by definition. However, in order to achieve success, you need to develop
methods of work that will allow you to put your fantasies on the ground and stay close to the
reality. One of the key methods applied in business modeling is to be as much quantitative as
possible. Measure everything and put it in a quantitative way and SMART20 way.
19
http://blog.business-model-innovation.com/2010/07/business-models-long-range-planning-baden-fuller-and-latency/
20
http://en.wikipedia.org/wiki/SMART_criteria
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Authored by Vasily Ryzhonkov.

7. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
7. Accessibility
Unlike business plan business model representation is easy to share and could be read by more
people. Business Canvas Model became extremely popular because of this reason. It wasn’t the
only product on the market of business models. What Alexander Osterwalder made is he gave it
accessibility and simplicity. Thus, many entrepreneurs could download a canvas and start
sketching on it. Then online tools appeared providing opportunities for collaborative design of a
business model.
8. Effectiveness.
“Writing a business plan is a waste of time.” Many scholars and entrepreneurs continue repeat this
quote. Even though I don’t agree with that completely, we can understand whay do they mean.
“Reduce waste (focus on the right stuff = time is really important)”, “right time, right action”, –
these are mantras of business model approach. Issuing new canvases of business model, tracking
the progress allows you on the one hand keep the holistic vision of a project, on the other hand you
can iterate easily not losing results achieved before, remembering lessons learned.
Moreover, business model framework allows founders and team leaders to delegate and assign
tasks, responsibility in easy way.
9. Methods in Business Model Canvas Approach don’t require MBA or business education.
In order to create simple business model canvas you don’t need MBA. Just follow the natural way
of human thinking. Here are methods and techniques used for creating a canvas:
- simple logic reasoning,
- brainstorming,
- sketching,
- top-X approach – concentrate on top-3, top-5 issues, problems, points (allows to be
focused),
- SMART and quantitative approach,
- questions – answers approach (checklist),
- prioritizing,
- tracking,
- ongoing learning,
- scientific method.
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Authored by Vasily Ryzhonkov.

8. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
Scientific approach is really important here: state and formulate hypotheses, search, validate and
test them, change them, execute them (see Figure 3 below).
Also a lot of popular types of business models switch entrepreneurs thinking from product-centric
to customer-centric perspective.
Figure 3 – Scientific method
10. Building a Learning Loop.
The last but not least is building a learning loop while developing an idea. I believe that this is one
of the most outstanding features and advantages of business model mindset in comparison with
business plan approach. You are involved in a continuous loop of learning by doing. What’s
happening is that you can track your progress and performance, see where, how, when, why you’ve
pivoted. Would like to remind you that pivoting is crucial issue and challenge along the
entrepreneurship journey21. According to Startup Genome startups that pivot once or twice times
raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale
prematurely than startups that pivot more than 2 times or not at all. Thus, business model canvas
acts as enabler for founders to learn more, have metrics, ultimately to be more successful.
21
Startup Genome Report, 2011
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Authored by Vasily Ryzhonkov.

9. CrowdSynergy Team Business Model Analysis Series Global Startup Platform Team
References
You can find all references as footprints on each page. However, we put the most important ones
below:
1. http://timkastelle.org/blog/2011/03/how-to-test-a-business-model-like-a-scientist/
2. http://timkastelle.org/blog/2012/01/eight-models-of-business-models-why-theyre-important/
3. http://blog.business-model-innovation.com/2010/07/business-models-long-range-planning-
baden-fuller-and-latency/
4. http://www.lrp.ac/currentissues/43_2-3_April-May_2010.html
5. http://tbmdb.blogspot.se/
6. http://tbmdb.blogspot.se/2010/01/getting-to-plan-b-2009.html
7. http://canvanizer.com/how-to-use/business-model-canvas-vs-lean-canvas
8. http://www.oulu.fi/english/research/support/inventions-and-business-ideas/tutli-
funding/nabc-model
9. http://leancanvas.com/
10. http://www.ashmaurya.com/2010/08/businessmodelcanvas/
11. http://www.ashmaurya.com/2010/02/customer-development-checklist-for-my-web-startup-
part-1/
12. http://www.stanford.edu/group/e145/cgi-bin/winter/drupal/upload/handouts/Four_Steps.pdf
13. http://www.businessmodelcreativity.net/business-model-framework/
14. http://www.businessmodelcreativity.net/bmc/introduction-into-business-model-creativity/
15. http://www.businessmodelcreativity.net/bmc/tools-fur-business-model-creativity-
workshops/
Copyright € 2012 Vasily Ryzhonkov. All rights reserved. -9-
Authored by Vasily Ryzhonkov.