What Is Proof Of Concept In Business? – Explained With Benefits For Startups

Every startup entrepreneur thinks that he/she has a foolproof idea that has a huge potential to be successful. But converting an idea into a product/service that is marketable requires huge development costs and involves high risks.

While the idea looks promising, many challenges may crop up at the time of development. That is the reason 95% of startups fail to succeed.

To reduce the risks of failure and ensure that the idea is feasible, every business must take the first step of preparing a proof of concept.

What Is A Proof Of Concept?

Proof of concept is an exercise that determines the viability of an idea. The exercise determines whether the idea has the potential for real-life application. 

Proof of concept is also referred to as proof of principle or proof of feasibility. The process focuses on determining whether the idea can be turned into reality and assesses its capability to function as envisioned.

It gives the stakeholders a glimpse of the final product and the scope for its success after launch.

Proof of concept has different forms, depending on the product or idea and the reason for which it is created.

POC is created for many reasons such as launching new products, improving the features of existing products, foraying into new territories, etc. It can be a simple document, demo, or basic model of the idea. 

For example, proof of concept in the field of engineering and technology means creating a basic model of the product, in the drug development industry clinical trials are a method to establish proof of concept, while in the case of sales businesses it involves creating a document that establishes market gaps and highlights the need for the particular product.

The use of POC also varies depending on the stage of business.  Proof of concept in business helps project managers to determine whether the idea should be implemented or needs to be revised.

In the case of startups, the POC is required to demonstrate the validity of the idea to the potential investors.

What Is Proof of Concept In Software Development

Proof of concept in software development is the critical component of lean software development. It is a theoretical document that determines whether the software can be built, what are the technologies required to develop the software, and the chances of the software being adopted by the target users.

Preparing a PoC allows you to identify the potential technical or logistical shortcomings in the plan and take necessary actions to solve them.  It also allows us to identify any security gaps in the product and handle them in the initial stages.

In the software industry, there are several models of proof of concept. Three main types of POC are

  • Proof of Technology – Proof of technology identifies any technical issues that may crop up during the development of the product. The proof of technology also tests whether the multiple features of the product are compatible with each other.
  • Steel Thread – The steel thread is a more sophisticated Proof of concept used in the software industry. It analyzes different aspects of the software such as design, architecture, and profitability. Steel thread involves creating a prototype with basic features.
  • Pilot Project –  A pilot project involves creating the beta version of the product. You can share the product with stakeholders, end-users, and investors to gather feedback about the functionality of the product.

In software development, most people use the terms POC, prototype, and Minimum Viable Product (MVP) interchangeably.

However, POC is different from prototype or MVP. While the POC verifies the technical and financial viability of the product/idea, a prototype is the working model of the proposed product that showcases the features and functions of the product and the MVP is the first version of the product that can be released into the market.

POC Vs Prototype Vs MVP

To clearly understand the three concepts, it is important to know the differences between POC, Prototype, and MVP.

Serial noProof of Concept (POC)PrototypeMinimum Viable Product (MVP)
 1Determines whether the idea is technically and financially feasibleEnables to envision how the end product will look like Enables to determine whether the end-users would like to pay for the product
 2POC can be a document/ presentation or a demo of the ideaPrototype is the basic working model of the productMVP is the final version of the product with core functionalities
 3Addresses the question – Can the product be developed?Addresses the question –  How will the product be developed?Answers the question  – Will the users like the product?
 4Prepared in the initial phase of the projectDeveloped at the development phase based on the result of POCDeveloped at a later stage when the product is ready for the market
 5Proof of concept is prepared to be used internally and sometimes shared with investorsPrototype is the basic working model of the product shown to the investors, and to some customers for testing and feedbackMVP is the ready-to-use version of the product that can be marketable
 6Eliminates the risks of technical and logistical problems during productionReduces the risk of security and improper workflow during productionEliminates loss of resources and time when working for improvements on the product
 7Does not require much investmentCreating a prototype requires minimum resourcesRequires financial and technical investment to create a working product
 8It is a research paper that shows the viability of the idea so does not generate any revenuePrototypes cannot be sold so it does not bring any revenueMVP can be sold to the end-users so can be used to generate revenue
 9Proof of concept is to be created during pre-seed or seed funding stagePrototype is required at the seed funding stage or series A funding stageMVP is produced at the series A or B funding stage

When To Create Proof Of Concept

You have to create a proof of concept every time you want to introduce new ideas in the business.

For example, if you are a startup entrepreneur with a greenfield project idea that can disrupt the market, you will need the Proof of Concept to validate your idea and test its technical and financial feasibility.

You have to create a POC in every step such as

  • Establishing the business, 
  • Launching new products in the market
  • Adding additional features to the existing products.

Benefits Of POC For Startups

Creating the Proof of Concept is essential for startups as it reduces the risk of technical and logistical challenges at a later stage in the project.

The POC helps the entrepreneurs determine whether to go ahead with the idea or to invest time in refining the idea or scrap the idea and come up with a new feasible idea.

Here are some benefits of creating a POC for startups

  • Validates the Idea – the main purpose of creating the proof of concept is to test and validate an idea. It provides answers to critical questions such as who are the potential audience for the product? What are the pain points of the customers the idea aims to address? Is there a need for the product in the market? Can the idea be successfully developed into a product/service? Will the business be ROI positive?  Is it profitable to invest in the idea?
  • Mitigates Risks – The Proof of concepts aids in identifying the potential problems the product may encounter at a later stage. The problems include logistical, technical, financial, legal, or functional issues that may arise during the development or implementation phase. Identifying risks at the initial stage and correcting them saves time and resources for entrepreneurs.
  •  Convince Investors – Proof of concept involves technical research to demonstrate the viability of the product. It helps the investors to make an informed decision before investing in the project.
  • Saves Resources – Startups need to invest to bring their ideas to life. However, starting the development of a product without knowing its worth in the real world may lead to a loss of resources. Preparing the proof of concept helps to test the idea and determine its feasibility in the real world before proceeding into the development phase, which, in turn, saves time and resources.

Creating a proof of concept is a crucial step in the product development life cycle. It demonstrates to the stakeholders that the new product or idea has the potential to be successful as there is a real need for the product.

The POC is a valuable tool for startups to gain the confidence of investors and gather the funding for the project.

Reader’s Insight:

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