Welcome to our exclusive series of personal – and business – wealth management insights from Ajay Wasserman, Founder and CEO of the Fio Group. In this article, he identifies and explains the proof of concept (POC) and clarifies misconceptions around the entrepreneurial term.
What does proof of concept mean?
Proof of Concept, often abbreviated to POC, is a method used to prove the feasibility of a product. Investors aren’t going to blindly invest their cash into an idea without knowing whether it has the potential to be profitable.
Did you know that approximately 90% of start-ups fail, mostly because they don’t look at the bigger picture? If they did, they’d know if their product can work and sell well in the relevant market. A POC will tell you that right from the beginning. They also need to see the market response to your product or service. You must show them that the concept actually works and it’s not just an idea, but rather, a workable product or service that will pique consumer interest and have longevity.
Even the second wealthiest man in the world, Elon Musk, had to prove proof of concept to prospective investors for his SpaceX project: he needed to show them that these rockets could launch and land again without wasting billions of dollars’ worth of their money.
Don’t confuse ‘proof of concept’ with ‘a prototype’
POC is designed to verify the functionality of a single – or a set of – concepts. The usability of it in the real world is not even taken into consideration when creating a proof of concept. The reason for this is that the necessary integration with technologies is not only time-consuming but also might reduce the capability to determine if the principle concept is viable.
Prototyping is an experiment that allows the inventor to envisage how the product will function. He/she creates an interactive working model of the final product that gives investors an idea of the design and features. At this stage, the feasibility of the idea should already have been demonstrated and confirmed.
How do I make and test proof of concept?
POC endeavours to verify the functionality of a concept and like any successful experiment, requires tangible data. This means that before you begin, you need to define clearly.
- Scope of the project
- Measurable metrics
While this is a crucial step in the overall success of the product, you need to establish a timeline that you feel will be enough to achieve POC. You don’t spend too much money and use too many resources at this point, but you also want a comprehensive result, so you must select the right people to assist you.
Scope of the project
This is part of the process where you will identify and map out the deliverables, goals, costs and deadlines. The structure: that needs to be followed:
Where, when and how responsibilities will be assigned to each individual and;
The specific timelines for them to complete their deliverables.
The documentation that states and captures the progress of the work is usually known as a statement of work (SoW). It is a summary that contains the
- Scope of work
- Where, how, when and by whom work will be completed
You will need to establish measurable metrics to assist in practically determining the feasibility of your product. You can decide on these metrics but remember that the data needs to explain the project’s most important data which will govern the overall success – or failure – of POC. Therefore, each metric needs to be targeted to extrapolate accurate data that will support POC. This will show investors that the product has been tested and the empirical data will show the overall feasibility.
A potential investor will generally use these results as the basis on whether they invest or don’t invest in the product. However, the way that you pitch the product is also crucial.
Tips for presenting to potential investors
You may have a proof of concept that shows practicality across the board, but if you cannot articulate this properly to potential investors, their faith in you may dissipate; remember, that investors are predominantly investing in the person behind the product.
- Ensure that you have a thorough business plan.
- Create a pitch deck.
- Outline the problem and why your product is the solution.
- Explain the target market as well as the relevant marketing channels that can be used to achieve optimal brand exposure, customer acquisition and how this will translate into sales.
- How the business is (or will) make money.
- Your success to date.
Are you a budding entrepreneur with revolutionary-like ideas but are having trouble articulating and positioning it into a presentable package? A detailed, achievable strategy is your first port of call. Once complete, it will serve as your roadmap to success. Good luck!