I meet many eager new entrepreneurs who have a million ideas that can change the world. As I sit down with them to shed the ideas down to their core, to see which ones have the potential to succeed or fail, I see a common pattern. One of the most important questions any new business owner should ask is, “is there a need (or market) for my product (or service)?” Many times the answer these entrepreneurs give me is backed up by vague data which leads me to think that they have not really done a proof of concept exercise.
Let’s back up a little and remember the important steps of launching a business. It all starts with an idea; a product or service which the entrepreneur can provide and which the entrepreneur thinks that there is a need for. Without an idea no business can exist. Then comes writing a detailed business plan. At the start it doesn’t need to be formally written, even notes would suffice. However by means of the steps in the business plan, the entrepreneur would be able to think of all aspects of the product and the business.
Through the business plan the entrepreneur would have thought and researched how the product will be made, the costs involved and any licencing and permits required, amongst others. Another section of the business plan, sales & marketing, requires the entrepreneur to think of who the market is, how the market will get hold of the product and so on. Here, good market research should determine whether there is need for the product after all. Whatever the answer, the entrepreneur would save a lot of time and effort carrying out proper market research rather than guessing what the market wants.
When market research shows that there is a need for the entrepreneur’s product, this is when the proof of concept exercise begins. This point shows that, in theory, the product can fill a gap in the market. The next part of this exercise comes in the form of building the real product or, at least, a prototype. There are many ways to build your product without money, but if you are only building a prototype you should try and self fund it.
With the product in hand, build a website, open social media pages and create a demo video on Youtube. Promote the product to as many people as possible, without spending money for advertising. From your market research you would hopefully have email addresses of the people who answered your questions. Get in touch with them first and offer them an exclusive offer to your product. Let them try it out, even for free, in exchange of a review and connecting you to their friends who might be interested in it. This is where your proof of concept is really proven.
If you are not able to attract customers in this way, then consider using alternative methods of marketing. The product might be good but the message might need to be tweaked. Keep doing this until you get several months of constant growth. This is how proof of concept works. It is not based on only theory, “Yes, people will like my product”, but on facts, “Yes, in 4 months of soft launching, customer numbers have increased by 50% each month”.
It is only at this point, once you have proof of concept, that you should approach investors to scale your business. The negotiations with investors can be very challenging and if you simply approach them with an idea without proof of concept they will probably ignore you. Investors get hit by business pitches every hour, they don’t want ideas, they want business which work which they can scale quickly. Having proof of concept will also improve your bargaining position when determining your company’s valuation.
Once the proof of concept exercise is complete, the entrepreneur can re-affirm the belief in the idea and seek ways to grow the business. Many businesses fail today because rather than going through this path they choose to ignore proof of concept completely and go from idea to growing a business. This normally results in a lot of wasted time and money.