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Proof of Concept drives the investment

Posted by Tom LarsenDec 4, 2013 Marketing, Planning, Product Development 2

Many budding entrepreneurs are under the mistaken impression that coming up with a new idea, whatever it may be, has high value as though the idea is the value. As it turns out, having ideas for great products, and bringing products to life by proving they are sellable are two very distinctly different things.

The Proof of Concept, the actual products in the actual place where actual consumers or businesses buy the product, is exactly what makes an idea valuable. It’s the proof. But, what constitutes a proof of concept can very often be misconstrued. Coming up with the most creative way ever to design a frying pan is not worth much. On the other hand, making the frying pan and putting it in front of people in a store, who then exchange cold, hard cash for the frying pan when compared to their other choices, along with knowing what it will take to scale the business, that, as we say in California, is gold.

By contrast, here’s what are not proofs of concept. Creating a crowdfunding campaign and thinking that if 500 people are willing to invest $49 in the frying pan it will sell in stores at $49. Or, cooking your own salsa recipe and selling it at farmer’s markets on weekends and thinking that this will be a slam dunk at grocery stores.

These are both valid proofs, if the goal is to sell frying pans via crowdsourcing or to sell salsa at farmer’s markets. What I often hear is the product developer saying “this proves there is a market for my ………” In fact, both of these examples, the crowsource and the weekend farmer’s market, only prove that there is a market within the confines of the space selected. That is, crowdfunders are explorers and helpers, not competitive shoppers at kitchen stores. Weekend farmer’s markets are people who are willing to buy fresh produce and artisanal items to start their weekends, not grocery store customers in a hurry to get in and out of the store.

When you’re developing your Proof of Concept, be sure the Proof is of the actual Concept that you are planning to scale into the larger business. To prove a frying pan will sell in stores, it has to be in stores. To prove cheese will sell in stores, it has to be in stores. Failure to appreciate the concept that you’re trying to prove may waste many months of your time and dollars from your pocket trying to take an inherently hobby business and turn it into a growth business. There is nothing wrong with a hobby business, but, just because something works in small scale has no bearing on whether it can be grown into large scale.

As an investor, I will immediately pay attention to the product that has already been in the market it wants to achieve (proven the concept). I also will immediately dismiss the product that has yet to find a place where success can be scaled (haven’t finished their homework).

  • Great post Tom, makes me want to get out of the building and do some testing on a product I am developing. Question for you….how do you know when you have enough customer validation?

    • Robert. Great question. The answer is dependent on how much diversity you are expecting in the market being pursued. It’s reasonable for example, to assume that if you can sell a product in one Whole Foods, you can sell it in all Whole Foods, because Whole Foods has already done the job of attracting folks who like Whole Foods to their stores. They positioned their stores and set up the entire model on that awareness. It’s not safe to say if you can sell in one health food store in San Francisco that you can sell in any health food store in the US. In that case, the only true commonality is that the consumer that shops there is very likely health conscious. One can make assumptions, but, I would not call it a proof. When is enough? When one becomes 3 and 5 becomes 20 it’s a good sign. When one becomes 2 and 3 becomes 5 and that’s it, that’s not enough. It’s not a science. It’s an art. Show me a product that works in 25 locations in more than one region of the country and I’m in. Show me a product that works in 15 locations around LA and I’m still skeptical.

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