POC has come to represent different things, depending on the industry. In a business and startup context, it means demonstrating to investors and the market that the concept is financially viable and that the market economics are sufficiently attractive to warrant further investment. The guidelines would be for the enterprise to clearly demonstrate that their projected revenue model, cash flows, customer acquisition and growth strategies are reasonably attainable. If they can satisfy these KPI’s, it can prove that there is actual market value.
Traditionally, start-ups share a similar journey regardless of the substance of the enterprise. They happen upon an opportunity which excites them to action. They find initial triple F investment (friends, fools, family), and they begin product development. This systematizes a cycle of inherent problems for the enterprise. Without budgeting for POC, the enterprise sinks its resources into R&D and product development, and when it comes time to look for venture capital they have no solid proof of concept.
Instead of exhausting resources on R&D and product development, all seed stage enterprises must set aside a budget for POC. Without doing this, the enterprise will struggle to build an appropriately sized following, that will sufficiently convince VC to invest.
Here a couple of guidelines for any seed stage enterprise, looking to provide a proof-of-concept;
·Plan; because of the limited resources start-ups possess, they must plan ahead. Be aware of what specific metrics investors are seeking and allocate a portion of the budget accordingly. If this isn’t done on day one, the chances are the enterprise won’t have another funding opportunity to make it happen.
·Growth; all the key performance indicators for proof-of-concept are based on the one fundamental metric, customer acquisition. VC’s are always looking for companies that show characteristics of exponential, viral growth. This of course is not always possible, however all start-ups must show that they have strong growth capabilities. Show that the enterprise has increased its user base monthly, and you’re on the right track.
·Cost; customer acquisition can be an expensive process if the product has no in-built viral growth capabilities. Therefore, enterprises should base its marketing strategy and budget around the cost of acquisition per user. The enterprises that are most successful in getting VC backing, have low user acquisition costs and high growth characteristics.
Finding investment is a difficult process for any start-up. The chasm between proper investment and product development usually strains the enterprise to breaking point as resources and will slowly erode. Having a pre-allocated budget for proof-of-concept is fundamentally important for gaining investment. Our advice is to do it early, and align it with metrics that investors will later judge the value of your enterprise on.