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There’s a huge risk attached to every new business. We’re talking the loss of lots of money. That’s why it is important to test a business idea before scaling up the business. Simply prove a business idea works and is commercially viable, and you’re off to a great start. This is called “proof of concept”.
Most of the time, venture capitalists/investors look out for proof of concept before putting in money in a business venture. This is because it quantifies how much a business has (and is able) to accomplish in a way that’s measurable.
When you create a product/service and are able to achieve a certain level of traction with it, it becomes easy to relate with whatever huge projections you set especially when trying to get investment. Showing that a business works can help zero in on a definite path to follow for success. In the bootstrap model, a business becomes commercially viable somewhere along the “sell” stage, just before the “growth” stage.
How do I know my business shows proof of concept?
Well, when a business idea shows proof of concept, it means one or all of the following
- The business has been able to capture its own sizeable audience.
- The business has been able to successfully sell a product/service and make money (profit) from its audience.
- Systems and processes within the business are reproducible on a commercial scale.
A business that has not attained a proof of concept is not necessarily failing.
However, such business has most likely not been able to clearly identify how to make money from an audience on a commercial scale.
None of this applies to me, what can I do?
To increase your business’ potential for success, it is important to look out for proof of concept before scaling up commercially. The proof of concept verifies important assumptions about the business and reduces the risk involved in taking a small business/startup into the mainstream market.
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Here are some parameters to consider when checking for proof of concept in business.
- Net profit
- Gross profit
- Revenue/ revenue growth rate
- Number of customers/clients/users
- Customer/clients/users growth rate
- Systems and processes
- Total amount invested in business
- Return on investment
The result from the analysis of these parameters says a lot about the potential of a business idea that has been set in motion.
These parameters can also be used to see how well a small business/startup is doing. This is why recordkeeping/bookkeeping is important in business, it lets you keep track of progress. If your business is funded by personal funds/friends and family, I recommend checking these parameters as you use the bootstrap model to develop your business.