An Explainer on Proof of Concept

If someone told you 15 years ago that a website that helped people find places to sleep in strangers’ houses was a million-dollar idea, you might have laughed and walked away. As it turns out, the idea was worth much more, and it’s what launched Airbnb, which was valued at over $100B in its initial public offering (IPO).

So, how were Airbnb’s founders able to have confidence in their idea that had never been done before and convince investors that they could make it work? Part of their success lies in a tool known as the proof of concept.

Entrepreneurs and business owners of all levels can benefit from understanding how to use a proof of concept to test ideas, refine strategies, and demonstrate the potential value they offer. 

• What is proof of concept in startups?
• When to use a proof of concept
• Proof of concept example: Airbnb
• Benefits of using a proof of concept
• How to write a proof of concept
• Proof of concept vs. prototype vs. MVP

What is proof of concept in startups?

A proof of concept (POC) is a study that you use to test the viability of a project, idea, or strategy before you dedicate resources to it. In short, it’s a test to see how well your idea can work in the real world and if it’s worth pursuing. For startups, POCs are useful for getting investors and team members onboard, and they also help founders make better use of limited resources. 

When to use a proof of concept

The proof of concept process is most useful when you have an idea that hasn’t been done by another company before. In other words, it’s a tool you use to test feasibility when you don’t have any previous use cases to provide information. 

You can use a POC when you have an innovative product idea, new product feature, or business model. Also, you can use POCs to test the feasibility of projects that serve internal clients, such as sales forecasting software or a marketing automation platform.

To get a better idea of when you can benefit from using a POC, here’s a look at how it worked for Airbnb.

Proof of concept example: Airbnb

Before the founders of Airbnb got investors on board, they needed to show that potential customers would be willing to sleep in a stranger’s home. 

Their POC came about when they wanted to make extra money to pay for the steep rent in San Francisco. Airbnb’s founders rented out air mattresses in their apartments when a major conference came to town. They set up a basic website and had three people they’d never met before pay a lower rate to stay with them instead of in expensive hotel rooms. 

This test demonstrated that there was a real need in the market and that their idea was feasible. While it would take a few more iterations to land their first investor, the POC was necessary to show that this business model with no previous use cases was viable in the real world.

Benefits of using a proof of concept

The POC is a valuable tool because it gives you a way to determine the feasibility of a new idea based on actual data. Using a pilot project helps founders reduce risk, refine ideas, and demonstrate value to stakeholders.

Here’s a closer look at each of those benefits.

Reduce risk

When there are no previous use cases to reference, a POC is a cost-effective test for validation before you invest more resources. This way, if the idea doesn’t work in the real world, you don’t spend as much time and money learning it the hard way.

Refine and improve ideas

Goodell David, founder of the publication Woodworking Clarity, explains, “By collecting feedback and insights from their tests and experiments, founders can identify and address any issues or gaps in their ideas, such as technical errors, user pain points, market demand, or competitive advantage.”

Demonstrate value to stakeholders

Whether you’re trying to get a business partner on board or raise funds for your company, a POC gives you evidence that you can use to make a case for your idea. Showcasing the results of a feasibility test helps you build trust with key stakeholders who have doubts or concerns about trying something new.

How to write a proof of concept

If you have an idea or a project that you want to test using a POC, here’s how to do that in five steps.

1. Identify a need

The first part of validating a product, feature, or business is demonstrating that there’s a need or desire for your idea. To identify the problem your idea solves, look at customer pain points or gaps in the market. 

Here are some tips you can use to clearly explain the need you want to address. 

• Define the target market: Who are the people experiencing the problem? Consider the size of your target audience because it represents your total addressable market or the opportunity size of the project.

• Describe the impact: What is this problem costing potential customers? Answers can range from time and money to security and peace of mind.

• Identify the current solutions: What are people currently doing or using to deal with the issue? Consider the flaws in what’s already available and how you can solve the problem better.

• Find evidence: Use market research and internal data to support your claims. This can be through studies, survey results, or anecdotal evidence, like product reviews.

2. Outline your solution

Once you’ve clearly defined a problem or market need, it’s time to demonstrate how your proposed solution solves the customer issue. Your description of the solution will vary depending on the concept you’re testing. 

Here are some common examples of projects and what to include with them: 

• New product: Include the product’s features, specifications, and functions.

• New feature for an existing product: Describe the functionality and proposed design of the new feature. 
• Business idea: Outline the business model, including target audience, revenue streams, and cost drivers.

In addition to describing your proposed idea, you want to include a high-level product development roadmap or business timeline. This gives you and your stakeholders an estimate of the resources that will be involved in the project if the POC is approved.

3. Define success criteria

Now that you have the problem and solution, it’s time to define success for your pilot project. In other words, identify the key metrics that you want to measure. If you want to evaluate a new app feature, you’ll likely test for user adoption rate, retention rate, and user adoption rate. 

For each metric you choose, your POC should also set targets you want to hit to prove feasibility. If you use the example of user adoption rate, you may set a target of 50% adoption, which would mean that your new feature is viable if it’s adopted by at least half of the potential users during the test.

Georgie-Ann Getton, founder and CEO of business development agency GSD Solutions Inc., says, “You want to know if people are willing to pay for it and it meets their needs.” As such, it’s important to collect qualitative user feedback, too. During this step, you can define the questions you want to ask your test users. 

4. Test your project and track the metrics

The next step is to create a working model of your deliverable and test it with a sample group of people in your target audience. The working model doesn’t have to be perfect or have all the bells and whistles that a final version would. Remember that Airbnb’s POC was accomplished with a couple of air mattresses and a basic website.

Make sure you collect your quantitative performance indicators and use a survey or focus group to gather feedback.

5. Present your proof of concept 

The final step is to take the work you did in the first four steps and present it to your stakeholders to get buy-in for your project. Your presentation should include the problem, solution, and results of your test. You can also share any insights from the process, such as additional opportunities or potential obstacles and how you plan to address them.

Proof of concept vs. prototype vs. MVP

When it comes to the product development process specifically, the POC is similar to two other tools: the prototype and the minimum viable product (MVP). All three tools involve testing early-stage versions of the final product and gathering feedback that you’ll use to make improvements and decide if you want to keep pursuing the project.

That said, the key differences between them lie in their main purposes:

• POC: Demonstrates the feasibility and potential value of an idea that hasn’t been done before.

• Prototype: Used for testing product design and user experience (UX) and demonstrating the product to potential investors.
• MVP: Developed to see if there’s product-market fit in the real world.

In addition to differences in purpose, these three vary in audience, timeframe, and level of functionality. 

The POC is a tool that every founder and business owner should have in their pocket. Whether you’ve got a plan for the next Airbnb or simply want to add never-before-seen features to your products, a POC can help you demonstrate the value of your idea and get you the support you need to turn it into reality.

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