If you've heard the phrase "proof of concept," then you have probably seen it in reference to proving a particular product or technology. Proof of concept most commonly refers to demonstrating that the functionality of a product works. However, proof of concept involves more than the functional performance and physical features and capabilities of a product. Proof of concept includes demonstrating that the business (idea, business model, numbers, team) also works.

Proof of concept is demonstrating that the potential return (profits) justify the amount of capital and time required. Proof of concept can be demonstrated prior to investing all of the needed capital and resources to establish full-blown operations. Today’s technologies enable virtual prototypes, scenario analysis, and many other simulations of most aspects of the business before you provide the first tangible part of the business—whether that is a product or a physical space.

Proof of concept encompasses product functionality, market need, demand, and profitability potential. Proof of concept is a critical step in establishing a business regardless of the technology, product, or service. Proof of concept provides perspective on the viability of the "product" and whether or not the "product" can sustain a business on its own.

Unfortunately, many businesses engage in proof of concept after making the full commitment of resources and establishing the business operations. Thus, proof of concept becomes the make-or-break of the business, not a “will we or won't we,” go/no-go decision.

It is also important to understand that proof of functional viability of a technology or product doesn't equate directly to a profitable business. The surrounding business model—how you do business, market and competitive pressures, and the ability to generate a profit—are also elements of proof of concept. The business model proof of concept is an iterative process as the business proceeds through various stages. It requires an ability to create a structure that is scalable, functional, and profitable, and, perhaps most importantly, adaptable to new information, changes in the market, and thousands of other variables that can and probably will impact a business.

It cannot be overemphasized: True proof of concept is about more than the product. While it encompasses proof of functionality, it also necessitates

Demonstrating that the "product works" may involve the true mechanics of a physical prototype or a working version of the technology. It does not necessarily require the "final" product version, but it does utilize something that closely approximates the commercial product.

Furthermore, the business established in the initial phases will not remain the same in structure, scope, and activities as the business grows and continues to operate. Many businesses fail to establish an organization built on sound business practices and strong team members. The founders focus too heavily on the “product” and sales, forgetting to address the underlying infrastructure, processes, and systems needed to keep a business healthy and capable. Establishing the initial business with a perspective to the future is critical to minimizing resource depletion, duplication of effort, and prevention of the capacity issues that can result from an ability to scale operations to meet the growth demands.

The business is about delivering a product that fulfills a recognized need. It is ensuring that the product can be produced at a cost which enables the business to price at a point that includes a profit. It is also about reaching the market members who have recognized the need, are able (and willing) to pay the price that includes the profit factor. And it is about being able to maintain expected levels of production, customer service, and other activities to retain and grow your customers.

Too often, businesses fail to recognize the impact of business operations on the bottom-line success. Investors put their money into businesses—not products. Products that do not address a need, problem, issue, or desire are left on the shelf, regardless of price. Businesses that succeed find the balance between innovation—entrepreneurial spirit—and sound business methods and practices. It takes both to lead the competition. Businesses must be capable of both innovation and execution.