Proof of Concept

The definition from WiseGeek:

A proof of concept is a common idea in the business world, where entrepreneurs and startups demonstrate that a company or product is financially viable. Usually, a proof of concept involves extensive research and review, and is submitted as a single package to concerned parties. The proof of concept is also used in the arts, in research and development, and a variety of other fields, although the procedures remain much the same.

The definition from Wikipedia:

Proof of concept is a short and/or incomplete realization (or synopsis) of a certain method or idea(s) to demonstrate its feasibility, or a demonstration in principle, whose purpose is to verify that some concept or theory is probably capable of being useful. A related (somewhat synonymous) term is "proof of principle". The proof of concept is usually considered a milestone on the way to a fully functioning prototype.

Proof of concept begins with the company background, where the history of the company is examined. When working internally, staff members might ask if the proposed concept fits in with the missions and goals of the company. Externally, potential investors look at how the company has performed in the past, what the proposed product or service is, and if the company has the resources to develop the concept. Then, the market for the product is examined. Investors look at what kind of regulation might be expected, how saturated the market is, and what kind of demand there has been for similar products, as well as what sort of competition exists.

Usually a proof of concept includes an examination of the revenue model as well, with companies showing projected revenue from the product and service, and indicating development costs, long term financial projections, and how much the product or service will cost to maintain and market. Hand in hand with this goes a review of the intellectual property rights involved, and whether the company may need to pay for licensing.

A proof of concept is an excellent way for a business to evaluate itself internally, as well as look at proposed acquisitions and projects. Some businesses specialize in offering proof of concept advising and evaluations, assisting companies in the path to making the right decision. Ultimately, a proof of concept is designed to reduce the amount of uncertainty involved with a new project or acquisition.

[Thanks for the contribution from WiseGeek]