This article discusses the practice of performing a proof of concept (POC) or proof of value (POV) prior to making investments in new software or SaaS products. It addresses the advantages and disadvantages they present to buyers and sellers and the impact on sales, the contracting process, and client success.
Let’s start with the basics.
A "proof of concept" (POC) or a "proof of value" (POV) refers to a small-scale demonstration or trial implementation of the system or software to validate its feasibility, functionality, and potential value to an organization before committing to a full-scale deployment or investment. Despite often being used interchangeably, a slight distinction can be made between these two terms:
A proof of concept (“POC”) typically involves implementing a limited version of the system or software in a controlled environment to test its key features, performance, and integration capabilities. The purpose is to assess whether the solution meets the organization's requirements, addresses its pain points, and delivers the expected benefits.
A proof of value (“POV”), on the other hand, focuses more specifically on demonstrating the tangible business value or return on investment (ROI) that the system or software can provide. It involves quantifying the potential benefits, such as cost savings, revenue growth, or operational efficiencies, through metrics, analysis, and benchmarks.
Both POCs and POVs have played crucial roles in the decision-making process for large corporations over the past couple decades by providing evidence-based insights and reducing the risks associated with adopting new technologies or platforms. They help buyers evaluate the viability, suitability, and impact of the solution before making significant investments. They also allow sellers to demonstrate the capability and value of their product with minimal initial cost to potential buyers which may allow the buyer to more quickly and confidently engage in a longer-term commitment.
On the flip side, negotiation, planning, and execution of a POC or POV requires significant time, resources, and investment and can run the risk of adding time and complexity to final sales, contracting, and implementation of the full solution.
The Advantages and Disadvantages of Doing a PoC/PoV
So, are they worth doing? Let’s look at the advantages and disadvantages of the process for buyers and sellers.
Buyer Advantages
When considering investments in new systems or software, both Proof of Concept (POC) and Proof of Value (POV) offer valuable insights for potential buyers.
A POC serves as a practical trial run, allowing companies to assess whether the proposed system aligns with their existing infrastructure, data, and processes. By testing core functionalities in real-world scenarios, they can ensure the solution is compatible and meets their specific requirements and performance expectations. Moreover, POCs can be instrumental in risk management, as they may uncover potential issues early on, enabling informed decisions and adjustments to ensure a smoother integration.
Similarly, a POV allows for a deeper dive into the business implications of the investment. It quantifies the potential business value and ROI and provides stakeholders with concrete evidence to justify the allocation of resources. Beyond strictly numbers, POVs can offer strategic insights that aid decision-making by providing a clear understanding of the expected outcomes and impact of the investment. Under the best circumstances, completing a POV can give buyers a competitive advantage by allowing them to leverage innovative technologies or solutions sooner while minimizing both risks and up-front costs.
Ultimately, whether it's a POC or a POV, both methodologies empower buyers to make well-informed decisions, mitigate risks, and maximize the value derived from their investments. The vendor pricing is typically very low and the abbreviated terms may help navigate the procurement process initially with less time and less complication. In a well-managed POC/POV engagement, the buyer will define tangible success criteria with the understanding that if that criterion is not met, there is little to no obligation to continue investment in the platform or service, which may be the single most valuable benefit of taking this approach.
Buyer Disadvantages
While POC and POV initiatives offer substantial benefits, they do not come without risk and cost to the buyer in the form of time, effort, and financial investment. This can create priority conflicts across technology teams, strain budgets, and challenge operational capacity, requiring careful allocation of resources and scope management to ensure successful execution.
Additionally, real world results may not always be as they appear. POCs and POVs may offer a limited representation of the real-world environment, as testing often occurs in controlled settings or with a small subset of users. This can result in inaccuracies or misinterpretations regarding the solution's capabilities and potential business impact. Overemphasis on technical aspects, uncertainty surrounding outcomes, and opportunity costs pose additional challenges.
Finally, many buyers have found that the outlay of time, effort, and resources required to support the trial is equal or nearly equal to that of a full-scale engagement. Similarly, the procurement time, rigor, and scrutiny required to engage in a limited trial of a solution is often equal to that of a full contract engagement, sometimes even requiring additional time and rigor if the trial is successful and and full contract terms are pursued.
Seller Advantages
Engaging in POC and POV exercises presents sellers with a myriad of advantages, primarily, customer engagement. These initiatives serve as invaluable opportunities to directly connect with potential buyers, fostering stronger relationships through collaborative evaluation processes. By closely collaborating during these exercises, sellers gain insights into customer needs, preferences, and pain points, which in turn lays a solid foundation for deeper and more enduring partnerships.
POCs and POVs primarily provide a platform for sellers to demonstrate their capabilities and the true value of their solution. By showcasing their products or services in real-world contexts, sellers offer potential buyers a firsthand experience of their capabilities and benefits. This tangible demonstration not only helps potential buyers to understand the value proposition more clearly but also enhances their confidence in the solution. Successfully completing a POC or POV and delivering tangible benefits effectively distinguishes sellers from competitors in a crowded marketplace, establishing them as trusted partners capable of delivering results.
By delivering on proposed functionalities, performance metrics, and anticipated business outcomes, sellers not only build credibility with buyers but also reinforce trust in their offerings. Additionally, gaining insights into customer requirements, pain points, and use cases enables sellers to refine their products or services to better align with market needs, thus ensuring sustained relevance and competitiveness.
Seller Disadvantages
Engaging in POC or POV exercises also presents several challenges to sellers. Much like buyers, sellers must make substantial investment in personnel, time, infrastructure, and finances to support a customer POC or POV. Managing multiple initiatives simultaneously across several potential buyers can strain capacity and impact other business priorities, necessitating careful planning and prioritization.
Sellers typically bear the brunt of costs associated with these exercises in the interest of reducing cost as a barrier to entry. Costs may include travel expenses, infrastructure, and significant personnel time. If buyers decide against proceeding with full implementation, sellers may struggle to recoup these expenses. Additionally, competitive pressure in the market may compel sellers to offer extensive trials or discounts, risking profit margins. Managing scope creep, dependency on buyer cooperation, solution misalignment, intellectual property concerns, and uncertain outcomes further complicate the process. Navigating these challenges demands strategic assessment, clear communication, and collaborative efforts to drive mutual success.
Alternatives to a POV/POC
There are numerous alternatives to aid technology buyers in making more informed decisions without having to rely solely on a POV/POC. Some of these alternatives are listed below.
1. Industry analysts. Firms such as Gartner, Datos Insights, Forrester Research, and others are good resources to leverage in the decision-making process. These third-party research firms regularly publish independent evaluations of the vendor landscape across multiple technology areas or provide technology validation consulting through a team of strategic advisors.
2. Technology review sites. Several websites exist that cater exclusively to business technology buyers. These sites offer peer reviews and ratings as well as the ability to compare competing technologies side by side. Some popular technology review sites include Gartner Peer Insights, G2, and Capterra.
3. Customer references and case studies. Direct conversations with peer organizations who are already using the technology with success are one of the best ways to validate a purchasing decision and understand expected value outcomes.
4. Try Before You Buy. This sales model has grown in popularity in recent years in the e-commerce space, and some technology companies are starting to adopt a similar approach. This option allows buyers to enter into an agreement to purchase technology with the option to cancel the contract, without penalty or by paying a small fee, if pre-defined success criteria are not met within a certain timeframe. The Try Before You Buy model helps organizations minimize their investment risk while avoiding additional procurement delays down the road.
Conclusion
There are some scenarios when doing a POV or POC is unavoidable. For example, organizations that use many home-grown solutions will often require a POV or POC to ensure the technology they are buying is compatible within their environment. Other scenarios when it may be unavoidable is if the cost of acquiring the technology exceeds a certain amount established by an organization’s procurement policy or if the technology is nascent and has no historical track record.
Unless it is unavoidable, a POC/POV should only be used when other resources fail to produce the desired answers required to make an informed decision. In the fraud detection and prevention technology market, this is especially true. According to Gartner, only 32% of new fraud detection initiatives now involve a PCC/POV project. This figure is not surprising as the financial, regulatory, and reputational risks presented by today’s fraud landscape require fast action and leaders are using alternative methods to gain confidence in purchasing decisions.
So, to POV, or not to POV? This question deserves adequate consideration and, depending on the circumstances, the answer may surprise you.
