For early-stage startups, gaining customer trust and proving product value are critical steps on the journey toward growth. This process often starts with securing small wins—whether that means running a pilot, testing through a proof of concept (POC), or gaining commitment with a letter of intent (LOI). Each of these tools can bridge a startup’s vision with its long-term viability in the market.
Using Pilots, POCs, and LOIs to Build Trust and Scale
Startups should use pilots, POCs, and LOIs to secure funding, validate their products, and establish meaningful customer relationships. Let’s explore how these mechanisms work, why they act as a vessel for building trust, and how startups can use them to advance sales and set themselves up for fundraising success.
The Power of Pilots, POCs, and LOIs for Startups
Before a product can achieve large-scale success, it must prove its worth in smaller, controlled environments. This is where pilots, POCs, and LOIs come into play.
A pilot is typically a paid trial run of a product or service in a real-world environment, allowing the customer to test the offering on a smaller scale before committing. The pilot’s success can lead to a long-term contract, making it a crucial tool for startups transitioning from experimentation to revenue generation.
A POC is an experiment that proves the feasibility of a solution, usually when a product or feature is still in its early stages. Startups often use POCs to demonstrate that their product can solve a specific problem for the customer before a product is ready.
An LOI is a non-binding agreement that shows a potential customer’s interest in working with a startup. This is NOT a contract; LOIs are not legally binding and act as stepping stones rather than a guarantee of future business. It is an illustration of intent.
Pilots vs. POCs: Understanding the Differences
Pilots and POCs serve distinct purposes and are suited to a startup’s growth stages.
POCs are more about testing feasibility. They are useful for startups still in the development phase, where the primary goal is to validate that a solution can work in the real world. A POC often involves prototypes and early-stage versions of a product. It’s an experiment where the startup and the customer recognize that things might break and improvements are likely needed.
Pilots, on the other hand, focus on demonstrating product value. Startups conduct pilots when a product is closer to market readiness, aiming to showcase its effectiveness in a real-world setting. Pilots show potential customers how the product works within their operations and what value it brings before they commit to a full-scale subscription.
Essentially, a POC proves that a product could work, while a pilot proves that a product does work.
Securing Customer Commitment: The Key to Successful Pilots and POCs
Meaningful customer engagement during pilots and POCs is so important, and yet it is one of the biggest challenges for startups. Without customer commitment, a pilot or POC can become a low-priority project that never goes anywhere.
This is why startups must secure more than just verbal agreements. Ideally, the customer should commit time, money—or both. For example, even if the pilot is unpaid, a startup might request that the customer dedicate senior staff to participate in weekly check-ins or data reviews. This type of commitment shows that a customer is serious about the project, which increases the likelihood that the pilot or POC will be successful and potentially lead to a longer-term contract.
Another way to ensure commitment is by tying customer involvement to clear outcomes and deliverables. For example, if the pilot requires specific data access or input from a customer’s engineering team, these should be written into the agreement. With skin in the game, the customer is likelier to see the pilot or POC through to completion.
Agreements: Five Items to Include When Structuring Pilot and POC Contracts
The agreement you put in place for a pilot or POC should protect your startup while setting clear expectations for the customer. At a high level, this agreement should cover the following elements:
1. Objectives: Clearly outline the problem to solve and the project’s goals. For example, the client’s goal might be to reduce costs, improve operational efficiency, or increase customer conversion rates. Having specific, measurable goals will make it easier to demonstrate success.
2. Timelines and Milestones: Specify the duration of the pilot or POC and any key milestones along the way. This could include deadlines for customer deliverables, access to necessary data, or specific checkpoints for evaluating progress.
3. Metrics and Evaluation: Define how to measure success. For instance, if the product should successfully increase conversion rates, establish a baseline for current performance, and set a target for improvement.
4. Responsibilities and Deliverables: What is each party responsible for? This may include providing access to specific systems, attending regular check-ins, or supplying necessary referenceable data. Highlighting these responsibilities ensures that the startup and the customer are accountable.
5. Termination and Renewal: Ensure the agreement specifies what happens at the end of the project. Is there an option for automatic renewal if the pilot or POC meets certain conditions? Will the customer have an opportunity to convert to a paid contract at the end of the trial? These clauses can help smooth the transition from a pilot or POC into a long-term business relationship.
When to Say No to a Pilot or POC
Not every pilot or POC is worth pursuing. Saying no to the wrong opportunity can be as important as securing the right one.
Here are some red flags to watch for when considering whether to proceed with a pilot or POC:
Lack of customer commitment: If the customer isn’t willing to dedicate time, resources, or money to the project, it’s a clear sign that they may not take the pilot or POC seriously.
Misalignment of goals: The project is unlikely to succeed if the customer’s goals for the pilot or POC don’t align with your product’s strengths or your startup’s vision.
Overreliance on innovation departments: Corporate innovation teams often experiment with startups but lack the authority to roll out solutions company-wide. If you’re working with an innovation department, ensure that decision-makers are also involved.
Startups can avoid wasting time and resources on pilots or POCs unlikely to convert into long-term business by being selective and ensuring alignment on both sides.
Pilots, POCs, and LOIs are tools for gaining customer trust, reducing risk, and demonstrating product value. When structured correctly, these initiatives can pave the way for startups to scale, helping them gain larger contracts and investments and achieve long-term success. However, the key to making these tools work is securing meaningful customer commitment, setting clear objectives, and knowing when to walk away from the wrong opportunities.
Alchemist connects a global network of enterprise founders, investors, corporations, and mentors to the Silicon Valley community.
Alchemist Accelerator is a global venture-backed accelerator focused on accelerating seed-stage ventures that monetize from enterprises (not consumers). The accelerator invests in enterprise companies with distinctive technical founders and provides founders a structured path to traction, fundraising, mentorship, and community during the 6-month program.
AlchemistX partners with forward-thinking corporations and governments to deliver innovation programs worldwide. These specialized programs leverage the expertise and tools that have fueled Alchemist startups’ success since 2012. Our mission is to transform innovation challenges into opportunities.
Join our community of founders, mentors, and investors.