From idea to IPO · Stage 01

The Idea Stage: Proving the Technology, the Market and the Business Case

Most technology ventures, in hardware, software and cyber, do not fail because the technology does not work. They fail because nobody tested, early enough, whether it can be built, sold and paid for.

By Eyal Yavets · 3 min read · לקריאה בעברית

At the idea stage, every assumption is cheap to change and expensive to ignore. The goal is not to prove that the idea is good. It is to find out, as quickly and cheaply as possible, which of its assumptions are wrong.

Three questions that decide everything

An idea becomes a business only when three questions have credible answers. Does the technology work outside the lab? Does a specific customer have a problem painful enough to pay for the solution? And can the product be made, delivered and supported at a cost that leaves a healthy margin?

Founders with a technical background usually start with the first question and stay there. The second and third questions feel premature. In practice, they are the ones that most often end ventures, and they are far cheaper to answer at this stage than after the first funding round.

Technology risk: from demonstration to evidence

A working demonstration is not proof. The useful question is under which conditions the technology works, how consistently, and what it depends on. Technology readiness levels (TRL) give a shared language for this: a lab demonstration and a prototype tested in a relevant environment are very different levels of evidence.

• Define the critical performance parameters, and the minimum level a customer would accept.
• Test at the edges: temperature, vibration, lifetime, variation between units, not only the best case.
• Identify the few components, materials or processes that the whole concept depends on, and check that they can be sourced.

Market risk: a customer, not a market size

Large market estimates are reassuring and rarely useful. What matters early is a specific customer, a specific use case and a specific budget owner. Twenty structured conversations with potential buyers are worth more than any top-down market model.

Listen for evidence of commitment, not compliments: willingness to share data, to run a pilot, to sign a letter of intent, or to name the price at which they would buy.

The business case: unit economics from day one

Margins are decided early. In hardware, a rough should-cost estimate, built from the bill of materials, assembly, test, yield and logistics, will be wrong in its details but right in its direction. It shows whether the target price is plausible, and which design choices drive cost. In software and cyber, the equivalent is the cost to acquire, serve and retain a customer.

Add the investment the path requires: development, certification, infrastructure, and in hardware also tooling, a pilot line and working capital. Many good ideas turn out to be good products that need more capital than their market can justify, and it is better to learn that now.

Hardware, software and cyber: what changes at this stage

The stage is the same for every technology company. What it demands is not.

• Hardware: a first should-cost model, early manufacturability checks, the critical components the concept depends on, and the certifications the product will need.
• Software: evidence of a real problem from real users, a working prototype in weeks rather than months, and the unit economics of acquiring, serving and retaining a customer.
• Cyber: security as a design constraint from the first day. Customers in regulated markets will ask about the threat model, data handling and compliance long before they buy.

Common traps at this stage

• Falling in love with the technology, and treating the market as a detail.
• Designing for performance only, and discovering later that the design cannot be produced at an acceptable cost.
• Mistaking interest for demand: meetings and praise are not purchase decisions.
• Postponing regulation and certification questions that can reshape the whole product.

What good looks like at the end of the stage

• A clear statement of the customer, the problem and the value, confirmed in conversations with buyers.
• Technology evidence beyond a single demonstration, with the critical risks named.
• A first should-cost model and target price, with the main cost drivers identified.
• An honest list of what is still unknown, and what it will take to find out.
• Explicit criteria for continuing, changing direction or stopping.

Questions for the leadership team

• What is the single assumption that, if wrong, ends this venture? How will we test it first?
• Who exactly will buy the first units, and why now?
• At what production cost does the business work, and how far are we from it?

This guide reflects the author’s professional opinion only. It is general information, not professional advice or a recommendation to take any action, and any use of it is the reader’s sole responsibility.