Business Validation Glossary
200+ terms covering business validation, market analysis, financial metrics, and AI-powered idea testing
Business Idea Validation
Definition
The process of testing a business concept's viability before investing significant time and resources. IdeaProof validates ideas in 30 seconds using AI analysis of market data, competitor landscape, and success predictors.
Example
An entrepreneur with a SaaS idea uses IdeaProof to validate market demand, identify 12 competitors, and receive an 89% success probability score before building the product.
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Success Probability Score
Definition
IdeaProof's AI-calculated likelihood of business success (0-100%). Based on 365+ validated launches, the score has 89% accuracy in predicting 12-month survival.
Example
A fintech idea scores 87/100 due to strong market demand, clear differentiation, and realistic execution plan. Ideas scoring 75+ have an 89% success rate.
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Red Flags
Definition
Critical risks identified by IdeaProof's AI that could prevent business success. Common red flags include saturated markets, regulatory barriers, or unrealistic assumptions.
Example
Red flag example: 'Market is dominated by 3 players with 80% share and high switching costs. Entry requires $5M+ capital.'
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Green Lights
Definition
Positive signals identified by IdeaProof indicating strong business potential. Examples include growing markets, clear differentiation, or proven demand.
Example
Green light example: 'Market growing 25% annually. Clear customer pain point validated by 150+ Reddit discussions. Low capital requirements ($10K).'
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TAM (Total Addressable Market)
Definition
The total revenue opportunity available if a product achieves 100% market share. IdeaProof calculates TAM using real-time market data and industry reports.
Example
For a B2B SaaS targeting small businesses in the US, IdeaProof might estimate TAM at $47.8B based on 32M small businesses × average software spend.
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SAM (Serviceable Addressable Market)
Definition
The portion of TAM your business can realistically serve based on geography, business model, and resources. IdeaProof estimates SAM as a percentage of TAM.
Example
If TAM is $47.8B but you only target tech startups in California, IdeaProof calculates SAM at ~$2.3B (5% of TAM).
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SOM (Serviceable Obtainable Market)
Definition
The realistic portion of SAM you can capture in the short-term (1-3 years) given competition, resources, and go-to-market strategy.
Example
With SAM at $2.3B, achieving 0.5% market share in Year 1 means SOM of $11.5M.
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Market Opportunity
Definition
The combination of market size, growth rate, and competitive intensity. IdeaProof scores opportunities from 0-100 based on data-driven analysis.
Example
A B2B cybersecurity SaaS scores 92/100 opportunity due to $150B TAM, 15% annual growth, and fragmented competition.
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Market Saturation
Definition
The degree to which a market is filled with competitors and customer demand is met. High saturation makes entry difficult.
Example
The meal-kit delivery market shows high saturation with 30+ competitors and declining consumer interest.
Market Timing
Definition
Whether market conditions are favorable for launching your product now. Too early or too late can doom even great ideas.
Example
Launching a metaverse platform in 2021 was well-timed. Launching one in 2024 faces declining interest.
Addressable Market Growth
Definition
The annual growth rate of your target market. Higher growth (>15% CAGR) indicates expanding opportunities.
Example
AI automation tools market growing at 28% CAGR vs traditional consulting at 2% CAGR.
Market Fragmentation
Definition
A market with many small players and no dominant leader. Often easier to enter than concentrated markets.
Example
Local services marketplace: fragmented. Social media: highly concentrated (Meta, TikTok dominate).
Blue Ocean Strategy
Definition
Creating uncontested market space by innovating value rather than competing head-to-head. Opposite of red ocean (bloody competition).
Example
Cirque du Soleil created blue ocean by blending circus with theater, avoiding traditional circus competition.
Beachhead Market
Definition
A specific, narrow market segment to dominate first before expanding. Provides focus and early wins.
Example
Facebook started with Harvard students (beachhead) before expanding to other colleges, then general public.
Competitor Analysis
Definition
IdeaProof's AI identifies and analyzes direct and indirect competitors, including their strengths, weaknesses, market positioning, and differentiation opportunities.
Example
For a meal-kit delivery idea, IdeaProof identifies 12 competitors (HelloFresh, Blue Apron, etc.), analyzes their pricing ($8-$12/meal), and suggests differentiation angles (e.g., keto-only meals).
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Competitive Advantage
Definition
Unique strengths that allow you to outperform competitors sustainably. Can be cost, quality, speed, technology, or brand.
Example
Amazon's competitive advantage: logistics network enabling 2-day delivery at scale.
Moat
Definition
Sustainable competitive advantages that protect a business from competitors. Examples: network effects, brand, patents, switching costs.
Example
Meta's moat: 3 billion users create strong network effects making it hard for new social networks to compete.
Unique Value Proposition (UVP)
Definition
A clear statement of how your product uniquely solves customer problems better than alternatives.
Example
Uber's UVP: 'Tap a button, get a ride' - emphasizing convenience vs traditional taxi booking.
Differentiation
Definition
What makes your offering distinct from competitors. Can be features, price, quality, customer service, or positioning.
Example
Tesla differentiates through technology (autopilot), design, and direct-to-consumer sales model.
First-Mover Advantage
Definition
Benefits gained by being first to market. Can include brand recognition, customer loyalty, and resource control.
Example
eBay's first-mover advantage in online auctions created network effects competitors struggled to overcome.
Fast-Follower Strategy
Definition
Entering a market after pioneers, learning from their mistakes, and improving on their offering.
Example
Google wasn't the first search engine, but improved on Altavista and Yahoo's weaknesses.
CAC (Customer Acquisition Cost)
Definition
Total cost to acquire one customer, including marketing, sales, and advertising expenses.
Example
If you spend $10,000 on marketing and acquire 100 customers, CAC = $100.
LTV (Lifetime Value)
Definition
Total revenue a customer generates over their entire relationship with your business.
Example
SaaS customer paying $50/month for 24 months has LTV of $1,200.
LTV:CAC Ratio
Definition
Key health metric. Healthy businesses have LTV:CAC of 3:1 or higher. Below 1:1 means losing money on each customer.
Example
LTV of $1,200 and CAC of $300 = 4:1 ratio (healthy). LTV of $500 and CAC of $600 = 0.83:1 (unsustainable).
Unit Economics
Definition
Profitability of selling one unit of product/service. Must be positive for business model to scale.
Example
Selling a product for $100 with $60 COGS and $20 fulfillment = $20 gross profit per unit (positive unit economics).
Gross Margin
Definition
Revenue minus cost of goods sold, expressed as percentage. SaaS typically 70-90%, ecommerce 30-50%.
Example
Product sells for $100, costs $30 to produce = 70% gross margin.
Burn Rate
Definition
Rate at which a company spends cash reserves, typically expressed monthly.
Example
Spending $50K/month with $500K in bank = 10 months runway before needing more funding.
Runway
Definition
Months of operations remaining before running out of cash at current burn rate.
Example
$600K in bank, $50K monthly burn = 12 months runway.
Break-Even Point
Definition
When total revenue equals total costs. Critical milestone for sustainability.
Example
Fixed costs $10K/month, unit profit $50, need 200 sales/month to break even.
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Churn Rate
Definition
Percentage of customers who cancel service in a given period. High churn indicates product-market fit issues.
Example
Start month with 100 customers, 5 cancel = 5% monthly churn. Annual churn = 1 - (0.95^12) = 46%.
Net Revenue Retention (NRR)
Definition
Revenue retained from existing customers after accounting for churn, downgrades, and upgrades. >100% is excellent.
Example
Start with $100K MRR, lose $10K to churn, gain $15K from expansions = 105% NRR.
Monthly Recurring Revenue (MRR)
Definition
Predictable revenue generated each month from subscriptions. Key SaaS metric.
Example
100 customers at $50/month = $5,000 MRR.
Annual Recurring Revenue (ARR)
Definition
MRR × 12. Used for forecasting and company valuation in SaaS.
Example
$10,000 MRR = $120,000 ARR.
ARPU (Average Revenue Per User)
Definition
Total revenue divided by number of users. Helps track pricing and upsell effectiveness.
Example
$100K revenue from 2,000 users = $50 ARPU.
Payback Period
Definition
Time to recover customer acquisition cost. Shorter is better (ideally <12 months).
Example
CAC $300, customer pays $50/month = 6 month payback period.
Cash Flow
Definition
Net amount of cash moving in and out of business. Positive cash flow = sustainable.
Example
$80K revenue, $50K expenses = $30K positive cash flow this month.
MVP (Minimum Viable Product)
Definition
Simplest version of product with core features needed to validate with early customers.
Example
Airbnb's MVP: simple website with photos of founders' apartment. No payments, no reviews, no search filters.
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Product-Market Fit (PMF)
Definition
When your product satisfies strong market demand. Indicated by organic growth, high retention, and enthusiastic users.
Example
Signs of PMF: 40%+ users say they'd be 'very disappointed' without your product (Sean Ellis test).
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Problem-Solution Fit
Definition
Validation that your solution effectively addresses a real, painful customer problem.
Example
Validating accounting pain points with 20 small business interviews before building software.
Product Iteration
Definition
Continuous improvement based on user feedback and data. Core of lean startup methodology.
Example
Instagram started as Burbn (location check-in app), pivoted to photo-sharing after seeing usage patterns.
Feature Creep
Definition
Continuously adding features beyond core value proposition. Often delays launch and confuses users.
Example
Adding chat, video calls, and file sharing to a simple to-do app before validating core task management.
Core Feature Set
Definition
Minimum features needed to deliver unique value. Everything else is secondary.
Example
Twitter's core: post 140 characters, follow users, see feed. Everything else came later.
User Persona
Definition
Semi-fictional representation of ideal customer based on research and data.
Example
Sarah, 35, marketing manager, struggles with team collaboration, budget $50-100/month for tools.
Customer Journey Map
Definition
Visual representation of steps customers take from awareness to purchase and beyond.
Example
Awareness (ad) → Interest (website) → Evaluation (trial) → Purchase → Onboarding → Usage → Renewal.
Jobs to Be Done (JTBD)
Definition
Framework for understanding why customers 'hire' products to accomplish specific jobs.
Example
People don't buy drills, they buy holes. The job: create holes in walls. Focus on the job, not the drill.
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Customer Pain Point
Definition
Specific problem your target customers experience that your product solves.
Example
Freelancers' pain: tracking time manually is tedious. Solution: automated time-tracking software.
Killer Feature
Definition
One standout feature that makes customers choose you over competitors.
Example
Zoom's killer feature during COVID: 'just works' reliability when competitors had connection issues.
Technical Debt
Definition
Future cost of quick/dirty solutions vs proper architecture. Accumulates if not addressed.
Example
Building MVP with no-code tools is fast but may need complete rebuild for scale.
SaaS (Software as a Service)
Definition
Cloud-based software delivered via subscription. Customers pay monthly/annually for access.
Example
Salesforce, Slack, Notion - pay monthly, no software to install, automatic updates.
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Marketplace Business Model
Definition
Platform connecting buyers and sellers, taking commission on transactions.
Example
Airbnb connects travelers with hosts, takes 3% from hosts + 14% from guests per booking.
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Freemium Model
Definition
Free basic version, charge for premium features. Requires large user base to convert enough users.
Example
Spotify: free with ads, Premium $10/month removes ads and adds features. ~46% conversion rate.
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Subscription Model
Definition
Customers pay recurring fee for ongoing access. Provides predictable revenue.
Example
Netflix, Dollar Shave Club, Blue Apron - monthly/annual fees for continuous service.
Transaction Model
Definition
Charge per transaction/sale. Common in marketplaces and payment platforms.
Example
Stripe charges 2.9% + $0.30 per transaction. Upwork takes 10-20% of freelancer earnings.
Advertising Model
Definition
Free to users, monetize through ads. Requires massive scale to be profitable.
Example
Google, Facebook, TikTok - free to users, billions in ad revenue from advertisers.
B2B (Business-to-Business)
Definition
Selling to other businesses. Longer sales cycles but higher contract values.
Example
Salesforce sells CRM to businesses. Sales cycle: 3-12 months. Contracts: $50K-$1M+.
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B2C (Business-to-Consumer)
Definition
Selling directly to consumers. Shorter sales cycles but lower transaction values.
Example
Amazon, Netflix, Spotify sell to individuals. Quick purchases, $10-$50 typical transactions.
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D2C (Direct-to-Consumer)
Definition
Brands selling directly to customers, bypassing retailers. Higher margins, direct customer relationships.
Example
Warby Parker, Casper, Glossier - own website/stores, no middlemen, control brand experience.
Platform Business Model
Definition
Create value by facilitating exchanges between groups. Winner-take-most dynamics.
Example
iOS/Android app platforms, Uber (riders + drivers), YouTube (creators + viewers).
Licensing Model
Definition
Grant rights to use IP, technology, or brand in exchange for fees or royalties.
Example
Microsoft licenses Windows to Dell, HP. Disney licenses characters to toy manufacturers.
On-Demand Model
Definition
Provide service instantly when customer requests. Requires supply readily available.
Example
Uber, DoorDash, TaskRabbit - instant service matching within minutes.
Bootstrapping
Definition
Self-funding business through personal savings and revenue. Maintains full control.
Example
Mailchimp bootstrapped to $700M revenue before selling for $12B. No outside investors.
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Venture Capital (VC)
Definition
Investment from funds in exchange for equity. Targets high-growth companies.
Example
Stripe raised $2B+ from VCs (Sequoia, a16z). VCs own ~20% equity, expect $50B+ exit.
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Angel Investor
Definition
High net-worth individuals investing personal money in early-stage startups.
Example
Naval Ravikant angel invested in Uber, Twitter, Yammer. Typical: $25K-$100K for 2-5% equity.
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Seed Round
Definition
First institutional funding round. Typically $500K-$3M for product development.
Example
Airbnb's seed: $600K from Sequoia + Y Combinator for $20K. Valued at $2.4M.
Series A/B/C
Definition
Subsequent funding rounds as company grows. A: $2-15M, B: $10-50M, C: $30M+.
Example
Series A: Prove product-market fit. Series B: Scale. Series C: Expand globally.
Pre-Money Valuation
Definition
Company value before investment. Investment amount + pre-money = post-money valuation.
Example
$5M pre-money valuation, raise $1M = $6M post-money. Investor gets 16.67% equity.
Equity Dilution
Definition
Reduction in ownership percentage when new shares are issued to investors.
Example
Founder owns 100% (1M shares). Raise funds, issue 250K new shares. Now owns 80%.
Pitch Deck
Definition
10-20 slide presentation explaining business to potential investors.
Example
Airbnb's famous pitch deck: problem, solution, market size, business model, traction, team.
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Term Sheet
Definition
Non-binding document outlining investment terms: valuation, amount, voting rights, board seats.
Example
Invest $2M at $8M pre-money (20% equity), 1 board seat, 1x liquidation preference.
Cap Table
Definition
Spreadsheet showing company ownership structure and equity distribution.
Example
Founders: 60%, Angels: 15%, Series A: 20%, Employee pool: 5%.
Exit Strategy
Definition
Plan for how investors/founders will realize returns: acquisition or IPO.
Example
Instagram exit: $1B acquisition by Facebook. WhatsApp: $19B. Zoom: IPO at $9.2B.
Unicorn
Definition
Privately-held startup valued at $1B+. Term coined by Aileen Lee in 2013.
Example
Stripe ($95B), SpaceX ($150B), Databricks ($43B) are unicorns.
Go-to-Market (GTM) Strategy
Definition
Plan for launching and selling product to target customers.
Example
Slack's GTM: bottom-up adoption (team tries free → grows organically → enterprise contract).
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Product-Led Growth (PLG)
Definition
Product itself drives acquisition, conversion, expansion. Users experience value before paying.
Example
Dropbox, Slack, Zoom - free tier lets users experience value, then upgrade for more features.
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Sales-Led Growth
Definition
Human sales team drives customer acquisition. Common in enterprise B2B.
Example
Oracle, SAP - dedicated sales reps guide customers through evaluation and close deals.
Content Marketing
Definition
Creating valuable content to attract and engage target audience organically.
Example
HubSpot's blog drives 4M+ visitors/month, converts to $1.3B ARR through SEO + content.
Growth Hacking
Definition
Creative, low-cost tactics to rapidly grow user base. Focus on experimentation.
Example
Airbnb's Craigslist integration, Dropbox's referral program (500MB per referral).
Viral Coefficient
Definition
Number of new users each user brings. >1 = exponential growth.
Example
If each user invites 1.5 users, viral coefficient = 1.5. User base grows exponentially.
Referral Program
Definition
Incentivize existing users to invite new users. Powerful growth lever.
Example
Dropbox gave 500MB free storage per referral. Grew from 100K to 4M users in 15 months.
Conversion Rate
Definition
Percentage of visitors who complete desired action (signup, purchase, etc.).
Example
1,000 website visitors, 30 sign up = 3% conversion rate.
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Funnel Optimization
Definition
Improving conversion rates at each stage of customer journey.
Example
Awareness (1000) → Interest (300) → Trial (100) → Purchase (20). Optimize each stage.
A/B Testing
Definition
Comparing two versions to see which performs better. Data-driven optimization.
Example
Test two landing pages: Version A (green button) vs Version B (red button). B converts 12% higher.
SEO (Search Engine Optimization)
Definition
Optimizing content to rank higher in search results. Drives organic traffic.
Example
IdeaProof targets 'business validation' keywords to rank #1 on Google and drive free traffic.
ICP (Ideal Customer Profile)
Definition
Description of perfect customer: demographics, behaviors, pain points, budget.
Example
B2B SaaS ICP: 50-200 employee companies, $5M-$50M revenue, marketing/sales teams, $50K-$200K budget.
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Customer Segmentation
Definition
Dividing customers into groups with similar characteristics for targeted marketing.
Example
Segment by company size: SMB (1-50), Mid-Market (51-500), Enterprise (500+). Different pricing/messaging.
Brand Positioning
Definition
How you want customers to perceive your brand relative to competitors.
Example
Volvo: safety. BMW: performance. Tesla: innovation and sustainability.
Activation Rate
Definition
Percentage of signups who complete key onboarding actions showing product value.
Example
Facebook: Add 7 friends in 10 days = activation. Slack: 2,000 team messages = activation.
Pivot
Definition
Fundamental change in business strategy based on learnings. Not just tweaks.
Example
Slack pivoted from gaming company to team communication tool after internal tool gained traction.
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Lean Startup
Definition
Build-Measure-Learn cycle. Ship fast, gather feedback, iterate. Minimize waste.
Example
Zappos validated shoe demand by posting photos without inventory, buying from stores when customers ordered.
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Agile Development
Definition
Iterative software development in short sprints (1-4 weeks) with continuous feedback.
Example
2-week sprints: plan → develop → test → review → deploy. Repeat. Adjust based on feedback.
North Star Metric
Definition
Single metric that best captures core value delivered to customers.
Example
Airbnb: Nights booked. Spotify: Time listening. Facebook: Daily Active Users (DAU).
KPI (Key Performance Indicator)
Definition
Measurable values tracking progress toward business objectives.
Example
SaaS KPIs: MRR growth, churn rate, CAC, LTV, activation rate, NPS.
OKR (Objectives and Key Results)
Definition
Goal-setting framework. Objective = what you want. Key Results = how you measure progress.
Example
Objective: Improve retention. KRs: 1) Reduce churn to 3%, 2) Increase NPS to 50, 3) 60% activation rate.
Traction
Definition
Evidence of market demand: customers, revenue, growth. Proof of progress.
Example
Early traction: 1,000 signups, $10K MRR, 20% MoM growth, 5-star reviews.
Product Roadmap
Definition
Strategic plan for product development over time. Features, timeline, priorities.
Example
Q1: Mobile app launch. Q2: API + integrations. Q3: Enterprise features. Q4: AI automation.
Technical Scalability
Definition
System's ability to handle growth without performance degradation.
Example
Can your infrastructure handle 10x users? 100x? Twitter's fail whale from scaling issues.
Operational Scalability
Definition
Business processes' ability to handle growth without proportional cost increase.
Example
Self-service onboarding scales. White-glove onboarding doesn't. Automate to scale.
AI-Powered Validation
Definition
IdeaProof uses Claude 3.5 Sonnet and GPT-4 in ensemble to analyze business ideas. Multi-model approach reduces bias and achieves 89% accuracy vs single-model 67%.
Example
Claude analyzes market trends while GPT-4 evaluates competitive positioning. Results are synthesized into a unified validation report in 30 seconds.
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Machine Learning (ML)
Definition
AI subset where systems learn from data without explicit programming.
Example
Netflix recommendations, spam filters, fraud detection all use ML trained on historical data.
API (Application Programming Interface)
Definition
Interface allowing different software to communicate. Critical for integrations.
Example
Stripe API lets apps accept payments without building payment infrastructure.
Cloud Computing
Definition
On-demand computing resources (servers, storage) via internet. No hardware management.
Example
AWS, Google Cloud, Azure - rent servers as needed, pay per use, scale instantly.
No-Code Tools
Definition
Build applications without writing code. Enables non-technical founders to launch quickly.
Example
Webflow (websites), Bubble (web apps), Airtable (databases), Zapier (automation).
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Pricing Strategy
Definition
Approach to setting prices: cost-plus, value-based, competition-based, freemium.
Example
Apple: premium pricing (value-based). Walmart: low prices (cost leadership).
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Value-Based Pricing
Definition
Price based on value delivered to customer, not cost to produce.
Example
Salesforce saves enterprise $500K/year. Charges $150K/year (30% of value created).
Tiered Pricing
Definition
Multiple price points with different feature sets. Common in SaaS.
Example
Starter $29/mo (basic), Pro $99/mo (advanced), Enterprise $499/mo (unlimited).
Usage-Based Pricing
Definition
Charge based on actual usage. Aligns cost with value received.
Example
AWS charges per hour of server use. Twilio per API call. Stripe per transaction.
Price Elasticity
Definition
How demand changes with price. Elastic = demand very sensitive to price.
Example
Luxury goods: inelastic (price increase doesn't reduce demand much). Commodities: elastic.
Business Plan Generation
Definition
Automated creation of investor-ready business plans based on validation results. Includes executive summary, market analysis, financial projections, and go-to-market strategy.
Example
After validating an e-commerce idea, IdeaProof generates a 15-page business plan with market sizing ($12.4B TAM), 5-year financials, and competitor analysis—ready to share with investors.
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Free Tier
Definition
IdeaProof's no-credit-card plan including 90 free credits for validations with basic success scores and recommendations. Ideal for testing the platform with 4+ complete validations or 1 validation + market analysis.
Example
A first-time entrepreneur validates 3 SaaS ideas for free, identifies the best concept (87/100), then purchases Explorer pack for detailed analysis.
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Credit System
Definition
IdeaProof's pay-per-use model. Credits never expire. Validation (20 credits), Market Analysis (70 credits), Business Plan (100 credits). Packages: Explorer €9.99/150cr, Full Launch €34.99/700cr, Founder €24.99/mo/450cr.
Example
Buy Full Launch (700 credits) for €34.99. Run full journey: validation (20cr) + market (70cr) + business plan (100cr) = 190cr used, 510 remaining for more ideas.
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GEO (Generative Engine Optimization)
Definition
Optimization strategy for AI-powered search engines (ChatGPT, Perplexity, Claude). Ensures content is structured for AI citation and answer generation.
Example
IdeaProof implements GEO through structured data, atomic facts, and clear citations—making it easy for AI assistants to reference our content when answering validation questions.
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LLM-SEO
Definition
Search engine optimization specifically for Large Language Models. Includes techniques like llms.txt, AI-aware robots.txt, and citation-friendly content structure.
Example
IdeaProof's llms.txt file tells AI crawlers which pages to prioritize (/features, /pricing) and how to cite our data (Prefer-Citations: true).
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Structured Data
Definition
Markup (JSON-LD) that helps search engines understand content. Enables rich snippets.
Example
IdeaProof uses FAQPage schema, making our FAQs appear in Google's featured snippets.
Schema Markup
Definition
Vocabulary of tags (schema.org) search engines use to understand web content better.
Example
Product schema for pricing pages, Article schema for blog posts, FAQ schema for question pages.