I've heard it put before as the difference between telling a friend / stranger about a business idea and saying "would you buy it" which will often result in a non-committal "yeah" to, "great I have a load of them in the car, £5 each, how many would you like?"

Only the second is a real test of if the idea is valuable and viable. This way you end with with a 'hot' mailing list. You also can't worry about losing these early potential clients, if your client pool is really that small then this is not the way to test. There is a great section on this in the book 4 Hour Work Week.