Section 06: Validation Experiments & Hypotheses
Defining testable assumptions and lean experiments to de-risk the LocalPerks coalition model.
1. Hypothesis Framework
We have structured the core assumptions into testable hypotheses. The critical path for LocalPerks is solving the "Chicken-and-Egg" network effect problem.
Hypothesis #1: Coalition Desire
CRITICAL"We believe that independent business owners will agree to share their customer loyalty base if we provide a unified coalition program that drives foot traffic from neighbors. We will know this is true when we see 3+ Business Associations sign Letters of Intent."
Hypothesis #2: Consumer Adoption
CRITICAL"We believe that local consumers will download a new app and scan a QR code if we offer rewards that are redeemable across multiple neighborhood stores. We will know this is true when we see 40%+ of customers in pilot stores enroll."
Hypothesis #3: Pricing Tolerance
HIGH"We believe that small business owners will pay a $29/mo subscription + 5% redemption fee if we demonstrate ROI through new customer acquisition. We will know this is true when we see 60%+ of pilot merchants accept the pricing term sheet."
Hypothesis #4: Operational Friction
HIGH"We believe that baristas and clerks will process points via phone number lookup without slowing down the line. We will know this is true when we see average transaction time increase < 5 seconds."
Hypothesis #5: Channel Fit
MEDIUM"We believe that Business Improvement Districts (BIDs) will actively promote LocalPerks to members if we offer them free economic impact dashboards. We will know this is true when we see 100% of pilot BIDs feature us in their newsletter."
Hypothesis #6: Cross-Redemption
MEDIUM"We believe that consumers will redeem points earned at a coffee shop at a neighboring bookstore. We will know this is true when we see >20% of redemptions occur at a non-earning merchant."
2. Experiment Catalog
| Experiment | Hypothesis | Method | Duration | Cost |
|---|---|---|---|---|
| #1 BID Executive Interviews | #1, #5 (Coalition/Channel) | 30-min zoom calls with 10 BID directors | 2 Weeks | $0 |
| #2 Merchant "Problem" Discovery | #1, #3 (Coalition/Pricing) | In-person interviews at 20 local shops | 3 Weeks | $200 (Gift cards) |
| #3 Concierge MVP (The "Paper" Pilot) | #2, #4 (Adoption/Ops) | Manual ledger, paper QR codes, 5 stores | 4 Weeks | $500 (Printing/Ads) |
| #4 Consumer Landing Page Smoke Test | #2 (Consumer Adoption) | Geo-fenced ads to pilot neighborhoods | 1 Week | $300 (Ad spend) |
| #5 Pricing Van Westendorp Survey | #3 (Pricing) | Survey of 100 local merchants | 2 Weeks | $0 |
| #6 Checkout Time & Motion Study | #4 (Operational Friction) | Observation during Concierge MVP | Ongoing | $0 |
| #7 Fake Door "Feature" Test | #6 (Cross-Redemption) | Test "Spend $10 at Cafe, get $5 at Bookstore" promo | 2 Weeks | $100 (Subsidized promo) |
Deep Dive: Experiment #3 - Concierge MVP
Objective: Validate if consumers will enroll and if staff will tolerate the workflow without building the app.
Setup
- Recruit 5 friendly businesses in 1 block (Coffee, Pizza, Florist, Dry Cleaner, Boutique).
- Print simple QR codes linking to a Google Form for consumer signup (Name/Phone).
- Merchant "Dashboard" is a shared Google Sheet accessible on their tablet.
- Founder acts as the "Settlement Engine" manually calculating points.
Success Criteria
| Consumer Signups | > 200 unique users |
| Merchant Churn | 0 merchants quit |
| Redemption Rate | > 10% of points redeemed |
3. Experiment Prioritization Matrix
*Priority Logic: Critical path items (BID buy-in) unlock the supply side. Concierge MVP validates the core "coalition" thesis before coding.
4. 8-Week Validation Sprint
Weeks 1-2: Supply Side
- Interview 10 BID Directors
- Secure 1 LOI (Letter of Intent)
- Recruit 5 Pilot Merchants
- Setup Concierge Tools (Sheets/Forms)
Weeks 3-4: Demand Test
- Launch Concierge MVP in 5 stores
- Run Geo-fenced Ads ($300)
- Observe checkout friction
- Merchant feedback loops
Weeks 5-6: Economics
- Analyze Redemption Data
- Run Cross-Redemption Promo
- Survey Merchants on Pricing
- Calculate Pilot ROI
Weeks 7-8: Decision
- Compile Data & Metrics
- Go/No-Go Meeting
- Present Term Sheet to Merchants
- Plan Engineering Sprint
5. Minimum Success Criteria
6. Pivot Triggers
Trigger: BIDs Won't Partner
If 0 BIDs sign LOI after 20 interviews.
Action: Pivot to direct-to-merchant sales (higher churn) or pivot to "Franchise" model (selling to franchisees).
Trigger: High Checkout Friction
If line wait increases >10s or staff refuse to use it.
Action: Pivot to NFC/Card-tap hardware (increase cost/hardware requirement) or pivot to "Receipt Scan" (post-purchase).
Trigger: Consumers Won't Switch Apps
If signup rate is <10% of foot traffic.
Action: Pivot to SMS-based loyalty (no app) or pivot to B2B only (marketing data platform for merchants).
Trigger: Low Cross-Redemption
If <5% of points are spent at non-earning merchants.
Action: The coalition value prop fails. Pivot to standalone white-label loyalty provider.
7. Experiment Documentation Template
## Experiment: [Name]
Date: [Start - End]
Hypothesis Tested: #X
### Setup
- What we did: [Brief description]
- Sample size: [N]
- Tools used: [e.g., Google Forms, Typeform]
- Cost incurred: [$]
### Results
| Metric | Target | Actual | Pass/Fail |
|--------|--------|--------|-----------|
| [Metric 1] | [Value] | [Value] | [Status] |
### Key Learnings
- Insight #1: [Surprising finding]
- Insight #2: [Confirmation of assumption]
### Next Steps
- [Proceed to next experiment / Pivot / Kill]