Validation Experiments & Hypotheses
Design lean experiments to test critical assumptions before building LocalPerks. These 8 weeks of targeted validation will determine if the coalition model works and what to build first.
Critical Hypotheses (Must Validate Before Building)
Hypothesis #1: Local Businesses Want Shared Loyalty CRITICAL
We believe that independent retail businesses (coffee shops, bookstores, restaurants, boutiques)
Will actively seek a coalition loyalty program solution
Because current loyalty programs (punch cards, no loyalty program, or proprietary apps) fail to drive meaningful repeat purchases and customer acquisition
We know this is true when 70%+ of surveyed businesses rank customer loyalty as top-3 priority AND identify coalition model as superior to current solution
| Metric | Fail | Minimum | Success | Home Run |
|---|---|---|---|---|
| Confirm loyalty is top-3 priority | <50% | 50-60% | 70-85% | >85% |
| Current solution satisfaction | <5/10 | 5-6/10 | 6-7/10 | >7/10 |
| Coalition model resonates | <40% | 40-60% | 70-85% | >85% |
Current Evidence:
- ✓ Supporting: 79% of consumers want to support local; loyalty program market growing 8% annually
- ✓ Supporting: Belly proved concept worked before execution failure
- ? Unknown: Do businesses actually WANT a shared program vs their own app?
Hypothesis #2: Consumers Adopt Coalition Wallet CRITICAL
We believe that local-minded consumers (ages 25-55, urban/suburban, supporting local values)
Will download and actively use LocalPerks app to earn/redeem points across local businesses
Because a unified points balance across many neighborhood businesses is more valuable than fragmented punch cards and easier than managing multiple apps
We know this is true when 40%+ download rate when 15+ local businesses in neighborhood are enrolled AND 30%+ monthly active user rate
| Metric | Fail | Minimum | Success |
|---|---|---|---|
| Download rate (when 15+ businesses enrolled) | <15% | 15-30% | >40% |
| Monthly active rate | <10% | 10-25% | >30% |
| Cross-business redemptions per user/month | <1 | 1-2 | >2 |
Hypothesis #3: Cross-Business Redemption Creates Value CRITICAL
We believe that businesses in a coalition
Will see measurable benefit from customers redeemed points earned at OTHER coalition members
Because cross-business redemptions drive new customer acquisition (someone comes to coffee shop to use points earned at bookstore)
We know this is true when at least 25% of redemptions are cross-business AND businesses report new customers from coalition partners
| Success Metric | Minimum Valid | Target |
|---|---|---|
| Cross-business redemption % | 25% | 40%+ |
| % of businesses reporting new customers from coalition | 50% | 70%+ |
| Repeat purchase increase vs baseline | 5% | 15%+ |
Hypothesis #4: Willingness to Pay for Service CRITICAL
We believe that independent retail businesses
Will pay $29-59/month subscription + 5% redemption fee
Because the incremental revenue from new customers and repeat purchases exceeds the cost
We know this is true when 50%+ of surveyed businesses confirm willingness to pay at target price point AND 10+ businesses pre-pay for pilot
| Price Point | Willingness to Pay | Target |
|---|---|---|
| $29/month (basic) | 60%+ | Aim for this |
| $59/month (pro) | 40%+ | Acceptable |
| 5% redemption fee | 70%+ | Critical |
Secondary Hypotheses (High Impact if Wrong)
Hypothesis #5: Coalition Formation Happens Organically HIGH
We believe that businesses will naturally form coalitions and recruit peers
Because network effects make the program more valuable as more local businesses join
We know this is true when businesses actively invite peers (word-of-mouth sign-ups represent 30%+ of new business recruitment)
Hypothesis #6: Density Drives Consumer Adoption HIGH
We believe that consumer download and usage rates accelerate when 15+ businesses in a tight neighborhood participate
Because critical mass makes the app worth having (can earn/redeem everywhere I actually shop)
We know this is true when neighborhoods with 15+ businesses show 3-5x higher download rates than neighborhoods with 5 businesses
Hypothesis #7: Business Association Can Be Distribution HIGH
We believe that local business associations, downtown development orgs, and chambers of commerce
Will be willing to partner to recruit and manage their member businesses
Because improving merchant loyalty solves a stated organizational priority
We know this is true when 5+ organizations express interest in pilot and 3+ commit to recruiting members
Experiment Catalog (10 Core Validation Experiments)
🔴 Experiment #1: Deep Dive Interviews with Businesses
Method: Semi-structured video interviews with independent retail owners across verticals (coffee, books, restaurants, boutiques)
Key Questions:
- What's your top 3 business challenges right now?
- How do you currently handle customer loyalty/repeat purchases?
- What would make you want to try a shared loyalty program?
- Would you pay $29-59/month + 5% redemption fee?
- Have you heard of or used coalition loyalty before?
Success Criteria: 70%+ identify loyalty as top-3 pain, 60%+ willing to pay at target price
🔴 Experiment #2: Landing Page Smoke Test
Method: Targeted LinkedIn ads to small business owners with simple landing page and business waitlist signup
Page Variants:
- Variant A: "Stop Losing Customers to Starbucks"
- Variant B: "Your Customers Want to Support Local (Help Them)"
- Variant C: "Coalition Loyalty for Independent Businesses"
Success Criteria: 8%+ signups from engaged businesses, clear winner emerges
🔴 Experiment #3: Wizard of Oz MVP (Business Flow)
Method: Manually onboard 10-15 businesses, use existing tools (Zapier, Airtable, Stripe), deliver paper points/QR codes
What We Learn: Can we actually operationalize the business side? What do they struggle with? Do they see value?
Success Criteria: 8+/10 business satisfaction, 50%+ willing to pay after seeing value
🔴 Experiment #4: Wizard of Oz MVP (Consumer Flow)
Method: Recruit consumers in pilot neighborhood, give them printed punch card (simulating digital), track redemptions across businesses
What We Learn: Will consumers actively use a cross-business loyalty program? How often do they redeem? Do they go to new businesses?
Success Criteria: 30%+ monthly active rate, 25%+ cross-business redemptions
🟡 Experiment #5: Business Association Outreach
Method: Direct outreach to 10-15 business improvement districts, downtown development organizations, and chambers of commerce
Pitch: "Partner with us to help your members compete with chains through coalition loyalty. We handle the tech and consumer acquisition, you recruit."
Success Criteria: 5+ positive responses, 3+ commit to pilot recruitment
🟡 Experiment #6: Pricing Sensitivity (Van Westendorp Method)
Method: Online survey asking businesses: "At what price would this be too cheap? Too expensive? Good value? Very expensive?"
Output: Optimal price point, acceptable price range, willingness distribution
Success Criteria: Clear price acceptance, $29-59 range proves optimal
🟡 Experiment #7: Pre-Orders from Businesses
Method: After landing page + interviews, offer "Founding Member" pricing ($19/month, lifetime) if they commit now
What We Learn: Real money vote of confidence. If people won't pay, we have a problem.
Success Criteria: 15+ pre-orders at target price before MVP
🟡 Experiment #8: Consumer Word-of-Mouth Testing
Method: Give early adopter consumers referral codes/incentives, track how many friends they recruit
What We Learn: Is there viral potential? Will consumers evangelize LocalPerks?
Success Criteria: 15%+ referral rate, clear messaging resonates in word-of-mouth
🟢 Experiment #9: Cross-Business Impact Tracking
Method: During Wizard of Oz, carefully track which business earned points, which business customer redeems at, frequency of cross-business visits
What We Learn: Does the network effect actually work? Do customers visit new businesses because of points from others?
Success Criteria: 25%+ of redemptions are cross-business, businesses report new customers
🟢 Experiment #10: Business Recruitment Channels A/B Test
Method: Test different business acquisition channels (LinkedIn ads, local Facebook groups, business directories, email outreach, direct cold calls)
What We Learn: Which channel has lowest CAC and highest quality leads?
Success Criteria: Identify channel with <$100 CAC and 20%+ conversion to pilot
Experiment Prioritization & Dependencies
| Phase | Experiment | Critical Path? | Duration | Cost | Dependencies |
|---|---|---|---|---|---|
| PHASE 1: PROBLEM VALIDATION (Week 1-2) | |||||
| 1 | Business Discovery Interviews (#1) | YES | 2 weeks | $1,000 | None |
| 1 | Landing Page Smoke Test (#2) | YES | 2 weeks | $500 | None |
| PHASE 2: SOLUTION VALIDATION (Week 3-4) | |||||
| 2 | Wizard of Oz MVP - Business (#3) | YES | 4 weeks | Time | Interviews complete (refine positioning) |
| 2 | Wizard of Oz MVP - Consumer (#4) | YES | 4 weeks | $300 | Businesses enrolled in #3 |
| PHASE 3: PRICING & PARTNERSHIPS (Week 5-6) | |||||
| 3 | Pricing Sensitivity Survey (#6) | No | 1 week | $0 | Interviews provide contact list |
| 3 | Pre-Orders (#7) | YES | 2 weeks | Time | Landing page + interviews |
| 3 | Business Association Outreach (#5) | No | 3 weeks | Time | Messaging validated from interviews |
| PHASE 4: OPTIMIZATION (Week 7-8) | |||||
| 4 | Cross-Business Tracking (#9) | No | Ongoing | Time | Wizard of Oz live |
| 4 | Channel Testing (#10) | No | 2 weeks | $500 | Pre-orders show viability |
| 4 | Word-of-Mouth Testing (#8) | No | 3 weeks | $500 | Consumer MVP active |
8-Week Validation Sprint Timeline
Week 1-2: Problem Validation Sprint
Parallel Track A: Business Interviews
- Days 1-3: Recruit 30 business owners (LinkedIn, Twitter, local networking groups)
- Days 4-14: Conduct interviews (complete 20+ by end of week 2)
- Deliverable: Interview transcripts, top patterns documented
Parallel Track B: Landing Page Test
- Days 1-3: Build landing page (Carrd or custom)
- Days 4-7: Set up ad campaigns (LinkedIn, Facebook, Google)
- Days 8-14: Run ads ($500 spend), collect 1,000+ visitors
- Deliverable: Analytics dashboard, signup list, winning variant identified
Week 3-4: Solution Validation
Business MVP Track (Wizard of Oz)
- Days 15-18: Document business onboarding flow (what info, how to setup, how to use)
- Days 19-21: Manually onboard 5 businesses (use Airtable + Stripe + manual QR codes)
- Days 22-28: Refine process, add 5 more businesses
- Deliverable: 10 live businesses, feedback documented, onboarding flow validated
Consumer MVP Track (Wizard of Oz)
- Days 15-17: Design printed "punch card" (simulates digital wallet)
- Days 18-21: Recruit 50-100 consumers from pilot neighborhood (flyers, social, incentives)
- Days 22-28: Run 4 weeks of transactions, track redemption patterns
- Deliverable: Consumer usage data, cross-business redemption %, new customer acquisition evidence
Week 5-6: Pricing & Partnerships
Pricing Validation
- Days 29-35: Run Van Westendorp pricing survey (100-150 businesses)
- Days 29-35: Collect pre-orders ("Founding Member" tier) at discounted rate
- Deliverable: Optimal price point analysis, 10+ confirmed pre-orders
Partnership Track
- Days 29-42: Outreach to 10-15 business associations (email + calls)
- Days 36-42: Conduct partnership conversations, measure interest in pilot
- Deliverable: 5+ interested organizations, 3+ committed to recruit
Week 7-8: Synthesis & Decision
Analysis Phase
- Days 43-49: Compile all experiment results, validate against success criteria
- Days 43-49: Create "Validation Report" with recommendation
- Days 50-52: Executive review, make Go/No-Go/Pivot decision
- Deliverable: Go/No-Go decision document with rationale
If Go Decision
- Days 53-56: Start product roadmap for MVP development
- Days 53-56: Formalize partnerships with committed organizations
- Days 53-56: Begin recruitment of engineer(s)
- Deliverable: 90-day product build roadmap
Minimum Success Criteria (Go/No-Go Decision Framework)
At end of Week 8, you will have clear data on these criteria. Meeting 3/4 of "Must Achieve" = GO decision.
MUST ACHIEVE
Problem Exists: 70%+ businesses identify loyalty as top-3 priority
AND 8%+ landing page signup rate
MUST ACHIEVE
Solution Works: 8+/10 business satisfaction with MVP
AND 30%+ consumer monthly active rate
MUST ACHIEVE
Cross-Business Works: 25%+ of redemptions are cross-business
AND 50%+ of businesses report new customers
MUST ACHIEVE
Will Pay: 50%+ willing to pay at target price
AND 10+ actual pre-orders
NICE-TO-HAVE
Partnerships: 3+ business associations commit
to recruit members in pilot
NICE-TO-HAVE
Viral Potential: 15%+ referral rate
from consumer word-of-mouth test
NICE-TO-HAVE
Channel Efficiency: CAC under $100/business
for dominant channel
✅ GO DECISION: All 4 "Must Achieve" criteria met. Proceed to MVP build, formalize partnerships, begin hiring.
⚠️ CONDITIONAL GO: 3/4 "Must Achieve" criteria met + clear path to fix the remaining one. May proceed with conditions.
❌ NO-GO: <3/4 "Must Achieve" criteria met or core assumptions invalidated. Pivot or exit.
Pivot Triggers & Contingency Plans
Trigger #1: Problem Doesn't Exist
Signal: <50% of businesses identify loyalty as priority OR <5% landing page signup
What It Means: Businesses may be satisfied with punch cards OR don't see customer loyalty as solvable
Action: Deep interview follow-up: What IS their top pain point? Is it customer loyalty OR something else (pricing, inventory, landlord costs)?
Pivot Options:
- Pivot #1A: Same coalition model but for different audience (restaurants-only? Downtown districts only?)
- Pivot #1B: Same audience but different problem (e.g., payment processing, inventory management)
- Pivot #1C: Exit—problem may not be sizable
Trigger #2: Cross-Business Redemptions Don't Happen
Signal: <15% cross-business redemption rate OR businesses don't report new customers
What It Means: Consumers earn points at Store A but only redeem at Store A. Network effect doesn't work.
Action: Consumer interviews: "Why didn't you redeem at Store B?" (Was it inconvenience? Didn't know they were part of coalition? Not interested in their products?)
Pivot Options:
- Pivot #2A: Offer incentives for cross-business redemptions (bonus points for using new businesses)
- Pivot #2B: Partner with complementary business types (coffee + bookstore, rather than coffee + coffee)
- Pivot #2C: Pivot to single-business SaaS (each business gets their own points/rewards app, no coalition)
Trigger #3: Consumer Adoption Fails
Signal: <15% download rate even with 15+ businesses enrolled OR <10% monthly active rate
What It Means: Consumers may not see value in yet another app, or discovery is broken
Action: Consumer survey: "Did you know LocalPerks existed? If so, why didn't you download?"
Pivot Options:
- Pivot #3A: Web-first instead of app (easier to discover, lower friction)
- Pivot #3B: Business-first play—businesses integrate LocalPerks into their POS, force consumer adoption
- Pivot #3C: Partner with existing platform (Yelp, Google Local, Square) for discovery
Trigger #4: Willingness to Pay Is Too Low
Signal: <30% willing to pay at $29/month OR <5% pre-order conversion
What It Means: Businesses see value but aren't willing to pay subscription. Business model broken.
Action: Understand what price they WOULD pay. Is it $9/month? $15/month? Can you operate at that margin?
Pivot Options:
- Pivot #4A: Revenue model shift: No subscription, only 10% redemption fee (higher but success-based)
- Pivot #4B: Freemium model: Basic coalition free, Pro features charged (marketing, analytics)
- Pivot #4C: B2B2C: Business associations pay the fee, provide free to members
Trigger #5: Can't Reach Critical Mass
Signal: Can't recruit 15 businesses in tight neighborhood despite effort
What It Means: Cold outreach doesn't work OR business association partnerships required
Action: Focus entirely on business association partnerships. Don't try to recruit directly.
Pivot Options:
- Pivot #5A: B2B2C model: Sell to business associations who recruit members (not direct-to-business)
- Pivot #5B: White-label: Provide LocalPerks infrastructure to other players (Yelp, Square, Toast) who have distribution
- Pivot #5C: Vertical focus: Only launch in 1-2 cities where you can establish coalition before expanding
Key Experiments: Detailed Rollout
Experiment #1: Business Discovery Interviews (Detailed)
Recruiting Strategy:
- LinkedIn: Target coffee shop owners, bookstore owners, boutique owners, restaurant owners in top 20 US metros
- Twitter: Join small business owner communities (#SmallBiz #ShopLocal)
- Cold outreach: Use Google Maps to find indie businesses, call and ask for brief interview
- Incentive: $50 gift card to their own business + $50 Uber Eats gift card
Interview Guide (45 min):
- "Tell me about your business. How long have you been open? What's your typical day like?"
- "What's keeping you up at night? What are your top 3 business challenges right now?"
- "How do you currently think about customer loyalty? What percentage of your revenue is repeat customers?"
- "What have you tried for loyalty/rewards? Why did or didn't it work?"
- "What would need to be true for you to want a coalition loyalty program? What's the dream?"
- "If a coalition loyalty program existed and cost $29/month + 5% per redemption, would you be interested? Why or why not?"
- "How would you feel about recommending this to 5 other businesses in your neighborhood?"
Transcription & Analysis:
- Record all calls (with permission), transcript via Rev.com ($0.25/min)
- Tagging: Identify quotes for each hypothesis (problem, solution, price, network effects)
- Thematic analysis: What patterns emerge? What surprises you?
Experiment #4: Wizard of Oz Consumer MVP (Detailed)
Logistics:
- Location: Pick ONE neighborhood with 10-15 enrolled businesses (tight geographic cluster)
- Consumer Recruitment: Flyers in local businesses, Instagram ads ($300), word-of-mouth
- Incentive: Free $20 in points when they sign up + weekly raffle ($50 prize)
- Mechanics: Hand-written punch cards (50 point = $5 reward) OR printed "wallet" cards
Operation:
- Each participating business stamps/marks punches when customer spends
- Customers can redeem at ANY business once they hit 50 points
- You track all transactions in spreadsheet (date, business in, amount, business out for redemption)
Metrics to Track:
- Week 1 signups, Week 2-4 retention (% still using)
- Total points earned by location (which businesses drive engagement?)
- Total redemptions by location (where do people redeem?)
- Cross-business redemptions (earned at Business A, redeemed at Business B) = critical metric
- New customer traffic: Ask each business "How many new customers came because of LocalPerks?"
Success Target: 25%+ cross-business redemption rate = PASS
Post-Experiment: Decision Framework
When Week 8 Is Complete: Ask These Questions
- Do businesses actually want this? Did 70%+ say it's a top-3 priority? Would they pay?
- Will consumers use it? Did 30%+ become monthly active users in the MVP?
- Does the network work? Did customers actually use multiple businesses (25%+ cross-redemption)?
- Can we get distribution? Did business associations express interest? Is cold outreach viable?
If the answer to all 4 is YES: You have strong evidence to build the MVP. You've de-risked the core hypotheses. Proceed to 90-day build sprint.
If 3 of 4 is YES: You have conditional GO. Identify which assumption is weak and what small additional validation you need before full build.
If <3 of 4 is YES: You have a pivot situation or no-go. Use the pivot triggers above to decide what to test next, or exit and return to ideation.
Validation Sprint Resource Checklist
| Resource | Needed By | Cost | Notes |
|---|---|---|---|
| Landing page builder (Carrd/Unbounce) | Day 1 | $50-100 | Temporary, don't build custom |
| Ad spend (Google/LinkedIn/Facebook) | Day 4 | $1,000 | $500 landing test + $500 business channel testing |
| Interview transcription (Rev.com) | Day 4 | $400 | 20 interviews × 1 hour × $0.25/min |
| Respondent incentives (interviews) | Day 4 | $1,000 | 20 businesses × $50 gift card |
| Consumer recruitment (ads + incentives) | Day 15 | $300-500 | Facebook ads + signup incentives for Wizard of Oz |
| Simple analytics (Google Analytics) | Day 1 | $0 | Free tier is enough |
| Email list management (Mailchimp) | Day 7 | $0 | Free tier for up to 1,000 contacts |
| TOTAL ESTIMATED | $2,750-$3,000 | 8-week validation |
Note: This validation sprint is 95% time investment, 5% money. You can run it lean. The goal is learning, not polish.
Next Immediate Steps
- Week 1: Set up landing page, recruit interview participants, launch ads
- Week 2: Complete 20 interviews, collect interview data
- Week 3: Analyze interview + landing page results. Make decision: continue or adjust message?
- Week 4-6: Run Wizard of Oz (business + consumer), collect hard usage data
- Week 7: Pricing survey + pre-order push
- Week 8: Compile results, make Go/No-Go/Pivot decision
Estimated Time Investment: ~80-100 hours over 8 weeks (10-12 hours/week). Can be done by 1-2 people.