Idea validation is the process of running experiments to test an idea’s potential impact, risk, and feasibility and ultimately determine whether it’s worth implementing.
Organizations validate high-risk, high-uncertainty ideas to avoid spending a lot of resources launching new products, services, and processes that people won’t buy or use.
In our decade of innovation consulting experience, we found that there are generally three steps to validating an idea:
Validation teams map out assumptions that must be true for an idea to work. These assumptions usually relate to factors such as demand from the target market, user pain points, pricing, regulatory compliance, product-market fit, and more.
Validation teams run experiments to test their assumptions. For example, they may test market demand by setting up a fake website selling the product they want to validate, running ads, and tracking how many people checkout. Or, they could validate an operational process idea by releasing a pilot program to a small group of employees and assessing productivity gains.
Validation teams track the results of their experiments and determine whether an assumption is true or false. If it’s true, they test the next assumption. If an assumption is false, they could pivot and change an aspect of the idea to make it work or even abandon it altogether.
Additionally, this process isn’t a one-off occurrence but rather a repetitive workflow that teams use to validate different assumptions they have about an idea until all assumptions are validated and the idea is ready for implementation.
This article outlines six best practices for organizations to effectively implement their idea validation process. We also review how our innovation management platform, InnovationCast, guides teams through the validation process by structuring the tasks they must complete to validate ideas.
InnovationCast has helped companies like DHL, Visa, ING, and others establish reliable validation processes. Schedule a 25-minute demo to learn how we can do the same for your organization.
Best Practice #1: Map Out Assumptions and Organize Them from Highest to Lowest Uncertainty
Idea validation typically begins with validation teams mapping out assumptions, which are statements that explain what conditions must be met for an idea to work. Here are a few examples of assumptions that teams may have:
There must be demand from the target audience for the idea.
The technology needed to make the idea a reality must already exist.
The idea must meet all legal and regulatory requirements.
Users must be willing to adopt the new product, service, or process and integrate it into their work and daily lives.
The organization should be able to find a business model that makes the idea viable.
The innovation needs to deliver a value proposition that is more compelling than current solutions.
As validation teams map out assumptions, they need to answer two questions:
What would the impact be if we are wrong about this assumption? Would it only have a minor impact or put the entire project at risk?
What's the certainty level behind this assumption? The validation team might conclude that, in fact, this isn't really an assumption because they have real-world data to prove it. Or, they may not have concrete evidence yet and would need to run experiments to verify the assumption.
These two questions will help teams establish the order in which to test assumptions. It's best practice to test the highest-risk, highest-uncertainty assumptions first, as it enables teams to quickly identify pitfalls that can potentially derail the project.
Best Practice #2: Avoid Funding Entire Validation Projects Upfront
After validation teams have mapped assumptions, they should run experiments to test them. These experiments may include:
Creating an MVP or minimum viable product
Placing their project on a crowdfunding platform
Setting up focus groups
Running ads that take potential prospects to a “fake” website to see how many of them checkout
A/B testing two different versions of the product
Running interviews to learn about customer needs and existing solutions
It’s important to note that we can’t cover everything you need to know about running experiments in a single article, as there are too many factors to consider, such as designing an experimental framework, choosing the right metrics, and addressing potential biases.
Instead, we want to highlight a common mistake organizations make that jeopardizes validation projects: they fund entire validation projects before testing even a single assumption.
This approach is known as entitlement funding and is the traditional way many large organizations allocate resources. Before the start of the fiscal year, the finance department, stakeholders, and senior management review company finances and distribute funding to various projects for the upcoming year.
This approach has two ramifications on the organization’s bottom line.
It wastes resources: When validation teams know they have secured funding for their entire project at an early stage, it often gives them a sense of security to take bolder risks and design more elaborate experiments instead of seeking the most cost-effective way of testing their assumptions.
It makes it difficult to reallocate resources based on performance: Because the budget is set annually, the organization cannot quickly shift funding to invest more in projects that show promise and cut back on those that aren’t successful. Resources ultimately become tied up in failing projects.
Instead, we recommend all the organizations we work with to use Metered Funding.
Metered Funding gives teams smaller amounts of money to validate a couple of assumptions, rather than funding the entire project upfront. If those assumptions are true, the organization gives them more budget to validate the next few assumptions.
From the very beginning, stakeholders and the validation team should agree on the key assumptions that must be validated for the idea to continue receiving funding. By aligning on these assumptions early, the validation team and stakeholders establish clear benchmarks for progress.
Metered Funding has three advantages over the traditional entitlement funding approach:
Cost-effectiveness: Validation teams don’t lock in funding for the entire project, so they must find the most affordable ways to validate their assumptions.
Accountability: Teams must demonstrate that their ideas continue to show promise; otherwise, they risk losing further funding.
Resource allocation: Organizations can quickly reallocate resources based on which projects successfully validate their assumptions.
Ultimately, Metered Funding offers a more cost-effective way of validating ideas, enabling organizations to test a larger number of ideas instead of wasting resources on unsuccessful projects.
Best Practice #3: Don’t Rely on User Interviews to Validate Assumptions
In addition to funding projects upfront, another mistake validation teams often make is relying too heavily on surveys, interviews, and customer feedback to validate their assumptions.
Validation teams conduct market research by asking people whether they would buy or use a new product, service, or process. More often than not, the interviewees say, “Yes, I’ll definitely buy it,” to be polite. However, when the organization launches the product, there are often no paying customers — one of the worst outcomes for any innovation project.
Based on our experience, there’s a significant difference between what people say they would buy and their actual purchasing behavior.
Instead of relying on surveys and social media polls to validate ideas, validation teams should encourage potential customers to purchase the product or service they are validating. This approach ensures that customers have some skin in the game.
A common method validation teams use to test customer demand is by creating a landing page with different brand name to sell the product or service being validated. They can then run ads to the page and track how many people visit it.
To test operational and employee-facing ideas, validation teams normally run a pilot program to gauge participation levels before launching the complete innovation.
Best Practice #4: Measure the Results of Experiments and Determine Next Steps
Once organizations run experiments, they typically track KPIs to determine the next steps. These metrics include:
The number of people who checked out.
The revenue those sales would have generated.
The number of employees who used the new pilot program.
The number of hours the pilot program saved employees.
Depending on the results and whether the assumptions were correct, validation teams have three options:
Full steam ahead: If the assumption is true, validation teams test the next most relevant assumptions.
Pivot: If an assumption is invalidated, the validation team can pivot and find alternative assumptions to validate. For example, if target customers aren’t willing to purchase the product because it’s too expensive, but they may be willing to rent it, the organization can pivot to validate the new pricing model.
Abandon the idea: If the assumption is invalid and there’s no way to pivot, the validation team may consider abandoning the idea.
Once validation teams have validated the highest-risk, highest-uncertainty assumptions, they notify stakeholders or those responsible for funding the project about their findings. In return, they receive additional funding to continue testing assumptions.
Best Practice #5: The Innovation Department Should Participate in Market Validation Projects Where There’s a Lot of Risk
The innovation department typically isn’t responsible for running experiments and validating business ideas themselves. Teams are assembled ad hoc, consisting of employees with specific skill sets who validate ideas (e.g., an IT specialist may be in charge of validating an IT concept).
That said, we recommend the innovation department participate in the highest-potential and highest-uncertainty projects — such as when the organization is considering switching to a new business model or building technology that doesn’t yet exist or cannot be tested.
While employees in validation teams are specialists in their fields, they may not be well-versed in innovation management and could fall victim to biases or make some of the mistakes we discussed earlier. Innovation managers, on the other hand, are experts in managing innovation, uncertainty, and risk, enabling them to more effectively structure assumptions and the work that needs to be done.
Best Practice #6: The Innovation Department Should Provide Validation Teams with Guidance on Testing Ideas
The final mistake we see organizations make is using traditional project management tools to facilitate the validation process.
Traditional project management tools don’t provide employees with guidance on developing assumptions, running experiments, tracking KPIs, and knowing whether to move an idea forward.
As we mentioned above, validation teams consist of employees who are experts in their fields (e.g., engineers, designers, marketers), but they most likely aren’t experts in idea validation and innovation management.
This leaves validation teams to figure things out using trial and error, leading to mistakes like relying too much on user feedback and not tackling assumptions in the correct order.
While the innovation department should participate in high-uncertainty projects, it cannot work on every innovation project within the organization.
We recommend using innovation management software because it provides validation teams with the guidance and structure needed to effectively validate ideas.
With InnovationCast, we have validation workflows, frameworks, and criteria that help employees understand what assumptions to map out, what experiments to run, what KPIs to track, and the criteria to determine whether an assumption is true or false. This structures the tasks that validation teams must complete.
Most importantly, InnovationCast has workflows for different types of ideas. Product ideas, business model ideas, operational process ideas, startup ideas, and technological ideas each have their own set of tasks, criteria, and guidelines.
These validation workflows are inspired by methodologies such as Lean Startup, Discovery-Driven Planning, and Customer Development, along with our decade of experience in innovation consulting, during which we’ve observed what works and what doesn’t.
In the example below, a hospital is validating whether improving the patient waiting experience can increase satisfaction and customer loyalty.
They start by mapping assumptions, establishing how certain they are about an assumption, and what the impact will be if they are wrong.
Validation teams can organize the work that needs to be done in our Experiments dashboard. They can see which tasks are due, completed, and currently in progress.
As validation teams run these experiments, they measure relevant KPIs inside the InnovationCast reporting dashboard, which may include, pre-orders, willingness to pay, number of adopters, usage frequency, demographic information, or any metric they choose to track.
Depending on these results, they can return to their assumptions dashboard and say whether an assumption was valid. Our system automatically updates key decision-makers on the project’s progress.
In addition to structuring the validation and development process, InnovationCast helps organizations create a culture of innovation where employees are always submitting ideas and working alongside colleagues to improve them. Our system does this using:
Innovation Challenges: Innovation managers can fuel ideation by asking employees and outside experts to submit ideas on areas of the business they are trying to innovate around.
Crowdsourced feedback: Innovation managers can choose to display all ideas publicly for other employees to see and encourage them to iterate upon ideas with the original author. This improves ideas using the expertise of the entire organization.
Employee badges and rewards: Innovation managers can reward employees for submitting ideas or contributing to someone else’s idea.
Signals and scouting: This functionality encourages employees to share news that aligns with the organization’s priorities and centralize it within the InnovationCast dashboard. This spurs the creation of new ideas.
Integrations: InnovationCast integrates with data visualization tools like Tableau and Microsoft Power BI, allowing you to track the impact, viability, and desirability of innovations within a single dashboard.
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If you’d like to learn more about how InnovationCast can help your organization structure the validation process, schedule a quick demo!
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