Build Less, Validate More: The Startup Power of Customer Discovery

Welcome back to another episode of Scaling Smarter. This is where we talk to high-powered founders who have either launched or scaled their business using AI and workflow automation. And today my guest is Todd Gagne. I always forget if I'm saying that.

No, you're good. Nailed it.

Yeah. Yeah. And Todd interviewed me last December on his podcast. I'm gonna let the Treehouse one— what's the, what was the title of yours?

Startup Stories from the Treehouse.

Startup Stories from the Treehouse. We had a really fun conversation.

We did.

So I'm returning the favor and I'm gonna ask him all the hard questions.

All right, bring it on.

Yeah, yeah. And Todd is also the founder of Wildfire Labs, which is an AI studio, a startup studio where he basically helps founders, uh, get started and launch and then get to the next level and scale. And from what I understand, he's starting to franchise this model. So this is pretty interesting. So welcome, Todd. Glad to have you on Scaling Smarter.

David, thanks for having me. I'm excited for the conversation.

Yeah. So let's start with your story. Tell me your genesis, what you've done and how you ended up getting into the startup community the way you are.

Yeah. So I usually talk about my career in kind of 3 chapters. The first one was I did a handful of startups that went from trash can fire, lost everybody's money, to the second one we sold and probably broke even, maybe made a little bit of money. And the last one we did fine. And so I learned a lot, but there wasn't a lot of structure or a lot of support in doing that. It was basically stubbing your toe, realizing that that didn't work. And so I learned a lot of valuable lessons there, but boy, it was, there were some painful ones. It was enough experience to get me out to the West Coast. My wife was working at Microsoft at the time. And so she's come on out to Seattle. There's, they're hiring anybody. And so I was like, okay, I'm anybody. So I worked at Microsoft for about 9 months and I didn't like it. It was much larger than what I had been doing. And my job was about that big. So it wasn't anything that was good. So I shipped one product there and then I went to a company called Concur Technologies. And so they were a small expense management company. I didn't know anything about travel. I didn't know anything about like expense management, had no finance background, but they hired me in development. So I went and worked there and I spent the next 19 years and I basically, David, did a bunch of jobs I wasn't qualified to do, but they kept on giving them to me. So we went from $7 million my first year to $1. $2 billion in revenue in my final year. And in that process, we did a lot of it. We did a lot of acquisitions. I had international jobs. I managed teams in India. And the last 3 years, I managed global products for them. And we got— in the meantime, we got bought in 2014 by SAP for about $8.3 billion. So I stayed the extra 2 years. Yeah, it was a nice exit. It was a nice exit. And I had some shares, so that worked out for the family. So after 2016, I was tired of dealing with the Germans and going back and forth to Germany, and I quit. And really what I've been doing since 2016 is trying to build an economic ecosystem around software in the Black Hills of South Dakota. And so this started out as a passion project for my wife and I. We have kids in college, and one of them is interested in moving back to the Black Hills, but there's no jobs. And so we have a small technical school that we went to, And basically what we were saying was if we could create jobs that these guys could stay for, the ones that want, then that builds a better economy around us. So we started Wildfire Labs and we've been basically building and helping nurture startup software companies in the region and basically that are having living wage, quality of life type jobs here in the Black Hills of South Dakota.

So when a startup comes to you and you decide, okay, this is the— this may or may not be a good fit in the early steps of the process, what are the key things that you see that are common mistakes that most startups make that you end up deciding this is probably not a good fit for us?

It's so early, David, that it's hard. I think that we bet on the founder probably more than the topic. So I think what we end up doing was we end up looking for people that are not interested in a transactional relationship, more of a long-term relationship. So I'm going to give you an example. We have people that come to us and say, I want access to your money. I want access to your developers, and I want access to your investor network. And we start asking and start shaping their topic and say, hey, have you thought about differentiation? Have you thought about like the competitors in this space? Do you have a good beachhead? And a lot of those people just go cold on us. They just stop. They're not interested. And so, the people that we're looking for are coachable, they execute well, and I think they want to be collaborative. And so, I think that's the characteristics of the founders that we're looking for. The last piece I would say is we're usually looking for people that have deep domain knowledge. know some little niche in, in civil engineering that basically you've spent 8, 10 years of your life doing and there's no software out to do it. Those are the people that we're interested. We got people in orthodontics, we got people in wildland fire, like we have them all over these different verticals, but they generally know their space very well. And that's a characteristic that we really lean into.

And I assume they know their space and they have reach to other people that are like them in their space.

Yeah, they're usually well connected and they have a network of people. So sales becomes easier because they're well known and they basically can, once they have a product that other people know, they bring credibility to that story to sell it.

Do you find, come, do you have people coming to you sometimes that know they're, that have a lot of domain expertise, but they haven't done the homework in terms of What solutions are possibly out there and whether or not the problems they're struggling with are consistent with, in terms of value, in terms of perception, in terms of other people in the market?

They do. And so I think that's a 2 kind of stage problem for us. The first one is, well, I mean, we may do some kind of cursory work just to see like what, get ourselves up to speed on the space and make and say, tell me about the competitors in the space. Tell me what the software solutions that are out there and gauge their understanding of it. The second part is if they get into the program, we lean in heavy to customer discovery. Like they have to do a bunch of work to basically do a bunch of interviews. And these are not like lightweight interviews. Do you like my, do you like the features that I'm talking about? This product sucks and I'm going to make it a little bit better. We make them say, will you change your behavior? Will you actually pay money for this? Will you actually sign a beta agreement with us to actually test the product? And if the answer is no to that, then we don't move forward to the build process.

Okay. Yes. I like that. A proof of, proof of life from the very beginning, right?

Yep.

So tell me what you've done in your business using AI and workflow automation to grow and scale, because you're obviously on a pretty good growth track.

Yeah. So I think one of the things that's interesting in our space is most of the people that we compete against are not technologists. They're VCs, they're community leaders. And so I think one of the things that we bring that's unique is a background in software. And so that's, as you well know. So I think what we've done in our program is basically build the trunk of it in AI. As I was just describing, when somebody submits an application on the website, it automatically gives them some feedback on the 6 or 7 areas that we think that are critical. And so it'll give you a checkmark if we think you've done enough work. It'll give you an X mark with a popup that says, here's what you need to do in this area. And all of this gets emailed to you as well. So you basically get some immediate feedback on it. And if you want to do the work and refine it and resubmit, awesome.

Yeah.

But we take that all the way through the process. So now in customer discovery, we tell you exactly how many of these you need to do. We grade the quality of the interviews you do all through AI, and it connects through a mastermind. So we have a mastermind program where you meet with people that are at the same level as you are every 2 weeks, and you basically have to go through a checklist of things. And we're basically trying to get you through that checklist so you can get to the build process. And the build process goes to the go-to-market strategy. So this is actually now connected to your mentor. Who gets to see exactly how you're doing and where you're struggling. And they meet with them every single week. And then this mastermind group meets every 2 weeks and it's with your peers and you publish what you're gonna go work on. And so all of this is in Supabase, all of this is documented. And then there's basically email notifications that go out to everybody that needs to know all the way through the process. So it's super clear what you need to be doing every week.

No, that's awesome because that really helps channel Yeah, it keeps you focused, right?

It keeps you focused. You can't wander off into the weeds and say, I want to go do something else.

And with the rare exception, founders have a tendency to wander off into the weeds as a standard practice.

They do. They do. And I think all we're saying is like, all we're saying is not that our program is perfect. It's just a way to get to value. That's what we're trying to do is say, what's the quickest way to value and validate whether you have a business here or not?

And the quickest way to revenue.

Yes.

Because getting to value doesn't mean you're getting to revenue.

That's totally right. You do not graduate from our program unless you can have shipping product and customers that pay you money, period. You have to pay you money. And I think that's what we're trying to change is I think so many people in the industry get up and they have a wonderful PowerPoint and then they're going and raising capital. And then it's a power law thing where it's, I need, I need a 10x. And I think what we're saying is there's a lot of good businesses that sit below that, that don't need to be unicorns. That can make very— you can make a ton of money. You just have to execute and be cash efficient.

Yeah. I think we talked about that when you interviewed me too. I have been saying for a long time that if you come in and you say, I have a product that's gonna change everything, it could be the next unicorn. Those are code words for I'm gonna fail. And there's no reason if you're— most of the people that say that have, don't have anything today in terms of income or savings. And they're in the dreamer state. And so it's about peeling off— that's a black robe. I've got this religion. Everybody's gonna believe what I believe and peel off the black robe and wrap 'em in a white coat and say, you're now a technician. Totally agree. And you gotta prove, you gotta have experiments and you gotta prove the experiments are right. Your assumptions are right or invalidate them. And your job is really to invalidate everything you can. That's really the job of a founder is prove I'm wrong. Prove I'm wrong. And every time you prove me wrong, then you've learned what direction—

one more thing—

or if there is a direction to go with what you're planning on doing. Yeah. And fail fast and cheap. Yeah. So tell me about some of the— give me a story of a founder who just was a disaster, and maybe another one of a founder who really followed this and was successful.

So maybe This one isn't a disaster. It's basically a boomerang, I guess, is what I would call it. There was somebody that came to us that basically went to Y Combinator, or not to Y Combinator, to Techstars, got $100,000. Her idea is really good. It's basically looking at people that have neurodivergent ADD, that sort of thing, and figuring out how to build better productivity B2B tools for them, right? That's the theme. So she got it, she got $100,000, she went through their program and she built an app and didn't understand the customer. And basically just failed. She started to raise some money that failed because she didn't really understand who her beachhead was, who her customer was. But basically Techstars pushed her through the program. And so she came to our program and now is going through the customer discovery and realizing there's just a lot more work here. And so she's applied to a couple of grants to do some research and basically make sure that she understands what she's trying to build for. And so maybe that's one that like basically spent a bunch of money and then has turned around and said, This is a big initiative. The question is, how do I find the foundation right out of that? So that's one that I think is a work in progress that we're excited about. The second one is that worked pretty well, was an early one for us, and they're in the wildland fire space. So these are 2 guys that basically go out and they have crews that go out and fight forest fires. And I didn't know jack about this space to start with, but you know, it's complicated when there's a fire. There are not people that are like— there's no price consciousness about it, right? We need equipment, we need water, we need planes, we need people, we need ambulances, and we need them yesterday. And so essentially what they did was they built a platform that connects people that are looking for work and companies. It coordinates equipment so that it's near fires. It sells data where you can basically say, where are the fires traditionally been and where can I get my equipment? One of the things that's unique about this is if your equipment is less— a day or less away, you get priority on who gets picked. And so what you'll find is they have parking lots in Spokane, Washington, where they have a whole bunch of equipment just rented, waiting for a fire in the Cascades. But do you know where those are going to be? And so where are the strategic points to do this? It helps manage contracts through the federal government. So you can work at the state level, you can work at the federal level. What happens when you do want to do stuff in Canada? Like there's a whole bunch of complexity to this, but their domain knowledge built that company, right? They understood the pains that they had to go do. And they basically said, this industry is not price conscious when there's a fire and there's a whole bunch of work. How do we enable this to go faster? And so that's one that's taken off and they probably have 5,000 people on the platform today, hundreds of customers, companies that are actually using it. And they've got a pretty big trajectory of where to go. Not a huge market, but they're solving real-world problems.

And they've got, and that market is captive. So they're not going to be losing it to competitors very easily once they get it. So it's good long-term revenue. And if somebody can build a business that's generating $5, $10, $15, $20 million a year, that's huge. The idea of being a billion-dollar company is just, it's silly to worry about that.

Well, I think David, do the math, right? I think this is where I think people, you have to explain it to founders, right? Would you rather have 80% of a $60 billion or a $60 million business, or would you rather have a couple percentage of a $150 million business? And I think, and no control. Like I have a couple of companies that I've invested in that basically have taken a bunch of VC money. And basically when zero interest rates changed, like they're, they got extremely twitchy about their portfolio value. And so they started doing some pretty erratic things because they had to. Whereas if you're just marching along, and so this company self-funded it, they took no seed money, they self-funded the entire thing. So they own 100% other than the 7.5% that we took.

Oh, that's awesome. That's awesome. And that's, I'm sure one of your, that's one of the ones that you really enjoy the investment in that one.

Sure.

And all of your companies, it sounds like they're, they have to make the world a better place for them to be part of your portfolio, right? Yeah.

Yeah. They have to solve a real-world problem, right? That's what we're trying to do. And there's so many nichey little places to go do this every day. I'm just amazed at the ideas that come to us.

So if you had, if you had no restriction from a money perspective or a technology perspective, you could use AI and workflow automation to solve some problem in the world. What would that be?

It's a good question. I think it'd be something in healthcare. I think our healthcare system is just not aligned for the individual. I guess the way I usually say it is I think Western medicine is great for chronic illness, but it's not good for proactive, um, medicine. And we have all these tools. I, I've got an Oura Ring on this hand. I've got an Apple Watch on this one. How do you get all that data together to start giving you some basic coaching on, are you sleeping properly? Are you eating well? Are you exercising? Are you managing your stress? That would be tier 1 for me. And again, There's places for all of that, but I think like somebody that's objective about trying to drive better behavior, that's one. Number 2, my wife and I every year go do blood work, right? And so, we see blood chemistry, what's going on. And again, that can be something that like Western medicine doesn't do necessarily to the same extent, and it can be confusing. My wife has a thyroid issue, and her doctor basically said, wait until your thyroid burns out, and then we'll figure out how to go deal with it. Whereas, yeah, but that's wrong, right? That's what the endocrinologist would say, right? And so now she said, what do I need to do to make my thyroid better and deal with the antibodies that are attacking it so that basically I have my thyroid for as long as I live? So it's a difference in philosophy. So I think the blood work is another one where if you integrated this and gave them direction on whether maybe it's supplements, changes in behavior, I think proactive things that you could actually do that built on top of this. And then the last piece I would say is there's the— they always call it the 4 Horsemen that'll probably kill you. And so that could be heart disease, that could be cancer, that could be neurodegenerative Alzheimer's type stuff, or metabolic diabetes. You know, each one of us has a history of what happens in our family genetics. And if you could start building a plan on saying, look, a lot of your, like, family had problems in heart attacks and cardiovascular. Let's basically look at that as well. And so I think you could build a 3-tier approach to healthcare that's unique to me as an individual that took all of this data and was basically a coach to really help me live a more proactive life and not like I just need to take a pill because I got some sort of illness, which I think is how our medicine and our industry, healthcare industry is oriented.

That's a really, that's a good one. And then it's an area I've spent a decent amount of time in, and one of my customers is doing something kind of like what you're talking about.

Oh, good.

It's close to home what you're talking about.

Yeah.

And the last thing I'll ask you is— last 2 things— do you have a favorite podcast that you like to listen to? And give us one or 2 book recommendations.

Let's go with the book recommendations. Like, I read Seneca's Life is Short book every year, and I think like that one is just a reminder that we can always make more money, but we can't make more time. And so, I think I had a philosophy at Concur when I was working as a corporate executive to like basically just maximize my time. I basically was from sunup to sundown, I was working hard. And I think as I've taken this next shift, I've realized that I'm way more creative. I'm way more strategic with a little bit of space. And I think that my wife and I like to travel. So, we do a bunch of that. We really support our kids. And so, we give back to our community. We do a bunch of volunteer work. And so balance to me is pretty important. And I know when you're in the midst of it, this is hard, right? When you got young kids or you're building a career. But I do think starting to value time like you do money, I think is actually something that I wish I learned earlier in my life as one example. As far as podcasts, I'm a sucker for Ben Thompson and Stratechery. So he's like an internet or a technology analyst. I followed him since day one. I think it was 2014 when he started his podcast and his newsletter subscription. I think it's some of the better clear thinking on the internet. You gotta pay for most of it. But I do think it's really framed my way of strategically thinking about different problems. He's got all sorts of stuff in that podcast bundle now that's interesting, but it's one that I basically reach for every morning and either read or listen to.

I'm gonna put that one on my reading list for sure, or in my podcast list for sure. And are you— did I share with you when we were talking about a book called The Mom Test?

I have. I've read that book. Yep. That's a good one.

Because I would imagine you probably implement a lot of that in your whole discovery process.

We do. I think I forgot to mention that. That's definitely one that we do when we're doing the discovery process. The Mom Test is certainly one of them that you can really quantitative against that. I think that's a super good one.

Yeah. That's maybe my favorite book for startups because it gets them out of the idea that their product matters.

Exactly.

Product does not matter. Only the problem matters.

That's exactly it. And I think it's a good reminder. Yeah, super good reminder.

Well, Todd, I really appreciate it. A great interview. And I'm really interested in following your journey as you now start to franchise this model and see how your portfolio grows and all these successful startups. Thank you.

David, thanks for having me. It's been fun. It's— I've enjoyed this conversation.