Buy or Lie: The Truth About Customer Discovery

Session Description

Customer discovery isn’t about flowcharts and surveys at the beginning of a process. It’s a mindset.

In this dynamic masterclass, Mike Trotzke — serial entrepreneur and Partner at Paragraph Ventures — dives deep into the strategies that separate successful startups from those that build products no one buys.

Going beyond traditional customer interviews, this session explores how founders can create realistic “painted doors” to simulate actual customer behavior, as well as the tools needed to drive retention after launch.

Drawing on real-world examples from over 30 companies Mike has built, the session explores how a mindset focused on solving customer problems — rather than validating our own solutions — can demonstrate demand, increase customer satisfaction, and avoid costly missteps in early-stage product development.

Whether you’re an aspiring founder, a startup operator, or a policymaker interested in supporting entrepreneurial growth, you leave this session with a practical toolkit to generate traction and build what customers actually want.
 

Session Recap

Dive into the practical side of building a business with Mike Trosky, Partner at Paragraph Ventures. This session cuts through the academic processes of customer discovery and gets down to the "dirt" – the real-world tactics for understanding demand before you build your product. Mike shares insights from his extensive experience in venture studios and angel investing, highlighting how a mindset shift towards problem-solving and practical testing can dramatically derisk your startup journey and increase your chances of success.

Outline
• Introduction and background of Mike Trosky and Paragraph Ventures, a software-focused venture studio in Bloomington, Indiana.
• Mike's history in payments and founding Sproutbox, described as the first venture studio with a dedicated fund (the dual entity model).
• Frustration with traditional, process-oriented customer discovery approaches that prioritize planning over doing and are often too academic.
• Advocating for customer discovery as a mindset and a part of company culture, emphasizing empathy for the customer.
• Critique of business plans as hypotheses rather than proven strategies, especially for early-stage companies not yet generating significant revenue.
• Identifying the biggest reason for startup failure: the founder quits due to misplaced love for their solution rather than the problem.
• The importance of being in love with solving the problem, which makes setbacks with a solution exciting data rather than a reason to give up.
• Comparing starting a startup to "throwing yourself off a cliff and assembling an airplane on the way down" (Reed Hoffman quote).
• Discussion of the tendency for early-stage companies to operate as if they are at scale and why the essay "Do Things That Don't Scale" is relevant.
• The example of Stripe's initial "instant merchant account" process as a prime illustration of doing things that don't scale to prove demand.
• Analyzing the four main startup risks: Founder risk, Market risk, Product risk, and Financing risk.
• How demonstrating demand before building can mitigate Founder, Market, and Product risks.
• Introducing Smoke Testing as a method to determine if there's enough customer demand to justify building a product.
• Emphasizing the core idea of smoke testing: You shouldn't write a line of code on your product if you haven't run one or several smoke tests.
• Customer discovery is about empathy and viewing the world from the customer's perspective, starting with their first touch point, not the product itself.
• Thinking about the customer journey from initial touch points (ad, word of mouth) to conversion and retention.
• Developing messaging from short form to long form to an informed product, starting with simple copy testing.
• Highlighting the book "Getting Real" by 37signals for its practical, real-world testing approach.
• Detailed focus on the Painted Door test as a favorite smoke test, noting how few entrepreneurs actually do it despite talking about it.
• The three steps of a simple painted door test: Test ads, build a simple heat map site, and use a false signup.
• Using test ads (Google, LinkedIn, Facebook, etc.) not as an end delivery method but for gathering information on what messaging works and understanding push vs. pull demand.
• Building a simple one-page site (heat map site) to test ad traffic and see what people click on, even if the product doesn't exist.
• Implementing a false signup (e.g., "launching region by region") to capture email addresses and measure conversion from site visits, providing valuable data for product design and fundraising.
• The ease of implementing painted door tests now, mentioning automated workflows.
• Paragraph Ventures' approach to using a paragraph description for applications and automating painted door tests for promising ideas.
• Applying the same customer-centric mindset to products already in production, particularly for improving signup flows.
• The significant benefits of having numerical results from tests like painted doors for finding co-founders, raising early funding, and getting into accelerators.
• Central question: What is stopping founders/ecosystem builders from doing this?
• Q&A discussing:
◦ When it's appropriate to stop running painted door tests (ideally never, but especially valuable early on or when adding new features/product lines).
◦ How often to switch out ad creatives/copy (continuously with A/B testing tools like Optimizely, volume-driven).
◦ Appropriateness for very small businesses/solopreneurs (yes, inexpensive and valuable, even if not raising money).
◦ Applying the concept to physical products and services (e.g., distillery).
◦ Handling potential customer disappointment from false signups (less concern for product-led growth companies, but can offer feedback calls).
◦ Applying painted doors in smaller economies where authenticity and relationships are key (focus on demonstrating numerical interest threshold, like Kickstarter).
◦ More details about Paragraph Ventures, their software-centric approach, fund structure, investment thesis (derisking pre-seed), and search strategy (farming vs. hunting).
◦ Generating different ad messaging (start with 10-15 ideas, test, iterate on winners based on click-through rates).

Notable Quotes
• "What you really have is a hypothesis... it's critically important that you think of it that way... instead that you think I have a hypothesis that I'm testing against."
• "The founders that have consistently succeeded in our portfolios have been founders who are not in love with their solution are terrified of their solution... What they're in love with is solving a problem and they wake up every day excited about that."
• "If you haven't run a smoke test, you shouldn't write a line of code on your product."

Key Takeaways
• Shift your mindset from being product-obsessed to being problem-obsessed. Your passion for solving a problem will sustain you through setbacks.
• Recognize that your business plan is a hypothesis to be tested, not a guaranteed path to success.
• Prioritize demonstrating customer demand before building your full product, using methods like smoke testing and painted doors. This is key to mitigating founder, market, and product risks.
• Implement a Painted Door test by running simple ads, creating a basic landing page, and using a false signup flow to gather data on messaging effectiveness, user interest, and conversion points. This can be done relatively inexpensively.
• Use the numerical results from demand testing to inform your product development, messaging, fundraising efforts, and overall strategy. This data provides tangible proof of market interest to potential investors and partners.

Resources Mentioned
• Authors/Thinkers: Gary Vaynerchuk ("clouds and the dirt"), Papa Steve and Lean Eric (referenced as traditional process-oriented thinkers), Reed Hoffman (startup quote), Paul Graham (founder of Y Combinator, essay "Do Things That Don't Scale").
• Companies/Products (Examples): Stripe (used as an example of doing things that don't scale), Twitter (used as an example of a push product), Avenue / Road Planner (example of a company running a painted door test), Optimizely (tool for A/B testing copy), Product Fruits (product experience platform), Pendo (product experience platform), Lessonly (example company with a great head of sales), Bereve (Paragraph Ventures portfolio company), Cardinal Spirits (example of applying testing to a physical product), Exploding Kittens (example of using community/Kickstarter to test demand), High Alpha (other venture studio mentioned), ChatGB Pro (tool for generating ad copy and images).
• Books/Essays: "Do Things That Don't Scale" by Paul Graham, "Getting Real" by 37signals.
• Concepts: Hollywood model (early term for venture studio), Dual entity model (venture studio with a dedicated fund), Clouds and the dirt (Gary Vaynerchuk concept), Business Model Canvas, Startup Canvas, Product-led growth, Intent-based marketing (Google Adwords, Quora), Push vs. Pull marketing, Heat map site, False signup, AB testing, Usage-based subscription billing, Friends, family, and fools round (first round of financing), Pre-seed and Seed stage, Kickstarter (example of testing demand in a community).

Action Items
• Reflect on the central question: What is stopping you from doing this? Identify barriers to adopting a practical, testing-focused approach to customer discovery.
• Consider implementing a Painted Door test for your business idea or new product line. Even a small investment ($1000) and a week's work can yield significant data.
• For ecosystem builders, think about programming or resources you can offer to help startups execute and measure practical customer discovery methods like painted doors.