How to Find Out if Your Idea is Good | Merrick Furst

[00:00:06] I would like to say the smartest thing this next guest has ever done is throw me out of graduate school, because that did happen a long time ago.

[00:00:16] He threw me out of graduate school. I just wasn't a good student and I even failed his class was too hard for me. But that's not the smartest thing he's ever done. He's gone on to do many other very smart things.

[00:00:28] He started many companies. He's helped many companies. Merrick Furst along with his co-authors Matt Chanoff, Daniel Saba, Mark Wegman.

[00:00:37] They have studied almost from a formulaic perspective what is innovation and what they came up with is an astounding way to think about anything really like I have used this concept for years.

[00:00:51] So as Merrick and I have discussed these concepts over the years, now he's written a book along with his co-authors Matt Chanoff, Daniel Saba, Mark Wegman, The Heart of Innovation.

[00:01:02] A field guide for navigating to authentic demand. And it's really fascinating. It really opened my eyes about a common question.

[00:01:13] If you have an idea, how do you know if it's a good idea or a bad idea? The answer is really, really difficult. And in the heart of innovation and in this podcast we try to get to the bottom of it.

[00:01:27] Great book and a really enjoyable conversation. I hope you all enjoy it. This isn't your average business podcast and he's not your average host. This is the James Altesher Show.

[00:01:42] So Merrick, The Heart of Innovation. By the way, we've been talking for two hours before starting this podcast. We just couldn't shut down the conversation. And you brought up the point that we've known each other. How long have we actually known each other?

[00:02:05] That's a really good question. Since 1988. You might have been 20 or 21 when we first met. Yeah, 21 because I graduated college year early and then you were one of the first classes I took in graduate school.

[00:02:21] I failed the class. Is that true? It was too hard. Yeah, I failed it. I stopped showing up halfway through. I still have some tests from that time if you want to take them.

[00:02:30] Oh, if you have my tests actually that would be I'd like to see my answers. I don't remember that just for what it's worth. I don't remember your failing. Probably because I stopped showing up. Like, you know me then.

[00:02:41] So I remember you're stopping showing up. That's another story. I do. Because it's complicated. Oh my God, it was so hard. But back then you were sort of a, I would say a mathematician basically in the computer science field.

[00:02:53] There was this overlap between mathematics and computer science. And it was an interesting time. We're going to talk about the heart of innovation, but it was an interesting time in computer science because it was right after the Cold War had basically just ended right then.

[00:03:08] And it was right before the internet was getting big. So computer science funding from the Department of Defense had sort of very momentarily like disappeared. Oh, that's interesting. So when was that because when I first arrived at Carnegie Mellon there was a boom in funding.

[00:03:25] Right. So when did you first arrive? What year? 1980s. So we got the there were this big Star Wars funding was happening then. It's true. That was true. And but then after the Cold War funding stopped. So what happened? Oh, right. I remember this now.

[00:03:35] So that's why Carnegie Mellon which had always been a practical kind of school like they built things suddenly had people like you where or. Are you think I'm not practical?

[00:03:46] No, but like you Dana Scott all those people who were very much into the theoretical aspects of computer science, the mathematical aspects of computer science. So that was your perspective. There's a there's a different actually closer to truth version of that.

[00:03:59] So in 1979, which is a million years ago, there was a visiting committee that was that visited Carnegie Mellon that gave them a report about how to compete. And at the time there were only three computer science departments that were well funded. There was a lot going on.

[00:04:13] It was Carnegie Mellon, Stanford and MIT and to compete this committee which was led by Michael Raven, who's a famous mathematician theoretical computer scientist. That report said this place is great.

[00:04:26] Carnegie Mellon is great, but you're never going to be you're never going to be able to maintain a first rate computer science department unless you have a theory group.

[00:04:34] And so actually when I was hired, Nico Hopperman who was the chairman of the department said to me, come here because you seem entrepreneurial and we have money and we want to hire theoreticians. So tell me who you want to play with and we'll go hire them.

[00:04:48] And so that it was the beginning of the theory group. In fact, I hired Dennis God among other people. Really? Yeah. So that's interesting. I think that's a good explanation, but I think my answer is still correct. Well, I don't understand your answer exactly.

[00:05:05] So if you're getting, if the money was coming in to be practical and the money was growing up, why would you spend money on theory? Because you couldn't afford the practice. You couldn't afford more robotics. You thought we were cheaper. I see. So yeah, that's very interesting.

[00:05:16] You don't have to set up a robotics lab. Huh. That's so funny. And so you do become competitive when you're able to weather the bad times when you have theoreticians. That's so interesting. I don't think anyone thought that you might have been completely right.

[00:05:30] It was usually people thought the other way, which is that theoreticians were like a waste of money because they weren't bringing in money. Right. They weren't bringing in money. But when there's no money to be brought in, you might as well have theoreticians. Yeah.

[00:05:42] I'm, but I want to sort of push back. So if you're not bringing in enough money and you're trying to figure out like what you should do would be the first thing you do is go spend more money on people who are not going to bring in money.

[00:05:53] That seems kind of intuitive. So maybe actually here's another view of it. There definitely were computer science departments at the time that were getting really good. Princeton was this way, Berkeley was this way initially and Cornell was this way initially.

[00:06:06] They were able to build up very strong computer science departments almost all theoretical at the time because they didn't have the money to like spend on hardware, which was very expensive. So that's more true. So maybe there may be the answer sort of overlap.

[00:06:20] Like that's how to be competitive is to, you know, flesh out the areas where you could be really good without spending most of your time raising money. Maybe. Then maybe. Because I mean the guys, I always, I mean, I thought, okay, I'll give you that and balance.

[00:06:35] So because they had very little theory in fact that there at the time when I came there were people who were theoreticians. John Bentley was a terrific guy. He was a student of Knuth's, I think, or at least worked with Knuth.

[00:06:47] And then there was a guy named H.D. Kung who was a theoretician who was like born again though. He found his way to do these parallel computing architectures at which point he decided the theory was really a bad idea. So he was like hated theory. Practical.

[00:07:03] He turned practical. Right. But one thing that stands out from this is you were in fact entrepreneurial and your academic interests really transformed quite a bit. And you were an entrepreneur in Silicon Valley for a while, but you took a break from academia.

[00:07:17] Now you're at Georgia Tech exploring this intersection between entrepreneurship and academia. And the question that you and I have talked about for such a long time and now you've written this excellent book on it, The Heart of Innovation.

[00:07:29] And you've also put these principles into practice with dozens and dozens of companies, many super successful is is there a way to I don't want to say mathematically, but is there almost a formula or a theoretical way of thinking about innovation.

[00:07:47] And I love what you've come up with. It's changed my own way of thinking about innovation over the years. In part not just because I've read this book, but because the book wasn't written with just these conversations we've had over literally decades.

[00:08:01] So let's talk about it and I want you to talk about it in the context first of when you first realized there was a problem and how you thought about entrepreneurship and innovation and the example of I always forget the name Dumballa. Oh yeah, Dumballa. Yeah.

[00:08:20] So well first of all I had done a bunch of startups myself and I feel like I went up these two learning curves, like how do you get successful in academics and then how do you possibly get successful at raising money and building things and selling things.

[00:08:32] So that there was that but I always knew there must say you knew there's something wrong. Like when you look back and you have hindsight bias and you say something wasn't feeling right.

[00:08:44] So when we were doing early companies, we would like raise money and there was always something that felt like it wasn't quite right. Like I was we were convinced people were convinced to invest and then people would be convinced to buy.

[00:08:56] Did you feel like you were not scamming is the wrong word but did you feel like oh my God they believed us or do you have a feeling like that when you were when you were pitching VCs.

[00:09:07] No, it wasn't like that because that would have been more difficult to do was more like trying to figure out what to say or do to make it possible for people to invest, which is different.

[00:09:17] I'll tell you the very first time I ever felt this thing called authentic demand.

[00:09:21] It's strange it was it's a really long time ago when Ernest when Rubik's Cube first came out and nobody had Rubik's Cubes and I first saw one Bob Tarjan as a theoretical computer scientist was playing with one at a conference and like everybody mobbed him and said we have to like play with it.

[00:09:36] It was really colorful and whoever saw anything it turned in that which that way. And then for some reason I was in Hungary at a conference and I ran into a guy who was manufacturing these cubes. This is before I deal had started manufacturing the states.

[00:09:50] And so I had this direct line from Ithaca New York to Hungary to get like cubes by the few at a time. And people were like what the people would see me and they would just find a way to get me to get them a cube.

[00:10:07] And that was that just so memorable how that felt that when there was actual demand and it wasn't okay for me not to get them a cube. That's what that felt like. But why was that okay for them to not have a cube? So I don't know.

[00:10:20] I'm just I'm just trying to contrast what it felt like when I was doing that and what it felt like when I was doing these startups.

[00:10:27] The difference was I was trying to I was found that there's a difference between trying to convince people to do something and then getting them to do it.

[00:10:34] Let's say, and what it feels like when there's actually an authentic demand and you feel instead of it like you're trying to convince people that they should buy from you. They're trying to convince you that you have to make it for them.

[00:10:46] That's what it feels like when there's authentic demand. So if I look back and you ask me this question like, like when did it? I felt like I was doing something wrong. I would say in retrospect it felt not authentic. It felt a little bit funny.

[00:11:01] I was trying to do things to get things to happen, which wasn't the same as filling this authentic demand. But the Dambala story is a really good example if I could tell that story. Yeah.

[00:11:12] Just to preface the story, this was a situation where it seemed like you had unbelievable authentic demand and so many things were in your favor. The outcome almost seems unbelievable. Yeah. It seemed like it was a certainty that it seemed really likely it was going to be successful.

[00:11:33] Yeah. So I was already at Georgia Tech and I had done startups in the Bay Area and the world was kind of, the world of startups was pretty much dead because 2002-ish. Yeah. Because of the dot com crash, there was no money.

[00:11:45] People were not making any bets on things. But just as the market started to come back a little bit, these three people from Georgia Tech, two professors and a graduate student came and said they had an idea for starting a business.

[00:11:57] They had this technology and they knew I'd started businesses and would I work with them? And what they described to me were these things called bots, which now everybody knows what bots are. It's like software that takes over your computer.

[00:12:08] And they explained to me how it went from being like fun, the kids were doing to get a worm on your computer to put up a screen that was funny to bad guys in the former Soviet Union finding ways to scam you by having bots on your machine or to create problems on the internet.

[00:12:25] And then from what I remember from you just explaining it to me then, that basically you were saying every or most Fortune 500 companies had these bot armies already infecting their machines and just ready to go.

[00:12:37] Like they were like sleeper cells that were ready to be activated by hackers.

[00:12:40] Yeah, what these guys showed me is that they had put listening posts at various places on the internet and those listening posts were listening for things that bots were doing, but communication that normal computers didn't do. And so they had very complicated ways of figuring that out.

[00:12:53] And they showed me like, I think in the time like 17% of all computers on the internet that they could see were infected. And as they told me the story, it became clear that they were convinced and it seemed convincing to me is probably still true.

[00:13:07] This was like a root cause of so many problems, so many economically important problems on the net. One was that people's networks were infected and that's in fact the company ended up making money doing with that.

[00:13:21] But there was this other idea which seem, you know, I'll describe it to you. Companies like eBay were relying on the trustworthiness of their seller sites.

[00:13:33] And one way they could tell whether a seller site was trustworthy is that people would like buy from the site and then like click and say this was a good site, this was not a good site, a good experience.

[00:13:42] It turns out there was a following kind of scam that was going on and it was going on a lot. Like someone would open up a site to sell cameras for $10,000 at high end cameras, but it was a fake site. But then they would hire these bot armies.

[00:13:54] So tens of thousands or hundreds of thousands of computers around the world that were being controlled by gangs in Russia, former Soviet Union, and they would instruct those machines to go to that website and make fake purchases that the website reported as real purchases.

[00:14:13] And then these machines would pretend to be real users and they would boost the rating of the site until the site became like, you know, it was platinum. So they would sell our site and then a real person would go look for a camera on eBay.

[00:14:25] They would go to the platinum site that was judged by everybody else to be really good and they would actually spend $10,000 and then of course they wouldn't get paid. And then eBay had to somehow make good on this. They wouldn't get the camera. They wouldn't get the camera.

[00:14:38] They would get the money taken away so it's like fraud. So the fact you could tell which machines were fraudulent because we knew what their IP addresses were, we thought that would be really valuable.

[00:14:48] And it happens that I knew a guy, Howard Schmidt, he passed away so it's sort of... But I knew him because we were on advisory boards together and I knew he was the Chief Information Security Officer at eBay and so I told him what we were doing.

[00:15:00] So who's the decision maker? I thought if anyone would know whether this was worthwhile. By the way, so you know, I had done startups before. I figured you don't do a startup unless they're customers.

[00:15:09] So before I said yes to these guys, I said let me go find that if anybody wants to buy any of this stuff.

[00:15:14] So I talked to Howard and he immediately got excited by this and we flew out to California and he's like got his technical people and his business people.

[00:15:23] And they kind of went gaga over the idea enough to say, we think this will save us $40 million a year in fraud. So they saw I've gained a 40 million? Probably even more because... Who knows but that's their...

[00:15:37] I guess they didn't have a good reason to tell me really whatever the number was. So I think it was something like 40 million. And they turned to me and said, can you really do it?

[00:15:46] And I thought I'm working with really good technical people. They can probably do it. So I said yes and then they asked me how much it would cost and I'm like thinking to myself, I don't know how much it costs to make it.

[00:15:56] But if you don't charge $150,000 you can't like make telephone calls to CISOs and... So I said $150,000 and they didn't blink and I said to start and they didn't blink and they said go make it.

[00:16:10] So I ran back to Atlanta and I started a negotiation with Georgia Tech and we started the company and we started to like...

[00:16:18] We had no employees, there was nothing and we put together a deck to try to raise money and I ran around and I think I gave six presentations and I got five term sheets. Because you have eBay potentially saying yes, you're going to save us $40 million?

[00:16:30] The story was like these guys can do something magical. Let me show you all these banks and all these other places that are infected.

[00:16:36] I can show you their IP addresses and I've got this guy, you can call him up and he'll tell you that they want to use it. So we raised...

[00:16:43] At the time it was a lot of money and I have about $2.5 million on a $5 million pre which was like crazy from totally first rate investors. And then we built it.

[00:16:53] But the interesting part of the story was when I replaced myself as CEO, we had a technical team, we had the IP. They went out to try to sell it, actually close a deal with eBay and they were just now indifferent to the whole thing.

[00:17:08] Howard Schmidt was still there? I think Howard, many have still been there or he was just moving on but the people we've been talking to were still there. And at the time it seemed impossible like it was going to save him $40 million and it cost him $150,000.

[00:17:26] They told us to go make it. They were excited about it. We made it, it really did work. And then for every month, their board meeting, I would sit at the board meeting and I would hear the investors say to the technical team,

[00:17:40] how come they haven't bought yet? And the product manager would say, well, they asked us to integrate with this. So we made the integration, we went back and they said, well, can you like make it that give us this report?

[00:17:50] They just kept having these features they wanted to build. Now here's the punchline. The punchline is now knowing what I think we've learned and what we wrote about in the book about authentic demand is whatever made me think that they would buy.

[00:18:03] Like it all sounded like they would buy it, like he was excited. Well, they said they would buy it. They said go make it. I don't know if they actually said they're going to buy it. They said go make it, we'll buy it.

[00:18:12] They probably said that and they were excited about it. It was going to really save the money and we could really do it and they didn't buy. And now I would say there's nothing in that interaction,

[00:18:23] nothing in that interaction that should have led me to think they were going to buy. Even the words we're going to buy it. So I don't know that they actually said that. Let's say they said that because that I think is a little different.

[00:18:32] This will save us 40 million. What does it cost? Oh my God, 150,000 go make it. That sounds to me like we'll buy it. Which it sounded like that to me also, which is why I'm hesitating because if they actually said the words will buy it,

[00:18:46] then they represented something that I might have actually been able to push them to buy it. If they said things that made me think they were going to buy it, which is what I think actually happened. They said go make it. It really makes sense for us.

[00:18:59] Those kinds of things would really save us the money. The reason I'm hesitating is you've read Shaldini's book and you've read that work. People are influenced by being consistent. So if even being tells you that they'll do something, it makes it more likely they'll do it.

[00:19:14] If I tell you I'm going to be here at 2 o'clock on a Tuesday, I influence myself will do it. So I don't think that's what happened here. But the bigger point is why is it, and this took me so long to get my head around,

[00:19:26] why is it that I was convinced they were going to buy and they didn't buy? Why wasn't there actually demand or was there not demand? You can make up all sorts of stories like the people in the company thought,

[00:19:36] well, it's because of this feature or that feature because we have to wait for some budget cycle. I don't think it was any of that. I think the issue was, and this is looking back in retrospect,

[00:19:47] if I had been smart enough to say to them, okay, this would save you $40 million. Do you have other ways to save $40 million? I'm thinking they would have told me 10 other ways they could have saved $40 million. None of which they were doing.

[00:20:03] And so we make one more way for them to save $40 million. It's one more way to save $40 million that they also wouldn't do. Could you have structured the offer differently? Could you have said, listen, we could sign a deal right now

[00:20:33] and we'll start immediately as a service for creating this for you? Right. So you're asking a different question of could I as a salesperson, let's say, found a way to get them to buy something? And the answer is almost surely yes.

[00:20:48] First of all, he's a friend of mine. Second of all, probably pretty good at sales. If you get good at sales, you can get any given person to buy something. But that's not the same as having authentic demand for it. Right.

[00:20:59] So ultimately, and you told me something very interesting at the time, which is that somebody actually says yes for many reasons. So it could have been that they said all these things and were very nice to you because they simply wanted you to leave the room.

[00:21:12] I tell people the story about this little girl. There's this young woman who works really hard at the terrible corporate job. It's Thursday afternoon. She's exhausted. She never gets to be home, never gets to really see your kid.

[00:21:23] And you see her walking up to the front of her house and just then this cutest little girl you ever saw jumps out, runs out of the house and runs up to her and goes, mommy, mommy, I made you a mud pie, mommy.

[00:21:32] I made you a mud pie. I made it myself. And it's just dirt and water. And the mother looks at the girl, little girl and says, oh my God, that's the most gorgeous mud pie I ever saw. I can't believe you knew what I wanted.

[00:21:43] Thank you so much. So everybody in that situation is being authentic. The only thing is that little girl would make a big mistake if she thought that other mothers in the neighborhood wanted a mud pie. And she'd be making a big mistake if she thought

[00:21:55] that this mother wants a mud pie tomorrow. So I got to tell you, I might have been like the little girl in that story going up to Howard Schmidt. He knows me. He knows my professor. We're friends.

[00:22:05] I go up to my mud pie of this thing that would solve his problem and he says, oh, that's the most beautiful mud pie I ever saw. Go make me one. I go home and think, well, like the little girl thought

[00:22:16] that I understood what was happening in that interaction. And what he sort of bought was basically six to 12 months of goodwill with you. Okay. Yeah. And if I want to be really cynical about it, I think back on all the times that I was in somebody's office

[00:22:29] telling them something that I thought they would buy and they told me how great it was and I should go home and come back later. And that was an incredibly good way to get me out of their office feeling good about it.

[00:22:39] And how many times are people doing that with you? Again, what could you have heard or what? You gave the example of Rubik's Cube, but what is really authentic demand? Like how do you start a company?

[00:22:50] And you had all this evidence to think that your company was good even. A lot of people have much less evidence than that. How do you start a company and think that you are in a market where there's authentic demand? Yeah.

[00:23:04] So it took a long time to try to get our heads around the question because it's another way of saying that same question is what makes somebody a customer. Here's one thing that just, it's really clear when you see it but it's hard to remember it.

[00:23:17] If you're talking to somebody and you were hoping that they'll buy something and not buying is okay. They're not really a customer. But buying is okay and not buying is okay and they're really indifferent between the two. They're not a customer.

[00:23:30] So what's an example of indifference other than the eBay Dunbala one? Like what's a classic example? A classic example is selling encyclopedias door-to-door. You walk up to the door and they don't need an encyclopedia. They can be perfectly indifferent.

[00:23:45] But of course in that setting, a good sales person can find a way to make it so that not buying is not okay. And there's a lot of ways of doing that. So the company that's selling the encyclopedias their innovation is not necessarily the encyclopedia.

[00:23:59] It's the fact that they have this method of selling that you're going to someone's house. You're putting them basically in a cognitive bias type of situation where it's hard for them to say no. And you just replicate that a lot and you build a big company. That's right.

[00:24:12] And it works particularly well with something like encyclopedias because encyclopedias can mean different things to different people. Like for some people, it could be you're keeping ahead of your neighbors. For some people, it could be you're doing something to make it possible for your kids to do well.

[00:24:25] For some people, it's a beautiful piece of wooden furniture that they're going to get. And so a good, a trained door-to-door salesman can often enough find a way to make this encyclopedia be a thing which not having it is not okay in the moment.

[00:24:41] So again, that's the second time we've used this sort of double negative. So not having it is not okay. So here's how I like to, here's how I've come to think about it. Maybe this is the computer science mathematician part of me

[00:24:53] thinking about, okay, a human being finds themselves in a situation and I'm trying to understand or someone we're working with is trying to understand buying. Like what does it mean that they buy? And I'm realizing, oh well, there's the buying, that's the activity.

[00:25:08] But there's all these other activities. There's all these things where they're not buying. So if you're able to actually explain that they're buying, aren't you also explaining that the other paths aren't okay? Because if all the other paths, if there are other paths okay,

[00:25:21] then you're really not explaining to me what this buying is about. So that's this not-principle. Not buying, not okay is what you're really, is a more clear way to be able to talk about what it means for there to be demand.

[00:25:36] So what's an example of something that not buying is not okay? Well, everything you buy. Right, so like what's the one you can kind of walk through? Well, maybe look at it in a slightly different way. So what are situations like that create these not-principles?

[00:25:54] Like not having a roof over your head is not okay. How do I know? Because every time I look at you, you have a roof over your head and if I were to like knock down your house, God forbid, burn your house,

[00:26:03] you'll go somewhere else and you'll have a roof over your head. So somehow people organize their lives that not having a roof over the head is not okay. So now show me a situation in which someone is not able to have a roof over their house

[00:26:15] and give them a way to have the roof over their house. I'm thinking they're going to reach for it. So that's what you're looking for. You're looking for situations in which something is changed in such a way that not doing something about that is not okay.

[00:26:29] One of the things I find really interesting about trying to explain this not-not principle is how hard is it to see even though it's everywhere around you? Like let's look at the example of Uber. So Uber in New York City in 2010 or whenever was

[00:26:44] that Uber started getting big there. If it was raining outside and you needed this B some place, it was not okay to... I don't know how to say it actually. Yeah, no, it's not that hard. It's funny to get used to it.

[00:27:03] It was not okay for me to not have a car, being a car taking me someplace. Yeah, dad, you can say it a different way, which is like you're going to find yourself in a car. Right? So you're going to somehow get from where you are to there

[00:27:16] and when you get there, you won't be wet, for example. And cabs disappeared when it rained. Because everybody... And taking a cab is not going to happen because there are no cabs. Right, and so it was unacceptable for me to not have some way of...

[00:27:29] And I didn't want to take the subway, I didn't like it. So it was not okay for me to not be in a car that was taking me to the place I needed to be and I was getting wet. So Uber satisfied this really authentic demand

[00:27:40] that millions of people had. Yeah, one of the ways to satisfy that. Right, so it's like cabs, subways. If I owned a car or if somebody... You have a friend you could call around picking people up

[00:27:53] and I had an app that I could pick or find a car randomly. I didn't want to call a friend because then I'm using a favor. So I really wanted to do the anonymousness of crowdfunding or crowdsourcing the car. And it's so interesting because the situation,

[00:28:07] as you describe it was I didn't want to call a friend. I wasn't calling a friend was not okay and you made up a story about why. Yeah. Okay, maybe that was the real reason, maybe not. But the point was... If I understand you, well that seems unlikely.

[00:28:20] I'm just saying if you look at a human being in a situation you can start to see things like, okay, well James in this situation, you're not going to see James calling a friend. So you're not going to see James using a cab because there are no cabs.

[00:28:33] You're not going to see James not showing up because he promised them they were going to show up. You're also not going to see James being wet. So you start to go through these kinds of things and then you say, okay, well...

[00:28:42] So among those there's a demand for some means for you to get from here to there, not being wet without calling a friend. Among those things there might be... like Uber might show up, but there may be other things that could also happen

[00:28:58] like you could buy a car. Right, but I'm not going to buy a car. I didn't even drive. You could hitchhike. I don't know. Yeah. I've never seen people hitchhiking in New York City. Yeah, when I lived in Pittsburgh I often hitchhiked actually. It seemed safer there than...

[00:29:10] This thing? Yeah, I would race, you know, like let's say, you know, Joe Peter, my friends and the guys I would have dinner with a lot, I would race them to Squirrel Hill. They would take Joe's car and I would hitchhike. Is that right? Yeah, that's really funny.

[00:29:27] So... And I would often beat them. But so yeah, so I just want the simplest way to get to where I want to be. There's no cabs. By the way, is that Joe Bates' car? So he still has the same car.

[00:29:38] I just talked to him a few weeks ago. Like a sob or something? No, he had like a Toyota, one of these fancy like Celica, I think. Oh yeah, even then I don't remember. I think maybe. And it's funny. Yeah, it's funny.

[00:29:51] By the way, his business was interesting in a not-in-that-way, but we don't have to talk about that now. But so Uber seemed to satisfy this authentic demand and hence it became one of the biggest companies on the planet. Yeah, I mean there was...

[00:30:09] I have a problem with all this, I mean not all of this, but there's this thing I just want to say. It's really easy to make up stories about what the authentic demands are when you stand back from them and try to guess what the authentic demands are.

[00:30:23] And one of the things that we saw happening with a lot of founders that sort of led me to all this was you'd work with founders, or you'd work with people that are trying to figure out a business. And they would describe the situation

[00:30:35] in which their customers were and they would be convinced the customers would buy. That's exactly what happened to me with the guys at eBay. I describe the situation. They have this fraud, they have these guys out there that are boosting up the websites,

[00:30:48] they're having to pay off and make good on these things. It just makes sense. So why wouldn't you imagine that there's an authentic demand to stop that fraud? And so you're making up this story about what that situation is like that makes it seem obvious

[00:31:03] that there's an authentic demand for Uber. What we found this difficult is there's almost always something you're not noticing that you're not noticing about the situation that makes things not be authentic demands. So what do you think of... The thing is, as a... I remember the excitement

[00:31:21] I had the first time I got an Uber. I'm just sticking with this example just for a second. But like that excitement felt to me like I really wanted Uber over every other decision I could possibly make. There was no friction.

[00:31:34] There was only minutes before a car showed up. It was raining. It was actually my daughter's birthday, so I wanted her to have a good time. And obviously there was a... I mean, the fact that you did it is just evidence on the face of it

[00:31:48] that you didn't take the other paths. So it could be random, or it could be unique. That was the only way to go. Which actually raises a whole other question. I felt like it was the only way to go though. Yeah.

[00:32:00] So that's ideal if you create a situation for somebody in which not doing something is not okay and you provide them the only way of doing it. That's kind of interesting. But if you're saying it's really hard to know if I'm telling the whole story,

[00:32:13] then how does any entrepreneur start a company thinking he's fulfilling authentic demand? And I always... So when I've started companies, one thing I always double check in myself almost every day is I called it smoking crack bias. Like am I smoking crack? Am I just smoking this crack

[00:32:31] and thinking that everyone's going to love my product when everyone else is listening to me and just saying, yes, it sounds great. Show us when... Post-boning the moment when I realize it's really a horrible product. And so I'm just smoking my own crack and thinking it's good. Yeah.

[00:32:47] So how did you check? Did every product you make when you checked? I would check by incrementally... Like building an increments and seeing if there were users. Right. Which, by the way, is not a terrible idea. So if there's no authentic demand,

[00:33:03] maybe you'll get people to buy, maybe you won't. But if there is an authentic demand, then you ought to see people buying or at least people taking action. The problem with that is first of all, that doesn't always work, it'll get you very far.

[00:33:16] But the bigger problem with that is what if you didn't understand the authentic demand? And you guessed that you start to see people buying like the little girl and the mother situation and the mud pie, what was their authentic demand for there?

[00:33:29] So little girls thinking that she made this wonderful mud pie. I don't think the mother for a minute was thinking that she wanted mud pie, but the mother almost surely was drawn to have something from this little girl. The problem with trying to see what the demand is

[00:33:43] from the people's behavior is that all product is mud pie. Right. So you don't know why. Like for all Uber knew it was exciting for you to see yourself being able to summon a car and it wasn't about the ride. I'm not saying that was true. Right.

[00:33:59] And again, I see what you're saying that we don't fully know, but I just remember I really needed to be some place and that was the only way to get there. All right. But let me look at the entrepreneur's point of view.

[00:34:10] So my friend Jim Balkam got involved in this company called the Humminbird Fish Finder Company. So there was a while ago, there was like some guy named Yank Ding Danin, Ufala, Alabama, which is like this little, at the time it was a super hick town on a lake

[00:34:25] and they were doing bass fishing there and he found these Heath Kit systems where you could like buy them and they would have like sonar things and he would like wrap the sonar in something that was waterproof, throw it off the back of the boat,

[00:34:36] put some squelch knob on something and he could use it to find fish. And he started this company called the Humminbird Fish Finder Company and he built the product. So it's basically a device that electronically if you're fishing, someplace it finds out if there's fish in there.

[00:34:49] And at the time, all commercial fishing boats had these kinds of sonar things to be able to find the big schools of fish. So his idea was, okay, well commercial fishermen don't have anything like this or anglers don't have anything like this. So he would make something.

[00:35:01] So he started this company. When my friend Jim went down there they were at about a million dollars in sales. Jim had just graduated from Harvard Business School. He had all the tools available. He pulled this young family down there and he worked for a year

[00:35:14] and they got the six million dollars in sales and then his partner died. The reason that's important is that Jim then took over the company and he tried to figure out like how to make this thing grow. They estimated worldwide there was maybe 53 million dollars of market.

[00:35:27] They were at six million and he described, if you listen to it, it's very interesting to hear his story, painful. He went through nine new product introductions, nine new product developments, nine new product introductions. That means new features each product? Crazy, right? So they asked people like,

[00:35:43] well, how do we make it better or how do we get more people to buy? And they say, well, you know, it's... Sometimes it shows us like logs floating on the bottom as well as fish. So they improve the squelch mechanism

[00:35:53] and they like put better squelch knobs on and that got better. No change in sales. Now each one of these requires like re-engineering and you have to deal with inventory and do kind of marketing. You know, even one time I think they were getting desperate.

[00:36:08] They heard from some people that they had two recreational boats and they weren't going to buy one for each boat so they had to make a portable version and each one of these is super expensive. So at the end, he was about to go bankrupt.

[00:36:20] They couldn't do anything. Six million sales flat, nine new product introductions, nine new product failures. And then one day something happened purely by accident and in many ways what this book is about is how do you make this happen not by accident?

[00:36:33] How do you make this happen more deliberately? There was a woman working for him named Sue Simons who happened to find herself at a bass fishing shop and down the aisle, on the fish funder aisle I guess she saw another woman reaching for a box.

[00:36:47] It was the Humminbird Fish Finder and Sue said to her, would you mind telling me why you're buying that? And the woman told her the following story. She said, this weekend I'm going to have to go out on the boat with my husband

[00:36:59] and he is going to be in the back of the boat with his best friend. They're going to be getting drunk and between me and my friend we're going to have four kids. They're going to drive us crazy. I thought if I bought this for the boat

[00:37:09] the kids would have something to play with. And Jim thought, you know, it's desperation. Maybe I'm into the entertainment business or something like that. And he convinced his team, this is, can you imagine how hard this was? They were all trying to make the fish finder

[00:37:22] be better at a fish finder. He said take off all the knobs and squelch things. Make it look more like a TV set. Make it visible in daylight so you can get more than just one color on it. And they went through a development process and did that.

[00:37:35] So first year sales, $75 million. Oh my gosh. Second year sales from six. And in a market they thought max that at $53 million. $75 million. Second year sales, $125 million. So here's the insight. Like it was entertaining for the kids? Just seeing pictures of fish on the screen or?

[00:37:57] They had something to do while their father was getting drunk in the back of the boat. The insight was as long as they thought that the job to be done or that the business was making something that found more fish. They were stuck at $6 million in sales

[00:38:12] and you can sort of do this for yourself. Ask yourself, is it okay to not find more fish? Well if you're a commercial fisherman it's not okay to not find. But if you're a recreational fisherman you need to find more fish, go to the market and buy fish.

[00:38:26] You can buy as many as you want. On a boat if it's not okay to not find fish you're not getting drunk. On the other hand, is it okay to have a bad time on a boat when it's a recreational fishing boat?

[00:38:42] The answer is no, it's not okay. The not-not was a much bigger space that he sold into and he couldn't have seen that. What I'm trying to say is a lot of people we also find have products which have kind of tapped out or they made a mistake.

[00:38:57] They thought the market would be much bigger than it was because they didn't understand on what basis people were buying. Like what with people's not-not. You know it sounds like the classic example of McDonald's. So there's restaurants all over the country so if you're driving along

[00:39:28] there's probably some diner or whatever that you'll run into eventually. But I guess Ray Crox, one of his innovations is he realized that people wanted a clean, they wanted to know that the restaurant they were going into was clean.

[00:39:43] So the idea that every McDonald's is exactly the same and they're all clean. It doesn't matter how good the food is or how healthy the food is. People want to know that they're going into a clean place. And so by branding McDonald's-

[00:39:55] And also it's going to be the same food you don't have to worry about the quality. You know what you're driving up to you know what you're in order already. So there's a couple of not-not's there. So it was okay to have any kind of food

[00:40:09] but it was not okay to not have cleanliness and speed of order and- See here's, so what I really like about this way of thinking is that first of all it just clarifies your thinking because now you could wonder whether or not

[00:40:25] those were the not-not's that were involved with McDonald's thing. Maybe there's two sides to this. One side of it is I'm thinking the person's driving they didn't bring food with them. Not having food is not okay. So not having someone, a place to get food is not okay.

[00:40:39] And they have a lot of alternatives. They could go to supermarket, they could go to McDonald's, they could go to other places. So definitely selling into something where there's some not-not. Now the question is why are they choosing McDonald's? And you're describing some things

[00:40:53] that might have made it hard to choose McDonald's like if the bathrooms were dirty. As opposed to having a choice, you could go to like a roadside diner or you could go to McDonald's and for some reason McDonald's has figured out somehow

[00:41:04] that not having a clean bathroom is not okay. Okay they're going to end up at McDonald's versus the diner. Because also the diner offers uncertainty, you don't know. The diner could say we have the cleanest bathrooms in the world, but you just don't know.

[00:41:18] Whereas McDonald's, over time there was certainty. Like the stock market lows uncertainty, good or bad. If there's uncertainty the stock market goes down. It's the same thing in the market for where am I going to go eat? Oh, there's McDonald's. I certainly know that they're clean.

[00:41:35] And this is related to something we were talking about before we started the podcast. We were talking about how situations create demand. So when people find themselves in it, one of the things we learned was first of all it's really hard to not be in this waking dream

[00:41:48] of thinking that you know why it is that people are doing things. That they kind of make up a story in your head and it just seems impossible for you to believe they're not going to buy. That was my problem with Dumballa in eBay.

[00:42:00] It was impossible for me to believe they weren't going to buy. And so the fact they weren't buying made me try to do all sorts of things to get them to buy. But there wasn't an actual demand because it turns out that not saving $40 million

[00:42:12] was actually okay even though it was inconceivable to me. So one problem is we're just blind to those things. The other problem though is how do you learn it yourself? Like how do you actually find out whether it's true? And there, you asked me before

[00:42:29] what I probably should have said to the people there. What I probably should have said to them not was would you buy it for $150,000? I probably should have said, if I don't make it for you is that okay? Like you seem like you're okay right now.

[00:42:43] eBay's growing like crazy. I'm thinking saving you $40 million is going to be a really good thing. Help me understand like if I don't make this are you okay? And my guess is I would have learned that yeah actually it was okay. And so not buying was actually okay.

[00:42:59] And it was just in my head that not buying was not okay. So like for this woman who was buying the Hunting Bird Fish Finder thing, it was not okay for her to be bored all day and calm her screaming kids down

[00:43:12] when she could buy this one thing that would entertain her. And once she's there, I mean I'm just now imagining this, but and once she's there and she sees this and now she imagines how much more pleasant this weekend is going to be.

[00:43:24] My guess is she couldn't spend whatever that, whatever these things cost, but you know a few hundred dollars. She wasn't going to spend that on coloring books because their husband wouldn't be okay with that, but she was going to spend it on,

[00:43:35] which might have been entertaining for the kids, but she could spend it on something that her husband would be okay her spending on. Like the situation is complex, right? So there are a set of behaviors that she can do and there's set of behaviors she can't do.

[00:43:47] And the reason I bring that up is what you're also not noticing or because you've already built it in is McDonald's has to construct the situation in which people experience McDonald's as having clean bathrooms. If that's important to them, that's part of what people do

[00:44:03] where they construct the situation. So before a person's ever been in a McDonald's, they don't know whether their bathroom is clean. But once they've been in a McDonald's and people tell them that McDonald's bathrooms are clean, this is by the way assuming that your assumption is right

[00:44:14] about clean bathrooms being important. Well they have the social proof whenever you go up to McDonald's at that time there was like 10 million hamburgers served, a billion hamburgers served. So McDonald's is telling you up front, hey it's been okay for a billion other people

[00:44:29] so it's probably okay for you. And now this gets into the whole influence thing. So we start to get interested, okay what constructs the situation? Well one thing that constructs the situation is people are influenced. So for example, before you said

[00:44:43] did he tell me that he was going to buy? So here's what I can say. If I can get someone to tell me they're going to buy or if you can get someone to tell you they're going to buy simply because people are influenced

[00:44:52] by being consistent with who they are, it's more likely that they're going to buy. Right, so you could have done like the typical salesman technique like so I can put you down for $150,000 order. Yeah and if they say yes they're sort of stuck.

[00:45:04] Right and if they say no then there's a dissonance and so you can't say no really at that point. Yeah and one of the key insights in the book is that people are the not-nots, these authentic demands, they come from the situation. So again like but then

[00:45:19] okay this is a great concept that people can't not have a car when it's raining in New York City and they need to get someplace or people can't not have this fish finder when they're bringing kids on a boat to be entertained.

[00:45:33] But like again if I'm an entrepreneur and I have an idea, seems like a great idea. Like how do I know it fills this authentic demand using the not-not formula? It's so interesting for those people that are entrepreneurs that are listening or we've had this experience with.

[00:45:52] It's really hard. The minute you have an idea for a product it already blinds you. Like the minute that little girl had an idea for a mud pie and she could imagine her mother loving it it just blinds you. You can't really see your mother.

[00:46:07] Now if the little girl could have like deeply understood what was going on it probably would have been this. My mother is probably feeling like I have forgotten her and she's probably worried that her job is causing us to be distant. And if I could show her somehow

[00:46:23] that I spent some time thinking about her so that she knows when she comes home that we can be together and I can give her a way to show me affection what do I need for that? And the answer is a mud pie, a lanyard, a picture.

[00:46:38] Note to self make mud pies for Robin when she is out of the house doing something for when she comes back. That's funny. You make little love notes. I was thinking about you, I want to prove it to you. Paper airplane, that's her name on it. In crayons.

[00:46:56] But the insight there is it's not a mud pie. All product is mud pie. You don't know what its meaning is. So it seems like then the formula here the heart of innovation this not-not concept is we can all start constructing stories about what people can't

[00:47:14] have and there's many examples in the book. But this gives you ideas of what to innovate but you still don't know really if you've hit authentic demand until you've made the product and are selling it. I don't know, well maybe. I'm not sure that's really right.

[00:47:30] So here's the experience that we see happening. So 100% of the time so it's like people say well how often does people come up with good ideas are they the right ideas? So far we've done this with hundreds many, many hundreds of founders and probably hundreds startups already.

[00:47:46] They show up sometimes they show up with like a million dollars in sales and we just tell them to stop because what we found is they don't actually understand yet why people are buying. What does it mean for people to buy? 100% of the time their original idea

[00:47:58] there was no authentic demand or it was really small authentic demand. So it turns out the problem isn't what product to make. The problem is to see the situations that your customers are in. That's the problem. Because once you see the situation

[00:48:14] then you see how it is that they're stuck in some way. Like you were stuck at your house waiting for the rain to stop, you were stuck. In that moment be able to see how you were stuck. Uber must have figured this out for like millions

[00:48:30] tens of millions of people there are going to be people who need to get from one place to another place they're not going to be calling their friends or they're going to have their cell phone just the whole things that create that situation

[00:48:42] and were we to be able to be with them in that situation we might be a choice that they make because the other choices are not available to them that's what authentic demand looks like but the move to get to it what we're finding is it's really expensive

[00:48:56] and really almost impossible if you start with the product idea. I see. So give me an example from a startup you've worked with. The funny thing about this and I'll just say why I always had hesitate around this is if it was

[00:49:10] really easy to see that there was authentic demand after the fact you'd see a lot more success in investment because or before the fact no even after the fact you can't tell the difference between this if you could tell the difference between a story

[00:49:24] that doesn't work and a story that does work you'd have a lot more success in early stage investing because people start out nobody invested in a startup thinking that this thing is never going to work like you were telling me about the 140 love thing. Yeah 140love.com

[00:49:38] The dating site for Twitter which. The great pitch to VCs Okay and I'm just saying once you have the product idea you kind of can't see the customers anymore because you're imagining what they're doing with it so what we're finding is and also from the mud pie

[00:49:54] story you can see that if you watch people's behavior relative to product you can't see anything actually the story Dumballa was a little bit further the company ended up I think was something like $12 million in revenue which is perfectly fine and maybe the market the total

[00:50:08] revenue that could have ever gotten to was like 100 million the total market might have been 100 million so maybe it could have gotten to a 20 million revenue company which would be fine except that everybody who invested in the company thought the company was going to be a billion

[00:50:20] dollar company and we raised $69 million which is not going to be happy with the company that is small what that company did sell into and this is me making up a little bit of a story but I have some experience here they would go to companies

[00:50:35] like us at Federal Express and they would say we think there are machines on the internal network that are compromised 100% of the time when we put in a board on the internal network and monitor traffic we're able to identify machines that are fraudulently controlled

[00:50:49] and people would say well I don't really believe it so we'd say okay can we put in a board and you'll pay us some amount of money at the end of the month and we'll be able to identify that if you want to buy

[00:50:59] so it's like proof of concept at the end of the month 100% of the time we'd be able to show them that their networks are compromised and everybody who is working in the company investing is sort of convinced well if you really can show every large company

[00:51:13] that they're compromised every large company is going to buy from you that just seemed impossible to imagine that people would not be okay with that but there were times when our salespeople would install like two or three weeks later and say okay you have a treasurer

[00:51:29] who's got a machine that's hooked up to the bank accounts of the company and his credentials are being transferred in plain text to bad guys in the former Soviet Union and they would go oh my gosh that's crazy that's crazy and they still wouldn't buy

[00:51:45] and why is that? No so I'll go the other way around you're asking the wrong question you're imagining that there's like it's obviously okay for them not to do it because their company is doing just fine now even though their treasurer credentials are going out

[00:52:01] you can't imagine that it wouldn't be okay but so okay so here's what I would do as a business strategist tell me you were selling that proof of concept right like you were putting but this is a numbers game so what your time means was a numbers game

[00:52:15] that some percentage of people who are some percentage of companies that are infiltrated by bots that they're infiltrated and they will buy so you just needed to give for free the proof of concept so you would have as many proof of concepts as possible?

[00:52:29] Yeah so yes and no so it's a much smaller market that's what I'm saying maybe there's a hundred million dollars total market you could sell for people that actually cared about whether or not, that cared in the sense of

[00:52:39] it's not okay for them to not do something about it now there were some companies that would absolutely swear by this they had to have it they couldn't imagine us taking it out and it turns out I'm convinced in retrospect of course we can't go back

[00:52:51] at hindsight they were doing something else with the product they weren't simply identifying the machines internally that were compromised because that software could also prioritize which machines they could go fix so if you looked at the companies that bought there were some companies that had an internal

[00:53:07] staff that they would send out every morning to go wipe the machines they were worried about for those companies that had such as such an internal staff there were more machines that could actually go wipe than they could actually have people go wipe

[00:53:19] so at the morning they had to figure out like how they were going to allocate their staff to go to those machines those companies when they bought this product they couldn't not have it the rest of them not so much you see because and that market

[00:53:33] was probably the hundred million dollar market kind of like the fish finder market it's like you know how many people can actually go without knowing which machines are the ones that are most compromised the answer is a relatively small number you see what I'm saying and so because

[00:53:49] the company didn't understand what the authentic demand was and it fooled itself to think the authentic demand was something else the company raised too much money and made bad decisions right so it's very interesting like you take that fish finder thing the way she was able to

[00:54:05] sort of it's almost like you have to stumble on the authentic demand through the approach that this Sue Simons did which is simply querying people at the moment of purchase they're in the situation where they're about to purchase and or just querying as many people as possible

[00:54:21] like asking questions to as many people as possible like why are you buying this or why didn't you buy this you I yeah so if that worked I would say people do that already they do that with surveys they do that by focus groups so here's

[00:54:37] here's the painful experience the painful experiences it's really difficult to see people so given this though given the formulas you describe in here and this overall equation of what things can people not have in their lives I'm an entrepreneur how do I take this

[00:54:57] and build a company yeah yeah so a great question which of course by the way not just entrepreneurs I think the same thing is true for anybody who wants to be unstuck anybody who wants something from someone well you say it like anybody wants

[00:55:09] so people feel stuck in their lives so entrepreneurs feel stuck now looking back on this I'm realizing here's what we really were doing we were taking people that wanted to create startups and they weren't a value and they they tried to become a value

[00:55:23] and what that meant was they were doing something that they felt like they should do and other people cared about what they were doing enough to pay for it that's what it meant to be a value same thing in large corporations

[00:55:31] they try to build a new product line or go into some new business they're trying to figure out how to be of value in some way that's different than they currently are the same thing I think is true for human beings it's like you take a person who's

[00:55:41] currently feeling like well I'm not really where I'm supposed to be I haven't figured out how to make the thing I'm supposed to make or be the thing I'm supposed to be and what does that mean well if they're not interested in

[00:55:51] being it then it's definitely not right and if they're interested in doing something and other people are not interested in their doing it it also doesn't feel right they're just having coffee yesterday with a friend who loves to write but he feels unfulfilled why

[00:56:03] he loves to write but no one's reading so he doesn't feel fulfilled now if people were telling him what to write and didn't feel like writing it he would also feel not fulfilled that's the place that entrepreneurs I think they're trying

[00:56:13] to get to is a place where they become of value send that there's two parts that one is you got to figure out about yourself what's not okay like it's not okay to not what I don't know but then the other

[00:56:25] side the puzzle is not what should I make but tell me people you're interested in and it's not and go understand them well enough to see what it is that's not okay for them to not be and you think

[00:56:37] in terms of product I think of it in terms of differently I think to myself my customers are stuck like they're stuck somehow they're stuck like there's the world's just not okay for them and they're not they can't tell me that it's like they're

[00:56:53] they got up in the morning they go to sleep at night they're expert at what they do they don't necessarily feel stuck but if I can see how they're actually stuck maybe there's something we can do that gets them unstuck and that's our value to them

[00:57:07] our value to them is we show up in that situation in which they're currently stuck and then not reaching for us wouldn't really make sense because not reaching for us is not okay that's the move to make and then the question is how do you see that

[00:57:21] how do you learn to see that how do you put in place a process that allows you to start to see your customers for how they go about being themselves and understand how they're stuck customers or potential customers yeah it's potential customers

[00:57:37] so another thing we found is it's almost always the case that for entrepreneurs that come in who they think are their customers aren't actually their customers in the end like the general space that they're in is real but I'll tell you you asked me about

[00:57:51] an example of a company that we work with that's doing extremely well it's called Florence Healthcare I just love these entrepreneurs and love what their business has turned out to be they had an idea which was they wanted to do something in the healthcare space

[00:58:03] and maybe in clinical data recording and they knew that there were people who were like sending out visiting nurses with iPads they were sending out visiting nurses to visit patients that were on some drug trials or something and they were writing things down and then bringing them

[00:58:19] back to central excuse me the contract research organizations and it was all paper based and their fantasy which seemed like a really good idea was well now we have iPads why don't we give them forms that they can carry around and they can go into the people's

[00:58:33] houses and they can just click click click and we go up to the cloud and then they wouldn't have to do all this copying and all this extra work and it seemed like a really good idea people suggested it was a good idea they had a physician

[00:58:45] who joined the team they had a technologist who joined the team they had a CEO who had been somewhat successful already and it turns out there's no authentic demand for that I mean there are many reasons that there's

[00:58:55] not the least of which is a lot of the places they were going to they were like in basement apartments with people who were quite ill and there was no Wi-Fi so that already kills that idea but they spent a lot of time thinking that

[00:59:05] okay people in the contract research organization are complaining they're saying things like it's all paper based we hate the fact that it's paper and they all want something which reduces the amount of paper so then they would try

[00:59:17] to figure out a way to do something that would reduce the amount of paper turns out that's true but it's actually okay to have all that paper around how do you know because they're all the paper around and what's weird about these authentic demands is there almost never

[00:59:33] the things that people actually have names for like when here's one of the insights that was really weird for me people come to talk to us and they would say people are going to buy this and I would say why are they going to buy it

[00:59:45] and they say well it's going to save the money and I would say well what makes you think that saving money is an authentic demand and I was just trying to save money so I say okay well go back to those people

[00:59:55] and say how much are you going to save them you're going to save them $100, $1000 ask them if they have other ways to save $1000 it's like what I was the question I should have asked the people but there's a kind of observation anything which ends in the letters

[01:00:09] ER is not an authentic demand better faster cheaper say you want to do that faster can you already think of ways to make it faster they'll always tell you yes are you doing any of those and you'll always tell them no so that basic idea

[01:00:23] isn't the right idea so if you go in and say I see there's a lot of paper and you're complaining to me about the paper and you want to solve the paper problem so you're going to be better off there's going to be less paper

[01:00:35] and I try to sell you something that's going to be less paper you should also ask the question do you have other ways to reduce the amount of paper they'll almost always tell you yes and you'll discover they're not doing those so you have to worry about that

[01:00:47] it's weird like when you see them they're just true and you would never guess they were true and I'll tell you what these guys found there's some version of this they watched and they saw what people were doing they would get the data from the electronic health record

[01:01:01] and then they would have to print it out in order to get it to the pharmaceutical companies and they would print it out and they would have to go through and redact information by hand they would have to like take a black marker

[01:01:11] and by hand redact the information then they would have to take these forms and run around the hospital to find the doctor to sign off on it well doctors aren't in the hospitals that much and doctors don't want to tell you where they are

[01:01:23] and so these people that have to get the data from the EHR, the health record to the pharmaceutical companies are definitely going to do that but the way they're going about doing it when they have it on paper is really pretty unpleasant for them

[01:01:37] so our guys showed up and they created this thing called an eBinder and the feature that was in the eBinder which they didn't specify was the important feature was that once you saw this you realized you're never going to have to go and redact things by hand again

[01:01:52] and you're never going to have to go chase around the hospital and try to track down a doctor and you ask yourself, okay these people they're filing people they're data people is it natural for data people to be redacting

[01:02:07] is it natural for data people to be running around looking for doctors? none of those things are natural they're not going to get it because they have no choice but they're stuck that was the start of this business which now is in many, many thousands of

[01:02:20] what's their product now? their product started out being an eBinder which they sold into these contract research organizations thousands and thousands of them now that they're in so many of those contract research organizations they've become like a data standard

[01:02:36] and now they can sell products to the pharmaceutical companies who have a lot more money and they have access to these eBinders and then they have to put PhDs on airplanes in order to come get the data from the contract research organizations and so how do they ultimately

[01:02:48] figure out like you have to kind of dive into the whole industry and they realize, oh these data analysts are doing things that are not really in their job description but they have to do it right, well they're sort of in the job so here's what we've learned

[01:03:04] that you want to go see customers for being, for how they're going about being themselves that you want to go see that, that's the hard part how do your customers go about being themselves to understand their situations on the theory that behaviors are mostly situationally determined

[01:03:20] and if they're not situationally determined then I'm not sure how you as a business person is going to actually do anything for them because what you have access to is their situations so you're looking for things that they're doing or not doing

[01:03:32] that are in the way of they're trying to get somewhere in this case like here's something that they're doing, they're erasing things and that's in the way of their being themselves like they have other stuff to do I don't know what they don't think of themselves as redactors

[01:03:48] so if you can see things that they're doing which if they can't stop doing it they don't feel right and you see the things that they're not doing which if they can't start doing it don't seem right and that's what your product does and they're doing these behaviors

[01:04:06] that are currently in the way of they're trying to get where they are so I'm thinking about my first business so in the mid 90s the web was first getting known not every company had a website so companies like American Express didn't have a website and

[01:04:22] my first business was designing and doing the software for websites for companies so I did americanexpress.com oh yeah, reset and we did American Express we did HBO we did 100 companies their websites and there wasn't really authentic demand because at that time was in this weird spot where

[01:04:48] half the people you talked to thought the internet or the web was just this scam or fad and half the people were like okay but this is going to cost me money and it's not going to make me money yet I don't understand

[01:05:00] so there wasn't really pure authentic demand there weren't users on the web yet there was just excitement about the potential of the web and really so I had to kind of create the demand through sales like I believed that they would need this and that all their competitors

[01:05:20] are going to get this and so they need to get it it's not going to be good and all their customers are going to be buying their services on the web so it's not okay for them to not have a website but I had to convince them

[01:05:30] of that there wasn't really a they didn't come calling for me I had to call them and convince them through sales techniques and through storytelling that that I had this theory where it could be I could have been wrong I had this theory that they're going to be

[01:05:46] authentic demand for this so the question is am I lucky because it did turn out that there was authentic demand for a website later on and some people who are trying to make authentic CD-ROMs for them at the same time weren't lucky and

[01:06:02] yeah so well first of all anybody successful they should realize that it was lucky and anybody who's unsuccessful should realize it was probably luck also so yes you were lucky so I have another friend who is a really great sales person he ended up being super successful

[01:06:20] but he started his career selling land around the lake it's a lakefront property and he would tell here's one of the things he would do he would get in the car with somebody who was like coming up on the weekend looking for lakefront property and he would talk

[01:06:34] to that person for a while to try to get to know them and this person for example that he told me the story would say so what do you do and the guy would say well I'm a stock broker or I do stock trades and my

[01:06:50] friend would say well so wow what kind of business you must you know how do you make that work and he says well I see things that other people don't see like I see opportunities and other people don't see those opportunities

[01:07:02] and he said well tell me a little bit about what you're trying to make happen with your family he says well my father always said he wanted to get us kids together but we could never do that so I'm imagining I have a lake where I can bring

[01:07:14] my kids up on the weekend so my friend knows here's what he's heard he's heard this guy thinks of himself as somebody who's going to have a place where his wife and kids are going to be able to come and spend weekends and it's not like

[01:07:28] what his father was like not only that this guy thinks of himself as the kind of person who sees opportunities where other people don't see opportunities and he at my friend happens to know that there's one part of the lake where there's

[01:07:42] very swampy and they've been having a really hard time selling that and because everybody goes there and they see it looks like quicksand so he turns to the guy who's in the car with him and he says you know I may have just the thing

[01:07:54] just perfect for you it's a place that most people can't see how important it is it's like super underpriced because people can't really see the opportunity in it and it's a place where it's perfect for kids to swim let me take you

[01:08:08] do we like to see that and the guy says sure I'd like to see it so now my friend gets on the on this like back then I think they were using walkie talkies and he says

[01:08:18] you know I'm taking every, he has a certain way of saying it I'm taking this customer to lot number 72 check or something the check means please when I get there about 15 or 20 minutes later say on the get someone else to say on the line

[01:08:34] that they're going to send somebody there because they're now interested in that lot so he takes the guy there and he says now most people would see that swamp and they would see that messy land and they would never buy this place

[01:08:46] but I have a feeling that you're the kind of person who could realize that this is just an underpriced property if you put up some pillars and you put a deck over that there's no problem and right then when the guy is like almost on the hook

[01:08:58] he hears on the radio I have someone who saw that space and is really interested in it, lot number 75 or 79 whatever it was and they'll be there in 20 minutes I just want to let you know so if you wanted to take off you should take off

[01:09:12] and you're feeling the sense of what does it mean to not buy that place it's like he's saying essentially I'm not the kind of person that sees opportunities and seizes them quickly I'm not the kind of person that wants to have a place for my kids

[01:09:26] and by the way I'm now, I'm not the kind of person that wants to get ahead of the other person who wants to buy this from right now so that's how he would do sales it's interesting and borrowing from Robert Shielding that those two techniques he's using consistency

[01:09:40] like the person wants to be consistent with what he said he was about and he's using scarcity because we only have 20 minutes left he constructed a situation in which not buying was at least plausibly not okay and I'm saying okay

[01:09:52] how is that different from what you were telling me about reset? no it's the same thing the only thing and so A on the one hand it feels like using, that's using a little bit of a scammy kind of technique in their case he's actually specifically being

[01:10:08] a little scammy by there may or may not have been a customer coming in 20 minutes now with me I'm telling a story whereby I'm creating a future where there's a, it's not it's not acceptable to not have a website you could deliver something

[01:10:28] now I might have been wrong about my theories of the internet but I was honest and about what I thought was going to happen well I've been in this but the bigger version is but the specific transaction is you're talking to somebody that has a marketing budget

[01:10:42] for whom not having some way of putting their stuff out there they're going to spend money on something they're going to spend money on magazines ads newspaper ads or they're going to put up posters okay so there's a budget for doing that kind of thing

[01:10:56] and you're talking to somebody who has that budget and you're presenting them some other way of spending that budget so the authentic demand there was it was not okay for them to get their message out right so I had to basically build the better not not

[01:11:08] story than other people who were selling it to them or in the category so at this point there's no website category you're saying that you predated the website category but there's a marketing category there's a marketing category and so you were able

[01:11:22] to make your product sound like it was in the marketing category and you were distinct enough that someone could buy from you now you happen to be really lucky you're really prescient to realize wow this is going to get to be really big

[01:11:32] at some point so if you build up the capacity you're going to get a lot of demand but but like here's where here's where I messed up I created a problem for them right so suddenly now they have to maintain a website

[01:11:44] and suddenly now they're spending a lot of money that they didn't even to buy something they didn't even know existed a year ago so what I didn't do I wrote software to make all my websites

[01:11:56] what I really should have realized is that now that I created this problem they needed to easily and cheaply build and maintain websites and that's really the billion dollar market was the word presses that made websites easily and cheaply you can make a website for free now

[01:12:12] and maintain for free I had all that software written but I didn't tell them how come you missed it because I didn't understand business I thought people are paying for my time to do something like my hard work to do something if they knew how easy it was

[01:12:28] to make them a website they wouldn't have paid me $200,000 to build americanexpress.com so let me just because what you just said is actually I think all that's right but there's something else that people don't notice when they're looking at customers I call it looking through the customer

[01:12:46] it's like you see the customer but instead of actually seeing the situation the customer is in you look through the customer on the thing that they're trying to make happen and you think that's your job in the fish finder case the mistake that this

[01:13:00] that Jim would tell you is like okay the name of his company was the Humminbird Fish Finder Company the name of the product was the Humminbird Fish Finder and it found fish and then when he would talk to customers they would tell him how to find

[01:13:12] fish better but actually what he was missing was these were human beings that were in recreational fishing situations and they were living with the fact that in recreational fishing situations when they're looking for fish most of the time there's nothing to do he didn't see the customer

[01:13:28] in the situation what you've just described is you walked up to them and said you have an advertising problem you need to have a website I'm going to make a website for you you took on their problem and if you could have kept looking at them and watched

[01:13:42] okay what's their situation their situation once they have that is now going to be something else it's going to be really uncomfortable for them to not only have a website but now they have to maintain it and there's all the money on it they have to make

[01:13:54] the budget because now you're interested in them in their situations instead of trying to solve the problems that they have in order for them to be through their jobs so in practical use like I had an enthusiasm about the internet and the web so I was able to

[01:14:28] and I had no money and I didn't understand venture capital I didn't understand raising money so I needed to sell something where I was making money day one otherwise I couldn't do it because I had no money so I solved a solution for me

[01:14:40] which is how can I make money doing this internet stuff oh people need a service I could sell them the service and convince them that they need the service or they can't not do without the service but if I sell them something that's more product like

[01:14:54] that's actually a harder sale in a weird way I'd have to raise money I'd have to really make a product and that was hard for me I couldn't really do that but maybe it wasn't the right time anyway

[01:15:04] it might not have been the right time right so not nots are time it's like you say situation dependent and part of that situation is what's the state of the world and that's right so I'm just trying to think from a practical perspective

[01:15:16] I'm an entrepreneur I'm a new let's say I'm a new entrepreneur I love this way of thinking this is it seems like the right way of thinking to me there's not not way of thinking about things what can I make that people cannot not do without seems very

[01:15:30] smart way to think but now what's my next step then so well first I can I just adjust that to make it real practical ask yourself the following question as an entrepreneur not like can they not not have this rather what makes all the other alternatives currently

[01:15:46] okay because if all the other alternatives are currently okay then you probably have nothing to sell them yeah and I've seen I've been involved in companies like that plenty of times too where so you what you want to do is look at

[01:15:58] people and see how it is that they're kind of going along right now seeming like they're indifferent but they're actually not indifferent the killers in difference like if they don't care you got nothing so when you spend time with people what you're trying to see is how

[01:16:14] is it instead of asking yourself like what could I make which I think gets in the way weirdly even though it feels like the right thing to do right blinds you you ask yourself can I understand how it is that they're able

[01:16:26] to be indifferent because you're coming in and you're pretty smart if you would I would have said to you with this website thing it's like instead of going in and pitching them on the website I wonder what would have happened if you said to them

[01:16:36] how is it that you guys are okay not participating in advertising in this space how are you okay with that like how come that's okay and the answer would have been well if it's actually okay for them then you have nothing to sell them anyway this is

[01:16:50] and this is one of the counterintuitive things that we find ourselves talking to entrepreneurs and also innovators and also individuals it's like so safe to ask people like if we don't do this are you okay and the reason is if it's okay if they don't if you

[01:17:04] don't do it they should let you know when that's good for you but I have a question about exactly that so let's say I hear a song on the radio and I'm like oh that's a neat song but I've known this song forever

[01:17:14] but I forget what the name of it is I really want to know the name of it but it is okay for me to not know the name of it because it's my whole life I've not known the name of songs I hear on the radio

[01:17:22] but then a software platform like Shazam comes along and now on my phone I can just hit Shazam it'll listen to the song and using AI tell me what the name of the song is how did they kind of figure out that it was not okay for me

[01:17:36] to not know the name even though it has been okay my whole life now that Shazam exists it's not okay for me to not know the name of this song so of course in situations like that you know making up stories post-talk

[01:17:46] like could you have figured it out and they guessed right but I'll make up a story so when you hear that song and you think about that someone might notice that they themselves have heard the name of a song and they don't know the name of the song

[01:18:02] and at that moment where you kind of have this momentary sense that there's something that's not okay that you want to get a grip on ask yourself the question what could I do right now that I'm not doing or what am I not

[01:18:16] doing that if I start doing it I could solve this problem that's sort of the key insight maybe it's easier to think about in terms of more concrete things this is a wonderful story that Bob Keegan tells in his book Immunities to Change

[01:18:30] you can start to see it there are people who would sometimes want to lose weight not everybody not all the time but it's really hard to lose weight and they can tell you all these stories about what they've tried to do

[01:18:42] but a really interesting question to ask someone if they're actually drawn to lose weight is this question and it's kind of in this not framework it's backwards from what you think say to somebody are there things that you're doing right now that if you keep doing them

[01:18:58] it's going to stop you from losing weight or are there things that you're not doing unless you start doing it and people can answer that question they would say yeah if I don't go to the gym if I keep not going to the gym regularly

[01:19:10] I might not lose weight when the waitress comes on a Friday night I want the dessert menu as long as I keep saying yes I'm not going to lose weight that person is stuck in the following sense not losing weight is not okay

[01:19:26] we call it an aspirational grip they're trying to get in their lives and yet there are behaviors that they're doing which if they don't stop doing them are going to be in the way and their behavior is that they're not doing

[01:19:36] which if they don't start doing them are in the way products make it possible for people to change those behaviors for example you'd say okay do people find themselves in a moment where they feel stuck in the sense that

[01:19:50] not knowing the name of the song is not okay right I see what you're saying so even though in general in my life it's okay to not know the name of that song in that one moment if I had a way to know the name of that song

[01:20:02] I would not use that method well I wouldn't but you even went to have a way I would say are there things that you're doing we could just play that game I could record the song and then put it on twitter

[01:20:16] and say can anyone tell me the name of the song okay there's something you're not doing it as long as you keep not doing that right and that's okay because it's too much work well I don't know but you're not doing it

[01:20:26] so the thing I'm going to first do is I'm going to explore all the things that you're not doing that are in the way and all the things you are doing have to change to stop doing them in the way and then the work, the product work

[01:20:36] is are there any of those things that I could help you do something about so right in the ebay Damballa example that you told earlier it's like none of the people were feeling stuck because they didn't have this solution like their lives were moving on

[01:20:52] and they were happy with their jobs they weren't frustrated nobody was sitting there with a budget that was going to get fired if they didn't save this $40 million it's interesting right now you put it that way, like right now there's a difference in one company that does some

[01:21:08] AI stuff and he was telling me the other for years they had kind of flat to no sales very little sales and he was telling me the other day that suddenly everybody who's rejected them in the past is calling them now because they're being mandated by the CEOs

[01:21:22] every department in the big companies is being mandated by the CEOs you have to now figure out AI solutions in your department HR finance marketing where's the AI solution and so now they're being called like look we got to spend this October

[01:21:38] we got to spend this money by December 31st for an AI solution to what we're doing now he's getting the cost right, yeah so there's a situation that changed and it became a not-not so he was in the right place at the right time

[01:21:50] what I also find interesting is okay if you're decided that you want to become of value or you want to build a business that's of value here's an approach figure out somebody you care about better to be somebody you know something about or yourself

[01:22:06] it's okay to be yourself but it depends if you're yourself in college college students aren't that interesting a market they don't have that much money so you want to find a way that you're yourself in a certain setting in which there might be some in the end

[01:22:22] although it's funny you should say that I think I have my friend Eric Gold says every time he hears me say the words I think he stops listening I don't want you to stop listening but I want to avoid saying I think

[01:22:36] something we've seen a lot with entrepreneurs when they come in with a product idea or they come in with some market there's almost always something that for them is a not-not it's like not building this is not okay and it's almost never for the reasons

[01:22:52] that they think it is not building it is not okay they would say because they want someone else to buy it but it's actually scratching some itch for them that they can't get away from let me here's a really good example

[01:23:06] we saw we see this a lot people come in as consultants and they're making a lot of money consulting and we have this one guy the company now called smart PM it's doing quite well the guy was a civil engineer super super smart

[01:23:20] was being hired for like hundreds of thousands of dollars to come in at the end of construction projects when the contractors and the investors in the construction project were getting into some legal battle about like it's the thing took too long and now there's change orders and

[01:23:36] tens or hundreds of millions of dollars around the line because there's a dispute and he would get called in by let's say the investor who would say I need you to prove that these guys had made some schedule changes that is what caused this

[01:23:50] to overrun and so they're trying to charge me for the change order but not and he's thinking well here's what here's what he was really good at he could put in a spreadsheet he would figure out how to write down

[01:24:00] the formulas it would take him a lot of time to do it and he would charge them hundreds of thousands of dollars in consulting and he thought well here's the business opportunity I could build a product for them which they could then use

[01:24:12] to solve that problem and they don't have to hire me and I can just automate it it's the same product I did and it turns out there's no authentic demand for that and they have to ask yourself well what was he missing like he felt the demand

[01:24:26] to have this product for what he was doing which is he was in a situation where he had actually be able to go explain to them something so that they could get involved in this legal battle and so he knew that that was hard to do

[01:24:38] so he wanted a product for himself but then he imagined that since that's what he was selling to people that that's what they would buy when in fact that's not true and it's weird but it's hard to see in that case they were buying an advocate who could

[01:24:52] go to court with them or tell them what to say in order to get involved in this legal fight now in order to do that he had to get this data and so when he finally saw that he began to realize

[01:25:02] well what was his product going to have to do for people it wasn't just going to give them the answer it was going to somehow be useful for them in some sort of way that they could use it to get involved in these arguments

[01:25:12] or maybe avoid these arguments in advance so what did he do that's what so I wish you could go look at their website and see what they're doing now but it's more or less that they empower people to be able to settle these kinds of disputes

[01:25:26] or know ahead of time whether or not these disputes are going to arise it's a very cool product by the way it looks at schedules and schedule changes and kind of scores them and says what's the likelihood that the contractor

[01:25:40] is predicting is going to happen is going to actually happen that's interesting so if a guy says oh I could build you this building and like three weeks they have some data that says that's unlikely I think the example I remember would go something like this

[01:25:54] they have this construction schedule and in the construction schedule to build this thing there's like seven staircases and they have like one week to do a staircase and what they didn't realize was that to do that staircase was going to get in the way

[01:26:06] of some electricians that were going to show up who needed to get up and down that passageway so instead of it taking a week it was going to take two weeks to get that staircase done but now they had six more to do and so the

[01:26:18] they would have to change the schedule they didn't want to multiply each of those by two but they would multiply each one of those by like let's say one and a quarter thinking that they could work around it so I see so the demand

[01:26:28] is from the people drawing up the contracts in the beginning who could maybe get in trouble later if the contracts are not satisfied correctly and now there's a legal battle so they can't their lives are stuck because they're always making these contracts and someone's yelling at them like

[01:26:42] why didn't you write the contract cracker now it's a legal thing and it's even more than a contract, yeah so it's I think it's also managing it along the way so both sides have an interest initially I believe that they

[01:26:54] were convinced that the side that mattered the most was the side that was being shown the change schedules so the contractors were showing the change schedule but the investors didn't have the expertise to actually be able to read those things

[01:27:06] they would hire people but they were very hard to follow the changes so this is the woman but now I think it's on both sides actually this is the woman who is going to be stuck with her screaming kids in the back of the boat

[01:27:18] but instead it's going to be on both sides people making a deal and a contract but they're going to be having screaming lawyers at them later or screaming managers at them later right and so you see the consultant didn't understand the demand

[01:27:32] the consultant thought the demand was for the answer but the demand was actually to be able to be a participant that were hiring him to do consulting so they could argue with each other but he was trying to now empower them to be involved

[01:27:44] in the argument in some way it's so interesting because obviously this is very interesting for product development but it's also very interesting for sales in every situation right let's say you're asking someone out on a date like she's already filled up I'm thinking me with

[01:28:02] girls back in the day women back in the day she's already got her 24 hours a day seven days a week filled up in her mind in her life and I have to convince if I ask someone out on a date

[01:28:16] it's not okay to go out with me on a date or I have to present the situation where it's not okay like Brad Pitt has no problem if Brad Pitt asks someone out it's not okay to not go out with Brad Pitt on a date

[01:28:28] just for control maybe for some married women they have him on some list but for me much different situation than Brad Pitt I have to somehow situationally the situation the words I use everything has to the way you said it and the way I gave those descriptions

[01:28:46] of those sales people I was actually saying trying to say those as those are manipulative and sort of unethical that's how I was told I had to ask out women and I'm thinking being unethical and manipulative it can work but it's unethical and manipulative

[01:29:02] so what if you could actually understand the authentic demand this is I love for me I love this example of thinking about like there's a woman that you're interested in because that's a lot of what founders or big companies when you're doing innovation

[01:29:18] you're actually feeling this kind of sense of unrequited love right oh no it's even called the honeymoon period when you first do a deal with somebody or first start working with somebody one thing even before that it's like I'm looking across the room or someone's looking

[01:29:30] at me and you're interested in them and they just like you there's a big difference who may just like you and there's an authentic demand but it's not manipulated in the sense though that most people think they can't not find a life partner or someone to date

[01:29:48] they're lonely, they want to find someone to date so part of the problem you already saw is by existing but then they have other conditions they want someone who is maybe they want someone who makes a certain amount of money or they want someone who likes sports

[01:30:02] or they think that they have some criteria so this is so exactly on point because here's what people normally do or what they do which I would encourage them not to do is they try to guess they like talk to her for a little while

[01:30:14] and they find out like what movies she likes and then they pretend to like those movies or they see how she's dressing and where she goes they try to change their clothes they try to become the thing that she would be interested in

[01:30:26] okay so there's a wonderful movie that I think kind of tells this point which is Groundhog Day so how did Bill Murray get the girl he finally figured out that he was supposed to figure out be really interested in her just by being interested in her

[01:30:42] he became somebody that she was interested in which is a lot different than trying to make up how you're supposed to behave or how you're supposed to manipulate things so that she'll go out with you and I'm trying to do the same thing with customers

[01:30:54] the job to do with customers is become so interested in them that somehow you become the thing that they're interested in as opposed to trying to guess what you have to make so that they'll love you okay so again I really want to nail it down okay mechanically

[01:31:10] so I want to be an entrepreneur and let's say I have a vague idea and by the way companies part of being an entrepreneur is you start off with one idea but you pivot sometimes to multiple ideas

[01:31:22] and the reason people call it pivot is they don't really know what they're doing so our companies don't pivot actually here's a start another way decide I'm interested in the situation that those people are in I don't know what that means okay let's take healthcare

[01:31:38] so healthcare it's such a drag that every doctor you go to you need to fax all this paper around and I know companies have been working on this for decades but why isn't there some like global healthcare internet so step one

[01:31:52] I learned this from my own PhD advisor there are important problems and then there are black holes and you want to work on important problems that aren't black holes you start out by telling me here's a problem that everybody's worked on and no one solved

[01:32:04] I'd say let's not work on that one unless you have an idea about how to solve it I wouldn't go down that path but if you said here's a place where there's a lot of things going on and I'm pretty sure because human beings

[01:32:16] are human beings they're stuck in some way that they don't yet see and I don't yet see but I'm interested enough in them to go figure it out so you have to pick places if you're an entrepreneur where you know something about it

[01:32:28] we've had companies come in and say we're really experts at travel stuff we want to go into the the trucking business here's a bad plan it's going to take you a really long time to learn what the trucking business is like and it's only after the trucking business

[01:32:44] that you should go figure out some sort of innovation to do figure out some area that you know something about so if you've never been a doctor you've never worked in a healthcare office you've never sold to them I'd say don't start there

[01:32:54] start with some place where you actually could know something and we all know something so start there and then and now it becomes more like the scientific method and this is to make it faster to make it faster if you just go and watch them

[01:33:10] you will make up a story in your head about what they need and it's just like if you have random numbers in some pattern you will find a thousand random numbers you will find the pattern so your brain is just going to make things up

[01:33:22] so instead of that we say before you go out describe what you think their situation is like and how they're coping with it just describe it like say I think that they have a boss and I think that they've got a schedule

[01:33:36] and I think that they have a calendar that they have to maintain so we have a 2x2 matrix and we have a set of activities that you think they're carrying out there's a set of resources or equipment that they use to carry those things out

[01:33:50] there's a set of relationships maybe with their boss, maybe their co-workers maybe their spouse that they have to maintain and there's a set of channels that they use by which all those things move through sit down before you go have any of these conversations

[01:34:04] and just try to make a little situation diagram that describes for yourself what you think their life is like and interact with them and see if you're right and it's amazing if you go to someone and say hey James, I think here's how you do your

[01:34:16] podcast I think you have someone else like booking the guests and I think you have you know you rent the place to like do the podcast and you know you get paid by the number of hours I'm going to make up all these stories

[01:34:32] to try to explain what I a simple thing that explains to me how I think your life is what we find first off is most people are not okay if you show up and tell them what their life is like and you got it wrong

[01:34:46] most people will just correct you they'll say that's not really right I don't actually rent my equipment it turns out I buy my equipment so you go home and rewrite it and say find the status right there are people who

[01:34:56] here's how they do podcasts they buy their equipment blah blah and then I go try to find someone else and I go to them and say hey you know I've been talking to people about this I hear this is what they do so if you build these situation

[01:35:08] diagrams to see how people are currently coping in their life when you do that after a while first thing that happens usually happens about 5-6 weeks into this is you become incredibly depressed like almost 100% of the time you start to realize wow

[01:35:24] these people that I thought had some demand that I was going to be able to fulfill they actually know just what their lives are perfectly fine thank you very much every place I'm looking to think that there's some authentic demand uh-uh it's not like that

[01:35:36] now if you can get yourself to keep going some anomaly shows up like in the case of my friends who did Florence Healthcare the anomaly is well wait a minute I never noticed that you were crossing these things out or you started

[01:35:52] you meant you didn't bring it up to me but you were like complaining that you had to go chase a doctor like on day one if I had talked to you you wouldn't have said to me that I had to go chase

[01:36:00] a doctor but now I'm talking to you and it just comes up you're explaining to me you're not doing something else because you're going off and chasing a doctor now I'm wondering okay well is there something that you're doing or not doing that's in the way

[01:36:14] that's going to keep you having to chase a doctor and then you can start to think about product and going down that path that's the work that's what we call doc we call those documented primary interactions and it's you can really do it and you can really

[01:36:28] get good at it and you do about 10 or 15 of those a week and it's funny it doesn't feel like progress one of the things that's really interesting is like and I think this is one of the things that makes us hard to do this

[01:36:40] work differently is when people are building product they can see progress like I'm going to add this feature add this feature I'm going to go out and try to convince people to buy this in this work your work is to become less

[01:36:50] wrong every day your job is to become less wrong it's also you're trying to figure out you're trying to figure out what can't the customer not you're trying to see how they're stuck you're trying to see them for being stuck

[01:37:04] right and then you're trying to create something that once it's created then they once they start using it then they can't not not use it like Uber I was fine in my life before Uber existed but once Uber existed yeah I had to use it

[01:37:16] yeah I mean I use this example you walk into a colleagues office just so happens that like it's a weird made up situation but you start to see what it looks like and you see that there's a bunch of nails on the table and there's some

[01:37:32] picture frames there and it's weird because they're using the back of their iPhone to gently really gently tap these nails into the picture frame and you think to yourself that's really silly you know I they're not stopping so you quick duck out you grab the hammer

[01:37:48] that you had to happen having a drawer in your office and you bring it in and you put it on their desk it'd be really really weird for them not to pick up put down the iPhone and pick up the hammer so they were stuck

[01:38:00] they didn't have a name for stuck they weren't looking for a hammer they were just going about their business but you understood in how they were going about it that this was not okay but they were okay with using the

[01:38:10] iPad even though when hammer was just in the next office yes but they're not actually okay I mean the thing you have to you have to understand the subtleties of what's real what are those moments there might even just be moments that they don't even

[01:38:22] realize are happening those moments where they're not okay with something so the big opportunity is to see an authentic demand in which there's no consumption that's what you're looking for like nobody was looking for something that would automatically redact their papers nobody was looking for something

[01:38:40] that would go solve the shazam problem that nobody could describe that problem to you but if you actually can see it you can actually see the situation in which a person is stuck and they can't even name it in fact one of the things that makes this

[01:38:52] weird is the authentic demands people identify they don't really have names yet to come up with like new noun phrases for it like how well what's what's the name for the person who needed the hammer and that such maybe there's a name

[01:39:04] because it's hammer but a lot of these times a lot of these things people if this is why you can't do this by by survey for example like you can't survey people and say would you like something that would do the following thing

[01:39:16] because there's no name for that anyway that's I like this idea of though then okay here's some frustration that I've observed not just now and that's after lots of interactions and documenting my observations here's some frustration I'm seeing now here's a list of

[01:39:34] alternatives here like instead of the iPad maybe he could could have picked up a shoe right yeah he could have picked up a book or we could give him a tiny little hammer because it's only a tiny nail like we don't have to

[01:39:46] be searching the whole office for that or the nails could have driven themselves or something just like with this example oh I could have an app which records it and then sends it on Twitter and crowdsources the solution

[01:39:56] now that might be a bad solution but that's one alternative yeah or you're the press button and it connects to an expert who will tell you something yeah yeah so and and then there's an auction a reverse auction like how much do you pay for so these are

[01:40:08] all bad solutions and you have to kind of find the least bad solution well so let me see what I can if I can tell you what I think a product is so in a situation in which a person is stuck in which not doing something

[01:40:22] is not okay you identify something that has to change and now what your product is is something which when you introduce it allows the person to change and it overcomes immune reactions give you an example in the healthcare space so if a person

[01:40:42] a typical thing people will say is they'll say I know what I should do is go on a diet and so you say okay well you know you should go on a diet and yet you're not dieting and you might say this is a sort of

[01:40:56] technique you'd say well suppose you could suppose you had to be on a diet for the rest of your life you do this weird thing it's called breaching you push people in the wrong direction instead of saying what can I do to make it possible to be on

[01:41:10] a diet which is what most people do it doesn't seem to work you go the other way you say well okay suppose you had to be on a diet for the rest of your life what are you worried about and some people will say things like this

[01:41:22] well you know I'm a gourmet I've done a lot of work to like develop my palate and you know when I think of diet I think of like having crappy food okay well you can go out in the market and there are diets

[01:41:34] that you can buy in the supermarket or they'll ship to you that advertise themselves as lose weight and have fantastic meals you see so it does this two things it does the thing that you're reaching for which is to be on a diet

[01:41:48] and it takes off a table the thing that you're worried about we call this grip to grip mapping it's like somehow people are stuck doing things the way that they're doing it because it allows them to have a grip on something

[01:42:00] but they really want to get a grip on something else and the way that they think to get a grip on something else makes them worry they're going to let go over here so what a product does is it allows people

[01:42:08] to go for this grip which we call an aspirational grip or what's that we think an authentic demand is not getting that grip is not okay and they can do that without the product triggering the worry that they're going to let go of this

[01:42:20] because that's what stops them from changing so the work is to first identify the aspirational grip and then understand why it is that they can't themselves change the behavior and then your product becomes the thing that actually allows them to move forward

[01:42:34] and that doesn't trigger an immune reaction to not doing the using your product so this is really also incredible useful for entrepreneurs right now who are stuck in a way to look at their product like you know A, are people okay with not using the product

[01:42:50] we're not getting the grip so the product is the thing it's mud pie so you say is it okay for the kid to not have a relationship with their mom the answer is no so it's like this immune there are these immunities to buying the full

[01:43:08] product like a woman down the street wouldn't buy a mud pie because it's made out of mud you have to give her tasty food so you would notice when presenting to this woman and you're documenting all these interactions it feels revolves in it the mud pie

[01:43:22] so you're really selling something else to your mom which is like family affection so there are two big tools that I think we've invented or developed or refined one is called situation diagramming and that is let's just understand for every person how they're

[01:43:38] managing to hold their life together so there's some activities they carry out or don't carry out there's resources and equipment there's relationships that they maintain and then there's channels by which they do that and we describe what those are and then it's not just them

[01:43:54] there's a whole bunch of people we all kind of revolve around each other like living our own little business models so you map that, you do that diagramming and then you ask yourself well is there something in there that they're sort of stuck they kind of

[01:44:08] not having this resource is not okay but that's really not what they would be drawn to have and you see how they're stuck that gives you the first clue the second clue is this grip to grip so why can't they change

[01:44:20] now you have to go in and see why they can't change I'll give you an example just from a practical point of view people let's say you've got a product and you discover that every time you bring people this product they say to you wow

[01:44:36] that must cost a lot or they say to you how much does that cost and I would say okay let's just break that down there's a behavior right there that's not okay like as long as they're asking you how much it costs they're not buying

[01:44:48] so you want them, you're drawn to have them buy let's say that you're all sort of pretty convinced that they should buy but they keep asking you about the price so what do you do about that you know before I had

[01:45:00] we had any tools I would have said here's what most people do they say well how come you're asking about the price they would say you know it's not that expensive they would find some way they would say well I can make it cheaper

[01:45:12] for you they'd guess at all these things so I'm going to suggest a better way a better way is try to find out whether or not there's they not asking about the price is not okay you like asking about the price

[01:45:26] a way that they have a grip on something so here's what we train people to do or here's what we suggest in the book to do when someone says something like that that's really in the way it's a speech act

[01:45:36] that's in the way you can say to somebody and it's a weird thing I hear you asking how much it costs I'm kind of curious like suppose you didn't bring that up at all what are you worried about it's kind of like saying well suppose

[01:45:50] you went on a diet like what are you worried about and people say weird stuff you don't know what they're going to say a typical thing they might say is well I don't want to have to bring something too expensive

[01:46:00] to my boss again because last time I did they yelled at me so this isn't about price this is about the fact your boss is going to be upset where they might say well you know I've got a fixed budget now

[01:46:10] but in September all of a different budget so it wasn't that they were worried about price they were worried about when you needed the money and you don't know these things but the way to start to map these things out

[01:46:20] is to actually go from okay they're trying to grip something but instead of gripping it they're doing something which is in a way like asking about price and if they keep asking about price you want to get them to not do that

[01:46:32] well so how do you get them to not do that you ask them well suppose you didn't do that what would you be worried about and if you have learned how to have those kind of conversations it might eventually get to something which they have a grip on

[01:46:42] like well this is my way they wouldn't tell you this this is my way of not being yelled at by my boss and having to figure out how to get the money from the current budget until later it's so funny because that works for

[01:46:56] so that idea is great to kind of like hey if this wasn't on if this wasn't a worry what's you know well no you get them to generate the worry so you said suppose you did it I'm trying to get them to breach

[01:47:10] well suppose you never asked me about price again what are you worried about because people when you breach they often can feel something and I've seen like excellent sales people use this in really high stakes negotiations like I was in a meeting once

[01:47:28] it was too hard to explain what was being sold it was a very expensive product slash service and the CEO of the other company he's like why did you even bring me here I'm going to spend X, Y, Z and the guy who was running the meeting

[01:47:44] listen we just want to figure something out so let's say we could do this all for you for free what other is there really any other issue was price the issue or so he's done what I think is what you're saying no it's actually a little bit different

[01:47:58] so but then we found a base though to move forward I'm not saying other things don't work I mean I've been trying to introduce something new that's a new set of tools actually one of the things we've learned is that you can just get better

[01:48:14] at doing what you're already doing so it's like make technical improvements to your product which people will just reach for you could try to get people to change how they go about doing things which meets a lot of immunities

[01:48:26] or you could try to see things in a new way which is kind of formative one of the things we've learned is you need different tools in different situations so you want to be really efficient about this so if you're in a situation where there's a behavior

[01:48:40] that's asking you about price and that's just in the way where they keep asking you about doing a proof of concept and that's in the way the move to make isn't to suggest I'll do it for free the move to make a move to make that's really powerful

[01:48:52] but it's really kind of intuitive is just suggest to them that they do exactly the opposite behavior so if someone is like complaining to you about price say instead of saying well do it for free now let's talk you say I hear you keep bringing up price

[01:49:08] suppose you didn't bring up price what are you worried about because their behavior is not revealing to you what the issue is if you say I'm going to do it for free you may not be talking about their issue at all

[01:49:20] this may have nothing to do with price they're just using the statement to protect themselves with something else you see when the person said I'm not going to go on a diet you could guess all day long for what's in the way

[01:49:34] but if you said well suppose you did go on a diet that might surface the concern about being a gourmet instead of saying if you don't go on a diet you might be unhealthy and die well let's say you do go on a diet

[01:49:46] what's going to go bad in your life yes or you keep saying you're not going to go on a diet suppose you do go on a diet in this case like in the meeting I described the guy could have said well let's say you spend this money

[01:50:02] what bad things going to happen at your company and the guy could say it's a cliche with that guy we're going to go bankrupt if we keep spending money on stuff like this okay so there are a lot of things you're spending money on

[01:50:14] that could drive you bankrupt why are you worried about this thing driving you bankrupt what we learn is there's a reason we call it grip-to-grip mapping people are trying to get if it's a not-not for them so if you've actually identified that

[01:50:28] staying in this situation is not okay therefore it's not okay to not leave the situation that's a better way of saying it so it's not like they have to leave the situation it's just that staying in the situation is not okay all the paths currently leave

[01:50:40] in the situation let me just talk about that stuckness for a second there's this wonderful interview I forget who it was with and I forget who was the it's a story in the book but there's a musician bridge over troubled water who was that Paul Simon

[01:51:00] he was stuck yeah he was describing someone was asking him the interviewer was asking him so tell me how did you come up with that song and he said well I started with I don't know if it was Beethoven or something and got to this point

[01:51:12] and then we were stuck I was stuck and the interviewer asked this great question he said well what do you mean by stuck he said you know stuck like every direction I was going wasn't getting me where I wanted to go see that's what stuck means

[01:51:24] like every direction they're going isn't getting them where they want to go so where they want to go is they want to get a grip on something but every direction they're currently going doesn't get them there now you discover something that

[01:51:36] would have to change because that's a direction they would have to go or that would have to be a direction they stopped going in but when you ask them to do that you discover that there's other thing that they have a grip on

[01:51:46] that the current thing that they're doing is the link to hold on to that grip so how do you figure that out well if you find someone for whom not losing weight is not a good thing and not losing weight is not okay

[01:51:58] like everything they're doing is causing them to gain weight or not lose weight you find that out and you find something that they're currently doing that's in the way like or not doing this because I'm not dying that's in the way so that's a path

[01:52:12] I'm not taking and you say let me try to understand why that path is a path you're not taking so suppose you were to die it see that's the move to make suppose you were to go in that direction what are you worried about

[01:52:24] at this moment it's amazing how often people can reveal to you that makes me worried about something so really this is what you've always told me and I'm going to say very simply what I feel like you've been telling me for 10 years is that

[01:52:38] there's much more information in a no than a yes people could say yes to you for many reasons the guy at eBay could say yes because he just wants you out of the room and not see you for 6 months so he says yes

[01:52:50] come back when you, I love this this is great come back when you build the product because he really just wants to go on to his next meeting potentially just making that up or but no you can get some informational content out of that if they're introspective

[01:53:04] enough yeah and of course that's that's true and that's more but there's more to it than that which is this if you try to stop people from going in the direction they're already choosing to go the fact that you can't stop them

[01:53:21] the fact that you can't change their direction there's information in that so yeah that's what I'm saying so currently they're not dieting so I said to them well suppose you had to diet suppose you dieted I'm trying to change their direction and if people are resistant

[01:53:37] to the change you can try to understand well on what basis are they resistant to the change because that's what you have to overcome to be able to be helpful to them like they can't themselves start dieting they're drawn to diet and so instead of saying

[01:53:51] well what can I do to make the diet more palatable to you which I'm not sure they have access to what you do is you try to you try to force them to go in the other direction literally like you say okay well suppose you did diet

[01:54:03] like now what are you worried about do you think this works in politics well let's say I ask someone who you're voting for and they tell me you know Bob Smith I'm voting for Bob Smith well why are you voting for Bob Smith do you really know why

[01:54:19] so is it not interesting why they're voting for Bob Smith is it more interesting why they're not voting for you know Jack Brown I would say it seems to be very safe to say people do not know why they make their decisions they make up stories about it

[01:54:39] but they don't actually know if people really knew why they did things you could ask them what you need to make for them that they would buy it and then you would just make it and they would buy it I mean a lot of this work comes from

[01:54:51] all the obvious things don't work like if you ask people what to make they'll tell you and you make it it doesn't work you ask them if you make it will they like it and buy it they'll say yes and then they don't buy it

[01:55:01] I'm trying to point out that the direct method sort of the obvious method is the waking dream it's like here's how we're in the waking dream this is what we think people do but it seems like if you push people okay let's say you go

[01:55:15] let's say you do the thing that makes you uncomfortable what's the bad thing that's going to happen so let's say you vote for the guy you don't want to vote for what's the bad thing that's going to happen might give you more information than

[01:55:25] why are you voting for this other person I have never thought about it but it seems plausible right like I might say I might not vote for someone because I don't like their stance on Russia Ukraine or women's rights or whatever

[01:55:39] but if I say I'm voting for someone I might be I just think he's better than alternatives or my wife's voting for him so I'm voting for whoever my wife so all the things you say but just to be accurate this works this theory this approach works

[01:55:55] you got to start with some place where there's already an authentic demand so I can't just say you've revealed to me nothing about dieting like you don't care about your weight anything and then I come to you and I say well so suppose you started dieting

[01:56:09] and like why are we talking you don't care you have to start somewhere where there's a grip that they're trying to get so if you walk up to someone and say I'm curious why are you voting for that person versus this person

[01:56:19] I don't know what you're going to learn this stuff makes sense in the context of somebody is trying to get somewhere and they're stuck and then you as the entrepreneur can do something perhaps which will get them unstuck yeah no this makes a lot of sense

[01:56:35] I could think about it in terms of writing a thriller novel everybody in the world wants to write their novel okay I want to write a thriller novel and yet every year that I say to myself on January 1st this year I'm going to

[01:56:45] write a thriller novel by the end of the year I don't write the thriller novel so what you're saying is not like why didn't I write the thriller novel let's say you wrote the thriller novel what are you afraid is going to happen

[01:56:57] actually so this is a great example because the trick is the existence of the thriller novel is an outcome we actually get down to a super detailed level of what we call behavior and I'd say what are you doing or not doing in different situations

[01:57:13] that's in the way of your writing a novel and then ask you to make a list so for example you might say in the morning when I could write I'm not writing okay that's a behavior not writing in the morning I don't know it's a behavior

[01:57:27] and then you could say like if you were writing in the morning what's wrong so step one and this is something to learn from the theory that Bob Keegan and Lisa Leahy at Harvard came up with about immunaries to changes the trick is

[01:57:41] to make a list of all those things that you can think of because if you make a list of all those things and you stare at them and you say okay well I'm not writing in the morning and that's a negative thing I'm not writing in the morning

[01:57:53] and you could also say I open up CNN in the morning that's a positive thing so either you have to stop opening up CNN or you have to start writing so you make a list of all these things you're doing or not doing that are in the way

[01:58:05] of trying to get this script the reason that's important to do initially is you have to see them all and then ask yourself the following or make the following observation aha if none of these change I'm not going to be able

[01:58:19] to get that group and the reason that's important is now that creates an authentic demand for at least one of these changing because now that you know that at least one of these changing I can say let's pick one see if we can change it or it could

[01:58:31] be that I just don't really want to write the novel I'm just saying I do well or or you discover one of those things that could change would be easy to change and you don't have to worry about it

[01:58:39] you just change it that's that happens a fair amount of time but then you might say okay well let's say in the morning I have to stop looking at CNN and you say okay well it's January 1st I'm going to make myself a commitment and the years

[01:58:53] you've commitment and I'm not going to watch CNN and then you discover like three weeks later you're watching CNN again it's like what happens with gym memberships they all start you know gyms are full in January they're less full in February and they're empty by March

[01:59:07] people make these commitments but they can't hold them so that's what you're looking for the things that don't you can't change that's where you become valuable to the customer or to yourself so now I might say to you okay James it's pretty clear that as long as

[01:59:21] you keep watching CNN in the morning you're not writing that's for sure so if nothing else we have to stop that but sounds like you've tried and you can't so let me go the other way and say suppose you never got to watch CNN ever again

[01:59:33] this is kind of move to make it all or nothing because that helps people focus what would you be worried about and people say all sorts of weird things I mean I love the examples from Bob Keegan's book we have time I'll tell you

[01:59:45] the story from Bob Keegan's book so Bob Keegan tells this wonderful story about himself when he's trying to lose weight instead of so illustrative he said there are times when he really wants to lose weight and he makes a list of things he's doing or not doing

[01:59:59] and one of those things is he goes out to dinner with his wife on a Friday night and the server comes over and offers a dessert menu and he says yes and he finds that he can convince himself on January 1st to not say yes

[02:00:13] but then like a month or two later he's ordering dessert again so that would be something to change and so you go through the following and he's so amazing he said well okay suppose I never get to order I never say yes to a dessert menu ever again

[02:00:29] he said well the first thing I worry about is my father he says what does this have to do with your father and he says why would bring up your father he says well I think about my father in the fact that he grew up during the depression

[02:00:41] what does your father in the depression have to do with ordering this he says well I think about when we were young and my father was working really hard he was working that hard because he didn't want me to feel deprived

[02:00:51] what does this have to do with anything he says well if I don't if I deprive myself then I'm not being the father I'm not living the life my father was working so hard to have and so he realizes in this weird kind of chain of logic

[02:01:07] that he was able to maintain a grip on being the person that he making his father's life meaningful or somehow consistent by ordering cake because he wasn't by ordering cake he was being not deprived and we realize that you realize okay well what's the chances

[02:01:27] he's going to stop ordering cake if that means to him that he's like denying all the work that his father did to have a life which is not deprived that's what's in the way the point of that is what's in the way is really weird usually it's psychological

[02:01:43] it's deep people don't have access to it he could never have told it to you if you said well suppose you just ordered the cake you know just order the cake or suppose you you know it's like or you know you could give him

[02:01:55] all sorts of positive things to do but the way to elicit this the way to sort of be an entrepreneur and see how you could be helpful to somebody is to identify the behaviors that if they don't change cause them to be stuck

[02:02:07] which they can't tell you about initially because you don't see them clearly enough and then you figure out whether or not they can change themselves and if they can't you can become you can build a product and you describe all these methods like in the situational diagramming

[02:02:23] with stories documented interactions yeah it's almost like you're we know there's innovation but we know innovation is possible all the time all over the world but you have to kind of like drill for oil because if it was easy

[02:02:41] and it was innovative like that's why innovation is still there's always a frontier of innovation because it's not obvious what the next it's funny we didn't we didn't actually start the podcast talking about that but the place this all starts is how come so much innovation

[02:02:55] fails how come so much startups fails how come people build things and then they sometimes they fail because founders have a fight about something or sometimes they fail because there's money's not around but mostly they fail because they make things

[02:03:09] and people don't care they're just indifferent to it so the puzzle is for me or for us the puzzle was two parts one part was how come you don't notice that people were indifferent because you're thinking that they can't be and then how could

[02:03:23] how could you actually go about trying to figure out a non-indifference upfront because if you can figure out an authentic demand upfront when you build it you can be pretty confident that people will reach for it because you know on what basis they're reaching for it

[02:03:37] I don't know how we got to that point but yes the whole point of this is could you go about this in a way that is less accidental or like more incontinent it's more post-enlightenment this is the weird thing for me and I don't know

[02:03:57] what to make of this it's like discovering that germs kill people when they operate on them and try to convince doctors who never heard of a germ or who didn't think that it could possibly matter that they should like wash their hands

[02:04:11] and change their clothes before they operate it just doesn't make any sense but once they see it then they have to somehow operate in the sterile field the thing we're talking about in this book is there are things that you could just notice about

[02:04:23] what makes someone a customer there should be a not-not, there just has to be and in every situation right because then it's okay for them to do something else then they it's like the gyms and they have to have you go into the gym

[02:04:35] right and then you can say well how come I don't know that there isn't a not-not why do I think there's a not-not and the answer is because we all live in this kind of fantasy world that we think we know why people are making decisions

[02:04:45] and what they're doing and we never go and check and so then the question is well how would you go and check and it's a little bit for us like setting up if you decide you want to have a sterile operating room you have to hire someone

[02:04:59] who sets up the sink with the soap for 15 seconds and you have to have someone watching you as you're operating because you can't remember not to touch the back of your head as you get an itch which causes you to now not be sterile

[02:05:11] you have to put all these mechanisms a sort of simple framework process in place to protect yourself from these kind of waking dream thoughts that are in the way of you actually seeing what the authentic demands are that's what we found

[02:05:23] that we did at Flashpoint in this process and that's what we try to describe in the book that people could set it up for themselves and others so that they have some chance of being protected from building things that they think people won't be indifferent to

[02:05:37] but they'll actually be indifferent to I mean it's so fascinating because throughout the book and also throughout our discussions through the years it's so interesting how you take kind of the what do you call the way when you see not the image but the reverse image

[02:05:51] oh yeah the negative space yeah the negative space like you look at the whole negative space and it's not like what's the problem it's what's the negative space of the problem and from there you can see what this outline of the real problem it's a million years ago

[02:06:07] you had a magician on your podcast I happened to be visiting you in New York when you had the studio Steve Cohen he wasn't the magician there was an Asian guy who had a show Oh David Kwong and he described something which I'll

[02:06:23] just show you how he was doing it's really great to see so the magician's problem he's not an entrepreneur but he has a problem which is he's up on stage and he needs a volunteer to come up from the audience and pick a card, that's his problem

[02:06:37] so if you just say anyone who wants to come up on stage nothing happens magicians have learned with a lot of trial and error that if you do the following almost always someone comes up on stage here's what you do if you say to somebody you right there

[02:06:57] would you mind standing up for me thank you very much and you get everybody's attention on them give them all a round of applause please come up on stage let's give them a round of applause now if you say to the person they almost always come up

[02:07:13] if you say to the person would you please stand up and come up on stage they sit there okay what's going on the magician is creating a situation in which the guy really doesn't have a choice you first say please stand up someone asks you to stand up

[02:07:29] and all eyes are on you what's the big deal you stand up now you say please everybody encourage them to come up on stage now he's disappointing everybody so the thing to try to do is to try to see how the situation creates these not-nots

[02:07:45] in which people can't really not do something and what I'm suggesting and what's hard to see is we're all thinking in this sort of positive space we're explaining to ourselves why people do things maybe I should have started there and I said

[02:07:59] like why would he why would eBay buy because it saves them 40 million dollars okay but what about the negative space like is it okay for them to not buy which is all the other possibilities and the answer is yes so yes it makes sense for them to buy

[02:08:13] but it also makes sense for them not to buy therefore they're not customers and I'm always thinking one step further just as a practical business okay you're looking at it do they want this product or do they not want this product what's the real demand

[02:08:27] but you could create a kind of either inauthentic demand but still demand or maybe a borders on authenticity where you could say okay so I can put you down for a $50,000 audit of your bot situation and then you could have still done business

[02:08:45] with them probably right on the spot there yes I teach this stuff to a lot of people so one of the things that's hard for me thinking ethically about it is okay I'm showing people that it's all about subtracting negative space so you get the behaviors you want

[02:08:59] take off the table all the things that they could do an alternative so you'll get them to do this that's very manipulative and you could do that but you could also do something which is better for the world I think where people are trying to go already

[02:09:15] and see why they can't get there and enable them to get there and when you do that it doesn't feel like a struggle yeah I agree with you the reason I propose the technique I just proposed is that you think they really need this

[02:09:29] and by the way they think they have a mathematical way of thinking oh it saves us $40 million so you're removing another obstacle to them saying no that was easier for them no I love this so I don't think for me maybe saving $40 million

[02:09:47] let me start it someplace else and it's so confusing because things that seem so obvious just aren't right like I can't tell you how many people are telling entrepreneurs or innovators make things that people want you should make things people want it just can't be right

[02:10:05] and the reason it can't be right is just think of something you want that you don't buy and think of something else you want that you don't buy there's so many more things that you want that you don't buy than there are things that you buy

[02:10:17] so if you as an entrepreneur as a company make things that people want you're just much more likely to be making something they want they don't buy that doesn't solve it then people say let's solve it by making it they really want it

[02:10:31] let's make things that people need that also doesn't work because just think of all the things that you're looking for try to see where people are trying to get to like Paul Simon was trying to get to the end of a song

[02:10:43] where someone is trying to get to a place where they don't feel the same way as they feel at the current weight see where they're trying to get to and then see what's in the way of their getting there

[02:10:53] and see if you can free them to get there that seems to be a much more powerful way to go because if you do that people follow you home that's the experience that our entrepreneurs have no and that's definitely the best most pleasant authentic demand on both sides

[02:11:09] but like friends when I was telling American Express they needed to have a website I had a vision for what I thought was the future maybe I was right maybe I was wrong but I expressed my vision to them and they agreed enough that

[02:11:25] they felt at that moment that they couldn't do without a website and I turned out I was correct but was it manipulative convincing them they needed a website or their outcome was they wanted to spend their marketing dollars in the best possible way

[02:11:43] and I really felt this was the best possible way so that's important of course was it really if you went into that thinking I'm just doing this because I want them to spend money on me and I'm going to make something

[02:11:59] and no one is going to ever visit the website well I think it could work it could work I've never been able to make it work because I've only been able to sell something this is my fault as a sales person

[02:12:09] I can only sell something I believe in not for any ethical reasons I'm just a horrible salesman and I don't believe in it yes so I think that's good because I know all the sales techniques you could possibly know I've had every sales person on this podcast

[02:12:21] in the world I don't know if anybody in the podcast audience cares about this but I care about it the other difficulty that you also have to deal with is it's colonialism you can decide these customers will be a lot better off

[02:12:35] living their lives the way I think they should live their lives so I'm going to convince them to buy it because I think they're better off I think that's possible what I'm learning is it's so much easier and clearer and things happen so much faster and bigger

[02:12:51] if you go in this other direction figure out who they are figure out which way they're already impelled figure out which way they're away get those things out of the way and they'll buy that from you absolutely which is ultimately the direction I wish

[02:13:05] I had gone in which would have been a product direction because then I don't have to impose my vision on anybody if it truly is solving a problem in the world then there will be this authentic demand so I knew that people had websites

[02:13:19] so I knew that there was going to be the industry was going to change because it was going to be easier to make websites easier to maintain them and cheaper but for whatever reason I didn't go that direction I needed to always

[02:13:33] be a service business because I couldn't afford to be a product business I think what you're saying also I knew you back then so I kind of have a sense of what the timing was what the framework was our whole schooling system

[02:13:47] for the most part kind of teaches us to trade our time for dollars like you know makes me crazy when I think about it but you go to a classroom and you spend an hour there and if you don't spend the hour there

[02:14:01] they're not going to give you a good grade then they give you homework to do or specific things to do which are tasks which they then reward you with a grade so like our whole educational system is somehow set up to make it feel as though

[02:14:13] your job is to do something for somebody and return for some reward and so then you come out of school and you're looking around for a job and you're thinking well they should pay me for something and they'll pay me for the job

[02:14:27] I was totally falling into that I was even ashamed the first time I ever hired somebody to like the first time I delegated like some software development I felt guilty because I felt like no the client hired me to write the software even though I was delegating it

[02:14:43] and I was going to check it and I was going to be responsible for delivering it so I had to go over everything and I knew that night well I knew someone was in the office working on software that I was paying them to do

[02:14:57] but it wasn't my mentality to do that so here's the shift the shift is see the customer for who they are in the sense of in this situation how are they experiencing it as being stuck even though they can't tell you see how it is that they themselves

[02:15:15] can't do something or stop doing something you could provide that for them if you're a consultant you can say well here's stuck because you don't want to go into the courtroom and have a fight with the you're the money people

[02:15:27] and you don't want to have a fight with the construction people because you're sort of an unbalanced fight and so you need me to come along with you okay now you're selling consulting services okay but is there something is there some other way you can see it

[02:15:39] like how is it that the only way they can make forward progress is by asking for a consultant like what if they didn't ask for a consultant like what would go wrong and going down that path will sometimes lead you to a place where you see something

[02:15:51] which is more like a product or a technology or something that someone else would do yeah so I mean look we've had thousands of hours of these discussions I feel and there's always so many fascinating stories so many insights it's changed the entire way I've looked at entrepreneurship

[02:16:09] and other areas of my life this kind of negative space aspect and not not philosophy and you know I knew for years you've been thinking about writing a book you've been writing a book now you've written a book you guys have it out it's great so many stories

[02:16:27] and again I've heard a lot of the stories not all the stories and I've heard a lot of the techniques but not all the techniques that you outlined in here and it was still a great read despite the fact that I knew a lot of the things

[02:16:37] and again such a pleasure that is finally out and I can actually talk about it on this podcast I've been dying to talk about it on this podcast for years so finally the heart of innovation a field guide for navigating to authentic demand finally it's out congratulations

[02:16:55] hopefully what's your goal you want it to be the best seller on business ever well I think you're the one who said we could have two out of three things we could make money or have a lot of people read it

[02:17:05] or it could actually be something that people would know something else about us or best seller list the three things are and you could only have two out of three best seller list, sell a lot of copies and now I'm forgetting the thing you just said make money

[02:17:23] so we're not trying to make money with it partly because you convinced me it's really tough to do and you're not trying to make the best seller list it would be great if it happened I'd like it to be the case this is incredibly useful people are stuck

[02:17:39] so if you've got a business and you have a sense of I'm close to something but there's something much bigger my friend Jim Balkum he's at 6 million in sales there's gotta be some way to get the 75 million I'm just not seeing it, I'm close

[02:17:55] there's a lot in this book for that if you're just an individual and you're trying to figure out for your own life I could learn a lot of skills and get a job where I'm really interested to somebody so I want to figure out how to

[02:18:09] what's my deep gladness that meets the world's deep hunger there's a lot in this book for you I didn't know, by the way we had entrepreneurs come back and tell us I thought they would say you guys helped me raise money helped me figure out product

[02:18:23] that's not what they said they said we changed their lives because it made them able to see their relationships with their spouses and their friends and themselves better you gotta know what you're listening for and it talks about, you talk about radical candor and it does

[02:18:41] change you personally to be in the mindset to see these hidden problems in life so that's our hope for the book that we make that available to people and we're also in the process of setting up a studio to build companies with people who would like

[02:18:57] to build companies with us so the book is useful for that we're hoping to build companies they want to invest in those companies the book makes it possible for people to see what we're doing I think also it's useful for people who coach entrepreneurs or leaders

[02:19:13] because one thing about any field you're trying to get better at is very easy like you said, you see a bunch of numbers you're gonna fill in a pattern so if I watch a bunch of people play golf really good I can make my own judgment

[02:19:29] about what they're doing good but I'm not a golfer so my judgment is probably going to be really off whereas if I even knew a little bit about golf I could and if I knew more about coaching golf then I can help others

[02:19:45] as opposed to me trying to find a pattern out of nothing and maybe that's our not-not is I have to say that a lot of what's in here comes from our coaching and working with founders and even working with ourselves

[02:19:57] and what it is that we're noticing about the founders that's in their way and I think a lot of that is in here that's a really good insight I got that insight just the other day because I'll just tell you a brief story

[02:20:09] I'll leave it on the podcast but I was having a chess lesson from my coach and he could I would say something and he's like you've been looking at games again from the database and I'm like what do you mean?

[02:20:21] he says I could tell you've been looking at uncommented games you saw this situation in the game and you saw this move but your theory is totally wrong and like you need to only look at commented games, games commented by Kramnik that's so fascinating how did he know?

[02:20:35] he just recognized it he's like why did you make this move and I said oh isn't this the move that is made here and then I backfill the story like oh I'm making space for my night to go here or whatever

[02:20:49] and he's like no no your night's completely ineffective here you saw Kramnik make this in a game I know the game you're referring to in his game he had this situation it's mud pie so you're telling me all moves are mud pie like you see the move

[02:21:01] and you're making up a story in your head and it's not real unless you have like a foundation for why moves are made and in order to get that foundation you have to listen to a lot of expertise or at least listen to a lot of information

[02:21:15] that could inform you and you have to have some methodology for how to listen what I love about that is in some ways you're saying that your coach recognizes when you're just like following someone else's opinion or you have a way of thinking about it yourself

[02:21:29] and he's trying to offer you ways to think about it yourself that are useful and that's what we're doing here too is like when I say you could just listen to other people's advice and make things that people want so you ask them do they want it

[02:21:43] or you can ask yourself here's a way to think about it yourself you can figure it out for yourself or the alternatives are okay for them and if the alternatives are okay for them you can know they haven't quite figured it out yet and so

[02:21:57] yeah no it's so interesting that's really interesting I can see you getting bitter at chess already hopefully not gonna not gonna catch it's very funny can I thank you this book doesn't exist without you so first of all you're like a role model

[02:22:15] for anyone who ever wants to ever write something that people can read and you know how stuck we've been trying to figure this out not stuck like Paul Simon but stuck like us it's taken us years to figure out how to write this

[02:22:27] and there were so many moments when you said things that were helpful I appreciate that there's like a million things you could do you could try to self publish you could try to get a publisher you could get an agent didn't understand any of those things

[02:22:43] so just in fact you helped us navigate that and he was writing one of our co-authors my business partner and friend you said just like you're telling, making it too complicated just bring the reader into the situation and just bring them there like you're flying the wall

[02:22:59] little things like that that you said which I know you're trying to get that kind of messaging out in other places it's just incredibly valuable and thank you for getting us unstuck oh no I appreciate it and the final result is amazing I'm so glad

[02:23:13] you followed my advice but you had it in there you had all the stories when we were just becoming the conversation you had all these great stories and I just said just write it down just write it down that was all it took

[02:23:25] so I wish it was that easy but anyway so thank you so much maybe it was that easy thanks maybe it was well thank you very again and look you put on a podcast before you'll come on again many times I'm sure

[02:23:39] never be great thanks good to see you