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

25:10And it's just dirt and water. And the mother looks then at the 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. 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 that this mother wants a mud pie tomorrow. So I've 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.

25:42I go up to him with 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. And then I go home and think, well, like the little girl thought 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 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.

26:10And that was an incredibly good way to get me out of their office feeling good about it. And how many times are people doing that with you? So again, what could you have heard? You gave the example of Rubik's Cube, but what is really authentic demand? How do you start a company? And you had all this evidence to think that your company was good even, like 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, so it took a long time to try to get our heads around the question. Because another way of saying that same question is, what makes somebody a customer?

26:49Here's one thing that's really clear when you see it, but it's hard to remember it. 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. If buying is okay and not buying is okay and they're really indifferent between the two, they're not a customer. So what's an example of indifference other than the eBay Dumballa one? What's a classic example? A classic example is selling encyclopedias door-to-door. You walk up to the door, they don't need an encyclopedia. They can be perfectly indifferent. But of course, in that setting, a good salesperson can find a way to make it so that not buying is not okay.

27:27And there's lots of ways of doing that. So the company that's selling the encyclopedias, their innovation is not necessarily the encyclopedia. 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. And it works particularly well with something like encyclopedias because encyclopedias can mean different things to different people. For some people it could be you're keeping ahead of your neighbors.

27:57For some people, it could be you're doing something to make it possible for your kids to do well. For some people, it's a beautiful piece of wooden furniture that they're going to get. And so 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. So again, that's the second time you've used this sort of double negative. So not having it is not okay. So here's how I've come to think of it. maybe this is the computer science mathematician part of me, 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.

28:39Like, what does it mean that they buy? And I'm realizing, oh, well, there's the buying, that's the activity, 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 there are other paths that are okay, then you're really not explaining to me what this buying is about. So that's this not-not principle. Not buying, not okay is a more clear way to be able to talk about what it means for there to be demand. So what's an example of something that not buying is not okay?

29:19Well, everything you buy. Right, but what's one you can kind of walk through? Well, maybe look at it a slightly different way. So what are situations like that create these not-not principles? 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 knock down your house, God forbid, or burn your house, 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 and give them a way to have the roof over their house, I'm thinking they're going to reach for it.

29:55So 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. 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. Let's look at the example of Uber. so we were in in new york city in 2010 or whenever it was that uber started getting big there if you if it was raining outside and you needed to be someplace it was not it was not not okay to to i don't know how to say it actually yeah no it's not not it's hard it's funny to get used to it it was it was not okay for me to not have a car be in a car taking me someplace that you can say a different way which is like you know i'm you're gonna find yourself in a car right right and so you're gonna you're gonna somehow get from where you are to there and when you get there you won't be wet for example you can say those and cabs disappeared when it rained because everybody and not 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 and i didn't want to take the subway i didn't like it so 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.

31:13So Uber satisfied this really authentic demand 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 drove around picking people up and I had an app that I could find a car randomly. I didn't want to call a friend because then I'm using a favor. So I really wanted the anonymousness of crowdfunding or crowdsourcing the car. And it's so interesting because the situation, as you describe it, was I didn't want to call a friend. Calling a friend was not okay, and you made up a story about why. Maybe that was the real reason, maybe not.

31:52But the point was, if I understand you, that seems unlikely. 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 losing a cab because there are no cabs. 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, 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.

32:28Among those things, Uber might show up, but there may be other things that could also happen. 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. I haven't seen people hitchhiking in New York City. Yeah, when I lived in Pittsburgh, I often hitchhiked, actually. It seemed safer there. Yeah, I would race, you know, like let's say, you know, Joe, Peter, my friends in Pittsburgh, you know, 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.

33:02That's really funny. 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. I just talked to him a few weeks ago. It was like a Saab or something? No, he had like a Toyota, one of these fancy, like Celica, I think. Oh, he had that even then? I don't remember. I think maybe. I know, it's funny. Yeah. It's funny. By the way, his business was interesting in a not-not way, but we don't have to talk about that now.

33:35So Uber seemed to satisfy this authentic demand and hence it became one of the biggest companies on the planet. Yeah. I have a problem with all of 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. 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 in which their customers were and they would be convinced the customers would buy.

34:15That's exactly what happened to me with the guys at eBay. I described the situation. They have this fraud, they have these guys out there that are boosting up the websites, 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 the situation is like that makes it seem obvious that there's an authentic demand for Uber. What we found is 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.

34:52So what do you think? The thing is, I remember the excitement I had the first time I got an Uber. And I'm just sticking with this example just for a second. But that excitement felt to me like I really wanted Uber over every other decision I could possibly make. There was no friction. It 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 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.

35:32Which actually raises a whole other question. It felt like it was the only way to go, though. Yeah, 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, then how does any entrepreneur start a company thinking he's fulfilling authentic demand? 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 and thinking that everyone's going to love my product when everyone else is listening to me and just saying, yes, it sounds great.

36:15Show us when, you know, postponing 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. So how did you check? Did every product you make, when you checked, would it all work? I would check by building in increments and seeing if there were users or customers. Which, by the way, is not a terrible idea. If there's no authentic demand, maybe you'll get people to buy, maybe you want. 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, get you very far, 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?

37:06So 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 from the people's behavior is that all product is mud pie. You don't know why. 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. And again, I see what you're saying that we don't fully know, but I just remember I really needed to be someplace and that was the only way to get there.

37:44But let me look at it from the entrepreneur's point of view. So my friend Jim Balcom got involved in this company called the Humminbird Fish Finder Company. So it was a while ago, it was some guy named Yank Ding down in Eufaula, Alabama, which at the time was a super hick town on a lake. And they were doing bass fishing there. And he found these Heathkit systems where you could buy them and they would have sonar things. And he would wrap the sonar in something that was waterproof, throw it off the back of the boat, 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 a product.

38:20So it's basically a device that electronically, if you're fishing someplace it finds out if there's fish in there. 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 commercial fishermen don't have anything like this so he would make something. 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 his young family down there. And he worked for a year and they got the$6 million in sales.

38:53And then his partner died. The reason that's important is that Jim then took over the company. And he tried to figure out how to make this thing grow. They estimated worldwide there was maybe$53 million of market. They were at$6 million. And if you listen to him, it's very interesting. You hear his story, painful. He went through nine new product introductions. Nine new product developments, nine new product introductions. That means new features? Crazy, right? So they asked people, how do we make it better? How do we get more people to buy? And they say, well, sometimes it shows us logs floating on the bottom as well as fish.

39:28So they improved the squelch mechanism and they put better squelch knobs on and that got better. No change in sales. Now each one of these requires re-engineering and you have to deal with inventory, you have to do kind of marketing. even one time I think they were getting desperate they heard from some people that they had two recreational boats they weren't going to buy one for each boat so they had to make a portable version and each one of these was super expensive so at the end he was about to go bankrupt 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?

40:09How 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 finder aisle, I guess, she saw another woman reaching for a box. 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. And he is going to be in the back of the boat with his best friend. and they're going to be getting drunk. And between me and my friend, we're going to have four kids that are going to drive us crazy.

40:42I thought if I bought this for the boat, 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. Can you imagine how hard this was? They were all trying to make the fish finder 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. see if you can get more than just one color on it. And they went through a development process and did that. So first-year sales,$75 million. Second-year sales from six.

41:18And in a market, they thought max that at$53 million. $75 million. Second-year sales,$125 million. So here's the insight. So it was entertaining for the kids, just seeing pictures of fish on the screen? 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. 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.

41:57But if you're a recreational fisherman, if you need to find more fish, go to the market and buy fish. 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? 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. They thought the market would be much bigger than it was because they didn't understand on what basis people were buying.

42:38Like, what would people's not not?

42:56You know, it sounds like the classic example of McDonald's. So there's restaurants all over the country. So if you're driving along, there's probably some diner or whatever that you'll run into eventually. But I guess Ray Kroc's, 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. 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. It doesn't matter how healthy the food is. People want to know that they're going into a clean, place yeah and so so by branding and also it's going to be the same food you don't have to worry about the quality you know you're driving up to you know what you're in order already um so there's a couple of not knots there so it was okay to to have any kind of food but it was not okay it was it was not okay to not have cleanliness and and speed of order and see here's so what i What I really like about this way of thinking about it is that first of all, it just clarifies your thinking.

44:00Because now you could wonder whether or not those were the not-nots 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 a place to get food is not okay. And they have a lot of alternatives. They could go to a 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 that might have made it hard to choose McDonald's, like if the bathrooms were dirty.

44:34I suppose you had a choice. You could go to a roadside diner or you could go to McDonald's, and for some reason McDonald's has figured out somehow 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're the cleanest bathrooms in the world, but you just don't know. Whereas McDonald's, over time, there was certainty. That's right. You know, 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.

45:08Oh, there's a McDonald's. I certainly know that they're clean. 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 of thinking that you know why it is that people are doing things. You kind of make up the story in your head and it just seems impossible for you to believe they're not going to buy. That was my problem with Damballa and eBay. It was impossible for me to believe they weren't going to buy.

45:39And 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 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? How do you actually find out whether it's true? And there, you asked me before 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?

46:18You seem like you're okay right now. 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. And it was just in my head that not buying was not okay. So like for this woman who was buying the hummingbird fish finder thing, it was not okay for her to be bored all day and calm her screaming kids down when she could buy this one thing that would entertain her. And once she's there, I'm just now imagining this, and once she's there and she sees this and now she imagines how much more pleasant this weekend is going to be, my guess is she couldn't spend whatever that, I don't remember what these things cost, but a few hundred dollars.

47:07She wasn't going to spend that on coloring books because her husband wouldn't be okay with that, but she was going to spend it on, which might have been entertaining for the kids, but she could spend it on something that her husband would be okay her spending on. The situation's complex. There's a set of behaviors that she can do and there's a set of behaviors you can't do. And the reason I bring that up is what you're also not noticing 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.

47:39That's part of what people do. They construct the situation. So before a person's ever been in a McDonald's, they don't know whether a bathroom's clean. But once they've been in a McDonald's and people tell them the McDonald's bathrooms are clean, this is, by the way, assuming that your assumption is right 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, so it's probably okay for you.

48:07And now this gets into the whole influence thing. So we start to get interested. Okay, what constructs a situation? Well, one thing that constructs a situation is people are influenced. So for example, before you said, 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 by being consistent with who they are, it's more likely that they're going to buy. Right, so you could have done the typical salesman technique, like, so I can put you down for a$150 ,000 order.

48:39Yeah, and if they say yes, they're sort of stuck. Right, and if they say no, then there's a dissonance. They can't say no, really, at that point. Yeah, so one of the key insights in the book is that people are the not-nots, these authentic demands, they come from the situation. And so... So again, like, but then, okay, there's 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. But like, again, if I'm an entrepreneur and I have an idea, seems like a great idea, How do I know it fills this authentic demand using the not-not formula?

49:21It's so interesting for those people that are entrepreneurs that are listening or we've had this experience with. It's really hard. The minute you have an idea for a product, it already blinds you. The minute that little girl had an idea for mud pie and she could imagine her mother loving it, it just blinds you. You can't really see your mother. Now, if the little girl could have 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 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?

50:10And the answer is a mud pie, a lanyard, a picture. Note to self, make mud pies for Robin when she is out of the house doing something for when she comes back. Yeah, that's funny. You make little love notes. Like, I was thinking about you. I want to prove it to you. Paper airplane, with her name on it, in crayon. Right, but the insight there is it's not a mud pie. You see, all product is mud pie. Like, 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 not have.

50:51And 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 mean, I'm not sure that's really right. 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 many, many hundreds of founders and probably 100 startups already. 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.

51:30What does it mean for people to buy? 100 % of the time, their original idea, 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, 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, to be able to see how you were stuck. Uber must have figured this out for tens of millions of people. There are going to be people who need to get from one place to another place.

52:12They're not going to be calling their friends. They're not going to have a car. They're going to have their cell phone. Just the whole thing is to create that situation. 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 and really almost impossible if you start with the product idea. I see. Give me an example from a startup you've worked with. The funny thing about this, and I'll just tell you why I always hesitate around this, is if it was really easy to see that there was authentic demand after the fact, you'd see a lot more success in investment.

52:53Or before the fact. No, even after the fact. You can't tell the difference. between a story 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 invests 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. Dating site for Twitter. The great pitch to VCs. I'm just saying, once you have the product idea, you 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 story, you can see that if you watch people's behavior relative to product, you can't see anything.

53:35Actually, the story of Dumballa goes a little bit further. The company ended up, I think, with something like$12 million in revenue, which was perfectly fine. And maybe the total revenue they 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-dollar company and we raised$69 million, which is not going to be happy with a 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 like Federal Express and they would say, we think there are machines on the internal network that are compromised.

54:18100 % 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. and people would say, well, I don't really believe it. And 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 then you can decide if you want to buy. 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's working in the company and investing is sort of convinced, well, if you really can show every large company that they're compromised, every large company is going to buy from you.

54:52That just seemed impossible to imagine that people would not be okay with that. But there were times when our salespeople would install one of these boards, come back two or three weeks later and say, okay, you have a treasurer 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. And why is that? I'll go the other way around. You're asking the wrong question. You're imagining that there's like, why don't they do it?

55:30I'm just saying 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. 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 yeah but this is a numbers game so what you're telling me is it was a numbers game that some percentage of people who are some percentage of companies that are infiltrated by bots it's not okay with them 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 yeah so yes and no so it's it's it's a much smaller market that's what i'm saying maybe there's$100 million total market you could sell for people that actually cared in the sense of it's not okay for them to not do something about it.

56:18Now 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 in 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 staff that they would send out every morning to go wipe the machines they were worried about.

56:50For those companies that had such an internal staff, there were more machines to wipe than they could actually have people go wipe. So at the morning, they had to figure out 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. and that market was probably the$100 million market kind of like the fish finder market it's like 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 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.

57:36So it's very interesting. Like you take that fish finder thing, the way she was able to 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 or just querying as many people as possible, like asking questions to as many people as possible. Like, why are you buying this? Or why didn't you buy this? Yeah. If that worked, I would say people do that already. They do that with surveys, they do that by focus groups. Here's the painful experience.

58:15The painful experience is it's really difficult to see people. 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 and build a company? Yeah, yeah. So a great question, which of course, and 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 like anybody wants something. 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.

58:53We were taking people that wanted to create startups and they weren't of value. And they tried to become of value. 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 of value. Same thing in large corporations. They're trying 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 currently feeling like, well, I'm not really where I'm supposed to be.

59:22I 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 being it, then it's definitely not right. And if they're interested in doing something and other people are not interested and they're doing it, it also doesn't feel right. I was just having coffee yesterday with a friend who loves to write, but he feels unfulfilled. Why? 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.

59:48That's the place that entrepreneurs, I think, are trying to get to, is a place where they become of value. There's two parts to that. One is you've got to figure out about yourself what's not okay. It's not okay to not what? I don't know. But then the other side, the puzzle is not what should I make, but tell me people you're interested in and go understand them well enough to see what it is that's not okay for them to not be. And you think of it in terms of product, and I think of it in terms of differently. I think to myself, my customers are stuck. They're stuck. Somehow they're stuck. The world's just not okay for them, And they can't tell me that.

1:00:28It's like they get 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. 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? 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?

1:01:09Customers or potential customers? Yeah, it's potential customers. So another thing we've 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. The general space that they're in is real, but I'll tell you, you asked me about an example of a company that we worked 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. When they showed up, they had an idea, which was they wanted to do something in the healthcare space and maybe in clinical data recording, and they knew that there were people who were sending out visiting nurses with iPads.

1:01:47They were sending out visiting nurses to visit patients that were on some drug trials or something, and they were writing things down and bringing them back to the contract research organizations. It was all paper-based. 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 houses and they can just click, click, click. It would go up to the cloud and then they wouldn't have to do all this copying and all this extra work. It seemed like a really good idea. People suggested it was a good idea.

1:02:20They had a physician 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 no authentic demand for it, not the least of which is a lot of the places they were going, 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, okay, people in the contract research organization are complaining. They're saying things like, it's all paper-based.

1:02:48We hate the fact that it's paper. and they all want something which reduces the amount of paper. So then they would try to figure out a way to do something that would reduce the amount of paper. It 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 they're almost never the things that people actually have names for. Here's one of the insights that was really weird for me. People would 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?

1:03:21And they'd say, well, it's going to save them money. And I would say, well, what makes you think that saving money is an authentic demand? They'd say, well, people are always trying to save money. So I'd say, okay, well, go back to those people and say, how much are you going to save them? Are you going to save them$100,$1 ,000? Ask them if they have other ways to save$1 ,000. It's the question I should have asked the people. But there's a kind of observation. Anything which ends in the letters 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?

1:03:53They'll always tell you yes. Are you doing any of those? No. That basic idea isn't the right idea. 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 and I try to sell you something which is 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. The reason I tell you that is authentic demands are weird.

1:04:24Like 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 and then they would have to print it out in order to get it to the pharmaceutical companies. They would print it out and they would have to go through and redact information by hand. They would have to take a black marker and by hand redact the information. Then they would have to take these forms and run around the hospital to find a doctor to sign off on it.

1:04:55Well, doctors aren't in the hospitals that much and doctors don't want to tell you where they are. 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. 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.

1:05:28And 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? Is it natural for data people to be running around looking for doctors? None of those things are natural. They're doing 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 contract research. So 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.

1:06:06Now that they're in so many of those contract research organizations, they've become like a data standard and now they can sell products to the pharmaceutical companies who have a lot more money to be able to have access to these e-binders and then have to put phds on airplanes in order to come get the data from the contract research organizations and so how do they ultimately 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 this so here's what we've learned that um you want to go see customers for being for how they're going about being themselves you want to go see that that's the hard part is how do you go how do your customers go about being themselves to understand their situations on the theory that behaviors are mostly situationally determined and if they're not situationally determined then i'm not sure how you as a business person is going actually do anything for them because what you have access to is their situations.

1:07:05So you're looking for things that they're doing or not doing that are in the way that they're trying to get somewhere. In this case, here's something that they're doing, they're erasing things. And that's in the way of their being themselves. They have other stuff to do, they don't think of themselves as redactors. 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 so your product does allows them to change behaviors 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 in the mid 90s the web was first getting known not every company had a website yeah so like companies like american express didn't have a website and my first business was designing and doing the software for websites for companies right so like i did american express.com relay i remember the company oh yeah reset reset yeah yeah and uh we did american express we did hbo time we did a hundred companies their websites and there wasn't really authentic demand because at that time was in this weird spot where 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 and 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 And really, so I had to kind of create the demand through sales.

1:08:53Like I believed that they would need this and that all their competitors 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 of that. There wasn't really, they didn't come calling for me. I had to call them and convince them through sales. techniques and through storytelling that I had this theory where I could have been wrong. I had this theory that there's going to be authentic demand for this. So the question is, am I lucky?

1:09:27Because 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. Yeah. So, well, first of all, anybody who's successful, they should realize 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's a really great salesperson. He ended up being super successful but he started his career selling land around the lake. It's a lakefront property. Here's one of the things he would do. He would get in the car with somebody who was coming up on the weekend looking for lakefront property and he'd talk to that person for a while to try to get to know them.

1:10:14And this person, for example, that he told me the story, he would say, so what do you do? And the guy would say, well, I'm a stockbroker, or I do stock trades. And my friend would say, well, so wow, in that kind of business, 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. 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'm going to have a lake where I can bring my kids up on the weekend.

1:10:52So 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 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 my friend happens to know that there's one part of the lake where it's very swampy, and they've been having a really hard time selling that, because everybody goes there and they see it looks like quicksand. And so he turns to the guy who's in the car with him, and he says, you know, I may have just the thing, just perfect for you.

1:11:32It'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, would you like to see that? And the guy says, sure, I'd like to see it. So now my friend gets on this, like, back then I think they were using walkie-talkies. And he says, 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, get someone else to say on the line that they're going to send somebody there because they're now interested in that lot.

1:12:14So he takes the guy there and he says, now most people would see that swamp and they would see that messy land there and they wouldn't ever buy this place. But I have a feeling that you're the kind of person who could realize that this is just an underpriced property and if you put up some pillars and you put a deck over that, it would be no problem. And right then, when the guy is almost on the hook, 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.

1:12:47At which point, this guy now is 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 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 he that's how he would do sales that's interesting and barring from robert chielding that those two techniques he's using consistency like the person wants to be consistent with what he said he was about and he's using scarcity because oh we only have 20 minutes He constructed a situation in which not buying was at least plausibly not okay.

1:13:27And I'm saying, okay, how's that different from what you were talking about Reset? No, it's the same thing. So A, on the one hand, it feels like it's using a little bit of a scammy kind of technique. In that case, he's actually specifically being 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 it's not acceptable to not have a website. Yeah, you could deliver something. Right. Now, I might have been wrong about my theories of the internet, but I was honest about what I thought was going to happen.

1:14:11You're thinking the bigger version of this, but the specific transaction is you're talking to somebody that has a marketing budget 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. 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, and so I had to basically build the better not-not story than other people who were selling it to them.

1:14:47Or 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 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 or really prescient to realize, wow, this is going to get to be really big at some point. So if you build up the capacity, you're going to get a lot of demand. But here's where I messed up. I created a problem for them. right so suddenly now they have to maintain a website 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 i love so so what i didn't do i i wrote software to rate make all my websites 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 wordpresses that that made websites easily and cheaply.

1:15:46You can make a website for free now and maintain for free. I had all that software written, but I didn't tell them I was using this software. How come? 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, because of software I had written, if they knew how easy it was 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.

1:16:20I call it looking through the customer. It's like you see the customer, but instead of actually seeing the situation the customer's 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 FishFinder case, the mistake that Jim would tell you He was 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 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.

1:17:03He didn't see the customer 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, 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 other things. And they have to spend the money on it, they have to have budgets.

1:17:32Because now you're interested in them in their situations, instead of trying to solve the problems that they have in order for them to do their jobs.

1:17:57So in practical use, I had an enthusiasm about the internet and the web. So I was able to, 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, so I solved a solution for me, which is how can I do make money doing this internet stuff? Oh, people need a service. I could sell them the service and, and convince them that they need this service or that they can't not do without this service. But if I sell them something that's more product, like that's actually a harder sale.

1:18:33in 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 it might not have been the right time right so not knots 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 so i'm just trying to think from a practical perspective i'm an entrepreneur i'm a new let's say i'm a new entrepreneur i i love this way of thinking this is that seems like the right way of thinking to me this not not way of thinking about things. What can I make that people cannot not do without?

1:19:06Seems very smart way to think. But now what's my next step then? So, well, first, can I just adjust that to make it real, really 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? Okay. Because if all the other alternatives are currently okay, then you probably have nothing to sell them. Yeah. And I've I've been involved in companies like that plenty of times too. What you want to do is look at 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.

1:19:43The killer is indifference. If they don't care, you've got nothing. When you spend time with people, what you're trying to see is how is it, instead of asking yourself, what could I make, which I think gets in the way, weirdly, even though it feels like the right thing to do, it blinds you, you ask yourself, can I understand how it is that they're able to be indifferent? Because you're coming in and you're pretty smart. I would have said to you with this website thing, instead of going in and pitching them on the website, I wonder what would have happened if you said to them, how is it that you guys are okay not participating in advertising in this space?

1:20:17How are you okay with that? How come that's okay? And the answer would have been, well if it's actually okay for them, then you're not going to sell them anyway. 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 you don't do it they should let you know and 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 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 but then a software platform like shazam comes along and now on my phone i could 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 to not know even though it has been okay my whole life now that shazam exists it's not okay for me to not know the name yeah So of course in situations like that, making up stories post-talk, like could you have figured it out?

1:21:24And 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 the song and they don't know the name of the song. 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 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 of it in terms of more concrete things.

1:22:03There's this wonderful story that Bob Keegan tells in his book Immunities to Change. You can start to see it. There are people who 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. 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, it's going to stop you from losing weight?

1:22:37Or are there things that you're not doing that 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, I might not lose weight. Or when the waitress comes on a Friday night or the server comes on a Friday night and asks me if 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. 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.

1:23:08And there are behaviors that they're not doing, which if they don't start doing them, are in the way. products make it possible for people to change those behaviors so if you want to take the shazam example you'd say okay do people find themselves in a moment where they feel stuck in the sense that not knowing the name of the song is not okay right i see what you're saying so for that's 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, I would not not use that method. Well, I wouldn't even, but you even, you even went to have a way, I would say, are there things that you're doing or not doing right now?

1:23:47So we could just play that game. So I could record, I could record the song and then put it on Twitter and say, can anyone tell me the name of this song? Okay. There's something you're not doing. And as long as you keep not doing that. Right. And that's okay. Cause it's too much work. Well, I don't know, but I'm just saying you're, but you're not doing it. So, I mean, 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 that you have to change to stop doing them in the way and then the work the product work is are there any of those things that i could do some help you do something about so right so so with in the ebay damballa example that you told earlier it it's like they weren't none of the people were feeling stuck because they didn't have this solution like their lives were moving on and they were happy with their jobs they weren't like frustrated nobody was sitting there with a budget that was gonna get fired if they didn't save this 40 million dollars right it's interesting right now you put it that way like right now so i'm invested for instance in one company that does some ai stuff and um he was telling me the other and for years they had kind of flat to no sales like 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 every department in the big companies yeah is being mandated by the CEOs, you have to now figure out AI solutions in your department.

1:25:06HR, finance, marketing, where's the AI solution? And so now they're being called. Like, look, we've 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, and he was in the right place at the right time. What I also find interesting is, okay, if you've 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. It's okay to be yourself, but it depends.

1:25:46If 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, 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 because it's like a made-up story. So I don't want you to stop listening, but I want to avoid saying I think. 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.

1:26:24Not building this is not okay. And it's almost never for the reasons 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.

1:26:42Here's a really good example. We see this a lot. People come in as consultants and they're making a lot of money in consulting. And we have this one guy, the company is now called Smart PM. It's doing quite well. The guy was a civil engineer, super, super smart, was being hired for 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 the thing took too long and now there's change orders and tens or hundreds of millions of dollars were on the line because there's a dispute.

1:27:18and 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 to overrun and so they're trying to charge me for the change order but not and he's thinking well here's what he was really good at he could put it in a spreadsheet he would figure out how to write down 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 to solve that problem, and they don't have to hire me, and I can just automate it.

1:27:52It's the same product I did. And it turns out there's no authentic demand for that. And then you have to ask yourself, well, what was he missing? He felt the demand to have this product for what he was doing, which is he was in a situation where he had to 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, 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.

1:28:26In that case, they were buying an advocate who could 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, 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 or maybe avoid these arguments in advance. So what did he do? So we should go look at their website and see what they're doing now.

1:28:57But it's more or less that. They empower people to be able to settle these kinds of disputes 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 what the contractor is predicting is going to happen is going to actually happen? Well, that's interesting. So if a guy says, oh, I could build you this building in like three weeks, they have some data that says that's unlikely? I think the example I remember would go something like this. 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 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 the 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 so the demand is from the people drawing up the contracts in the beginning who could get 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 them like it's why didn't you write the contract correct and 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 i believe that they were convinced that the side that mattered the most was the side that was being shown the change schedules.

1:30:37So the contractors were showing the change schedule, but the investors didn't have the expertise to actually be able to read those things. They would hire people, but they were very hard to follow the changes. 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. 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 right and so you see the consultant didn't understand the demand the consultant thought the demand was for the answer but the consultant but the demand was actually to be able to be a participant in this argument uh that we're hiring him to do consulting so that they could argue with each other but he was trying to now empower them to be involved 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?

1:31:30Let's say you're asking someone out on a date. It has to, like, she's already filled up. I'm thinking me with girls back in the day, women back in the day, but 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, I have to convince them it's not not okay to go out with me on a date. Or I have to present a situation where it's not 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. Maybe for some married women, they have him on some list.

1:32:09But for me, much different situation than Brad Pitt. I have to somehow situationally, the situation, the words I use, everything has to. Yeah, so you've got to be a little curious. The way you said it and the way I gave those descriptions of those salespeople, I was actually trying to say those as those are manipulative and sort of unethical. That's how I always thought I had to ask out women. And I'm thinking being unethical and manipulative, it can work, but it's unethical and manipulative. So what if you could actually understand the authentic demand? For me, I love this example of thinking about 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, you're actually feeling this kind of sense of unrequited love.

1:32:56Right, oh no, and it's even called the honeymoon period when you first do a deal with somebody or first start working with somebody. Well, I'm thinking even before that, it's like I'm looking across the room or someone's looking across the room and you're interested in that woman or that guy and you're interested in them and they just like you. There's a big difference between they just like you and there's an authentic demand. But it's not manipulated in the sense though that like most people think they can't not not find a life partner or someone to date they're lonely they want to find someone to date so part of the problem you already solved just by existing so now but something but then they have other conditions they want someone who is maybe over six feet or they want someone who makes a certain amount of money or they want someone who likes sports or you know where they think that they have some criteria so this is so exactly on point because here's what people normally do or what they what they do which were i would encourage them not to do, is they try to guess, they talk to her for a little while, and they find out what movies she likes, and then they pretend to like those movies.

1:33:55Or 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. 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 an interest in her, 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.

1:34:29I'm trying to say the same thing with customers. 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? Okay, good practice. So I want to be an entrepreneur. And let's say I have a vague idea. And by the way, companies, so part of being an entrepreneur is you start off with one idea, but you pivot sometimes to multiple ideas. And I'm suggesting bad idea. The only reason people call it pivot is they don't really know what they're doing.

1:35:03Our companies don't pivot. They actually, here's to 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. 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 global healthcare internet that they just email? So step one, 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.

1:35:37You start out by telling me, here's a problem that everybody's worked on and no one solved, 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 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. You have to pick places, if you're an entrepreneur, you have to pick places where you know something about it. We've had companies come in and say, we're really experts at travel stuff.

1:36:08We want to go into the trucking business. And we say, well, 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 that you should go figure out some sort of innovation to do. So start out with some area that you know something about. So if you've never been a doctor, you've never worked in a healthcare office, you never sold to them, I'd say don't start there. Start with some place where you actually could know something. And we all know something. So start there. and now it becomes more like the scientific method and this is to make it faster if you just go and watch them you will make up a story in your head about what they need and it's just like if I gave you a thousand numbers in some pattern a thousand random numbers you will find the pattern so your brain is just going to make things up 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 and i think that they have a calendar that they have to maintain and so right we we have a two by two matrix which we describe in the book called a situation diagram there's a set of activities that you think that they're carrying out there's a set of resources or equipment that they use to carry those things out there's a set of relationships maybe with their boss maybe their co-workers maybe their spouse that they have to maintain.

1:37:30And 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 and just try to make a little situation diagram that describes for yourself what you think their life is like. And go and have a conversation, 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 podcast. I think you have someone else booking the guests, and I think you have, you know, you rent a place to do the podcasts, and you get paid by the number of hours. I'm going to make up all these stories that try to explain a simple thing that explains to me how I think your life is.

1:38:12It's not your life. It's 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. 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 you rewrite it and say, okay, now if I understand this right, there are people who, here's how they do podcasts, they buy their equipment, blah, 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, is this the kind of thing that you do?

1:38:43So you build these situation diagrams to see how people are currently coping in their life. When you do that after a while, first thing that usually happens about five, six weeks into this is you become incredibly depressed. Almost 100 % of the time, you become incredibly depressed because you start to realize, wow, these people that I thought had some demand that I was going to be able to fulfill, 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. Now, if you can get yourself to keep going, some anomaly shows up.

1:39:19Like 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 didn't bring it up to me, but you were 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 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. Aha, now I'm wondering, okay, well, is there something that you're doing or not doing that's in the way that's going to keep you having to chase a doctor?

1:39:53And then you can start to think about product and going down that path. That's the work. That's what we call those documented primary interactions. And you can really do it, and you can really 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 And I think this is one of the things that makes us hard to do this 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.

1:40:24In this work, your work is to become less wrong. Every day your job is to become less wrong. It's also 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. Right, and then you're trying to create something that once it's created, 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, I had to use it. Yeah, I mean, I use this example. You walk into a colleague's office. It just so happens that it's a weird made-up situation, but you start to see what it looks like.

1:41:02You walk into their office and you see that there's a bunch of nails on the table and there's some 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. They're not stopping. So you quick duck out, you grab the hammer that you had to happen to have in a drawer in your office, and you bring it in and you put it on their desk. It'd be really weird for them not to put down the iPhone and pick up the hammer. So they were stuck. They didn't even have a name for stuck.

1:41:37They 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 but they were okay with using the ipad even though it happened was just in the next office yes but they're not actually okay i mean the thing you have to so you have to understand the subtleties of what's what are those moments there might even just be moments that they don't even 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.

1:42:11Nobody was looking for something that would automatically redact their papers. Nobody was looking for something that would go solve the Shazam problem. Nobody could have described 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 weird is the authentic demands that people identify, they don't really have names. You have to come up with new noun phrases for it. Like what's the name for the person who needed the hammer in that section? Maybe there's a name because it's hammer.

1:42:42But a lot of these times, a lot of these things, people, this is why you can't do this by survey, for example. Like you can't survey people and say, would you like something that would do the following thing? Because there's no name for that. Anyway, that's... But I like this idea of though, then, okay, here's some frustration that I've observed 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 alternatives. Instead of the iPad, maybe he could use a... Could have picked up a shoe, right. Yeah, he could have picked up a shoe or a book or we could give him a tiny little hammer because it's only a tiny nail.

1:43:22We don't have to go searching the whole office for it. Yeah, or the nails could have driven themselves or something. And just like with the Shazam example, oh, I could have an app which records it and then sends it on Twitter and crowdsources the solution. Now that might be a bad solution, but that's one alternative. Yeah, or you press a button and it connects to an expert who will tell you something. Yeah, yeah. And then there's an auction, a reverse auction, like how much will you pay for it? So these are all bad solutions, and you have to kind of find the least bad solution. Well, so let me see if I can tell you what I think a product is.

1:43:54So in a situation in which a person is stuck, in which not doing something 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. I'll give you an example in the healthcare space. So if a person... 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, this is a sort of technique, you'd say, well, suppose you had to be on a diet for the rest of your life.

1:44:40You do this weird thing, you push people, it's called breaching, you push people in the wrong direction. Instead of saying, well, what could I do to make it possible to be on 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, well, I'm a gourmet. I've done a lot of work to develop my palate. And when I think of diet, I think of having crappy food. Okay, well, you can go out in the market and there are diets that you can buy in the supermarket or they'll ship to you that advertise themselves as lose weight and have fantastic meals.

1:45:19You see, so it does this two things. It does the thing that you're reaching for, which is to be on a diet. And it takes off the table. Cable 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. 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 to go for this grip, which we call an aspirational grip, or what we think an authentic demand is.

1:45:50Not 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 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 and then doesn't trigger an immune reaction to not using your product. So this is really also incredibly 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?

1:46:28Or not getting the grip. So the product is a 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. Right. So it's like this immune, there are these immunities to buying the full product. Like a woman down the street wouldn't buy a mud pie because it's made out of mud. Yeah, right. You have to give her like tasty food. So you would notice when presenting to this woman and you're documenting all these interactions, it feels revulsion at the mud pie. 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.

1:47:09One is called situation diagramming. And that is, let's just understand for every person how they're managing to hold their life together. So there are 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. There's a whole bunch of people. We all kind of revolve around each other. We're all kind of 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?

1:47:45Not 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? 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. Let's say you've got a product and you discover that every time you bring people this product, they say to you, wow, 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 you're right there, that's not okay.

1:48:21As long as they're asking you how much it costs, they're not buying. So you're drawn to have them buy. Let's say that you're all pretty convinced that they should buy, but they keep asking you about the price. So what do you do about that? Before we had any of these 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, it's not that expensive. They would find some way, they would say, well I can make it cheaper 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 not asking about the price is not okay.

1:49:01Asking about the price is 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 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. Suppose you didn't bring that up at all. What are you worried about? It's kind of like saying, well, suppose you went on a diet. What are you worried about? Well, suppose you didn't bring up the price at all. What are you worried about? And people say weird stuff.

1:49:31You 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 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. Or they might say, well, I've got a fixed budget now. 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 to actually go from, okay, they're trying to grip something, but instead of gripping it, they're doing something which is in the way, like asking about price.

1:50:03And if they keep asking about price, you want to get them to not do that. 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 learn how to have those kind of conversations, it might eventually get to something which they have a grip on. Like, well, this is my way. They wouldn't tell you this. This is my way of not being yelled at by my boss. Or this is my way of not having to figure out how to get the money from the current budget until later. It's so funny because that works for, so that idea is great to kind of like, hey, if this wasn't a worry, what's, you know.

1:50:39Well, no, you get them to generate the worry. So you said, suppose you did it. Like, I'm trying to get them to breach. Like, well, suppose you never ask me about price again. What are you worried about? Because people, when you breach, they often can feel something. And I've seen excellent salespeople use this in really high stakes negotiations. Tell me. Like, I was in a meeting once. Too hard to explain what was being sold. It was a very expensive product slash service. And the CEO of the other company was like, why did you even bring me here? I'm going to spend X, Y, Z, you know, da, da, da.

1:51:18And the guy who was running the meeting on our side said, listen, we just want to figure something out. So let's say we could do this all for you for free. Is there really any other issue? Was price the issue? So he does what I think is what you're saying. No, it's actually a little bit different. But then we found a base, though, to move forward. Yeah, I'm not saying other things don't work. I mean, you know me a long time. and trying to introduce something new that's a new set of tools. Actually, one of the things we've learned is that there are three different types of innovation. You can just get better at doing what you're already doing.

1:51:52So it's like make technical improvements to your product, which people just will reach for. You could try to get people to change how they go about doing things, which meets a lot of immunities. 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 that has to change, like they keep asking you about price and that's just in the way, or 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.

1:52:25The move to make, a move to make that's really powerful but it's really counterintuitive, is just suggest to them that they do exactly the opposite behavior. So if someone is complaining to you about price, instead of saying, well, I'll do it for free, now let's talk, You say, I hear you keep bringing up price. 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. This may have nothing to do with price. They're just using the statement to protect themselves with something else.

1:53:02You 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. But if you said, well, suppose you did go on a diet, what are you worried about? That might surface the concern about being a gourmet. I see, so instead of saying, if you don't go on a diet, you might be unhealthy and die. You say, well, let's say you do go on a diet, 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. I see, so in this case, like in the meeting I described, the guy could have said, well, let's say you spend this money.

1:53:38What are you worried about? Yeah, what bad thing is going to happen at your company? And the guy could say, it's a cliche, the guy could say, well, we're going to go bankrupt if we keep spending money on stuff like this. Okay, and so there are a lot of things you're spending money on that could drive you bankrupt. Why are you worried about this thing driving you bankrupt? But what we learn is, the reason we call it grip-to-grip mapping is that people are trying to get to an, if it's a not, not for them. So if you've identified that staying in this situation is not okay, So therefore, it's not okay to not leave the situation.

1:54:09That'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 them 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? It's Paul Simon. Oh yeah, he said 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, and then we were stuck.

1:54:48I 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. So that's what stuck means. Like every direction they're going isn't getting them where they want to go. so what you're looking for is a person in that situation so 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 so now you discover something that would have to change because that's a direction they would have to go or that would have to be a direction they stop going in but when you ask them to do that you discover that there's other thing that they have a grip on that the current thing that they're doing is willing to hold on to that grip so how do you figure that out?

1:55:30Well, if you find someone for whom not losing weight is not okay, 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, or not doing this because I'm not dying, that's in the way, so that's a path 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 diet, see that's the move to make. Suppose you were to go in that direction, what are you worried about? and at that moment it's amazing how often people can reveal to you that makes me worried about something right so so so really and this is what you've always told me just and i i'm going to say very simply what i feel like you've been telling me for 10 years is that you there's much more information in a no than a yes people could say yes to you for many reasons like they could the guy at ebay could say yes because he just wants you out of the room and and not see you for six months so he says yes come back when you i love this yes this is great come back when you build the product because he really just wants to go on to his next meeting um potentially i'm just making that up or but but no you can get some informational content out of that if if they're introspective enough yeah and of course that's that's that's true and and that's more but there's more to it than that which is which is this if you try to stop people from going in the direction they're already choosing to go.

1:56:56the fact that you can't stop them, the fact you can't change their direction, there's information in that. So that's what I'm saying. So currently they're not dieting. So I say to them, well, suppose you had to diet, suppose you dieted. I'm trying to change their direction. And if people are resistant 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 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 you try to you try to force them to go in the other direction literally like you say okay well suppose you did diet like now what are you worried about do you think this works in politics so 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 think it's more likely they don't really know why so so is it not interesting why they're voting for bob set is it more interesting why they're not voting for you know jack brown i would say as i do it seems to be very safe to say people do not know why they make their decisions right but they make up stories about it but they don't actually know if you think about this way james if people really knew why they did things you could ask them what you would need to make for them, that they would buy it, and then you would just make it and they would buy it.

1:58:25I mean, a lot of this work comes from all the obvious things don't work. Like if you ask people what to make, they'll tell you, and then 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. 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 in the direction of what's making them uncomfortable okay let's say you go 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 world what's the bad thing that's going to happen might give you more information than why are you voting for this other person i had never thought about it but but it seems plausible right so if you 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 but if i say i'm voting for someone it 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 so so all the things you say but just to be accurate this works this this theory this approach works you got to start with some place where there's already an authentic demand so i can't just say like you know you've revealed to be nothing about dieting.

1:59:40You don't care about your weight, anything. And then I come to you and I say, well, so suppose you started dieting. 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? 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. I can think about it in terms of writing.

2:00:13Okay, I want to write 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 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? 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.

2:00:44And I'd say, what are you doing or not doing in different situations that's in the way of your writing a novel? And I'd 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. I see. 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 immunities to changes, the trick is to make a list of all those things that you can think of.

2:01:21Because 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. 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 of trying to get this grip. 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 to get that grip.

2:01:57And the reason that's important is now that creates an authentic demand for at least one of these changing. And now that you know that at least one of these changing, I can say, okay, let's pick one and see if we can change it. Or it could be that I just don't really want to write the novel, I'm just saying I do. Or you discover one of those things that could change would be easy to change and you don't have to worry about it. You just change it. 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, a New Year's Eve commitment, and I'm not going to watch CNN.

2:02:32And then you discover three weeks later, you're watching CNN again. It's like what happens with gym memberships. Gyms are full in January, they're less full in February, and they're empty by March. People make these commitments, but they can't hold them. So that's what you're looking for, the things that 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 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 it sounds like you've tried and you can't.

2:03:05So let me go the other way and say suppose you never got to watch CNN ever again. 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. If we have time I'll tell you the story from Bob Keegan's book. So Bob Keegan tells this wonderful story about himself when he's trying to lose weight. It's so illustrative. He says there are times when he really wants to lose weight and he makes a list of things he's doing or not doing. 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.

2:03:44And he finds that he can convince himself on January 1st to not say yes, 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, he tells the following story, which is like so amazing. He said, well, okay, suppose I never get to order, I never say yes to a dessert menu ever again. He said, well, the first thing I worry about is my father. And you say, well, what does this have to do with your father? And he says, why would bringing up your father? He says, well, I think about my father and the fact that he grew up during the Depression.

2:04:17What 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 explained to me that he was working that hard because he didn't want me to feel deprived. What does this have to do with anything? He says, well, if I deprive myself, then 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 that he was able to maintain a grip on being the person that making his father's life meaningful or somehow consistent by ordering cake. Because by ordering cake, he was being not deprived.

2:05:00And when you realize that, you realize, okay, well, what's the chances he's going to stop ordering cake if that means to him that he's 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. 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 order the cake. You know, just order the cake. Or suppose you, you know, it's like, or you could give them 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, which they can't tell you about initially because you don't see them clearly enough.

2:05:48And then you figure out whether or not they can change them themselves. And if they can't, you can build a product. And you describe all these methods like in the situational diagramming, the documented interactions. It's almost like, okay, 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, it would have already been innovated. 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 actually start the podcast talking about that, but the place this all starts is how come so much innovation fails?

2:06:32How come so much startups fails? How come people build things and then it fails? Sometimes they fail because founders have a fight about something or sometimes they fail because money's not around. but mostly they fail because they make things and then 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 you actually go about trying to figure out a non-indifference up front? Because if you can figure out an authentic demand up front, 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.

2:07:15I don't know how we got to that point in this. But yeah, so the whole point of this is could you go about this in a way that is less accidental or like more post-enlightenment? This is the weird thing for me, and I don't know what to make of this. It's like discovering that germs kill people when you operate on them and trying to convince doctors who never heard of a germ or who didn't think that it could possibly matter that they should wash their hands 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.

2:07:56The thing we're talking about in this book is there are things that you could just notice about 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, they stop you going to the gym. 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 and what they're doing, and we never go and check.

2:08:24And 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 who sets up the sink with the soap, and you have to put a clock on the wall because you have to wash your hands 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. You have to put all these mechanisms, you put 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.

2:08:59That's what we found 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 or set it up for others so that they have some chance of being protected from building things that they think people won't be indifferent to, 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, when you see, not the image, but the reverse image. Oh yeah, the negative space we call it.

2:09:29Yeah, the negative space. Like you look at the whole negative space of a problem 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, you had a magician on your podcast. I happened to be visiting you in New York when you had that studio. Steve Cohen. Yeah, a lot of Steve. He wasn't a magician. He was an Asian guy who had a show down. Oh, David Kwan. Yes, and he described something which I'll just show you how he was doing. I just think it's so 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.

2:10:11That's his problem. 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. And if you do it wrong, it doesn't work. If you say to somebody, you right there, and it has to be someone who's looking at you, would you mind standing up for me? Thank you very much. And you get everybody's attention on them. And you say, 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, and they almost always come up.

2:10:48If you say to the person, you sir, would you please stand up and come up on stage? They sit there. Okay, what's going on? It's like the same information content. But it turns out 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 and all eyes are on you. What's the big deal? You stand up. Now you say, please, everybody, encourage him to come up on stage. And now he's disappointing everybody. And so the thing to try to do is to try to see how the situation creates these not-nots in which people can't really not do something.

2:11:25And 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, why would eBay buy? Because it saves them$40 million. Okay, but what about the negative space? 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, 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.

2:11:59Do they want this product or do they not want this product? What's the real demand? But you could create a kind of either inauthentic demand, but still demand, or maybe it borders on authenticity where you could say, okay, so I can put you down for a$50 ,000 audit of your bot situation, you know, and then you could have still done business with them probably right on the spot there. Yes, I teach this stuff to a lot of people. One of the things that's hard for me thinking ethically about it is I'm showing people that it's all about subtract the negative space so you get the behaviors you want. Take off the table all the things that they could do an alternative so you'll get them to do this.

2:12:43That's very manipulative and you could do that but you could also do something which is better for the world I think is you find out where people are trying to go already 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 know. I agree with you. And the reason I proposed the technique I just proposed is that you think they really need this. 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, which is to delay.

2:13:18No, I love this. For me, maybe saving$40 million, let's start someplace else. It's so confusing because things that seem so obvious just aren't right. 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's just it can't be right. 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. So if you as an entrepreneur or as a company make things that people want, you're just much more likely to be making something they want they don't buy.

2:14:00It's just much more likely. That doesn't solve it. So then people say, well, let's solve it by making it be what they really want it. So let's make things that people need. That also doesn't work. because just think of all the things you need to do that you never do. You don't really want to do that. So rather what you're looking for is try to see where people are trying to get to. Like Paul Simon was trying to get to the end of a song 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 and see if you can free them to get there.

2:14:33That 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 and most pleasant authentic demand on both sides. But like, for instance, 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 they felt at that moment that they couldn't do without a website. And I turned out I was correct. but was it manipulative me convincing them they needed a website?

2:15:15Their outcome was they wanted to spend their marketing dollars in the best possible way 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 and no one's going to revisit the website. That would never work. 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 salesperson. I can only sell something I believe in. Not for any ethical reasons.

2:15:49I'm just a horrible salesman if 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 salesperson on this podcast 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 one can also have in this situation is it's colonialism. You can decide, these customers would be a lot better off 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 if you go in this other direction.

2:16:30like figure out who they are, figure out which way they're already impelled, figure out what's in their way, get those things out of the way, and they'll buy that from you. Absolutely, which is ultimately the direction I wish 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, so I knew that the industry was going to change because it was going to be easier to make websites and it was going to be easier to maintain them and cheaper.

2:17:03But for whatever reason, I didn't go that direction. There were some, you know, I needed to always be a service business because I couldn't afford to be a product business. I think what you're saying, and 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, for the most part, kind of teaches us to trade our time for dollars. It 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, they're not going to give you a good grade, and they give you homework to do or specific things to do, which are tasks which they then reward you with a grade.

2:17:43So our whole educational system is somehow set up to make it feel as though your job is to do something for somebody in return for some reward. And so then you come out of school and you're looking around for a job, and so if you are just oriented that way, when you walk into these people's office and you're thinking, well, they should pay me for something and they'll pay me for the job. Yeah, 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.

2:18:18Even though I was delegating it and I was going to check it and I was going to be responsible for delivering it so I had to go over everything, I felt bad going out that night while I knew someone was in the office working on software that I was paying them to do, but it wasn't my mentality to do that. Yeah, and 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 can't do something or stop doing something in order to get unstuck, and then provide that for them.

2:18:54You could provide that for them if you're a consultant. you could say, well, you're stuck because you don't want to go into the courtroom and have a fight with the, you know, you're the money people 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? 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?

2:19:22Like what would go wrong. And going down that path will sometimes lead you to a place where you see something 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 and other areas of my life, this kind of negative space aspect, The not, not philosophy. And, you know, I knew you for years, you've been thinking about writing a book. You've been writing a book.

2:19:58Now you've written a book. You guys have it out. It's great. So many stories. 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 outline in here. And it was still a great read, despite the fact that I knew a lot of the things. And again, such a pleasure that it's finally out and we 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. Hopefully, what's your goal?

2:20:33You want it to be the bestseller 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, or it could actually be something that people would know something else about us. Or a bestseller list. So the three things are... Oh, a bestseller list. The three things are, and you can only have two out of three, bestseller lists, sell a lot of copies, and now I'm forgetting the thing you just said. Make money. Make a lot of money. So we're not trying to make money with it, partly because you convinced me it's really tough to do and it's not actually where we're at.

2:21:07And you're not trying to make the bestseller list. I mean, it would be great if it happened. I'd like it to be the case. This is incredibly useful and people are stuck. Yeah. So if you've got a business and you have a sense of, wow, I'm close to something, but there's something much bigger. Like my friend Jim Balcom, he's at$6 million in sales and you figure there's got to be some way to get the$75 million. I'm just not seeing it, I'm close. 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, or I'm really interested in actually becoming of value to somebody.

2:21:42So I want to figure out how to like, what's my deep gladness that meets the world's deep hunger? There's a lot in this book for you, which is, 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. You guys like helped me figure out product. 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. Right. Because it talks about how to, what to listen for when you're listening. It's not enough just to listen.

2:22:10You got to know what you're listening for. And it talks about, you have a whole section about radical candor, and it does change you personally to be in the mindset to see these hidden problems in life. Yes. 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 to build companies with us. So the book is useful for that. People would like to build companies the way 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.

2:22:44I think also it's useful for people who coach entrepreneurs or leaders, because, you know, 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 going to fill in a pattern. So if I watch, you know, a bunch of people play golf really good, I can make my own judgment 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, and if I knew more about coaching golf, then I could help others, as opposed to me trying to find a pattern out of nothing.

2:23:25And maybe that's our not, 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 and trying to notice 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. you know i got that insight just the other day because i'll just tell you a brief story 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 he says i could tell you've been looking at uncommented games you saw this situation in the game you came up with a theory of why they made a move but your theory is totally wrong and like you need to only look at commented games games commented by that's so fascinating yeah How did he know?

2:24:10Because 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. He's like, no, no, your night's completely ineffective here. You saw Kramnik make this in a game, but in his 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. You see the move and you're making up a story in your head and it's not real. Unless you have a foundation for why moves are made. And in order to get that foundation, you have to listen to a lot of expertise or listen to at least a lot of information that could inform you.

2:24:53And 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 following someone else's opinion or you have a way of thinking about it yourself. 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. When I say you could just listen to other people's advice and make things that people want so you ask them if they want it. Or you could ask yourself, here's a way to think about it yourself. You can figure it out for yourself. Are the alternatives okay for them?

2:25:27And if the alternatives are okay for them, you can know they haven't quite figured it out yet. Yeah, no, it's so interesting. That's really interesting. I can see you getting better at chess already. Hopefully. Knock on cash. It's very funny. Well, Barak, thanks again. The heart of innovation. Can I thank you? This book doesn't exist without you. So first of all, you're like a role model 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. I mean, not stuck like Paul Simon, but stuck like us. It's taken us years to figure out how to write this.

2:26:04and 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, so just in fact you helped us navigate that. But also, I remember you telling Matt as he was writing one of our co-authors of my business partner and friend, you said, you're making it too complicated, just bring the reader into the situation and just bring them there like you're a fly on the wall. 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.

2:26:46Oh no, I appreciate it. And the final result is amazing. I'm so glad you followed my advice. But you had it in there, right? You had all the stories. When we were just having 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. So I wish it was that easy. But yeah, anyway, so thank you so much. Maybe it was that easy. Thanks. Maybe it was. It just took time. Well, thank you, Eric. And look, you've been on the podcast before, you'll come on again many times, I'm sure. That'd be great. Thanks. Good to see you.