If the customer doesn’t scream, you don’t have product-market fit. [7:20]

Don Valentine of Sequoia Capital used to say: I am looking to invest in companies that can screw everything up and still succeed because the customer pulls the product out of their hands. [9:15]

First, you have to prove a value hypothesis. Only once you have proven the value hypothesis should you test a growth hypothesis. [10:03]

The value hypothesis is the what, the who, and the how. What are you going to build? For whom is it relevant? And how is the business model? [10:15]

People kid themselves into thinking they have product-market fit because they bought it. The only way to know that you have product-market fit is if you have word-of-mouth. The only way you can get exponential, organic growth is through word-of-mouth. [10:49]

All of my best ideas have come from other people. I am just curating. [13:06]

Why do you think Crossing The Chasm: Marketing and Selling Disruptive Products to Mainstream Customers should be read by more folks? The fundamental idea expressed in Crossing The Chasm is there is a natural rate of adoption of every product. That hasn’t changed. The basic premise is there are different people who are willing to adopt at different rates. [16:53]

The biggest mistake I see people [entreprenuers] make is trying to start with [sell to] pragmatists because it is the biggest market. They do this because every book or podcast tells them to go after a big market because the ultimate size of market addressed is the single greatest determinate of outcome. That is true but you won’t capture that market if you try to start with that market. This lesson will last forever. [18:53]

An example of how Google crossed the chasm: As a business, it exactly followed the Crossing The Chasm philosophy. When they first started monetizing they used text ads. At the time Yahoo offered display ads. Yahoo sold these ads through a salesforce. The minimum was a $10,000 a month contract. Google came to the market with a six-word text ad. You could buy an ad for as little as $1. It was self-serve. The only people who bought these ads were startups [who couldn’t afford the Yahoo ads]. Startups were the desperate. Once Google proved the efficacy of text ads they crossed the chasm into the early majority. They started with startups. They didn’t start with traditional advertising. [21:33]

Netflix started as DVD rental by mail. You’d pay $6 every time you rented. It failed miserably. Reed Hastings ran a successful company called Pure Software. One thing that made Pure successful was he changed the business model from a perpetual license to a subscription license. This was controversial in the 90s. He said why don’t we do the same thing at Netflix? Little did he know that was the ideal antidote to the late fees that Blockbuster charged that drove everyone crazy. [24:46]

The only way to make outsized returns as an investor or an entrepreneur is to be right and non-consensus. [30:02]

Human beings are conditioned to like, or not like, things. [Which means you can change people’s opinions about your product.] [31:22]

One of the best parts of teaching is how much you get to learn. [32:10]

The President of Wealthfront has a great saying: The definition of a good experiment is one from which you learn not one that succeeded. If there were no surprises you didn’t learn anything. [34:49]

Don’t project your own tastes onto other people. This is an enormous mistake my MBA students make. They say, “Well I wouldn’t use that product therefore it is not a good company.” That is irrelevant. [35:29]

Full podcast here: The Tim Ferriss Show #397: Two Questions Every Entrepreneur Should Answer

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