Did he actually look at the startup? It's also possible that it was just bad -- lacking in usability, useless features that cluttered up the UI, poor aesthetics, etc.
Customer feedback only gets you so far. Often times people don't know what they want or what the core problem they're having is.
I thought the same, the entrepreneur told him that both free and passing users weren't coming back. Doesn't that sound like a problem with both customer segments? How does the advice of listening to only one of them helps him any way, if he's not delivering what neither of them wants?
It seems that the proper advice would be to read through feedback and understand what they really want then make sure you have that. Instead of advising to ignore free customers.
Customer feedback only gets you so far. Often times people don't know what they want or what the core problem they're having is.