By: Jacob Robinson
Have you ever heard of “First Principle thinking”? If not, I’ll soon make a formal introduction. Your ability to understand this simple concept will alter the way you think about your business.
Elon Musk, one of the world’s most successful entrepreneurs, described First Principles as a “kind of physics way of looking at the world. You boil things down to the most fundamental truths and say, “What are we sure is true?”…and then reason up from there.” First Principle thinking is one of the reasons this multi-billionaire, founder of Tesla, SpaceX and PayPal, has been so successful.
First Principle thinking states that we disregard analogy, look at the fundamental truths, and then reason.
Humans Reason by Analogy
The next time you have an idea, think about the way you are thinking about it. 95% of the time you are thinking about an idea in the context of other ideas, experiences, or acquired knowledge. This is normal. As humans we make decisions, or don’t make decisions, based on analogy.
We do this because we accept the status quo. We think that if others have failed at something, we will too. Even worse, we accept that someone is already doing something as well as it can be done! Luckily, we live in a world that challenges the status quo on a daily basis – a world where people (including you) think outside the box and reason from First Principles.
Again, in the words of Elon Musk, “I think it’s important to reason from first principles rather than by analogy. The normal way we conduct our lives, is we reason by analogy. [With analogy] we are doing this because it’s like something else that was done, or it is like what other people are doing. [With First Principles] you boil things down to the most fundamental truths…and then reason up from there.”
How to Reason From First Principle
- Remove all preconceived notions, comparisons, and analogies.
- Identify the fundamental truths of your idea, problem, or situation.
- Theorize and test, based on those fundamental truths.
- Find a solution.
In Elon Musk’s interview (skip to 22:40) with Kevin Rose he tells us how he used First Principle thinking at Tesla Motors.
“Somebody could say, “Battery packs are really expensive and that’s just the way they will always be…Historically, it has cost $600 per kilowatt hour. It’s not going to be much better than that in the future.
With first principles, you say, “What are the material constituents of the batteries? What is the stock market value of the material constituents?”
It’s got cobalt, nickel, aluminum, carbon, and some polymers for separation and a seal can. Break that down on a material basis and say, “If we bought that on the London Metal Exchange what would each of those things cost?”
It’s like $80 per kilowatt hour. So clearly you need to think of clever ways to take those materials and combine them into the shape of a battery cell and you can have batteries that are much, much cheaper than anyone realizes.”
It was that easy. Elon Musk’s First Principle thinking goes as follows: Batteries don’t have to be expensive. I can buy the materials needed to create a battery cheaper on the London Metal Exchange. Let’s buy from the London Metal Exchange and combine the materials into a battery. In doing this he didn’t accept the notion that batteries are expensive.
<People before him failed to make the battery a scalable energy solution. Instead of fail like the rest, he challenged the status quo using First Principle thinking.
Reasoning with First Principle Thinking in Your Business, Profession, and Life
Think of some accepted truths that exist within your business, profession, or life. How can you apply First Principle reasoning to them?
Let’s look at some real world examples and reason through First Principle.
“Business filings are expensive”
What makes up most business filings? Many business filings simply require you to insert the correct information into the appropriate slot. Do business owners know this information? Yes, most business owners know the necessary information needed in a business filing, they just don’t know where to put it. Are business owners willing to spend their time creating a filing? Of course they are, if they can save some money.
Let’s give them an alternative to paying an expensive attorney to do something they can do themselves. Welcome to LegalZoom where you can file anything from patents to annual reports. Better yet, it can be quick and affordable!
“Eating healthy is expensive”
What does it mean to eat healthy? Eating healthy requires consuming nutrient rich food on a daily basis. It requires not consuming the opposite. Is it more costly to buy healthy foods over unhealthy? Actually, yes it is. In a 2013 study, eating healthy will cost you $1.50 more per day, or $550 per year. Does eating unhealthy have any negative ramifications? Yes, eating unhealthy can lead to disease.
Poor health can lead to more visits to your doctor and dentist. Doctor’s visits are pricy. If you look at the big picture, $550 extra for healthier food doesn’t seem like much, compared to the cost of heart surgery.
“There are only 4 viable forms of transportation, plane, train, ships, and cars.”
What is transportation? Transportation is the movement of people and goods from Point A to Point B. Is combustion engine the only means to create energy to move goods or people? No, let’s try fans and magnets. Would people be willing to pay for faster cheaper transportation? Yes.
Now we have Hyeprloop an Elon Musk brain child that will challenge the way we transport people and goods, moving people through tubes, in capsules, via fans and magnets.
How Can You Use First Principle Thinking?
Using First Principle thinking will allow you to challenge the status quo and not run your business or live your life based on analogy. When we base our decisions on fundamental truths and not on what has been accepted, we have the ability to change the trajectory of our lives, businesses, industries, and the world.
Watch the Interview with Elon Musk Skip to 22:40