Xcelerate Financial Blog

WHAT ELON MUSK TEACHES US ABOUT FIRST PRINCIPLES

Posted by Evan Tarver on Jun 30, 2017 2:16:03 PM

When Elon Musk talks, it might do us all well to listen. Musk is the founder of Tesla, SpaceX, SolarCity, and previously of PayPal, has faced a lot of business obstacles in his life. And he’s overcome almost every single one of them.

SpaceX and Tesla both came close to failure multiple times. For Musk, who invested over $200 million of his own hard-earned dollars into both companies, a dual failure would have been catastrophic.

Musk reminisces about these dire times when he says that, “I could either take the money I had left and allocate to one company, or two. It’s sort of like, you’ve got two kids and you're not sure if you spread the food around, will both kids make it? It would have been a very unfortunate thing if both companies had failed because I spread what little I had left between the two.”

However, fast forward to today and all three companies are now giants of their respective industries.

How did Musk pull victory from the jaws of defeat? What can we as business owners and operators learn from his success?

Well, it’s a simple matter of getting back to first principles.

GETTING BACK TO FIRST PRINCIPLES

First principles is an idea that describes the fundamental concepts or assumptions on which a theory, system, or method is based. It’s a basic, foundational, self-evident proposition that can’t be deduced from any other assumption.

The converse of this is analogous thinking. Basing an idea on an analogy means that you’re using an existing idea to formulate your opinion.

As fellow PayPal mafia member Peter Thiel would say, thinking with first principles is going from “0 to 1,” while analogous thinking is going from “1 to N.”

Let’s use an example.

Prior to the launch of Ford’s Model-T in 1908, if you asked someone to create a faster mode of single-person transportation, they might try to breed faster horses. This is thinking with an analogy. It’s taking an existing concept and idea and trying to make it 10 percent better.

However, what’s the point of faster transportation? It isn’t to create faster horses but is actually to create a more efficient mode of forward propulsion.

So, looking at the problem with fresh eyes, Henry Ford was able to get back to first principles. People needed more effective and transportation, not faster steeds. Instead of going into the horse breeding business, he created a company that built the combustion engine, thus making available transportation 10x or maybe even 100x better.

That’s getting back to first principles. It’s looking at a problem and boiling it down to its root cause. It’s thinking outside the box and approaching it with a fresh angle.

As Musk says, “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.”

DON’T GET CAUGHT THINKING LIKE A SHEEP

In almost every startup you’ll hear something to the effect of, “our product is like the Uber for [insert industry here].”

This isn’t necessarily bad. Sometimes you have to use an existing analog to paint the picture in a customer or investor’s mind.

However, thinking in this manner causes people to build businesses that are derivatives of existing or previous companies. It’s going from 1 to N, rather that starting from scratch and coming up with something completely new.

How do you know that the existing way is the best way? Why are you trying to make something 10 percent better rather than 10x better?

Analogous thinking leads to incremental change and nothing else.

Slack is a good example of bucking the trap of analogous thinking. Up to its launch, the best internal communication tool for businesses was Yammer, a startup that was bought by Microsoft. Yammer was built as an iteration of Facebook, very similar except for the fact that it was used for business and not personal.

Yammer was a derivative. However, when Slack came along, rather that trying to improve on Yammer, which was an attempt to improve Facebook, they got back to first principles. They started from scratch and came up with a more effective communication tool that now dominates the corporate environment.

So, rather than looking at existing products and services and trying to improve upon them, start looking at market deficiencies and work on solving the underlying problems.

ENSURE YOU’RE OPERATING FROM FIRST PRINCIPLES

Whenever you start a new project, whether it be a new business initiative or a new business altogether, it’s important to begin with the fundamentals.

Rather than looking at existing products, services, and processes, start by asking yourself simple questions, such as:

  • What’s the underlying problem?
  • What am I trying to accomplish?
  • What really matters to the customer?
  • How can I make a 10x improvement in the marketplace?

Questions like these force you to get back to first principles. You can’t think in analogies or derivatives when you ideate on the answers.

Make it a habit to constantly test your thinking. Even after a project’s launched, continue to ask yourself if you’re operating from a baseline of first principles. If you aren’t, it’s probably time to get back to the drawing board.

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