First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
First-principles thinking has been employed by many greater thinkers over the years, including military strategist John Boyd and ancient Greek philosopher Aristotle.
In modern times, Elon Musk is the thinker most associated with the concept.
When the entrepreneur attempted to source rockets for an expedition to Mars, he ran into a major challenge right away.
After consulting with several companies, Musk learned the cost of a single rocket would be an astronomical $65 million.
This presented a major obstacle to his ambitions, so he used first-principles thinking to reframe the problem.
“Physics teaches you to reason from first principles rather than by analogy. So I said, okay, let’s look at the first principles. What is a rocket made of? Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fiber. Then I asked, what is the value of those materials on the commodity market? It turned out that the materials cost of a rocket was around 2% of the typical price”,
Musk would later remark.
Everyone knows that SpaceX was born soon after. However, the reasons for establishing the company are perhaps more interesting.
Instead of spending tens of millions of dollars on rockets, Musk decided to create SpaceX so he build the rockets himself using cheaper raw materials.
Fundamentally, first-principles thinking encourages individuals to think like scientists who do not assume anything to be true.
The method requires actively questioning every assumption one has regarding a problem or situation and creating new knowledge from the ground up.
Indeed, first principles can be described as basic assumptions that cannot be reduced or questioned any further.
To harness the power of first-principles thinking, simply work through the following steps:
Identify and then challenge your assumptions
The next time you are faced with a problem or challenge, write down long-held assumptions about them.
If you are trying to lose weight, you might assume you don’t have enough time to do so.
If you are trying to grow a business, you might assume it can’t be done without a large sum of money.
Challenge your beliefs.
How do you know an assumption is true? What would happen if you believed the opposite?
Separate the problem into its fundamental principles
What are the most basic truths or elements of your problem?
Asking powerful questions is one way to identify these truths or elements.
When Musk was faced with historically expensive battery pack manufacturing, he used first-principles thinking to break the problem down.
He asked himself what the constituent parts of a battery were and how much every part was worth if purchased separately on a commodities exchange.
Create new solutions
With the constituent parts identified, how can they be recombined in a different way to produce something new and insightful?
Someone who believes they have no time for losing weight could try less frequent, high-intensity workouts to burn fat.
A budding entrepreneur could joint-venture with a high-profile player in their industry to share costs and promote themselves to a new audience.
At this point, it’s important to be bold and courageous.
As Musk once said, “Good ideas are always crazy until they’re not.”
First principles vs. analogy
In some instances, first principles thinking can be extremely powerful.
That applies in circumstances where most competition is fought around the same playfield, in what’s known as a red ocean.
In that context, most players in the business landscape look at similar solutions to the same problem.
Instead, first principles thinking can be powerful to break through and create a new business playfield.
In that context, by creating a whole new product, a moonshot, a company can blow the competition off the ground, moving in a blue ocean.
That’s where first principles thinking works well.
However, in many other cases, an analogy can be a powerful thinking tool.
An analogy is the opposite of first principles thinking, as in the latter case, you start from a blank slate, whereas in the former case, you can look at what’s been done before to improve it.
An analogy can be applied vertically, which might create an incremental improvement.
Take the case of a company that looks at another company’s products and makes it 2x better by reasoning by analogy and yet applying a twist to it.
But, here, things get interesting; an analogy can also be applied horizontally, where you take an application in a field and make it into another field.
Take the case of a company that borrows an idea from a geographical market and applies it to another geography.
Or yet, the case of a company taking an idea from a player in a market niche and applying it to another market niche.
For instance, for years, startups have applied the idea of “Uber for X and Y,” thus using the Uber business model analogy to disrupt other verticals.
In short, also via analogy, you can achieve great business outcomes. As not always, first principles thinking is well suited.
Leveraging first principles thinking in design strategy
Design thinking is the process of building incredible products with a customer-centered approach.
Thus combining first principles thinking to design thinking might be extremely powerful.
Let me explain how.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Applying first principles to design thinking involves solving design problems by breaking them down into fundamental truths.
Before we explain the first principles of design thinking, it may be useful to define the concept of first principles.
The idea, which encourages practitioners to think like a scientist, was first mentioned by Aristotle over two thousand years back.
Today, first principles is the predominant way in which physicists and philosophers, in particular, question assumptions about a problem.
They do this by breaking the problem into smaller and smaller fundamental truths.
Consider this article, for example.
The article is comprised of paragraphs, and the paragraphs are comprised of sentences.
The sentences are made up of words and the words of letters.
The letter is the fundamental truth upon which all else rests because it cannot be broken down further.
UX designers use first principles thinking often.
Whether consciously or subconsciously, they break down problems into solutions.
They hypothesize, design, and question the design via user testing to either prove or disprove their hypothesis.
In his 2011 bookDesign thinking: Understanding How Designers Think and Work, author Nigel Cross made the connection between design thinking and first principles based on research of designers in various fields:
“Three key strategic aspects of design thinking appear to be common across all these studies: (1) taking a broad ‘systems approach’ to the problem, rather than accepting narrow problem criteria; (2) ‘framing’ the problem in a distinctive and sometimes rather personal way; and (3) designing from ‘first principles’”.
Despite the apparent harmony between design thinking and first principles, it would be unwise to assume that the two are present in everyorganization.
In some companies, poor culture and basic human psychology prevent designers from using first principles. Many instead default to reasoning by analogy, which aims to solve problems with widely-held assumptions and beliefs.
How to apply first principles in design thinking
Consider a music streaming platform that wants a designer to create a new feature that will enable users to create groups.
If the designer is using first principles, the natural inclination should be to question whether users have a true need for this feature.
To avoid a scenario where they ignores first principles and design the feature anyway, there are three simple steps to follow.
Step 1 – Identify the assumption
In this case, the assumption is that active users want to create groups to share their favorite music with multiple friends simultaneously.
Step 2 – Break down the assumption into fundamental truths
The designer starts by determining what constitutes an active user.
They ask the product owner who then directs them to someone in analytics.
Eventually, the designer learns that an active user is one that uses the streaming service for at least three hours per day.
The next question writes itself: how does the designer then determine whether people who listen to music for three hours a day want a group chat feature?
Direct, qualitative data should be the first port of call, but ideally, users should also be given the chance to vote on features they want to see in the app.
Based on a poll and user interviews, the designer learns that while active users do want groups, the actual user need is a group that enables them to split the cost of a subscription.
In other words, the assumption that groups were for friends to share music recommendations was incorrect.
Step 3 – Devise the new solution
By now it is obvious that the designer has used first principles thinking to discover the fundamental truths about a user need.
This is a rather simple example, but the technique is no less effective when applied to more complex problems.
When this sort of thinking becomes standard practice, the company itself becomes more innovative and competitive.
How to apply first principles thinking to entrepreneurship
First principles thinking can be extremely powerful also in the entrepreneurial world.
Indeed, in some circumstances, it can lead to so-called paradigm shifts.
Indeed, one of the most exciting aspects of the business world is the fact that its rules can be, from time to time, rewritten.
When the rules are rewritten, a paradigm shift happens. It means that what worked until that moment might stop working in the new landscape, but the old playbook might actually be detrimental.
On the other hand, making a shift toward becoming a platform requires a complete rehaul of the playbook at hand.
As you need to move from “how do we sell our products” to “how do we enable others to sell their products” or from “how do we build something valuable for customers?” to “how do we create the environment to enable others to build something compelling for customers.”
When you change the underlying question and quest, it changes the whole business playbook.
From that standpoint, therefore, first principles thinking can be powerful, as it helps redefine the fundamental question that lies underneath.
First principles thinking examples in business
To emphasize the importance of first principles thinking in business, let’s describe one hypothetical and one real-world example and compare each to the much less effective strategy of reasoning from analogy.
Auto industry entrepreneurship
Scenario: A business wants to create a website where consumers can purchase a new vehicle for a low price and it have delivered to their home. The company also wants to employ staff who can carry out visual and technical inspections of the vehicle on the consumer’s behalf.
If the consumer never has to leave home, they can also avoid the stressful process of having to negotiate a price at the dealership and be subject to pushy sales tactics.
Reasoning from analogy: Most new cars are purchased from dealerships. Instead of allowing customers to buy a vehicle online, the entrepreneur considers whether it could use the website as a way for consumers to chat with staff and agree on a price beforehand.
The consumer could then visit the dealership to take care of any formalities such as registration and paperwork. Alternatively, this paperwork (and the car itself) could be delivered to the customer’s home by a member of staff.
Reasoning from first principles: Irrespective of whether consumers buy new cars online or offline, the entrepreneur concludes that the traditional car dealership is no more than a middle-man that facilitates the sale.
They consider two alternative solutions. The first and most courageous involves starting a company that manufactures cars. However, this is later determined to be too complex and expensive. The second, more realistic choice involves bypassing dealerships and purchasing directly from the manufacturer to reduce costs.
Dutch bicycle manufacturer
Scenario: In this real-world example, the Dutch bicycle manufacturer VanMoof found that the bikes it shipped to customers often arrived in the mail damaged.
This was a significant problem for the company because its bikes occupied the premium end of the market and were fitted with fragile electronics. What’s more, VanMoof had also set a goal to sell 90% of its bike online by the end of 2020.
Reasoning from analogy: The most obvious course of action would be for the company to liaise with its shippers and ensure the freight was handled with more care. Other obvious choices include increasing the quality or quantity of packaging foam or making the bike components more resistant to dents and scratches.
Reasoning from first principles: Ultimately, VanMoof used first principles thinking to arrive at an ingenious solution. On each of the boxes that contained the bikes, the company printed a picture of a flatscreen television.
When shippers believed they were transporting a television, they tended to be more careful with customer orders. In an interview with The Verge, VanMoof creative director Bex Rad noted that instances of bike damage were reduced by 70-80% almost overnight.
VanMoof kept its strategy a secret for a time to increase its effectiveness until it was exposed by a user on Twitter.
First-principles thinking has been popularized by Elon Musk, who has used the strategy to reverse engineer the rocket and battery pack manufacturing process.
First-principles thinking requires that we identify and then challenge our sometimes long-held assumptions around problems. We must then separate problems into fundamental elements and combine them in useful ways to create viable solutions.
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
