How Elon Musk used First Principles Thinking and 4 Ways you can Develop it too

You hear “First Principles Thinking” thrown around a lot. But what it is?

Elon Musk was interviewed by TED curator Chris Anderson. He was asked, “How did you break in so many different industries (Space, Automotive, Solar, etc) which nobody could fathom was possible by a newcomer?” His answer was simple, “I applied first principles thinking. For SpaceX, I looked at each and every part of a rocket and thought can this be better.”

You can watch that interview here.

He started by simply questioning everything. Today, his company is valued at $100 Billion.

Musk disrupted the Space industry. He showed everyone that it’s possible.

First principles thinking is not rocket science (pun intended). But it’s not obvious either. It’s one of those things people talk about but don’t really understand.

Let’s unpack.

What is First Principles Thinking?

First Principles Thinking is ignoring common beliefs people have mistaken for facts and questioning everything. First principles thinkers don’t accept statements like “that’s how it’s always been done.” Rather they know these are the very opportunities waiting to be disrupted.

Every old industry have blind spots. People follow what’s been done before them. This goes on decade after decade. Naturally, this makes everyone blind to innovations happening in other areas, or even how existing ways can be improved. That’s why every now and then a startup comes along and changes an industry for the better. Because startups are not biased by “domain-knowledge,” they are able to look at things and question “why is it done this way?”

First principles thinking is all about going to fundamentals and asking the most basic questions.

As an example, when Musk was building Tesla, he looked at cars and challenged assumptions. Like when people told him batteries are expensive; they cost $600 per KWh, Musk said, “Ok. Let’s look at what constitutes a battery and how much they cost.” It turned out the material cost was $80 per KWh. So he said, “We just needed to find an efficient way for making cheaper batteries from the raw materials.”

Another way he applied it was by looking at the car’s value. When you buy a car, the moment it’s out of the showroom, it starts depreciating in value. Because cars have hardware and software built in, there can never be any innovation applied retrospectively. But Musk asked, “Why can’t it work like a software? Why does it have to depreciate after all? Why can’t you update your car like you update an app?”

4 ways you can develop this thinking

While it’s not complicated to think from first principles, it does take an effort to rewire your brain to think on those lines. It’s a change in perspective. Let’s see what you can do today.

1. Don’t look at the competition

We are used to keeping a close eye on the competition. This helps you be on your toes. This helps you figure out your next move. But you don’t want to do that.

Keeping a track of your competition comes from a place of fear. What if they come up with something game-changing? What if we lose out because we couldn’t keep up?

First of all, most businesses are not eating each others’ market-share. Instead, the pie grows bigger when one business succeeds. It’s often not a zero-sum game. Second, if you are constantly looking at your competitor, you won’t innovate on your own. You’ll always be one step behind, if not more. Third, their blind spots become your blind spots. Those are the very things you want to avoid. First principles thinking helps you wade through biases and assumptions - which you can never escape by following somebody else.

In Jeff Bezos’ world, you are not allowed to talk about your competitors. Put your customers first, and solve on their behalf.

At Amazon, we have a long history of obsessing over customers rather than competition. I think we do well because we don't think about that. Too many companies get distracted by others, instead of just thinking about their customers.

- Jeff Bezos

So instead of looking at the competition, look at what your customers want. Figure out how you can solve their problems. And solve it to the best of your abilities.

2. Don’t look at existing solutions, yet

When we are trying to solve a problem, our first instinct is to see how others have solved this. We think this will save us time. Instead of wasting time in coming up with a solution, we can copy what others have already done and get to work.

This again comes with following what others have done. If we don’t come up with our own unique solutions, we can never disrupt the industry. Nor we can make 10x improvements.

So go to basics and solve problems with your own understanding. Nobody else can better understand your customers than you. It’s worthwhile to spend time in figuring out the solution instead of directly jumping to the implementation. Solutioning is where you want to spend more time.

3. Be wary of “facts”

Keep an eye open for the “facts” everybody assume to be true. Before SpaceX, rockets were destroyed after every use. 80% of the cost of rocket (9 out of 10 engines) would just fall down straight on Earth. This was normal and ridiculous. It’s like throwing away an airplane after every flight. SpaceX challenged that and created re-usable rockets.

4. Ask “why”

Challenge things. Understand why some things are done in a certain way.

Children think this way instinctively. They want to understand the world. Even though parents get annoyed by their constant questioning, they are just thinking from first principles.

“It’s time for you to sleep.”

“Why?”

“Because you need to sleep on time.”

“Why?”

“So that you can get enough sleep.”

“Why is sleep important?”

…

You get the point.

Since they haven’t developed bias with growing up like we did, they are still learning with what they know - fundamentals. It’s amazing these questions make you realize even you don’t know reasons behind many things. Things you’ve taken for granted. All these years.

This is a perfect example of first principles thinking.