Case Study#11: Learning First Principles Thinking from Elon Musk

So, what’s this week’s case study about?

What often gets overlooked in humanity’s biggest innovations is the role of first principle thinking. Going down to the fundamental elements and root causes can unearth the best of solutions to the toughest problems.

In order to go deeper into first principle thinking (which is as important for business leaders as it is for product leaders), we will go deeper into the brain of someone who has build multibillion industries across three completely unrelated sectors.

Elon Musk.

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So, what makes Elon Musk do what he does?

One could argue that there have been greater thinker and builders in the history of mankind, however Elon Musk has become the modern flag-bearer of first principle thinking because of his success in building companies in Financial services, Automotive and Space - 3 very different fields.

Elon Musk’s ability to take really hard problems and solve them is rooted into two aspects:

1/ Thinking down to the root causes
2/ Backing it up with insane hustle and hard work

Although today we are not going to talk about #2 , but it’s obvious that no amount of thinking can actually build things unless you have a great urge and ethic to get it done. Keep that in mind while we focus on point 1.

How does Elon Musk think?

Elon Musk emphasis on NOT reasoning by analogy which tends to take less brain power and is often the go-to method for most humans to sound smart, but often it is flawed. If you reason by analogy you’re basically taking assumptions that exist and instead of questioning them you end up building on top of them.

Example: “We should build a 10-min grocery delivery app because today all grocery deliveries either take 24-48 hours and doesn’t address the urgency of lack of groceries at home” is reasoning by analogy because you’re assuming that problem is not whether humans need delivery or not, it is that today’s solutions take 24-48 hours.” In-fact, the right questions should be: Are people troubled by 24-48 hour delivery time of groceries? Do people even need to get it delivered home? Instead do they like the social element of going out and buying the groceries?

By asking enough questions, one could even conclude that the problem is “lack of planning” - which is why most people end up in a situation where they run out of grocery. So maybe the solution is not 10 min delivery, it is building a planning app (that reminds) or even a subscription program that delivers groceries at a predetermined frequency. The point is to NOT think by analogy , instead question assumptions until you get down to the root cause.

How did SpaceX utilised first principle thinking?

SpaceX was built on top of the idea of “marginal gains”. You break down the big problem into its individual parts and improve each of the parts by 1-2%. Although 1-2% percent is low, but when combined, it makes a big difference.

Elon Musk couldn’t afford a rocket when he started SpaceX because buying pre-build rockets were really expensive. So he first figured out all components of a rocket - the costs and then decided that it makes sense to improve each of the components to bring down the cost. Quoting him:

“Obviously the lowest cost you can make anything for is the spot value of the material constituents. And that’s if you had a magic wand and could rearrange the atoms. So there’s just a question of how efficient you can be about getting the atoms from raw material state to rocket shape.”

Elon, then focused on ensuring to source each component as cheaply as possible, figure out design and assembly process to make them efficient. 85% of entire Falcon/Dragon vehicle was actually built in-house with a software engineering inspired modular approach. Through these principles, the launch cost of a rocket was reduced by 10X while enjoying a 70% gross margin.

First principle thinking was not applied to build the rocket but also to re-using the rocket. If Space continues to lose one entire rocket for every launch, the launch cost of each launch will continue to be high - so the assumption was challenged the right question was asked - Why can’t we re-used?

Today, we know SpaceX has pioneered re-usable rockets too.

How to build first-principle thinking? (Frameworks and Examples)

We live with our own biases and end up believing in our subjective reality. But one should strive to know and understand what is objectively true.

Let's call this gap between what's subjectively true and objectively as 'Reality Gap'

To minimise 'Reality Gap' and achieve First Principles Thinking (FPT), you essentially have to question all assumptions, but there are multiple structured ways to do this, such as:

1/ Five Whys Approach

2/ Cartesian Method of Doubt

3/ The four "Thing" Questions

Let us go further into these three..

1/ Five Whys Approach

Asking Five subsequent Why's helps you unearth the root cause for problems. To be effective at this, assemble a team that is knowledgable of systems and also clearly define the problem before diving into Why's.

Here's an example from kanbanize.com

2/ Cartesian Method of Doubt

i) All statements are classified according to class (type/ source of knowledge)

ii) Then, examples from each class are examined.

iii) If a way can be found to doubt the truth of any statement, then all other statements of that type are doubtable

3/ The Four "Thing" Questions

When finding causes of any problem, you can classify them into material cause, final cause, material cause, efficient cause - and how do you it? There is a question for each as show in screenshot below.

Source of image: Vitalflux.com

The more you practice any of the 3 approaches (I personally recommend Five Whys), the more you get better at FPT.

Before we close this week’s case study, here's an interesting video from an interviews on how Elon Musk does it:

And that’s a wrap!

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