The First-Principles. Entrepreneurial Thinking of Elon Musk

Elon Musk masters first-principles thinking and achieve SpaceX. First Principles is a way of thinking logically, first proposed by philosopher Aristotle.

What is the First-Principles method?

I think it’s important to reason from first principles rather than by analogy. So the normal way we conduct our lives is, we reason by analogy. We are doing this because it’s like something else that was done, or it is like what other people are doing… with slight iterations on a theme. And it’s … mentally easier to reason by analogy rather than from first principles. First principles is kind of a physics way of looking at the world, and what that really means is, you … boil things down to the most fundamental truths and say, “okay, what are we sure is true?” … and then reason up from there. That takes a lot more mental energy.

SpaceX founder, Tesla electric car founder, and PayPal founder, Elon Musk

First principles originated from disciplines such as philosophy, physics, and mathematics. It means starting from scratch, using only the most basic facts, and then inferring and innovating based on facts. As you innovate using first principles, you will find yourself no longer just a performer but a creator.

In the early days of Elon Musk’s development of SpaceX, after flying to Moscow to buy missiles to transform into transport rockets (thought to be the cheapest option at the time) and various contractor quotations, Elon Musk found that the current market could not support his space vision. At least in terms of efficiency and cost. On the plane returning to the United States with his companions, Elon Musk quickly calculated the materials and costs required to manufacture the rocket and found that the material cost of the rocket (aluminum, titanium, copper, carbon fiber, etc.) only accounted for about 2% of the total cost!

Then why are the rockets and launches on the market so expensive? In the aerospace industry, there are a large number of contracting and testing links, as well as a large number of military industries and political forces. After a large number of upstream and downstream commissions and asymmetric information transactions, it is a matter of course that the cost will be raised layer by layer. However, for the goal of high-quality aerospace transportation, it is nothing more than a significant negative impact.

Therefore, Elon Musk decided to independently develop and manufacture to bypass the “human interference factor” in the middle layer. With the support of many great rocket scientists and the community, SpaceX has locked in the final goal at any time from metal cutting, welding, control computer, raw material procurement, and other links, and achieved the same quality with extremely high efficiency and unbelievable cost. (Replacing expensive aerospace computers with mass-produced consumer electronics and using automotive valves in rockets, etc.).

Between 1970 and 2000, it cost about USD 18,500 per kilogram to launch, but SpaceX’s Falcon 9 can deliver supplies to the International Space Station for $2,720 per kilogram of payload. To get closer to the ideal, the rocket is also designed on the premise of reuse to reduce the launch cost significantly. Compared with the traditional way of throwing away the aircraft as garbage after lift-off, it highlights this industry’s original rigidity and ridiculousness.

Reasoning from first principles

The idea is to break complex problems into basic elements and then reassemble them from the ground up. It’s one of the best ways to learn to think for yourself, unlock your creative potential, and move from linear to non-linear results.

Elon Musk thinks about SpaceX’s development with a “first principles” mindset and challenges the high costs and models held by so-called experts and common sense in the space industry. After dismantling the cost structure, they started to optimize all possible parts (take the rocket as an example, except for 2% of the necessary materials, the rest of 98%, such a vast optimization possibility also makes this matter more feasible). Successfully reaching a level that is out of the imagination within the industry has reduced the production cost by nearly 10 times.

Tesla electric vehicle innovation is also a classic example,
Elon Musk had once mentioned his actual case in the interview video. When he was developing Tesla electric vehicles, he heard that many experts thought that electric vehicles were impossible to popularize because it is hard to reduce the battery cost of electric vehicles.
Under this circumstance, it is almost impossible to optimize, reduce costs and popularize electric vehicles in a short time.

But Elon Musk disagrees with that. During the development stage of Tesla’s new battery, he disassembled the substances composed of the battery pack itself into the most basic materials such as carbon, nickel, aluminum, etc.. He re-understood the “basics” of battery manufacturing. Based on the facts, we can deduce the process that can be optimized, such as manufacturing costs, tariffs, manpower allocation, etc., and establish a new supply chain and automatic production design.

In the face of the essence, it is meaningless to compare. However, to propose innovative solutions in society and industry, there will not be too many previous experiences or actual cases for reference, nor will there be immediate support and understanding. Therefore, we need to have a lot of cross-domain knowledge to build the foundation in order to be able to innovate. Reading is currently recognized as the fastest and most effective way. Buffett, Bill Gates, Elon Musk and others all have the habit of reading a lot of cross-domain knowledge.

Focus on the essence, straight to the goal

In order to master the first-principles thinking mode, it is recommended to experiment slowly in small places to become familiar with it. For example, thinking about whether there is a more economical way to go to work that you are accustomed to; or thinking about whether you can achieve the goal of early retirement by adjusting the allocation of assets for your investment habits.

First principles can help us move toward our goals more clearly, and ignore many plausible noises and stereotypes. In the era of information explosion, this mode of thinking is even more valuable.