First Principles Thinking

What it is, how it works, and how we implement it at FinMango.

Aristotle defined a first principle as, “the first basis from which a thing is known.”

First, a few definitions.

A “first principle” is a foundational assumption or proposition — it is foundational in that it cannot be deduced from other assumptions or propositions. Think of a first principle like an element. It cannot be broken down further. It is pure.

“First Principles Thinking” is a problem-solving technique that requires you to break down a complex problem into its most basic, foundational elements.

THE IDEA: To ground yourself in the foundational truths and build from there.

When we encounter difficult problems, our tendency is to rely on base level assumptions we have been told are true—or that we believe to be true. It’s quick and easy to do so. But it also leads to unimaginative, linear solutions that closely resemble all that has been done previously.

This is called “reasoning by analogy” and this leads to solutions that are like something else. It can be useful heuristic when speed is required and novel solutions are not the goal. However, it falls short when dealing with complex problems in need of imaginative solutions.

Imagine the solution to a problem as a house. The foundation is the assumptions upon which the solution rests. If the foundation is shady, the house will collapse. If the foundation is sturdy, the house will hold up. First principles form a STRONG FOUNDATION for the house.

Case Study: Elon Musk and his original SpaceX Rocket

The complex problem? Sending a rocket to Mars. The logical first step: to obtain a rocket.

Musk discovered the cost of buying a rocket was insanely expensive—or can we say otherworldly 😅. Buying a rocket for ~$65 million was not only untenable, it was also grounded in assumptions of how rockets have always been built and what they should cost.

He turned to first principles. He asked and answered basic, foundational questions. What is a rocket made of? Aerospace-grade aluminum alloys, titanium, copper, and carbon fiber.

What is the value of those materials on the open market? Just ~2% of the typical rocket price. So Elon decided to build his own. Rather than accepting the “truths” he had been told about the cost of a rocket, Musk grounded his problem solving in first principles.

Today, SpaceX rockets are safely delivering humans to space and the dreams of a Mars voyage are alive.

Conclusion.

There is no such way to establish first principles. “Socratic questioning” —a technique where you use systematic questioning to drill-down to fundamental truths—is one method. The greatest thinkers and problem solvers agree: when solving a complex problem, think simple and ground yourself in first principles and build your solution up from there. This is what we do at FinMango.

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