Elon Musk has said that first principles reasoning is a powerful way to innovate. Rather than reasoning by reference to things that already exist, first principles thinking starts from fundamental truths and then reasons from there to question established beliefs and practices and find solutions. After discussing first principles reasoning, this article, part 5 of a series on Making Better Decisions, sets forth a first principles reasoning framework.

The Concept of First Principles

Elon Musk has pointed to first principles reasoning as an excellent way to solve problems and innovate. According to him, the first principles reasoning method involves trying to arrive at fundamental truths and then reasoning from those truths to question existing assumptions and practices and propose new ideas. Some of his comments on first principles reasoning can be found here, here, and here.

First principles reasoning has a long history.

The first principles concept has a long history in many intellectual areas, including philosophy, the sciences, and theology. From a very early age, humankind has sought to look beyond the external manifestations of reality and find its essence. Pre-socratic philosophers, trying to explain the nature of the universe, believed in a concept called arche, which was thought to be the fundamental source of all things.

Anaximander and the Apeiron. While many pre-socratic philosophers believed that water was the basis of reality, the Greek philosopher Anaximander (610-546 B.C.) pointed out that water could not be the source of all things because it could not produce fire. By the same reasoning, he explained that fire could not be the source of all things because it could not produce water. Trying to resolve the puzzle that many observable phenomena are independent rather than subsumed beneath an apparent overarching source, he proposed the concept of apeiron, which described an infinite state from which all things emerge from and return to.

Aristotelian Metaphysics. Aristotle incorporated the concept of first principles into a formal metaphysical system. He said:

“In every systematic inquiry (methodos) where there are first principles, or causes, or elements, knowledge and science result from acquiring knowledge of these; for we think we know something just in case we acquire knowledge of the primary causes, the primary first principles, all the way to the elements. It is clear, then, that in the science of nature as elsewhere, we should try first to determine questions about the first principles. The naturally proper direction of our road is from things better known and clearer to us, to things that are clearer and better known by nature; for the things that are known to us are not the same as the things known unconditionally (haplôs). Hence it is necessary for us to progress, following this procedure, from the things that are less clear by nature, but clearer to us, towards things that are clearer and better known by nature. (Phys. 184a10–21).”

Types of First Principles

First principles are not only a way to try to explain the nature of the universe. They can also be used to discover or to set forth fundamental principles regarding any system. These systems can:

• be premised on natural laws independent of human thought and action
• arise from different types of human or organizational behavior
• are set as a matter of choice.

First principles based on natural laws. In geometry, first principles include the premises that a line can be drawn from a point to any other point and all right angles are equal. In physics, first principles include the law of gravity and the laws of motion.

First principles that arise from human or organizational behavior. These principles define conditions that repeat themselves across a wide range of places and circumstances over long periods of time. These principles include statements about the human condition, such as “all people are good by nature.” Organizational first principles include statements such as the “larger organizations are, the more bureaucratic they tend to be” and “the key focus of companies is to create shareholder value.”

First principles that are established as a matter of choice. First principles can also be established as a group or individual choice. This includes principles that are chosen to govern a system (such as the rules that apply to baseball or voting) or that one elects as a fundamental value. For example, a person may decide that the most important thing in their life is their family or religious beliefs. Independent of whether or not other people would agree that these are first principles in an absolute sense of the word, they can be defined as first principles by the person who chooses to follow them.

The line between types of first principles is often unclear and difficult to defend. Certain types of principles that are set as a matter of choice can be cast as natural laws. For example, the United States Constitution reads: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

First Principles Reasoning

First principles reasoning involves starting from a first principle and then reasoning from there to question how things are done or proposing new ideas. Let’s provide some general examples of this.

Example #1 – Creating a new writing system. Suppose that we want to create a new writing system. The first step is to determine what the first principle or first principles should be. Here, we have a choice, because we could decide that the first principle should be to use as little space as possible to communicate or that the writing system should be as poetic as possible. Both are equally valid.

Assume our first principle is that our writing system should use as little space as possible. From this point, we would analyze every proposed addition to the writing system, such as new vocabulary or grammatical rules, based on the key criteria of how much space it would take.

Example #2 – Developing a new educational system. Suppose that we are trying to develop a new educational system. Similar to creating a writing stem, the first step is determining what the first principle of the educational system will be. It could be making sure that all students:

• can learn for themselves
• have humanitarian values
• are exposed to many cultural perspectives; or
• get jobs as quickly as possible after graduation.

Assume that we decide that making students learn for themselves is the most important principle to develop an educational system. This principle would then be used to determine each component of the educational process, including:

• what teachers are hired
• the teaching methods used; and
• how students are graded.

If another first principle were selected, such as making sure that all students get jobs as quickly as possible after graduation, the educational experience would be very different.

Applying First Principles Reasoning in Business

First principles reasoning is a powerful way to innovate in business. This is for several reasons:

• reasoning by analogy and simply following “the way other people do it” or the “way it has always been done” often makes people and companies fall prey to “inefficiency creep,” which is the adoption of processes that contain structural flaws or are outdated
• the search for first principles can allow companies to unlock blue ocean areas of potential value creation; and
• it helps break down the at times high walls of specialist perspectives and jargon and permit a much broader value -reation dialogue.

The search for first principles can help companies unlock blue ocean areas of potential value creation.

Let’s consider how first principles reasoning could be applied to innovate in business.

Example #1. Recruitment policy innovation. Business success or failure is often determined by who a company hires. A large portion of people who are hired are selected through a formal interview process. Typically, people who come to an interview are not paid for their time during the interview. However, if a firm decided that a first principle of its recruitment policy should be to retain the best candidates possible, it could conclude that it should pay interviewees for their time.

In addition to likely attracting a much larger number of potential candidates, the interview process could be restructured to depend less on questions and answers and more on the candidate preparing analyses or working on mini-projects. For some types of positions, this would provide greater insight into a candidate’s ability and fit with other team members. While paying interviewees for their time would increase firm labor costs, this cost would likely be offset by making better hiring decisions that would, in the long run, increase firm value creation potential.

Example #2. Organizational structure innovation. The first organizational chart was developed in 1855 for a railroad company. Even though this type of company represents a small fraction of companies in operation today, many companies continue using similar types of organizational charts out of habit. This generates many types of organizational inefficiencies.

From a first principles perspective, companies should start not with an existing organizational chart, but rather try to create their organizational chart based on their operating realities. For many companies, particularly those where people work collaboratively over digital environments and wear multiple organizational hats, this would title organizational relationships from those that are vertical and rigid to those that are horizontal and fluid.

Applying First Principles Reasoning to Decision-Making

First principles can be applied to strengthen the each of the key elements of the decision-making process.

Situation analysis. Decisions are made against the backdrop of assumptions about situations. For example, budgeting decisions are made based on the assumptions that are made regarding general economic or business trends. Simply assuming that an economic situation is “like A” or “like B” without conducting deeper analysis will likely lead to erroneous perceptions of relevant trends that can partially or entirely invalidate decision-making logic. By reasoning from fundamental economic drivers, or at least testing common market assumptions against those drivers, the probability that better insights into the relevant decision-making context will be obtained increases.

Solution formation. The second area where first principles reasoning can help decision-making is with respect to solutions proposed. Instead of limiting oneself to a range of commonly used solutions that are applied to a particular problem, first principles reasoning allows companies to free themselves of the confines of habit and develop solutions that better match the problem with available resources and problem-solving possibilities.

Decision implementation. The third area is with respect to decision implementation. Rather than assume that implemented decisions will follow the same course as other decisions, an analysis of first principles increases the likelihood that specific factors relevant to the implementation environment will be taken into account. This significantly improves the allocation of resources necessary to ensure the decision succeeds.

Conclusion

This article provided an overview of first principles reasoning and set forth a framework for apply first principles reasoning when making decisions. The next article in this series on decision-making discusses lateral thinking.

The image for this article was painted by Theo van Doesburg.