The term “first principles” was coined more than 2,000 years ago by the ancient Greek philosopher Aristotle, who believed that the best way to understand a subject is to break it down to its most fundamental principles.
In a 2012 interview with Digg founder Kevin Rose, Musk explained how to apply the first principles method, using the cost of car batteries as an example:
Step 1: Identify the problem and its common assumptions.
“Somebody could say, ’Battery packs are really expensive, and that’s just the way they will always be. Historically, it has cost $600 per kilowatt hour,” Musk said, referencing the “common assumption” about car batteries.
Therefore, he continued, most people would just accept that “it’s not going to be much better than that in the future.”
Step 2: Break the problem down to its fundamental truths.
This is often the most difficult part, and the key is to ask the right questions — by challenging the common assumptions. Keep digging deeper and deeper until you are left with only the fundamental truths.
“With first principles, you say, ‘What are the material constituents of the batteries? What is the stock market value of the material constituents?’ It’s got cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can,” explained Musk.
Then, he continued, “you’d break that down on a material basis and say, ‘If we bought that on the London Metal Exchange what would each of those things cost?’ It’s like $80 per kilowatt hour.”
Step 3: Use the fundamental truths to plot a new course.
Fundamental truths are like building blocks. Once you’ve gathered them, you can use them to create an entirely new and innovative solution.
With the batteries, “you just need to think of clever ways to take those materials and combine them into the shape of a battery cell,” Musk said. “Then you can have batteries that are much, much cheaper than anyone realizes.”
A ‘powerful, powerful way of thinking’
Musk has referenced the value of first principles thinking several times. “I think it’s important to view knowledge as sort of semantic tree,” he wrote in a 2015 Reddit AMA. “Make sure you understand the fundamental principles, i.e., the trunk and big branches, before you get into the leaves/details, or there is nothing for them to hang on to.”
In a 2014 commencement speech at the University of Southern California, he offered a similar piece of advice: “Don’t just follow the trend. It’s good to think in terms of the physics approach — the first principles,” he said. “This is a good way to figure out if something really makes sense, or if it’s just what everybody else is doing.”
He added: “It’s very hard to do. You can’t think that way about everything. It takes a lot of effort, but if you’re trying to do something new, it’s the best way to think. It’s really a powerful, powerful way of thinking.”
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Warren Buffet also follows a similar decision-making strategy