First Principles and Startups: The Fundamental Link to Success

Founders, here’s how to implement First Principles thinking in your startups. A philosophy that led Musk, Bezos, Hastings and others to success.

Successful startups are inherently innovative, but why? According to Steve Blank, it’s because startups are repeatable and scalable business models.

Unfortunately, it’s not always easy to come up with innovative ideas. Founders tend to struggle to find the right problem to solve, let alone the solution to that problem. But exceptional founders are able to solve difficult questions. They do it using first principles thinking, and you can do it too.

Breaking Down: What is First Principles Thinking?

Principled thinking means breaking down the idea into its fundamental elements. This is where you can discover what is true. It is a way to deconstruct your thoughts in order to reconstruct them in a more organized way.

First principles are like pure elements that you can build on. For people generating ideas and starting companies, it’s a way to keep assumptions from taking center stage. First principles eliminate what you think you know, so you only focus on what you know to be true.

Aristotle coined the term "First Principles"
Aristotle coined the term “First Principles”

First principles thinking drives innovation

Why is first principles thinking so special? Because it drives ingenuity and innovation, two things that are like gold to founders.

The process of deconstructing and reconstructing your thoughts is a proven way to generate groundbreaking ideas.

The challenge is to innovate function over form. It’s easy to manipulate how a product looks and behaves, but that’s not where true innovation lies. If we simply advance the form of a product or service, we are doing our audience a disservice. And customers are smarter than we think, so focus on innovating the function of your product. First principles thinking helps you do this.

How Elon Musk used first principles to prosper

In 2002 – a decade before he became a billionaire – Elon Musk used first principles to develop his business plan for SpaceX. The company is now worth at least $74 billion following an $850 million equity round in early 2021.

Instead of buying wildly expensive rockets, Musk sought to buy the parts, employ the experts, and make his own. His plan worked. At about $62 million per launch, SpaceX launches are much cheaper than NASA’s $152 million launches.

Elon Musk used the First Principles technique to build rockets much cheaper than NASA
Elon Musk used the First Principles technique to build rockets much cheaper than NASA

Musk also based his overall success on first principles. As a member of the so-called PayPal mafia, he said in a 2013 TED talk that he scales things back. “to its fundamental truths and (reason) from there, instead of reasoning by analogy.”

Other Exceptional Founders Who Used First Principles

Musk is not alone in his strategy. Names like Bernard Sadow, who invented the rolling suitcase in 1972, showed how simple first-principles thinking can be.

Bernard Sadow used First Principles to put wheels on suitcases
Bernard Sadow used First Principles to put wheels on suitcases

Fiskars, creator of the left-handed scissors in 1967 (thousands of years after the Egyptians invented the right-handed version), had a similar moment.

Other names, such as Palantir co-founder Peter Thiel, Netflix co-founder Reed Hastings, and Amazon and Blue Origin founder Jeff Bezos, regularly use first principles to innovate.

Thiel focuses on an outcome of first principles called vertical progress in getting ideas. Instead of horizontally copying things that already work, he goes up where no one has gone before. Through the Thiel Foundation, he is providing a space for young founders to do the same.

First Principles create things, not copy
First Principles create things, not copy

Before you dive into your startup, consider first principles in your everyday life

You don’t have to be a quantum physicist like Richard Feynman to use first principles. It is useful in everyday life because it slows down your thinking. This helps you avoid overcomplicating your multiple tasks and worries.

The best way to do it is twofold:

  • Doubt your assumptions
  • Reason through first principles instead of analogy

Think of the word analogy as “a thing that is comparable to another in significant respects,” according to the Oxford Dictionary. When you create a startup, you want to be unique.

Lay out all your assumptions about what the problem is, and then spend time identifying what you can prove to be true. In the end, you will have a perfected problem from which you can develop innovative solutions.

Founders, here’s how to apply first principles thinking to your startup

1. Think of your startup as a solution to a problem.

2. Identify your assumptions about the problem you are trying to solve for your audience and your business idea. Like Cartesian doubt, you can eliminate what is not true. This is the most exhausting part.

3. Based on the problems you have identified, fully break down the central elements. What are the most basic facts? This will help you identify the right solution.

4. Use the most basic elements to create an innovative solution to the problem. You’re starting from scratch, so don’t be afraid to adjust the build. The ideation stage is the best time to do it in a startup.

First principles thinking is not just for tangible products

From rolling backpacks to rockets, first principles thinking has had its impact on the world of invention. Sometimes called first principles engineering, this method is not limited to tangible products. It can be used to develop killer startup ideas for software, services, and all the other solutions the world expects.

Just look at Amazon’s Bezos, who “resisted the powers that be” and developed the most successful e-commerce website in the world. Or Netflix’s Hastings, who recognizes that his own success is based on the value he places on first principles thinking.

Peter Thiel and First Principles
Peter Thiel and First Principles

The most successful – and innovative – startups start with the fundamentals

When your startup culture is rooted in first principles, you will continue to question, reason, and adapt.
And if you plan to iterate and scale your business model (as Blank’s startup definition suggests), a first principles mindset will help you build success from the beginning. It’s a mindset anyone can use, whether it’s their first or tenth business venture.