Elon Musk: The Role of Analogy and Reasoning From First Principles in Disruptive Entrepreneurship

by takingpitches

In terms of getting an insight into “Tony Stark’s” head, the last 5-ish minutes of Kevin’s Rose’s Foundation interview of Elon Musk is a gem:

I think its important to reason from first principles rather than by analogy…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…slight iterations on a theme…

“First principles” is a physics way of looking at the world…what that really means is that you boil things down to the most fundamental truths…and then reason up from there…that takes a lot more mental energy…

Someone could –and people do — say battery packs are really expensive and that’s just the way they will always be because that’s the way they have been in the past…

They would say it’s going to cost, historically it cost $600 KW/hour.  It’s not going to be much better that in the future…

So first principles..we say what are the material constituents of the batteries.  What is the spot market value of the material constituents?  It has carbon, nickel, aluminum, and some polymers for separation, and a steel can..break that down on a material basis, if we bought that on a London Metal Exchange, what would each of these things cost.  oh geez…It’s $80 KW/hour.  Clearly, you need to think of clever ways to take those materials and combine them into the shape of a battery cell, and you can have batteries that are much cheaper than anyone realizes.

The contrast that Elon makes is between reasoning by analogy and reasoning from first principles, i.e., finding fundamental principles and reasoning up from there. The assertion he makes is that the method of being truly creative is reasoning from first principles.

This assertion is surprising in a sense.  We tend to intuitively think that reasoning by analogy is superior.  In fact, it is important in some cases, such as when you use an analogy that is distinct — bringing ideas from completely disparate fields to spark a new way of thinking of your problem.  Think of Da Vinci and Darwin.

I think it’s better to think of Musk as criticizing close analogy.  This is dangerous in at least two ways.

First, you can become an incremental thinker, chasing and seduced by ideas like:

  • We are the pinterest of X…
  • We are the foursquare of Y…

This type of thinking is seductive in Tech World, in parts, because it is also very amenable to venture pitches, easy communication, and Tweets.

Second, and I think perhaps more dangerous from Elon’s perspective is that analogical thinking squashes creative ideas.  The example he uses above — the cost of batteries — is illustrative.  Using reasoning by analogy, conventional wisdom drawn from past electric battery efforts was that cost could not be reduced past a certain point.

As explained by Musk, from a first principle perspective, this was not true if you thought of the battery problem in terms of the cost of the components.

Another example from Elon’s world is with rockets.  Analogizing to the experience and costs of government space programs hampered almost everyone’s thinking as to the viability of private space ventures.  SpaceX’s efforts, so far, have shattered this conventional wisdom, and manned space exploration is next on its radar.

A place where this comes up in personal efforts at entrepreneurship is thinking about the way certain markets are today.  You have a choice:

If you see a problem in the relation of a market structure and the results that flow from that structure, you can analogize to past or current status quo thinking, and can be deterred in moving forward, thinking that there is a good reason that past efforts have failed or there is an inevitable reason that the market structure is the way it is.

Or, you can examine rigorously from a first principles perspective.  If after exhaustive exploration of the first principles, and the reasoning built on that, you can remain convinced that you are correct about the problem in market structure.  Then the question is do you have the courage to move forward and tackle it to change it and create customer value.

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