Zendesk nails it's core support pricing based on our willingness to pay data. They're expanding revenue into a hub-and-spoke, or suite, model and are hitting a few bumps along the way. Find out how they can optimize their pricing strategy in this week's episode.Read More
Thinking from first principles
Patrick Campbell Apr 9 2021
This week I'm sharing one of our internal memos that's slightly redacted on one of our core principles at ProfitWell: thinking from first principles. A lot of you asked how I'm able to produce frameworks and thoughtful commentary quickly/frequently and a lot of it came from honing this trait. I was lucky in the fact that I went to university on a debate scholarship, so I wrote, spoke, and thought from first principles for 40 hours per week for four years (eight if you count high school).
This concept is hard to teach, so the below pulls from many other authors, going as far back as my main homie Demosthenes. If you find this worthwhile, obviously share. Want to get this superpower in the hands of as many people as possible.
Listen now 🎧
1. First-principles thinking is a method of thought that allows you to break down complicated problems by honing in on their underlying facts, ideas, and assumptions. As humans, we've been conditioned to think conventionally or just do what we're told.
First-principles thinking allows you to think for yourself, arriving at the ideal solution, instead of just copying and pasting what everyone else is doing.
It's one of the most powerful tools we have in our arsenal and an absolute requirement for us to be successful at ProfitWell.
2. First-principles thinking reduces reasoning by analogy and confirmation bias.
Human beings are beautiful creations. We have many mechanisms embedded within our DNA that help us survive. One of those mechanisms is a path of least resistance to reason by analogy.
If we're in the winter woods and see someone walk across a seemingly frozen pond before falling through the ice, we're not going to question anything about the ice, we're going to reason that if we walk onto the lake, we'll fall through, too.
Reasoning by analogy means we copy what other people do with only slight variations. We use prior assumptions and "best practices" used by those we observe in order to survive.
3. Reasoning by analogy's other problematic cousin is confirmation bias.
We tend to look for and favor evidence that confirms our pre-existing beliefs, while at the same time devaluing information that contradicts those beliefs. We bias ourselves in this manner, because we feel discomfort when we face conflicting ideas or information.
In fact, we physiologically feel attacked when faced with this information. Studies have shown that the part of the brain that lights up when a bear is coming to attack you is the same part of the brain that triggers when we hear something that challenges pre-conceived notions.
4. Reasoning by analogy and confirmation bias are amazing for making sure we don't eat the wrong berries or mushrooms, but they're absolutely terrible for innovative thought and building a business.
If we do the same thing everyone else is doing, we can only expect similar results—at best. At worst, we can actually expect worse results, because oftentimes once someone has done something (especially in marketing) there's a window of effectiveness before everyone else does the same thing. Plus in either scenario, you're assuming your circumstances are similar to the person you're copying, when in reality you very likely are not, and the solution will not work the same, if at all.
At ProfitWell, while understanding what others are doing to solve a problem is a good start, we'll need to truly innovate to get outsized returns on the time and materials we invest. A lot of problems we're trying to solve haven't been tackled before. Thus, copying others won't work.
If we don't innovate we'll become a "me too" company that's uninspiring and inconsequential. We'll fail at our mission to help subscription companies automate the acquisition, monetization, and retention of their customers. We'll also fail as humans, because we'll stop growing career-wise and emotionally.
Challenging our thinking is uncomfortable, but this discomfort begets growth. We need to constantly disprove ourselves, especially when there's disagreement, in order to recognize our potential bias and assumptions at every turn. Only when we do this are we able to validate or create solutions from baseline knowledge.
5. This is where reasoning from first principles comes into play.
At the most basic level, reasoning from first principles begins with breaking down a thought, idea, or direction to the most basic truths and then rebuilding a solution from those basic truths. You can then implement that solution or validate a solution you're already thinking of implementing.
There are several frameworks that've made this easier, including the five whys, socratic questioning, and problem-cause-solution. Let's walk through each.
6. The five whys is a popular technique used to dig deeper into root causes by repeatedly asking "why" questions. Like a good four year old, you can also go far beyond just five of these questions.
Let's imagine you're Elon Musk and your goal is to build cheaper rockets. The first question is "why are rockets expensive?" You may think this is an obvious question, but if you've ever found yourself believing or saying something like "that's just the way it is" you haven't gotten past the first why before—you haven't even asked it.
Rockets are expensive because the components of a rocket are expensive and you have to throw away 90% of the components after launch.
The components are expensive because they're made by different vendors who have many sub-vendors who are all adding margin to the components. Thus, inflating the price of the components. Ninety percent of the components are thrown away because we let them crash into the ocean and they can't be salvaged.
The different vendors have many sub-vendors because no single company can source all of the right materials, or expertise to build the components in house. We let the components crash into the ocean because that's how it's always been done and I imagine it'd be hard.
No one's really tried to have one vendor, or build everything in house because it was worth more money as a business to pick one component and get government contracts or sub-contracts this way. Actually a lot of the vendors have consortiums, almost like cartels that drive up the price. It'd be hard to not let the components crash into the ocean, because we'd have to build a system to steer the rocket back to a launch pad, which I guess we could do, but no one's even tried it before.
Hopefully you're getting the picture and we're not even at five whys before realizing that if we want to cheapen rocket production we could work to cut out the component vendors and produce the components under one roof. We can also think through a solution that lets the rocket fly back to land or maybe even a ship in the ocean.
This is exactly what SpaceX ended up doing based on this line of thinking. Notice how there was no guarantee that retrieving the rockets was possible, but we were able to get past the objections to then think through how that could be done. Whenever you hear "that's how it's always been done" or "this is how it needs to be done" you have a good opportunity to innovate. You may discover the innovation is too expensive or defies the laws of physics, but you can't know that until you check your assumptions.
Don't miss out on more insights. Subscribe to get more Protect the Hustle now.
7. Socratic questioning is another beautiful method to getting to first principles.
Socratic questioning is a method of asking someone questions to get to the core of their assumptions and to dig until you get to the first principles of their thinking. If you've been with ProfitWell for a while, you've certainly heard us talk about Scorates's cousin—first, seek to understand.
Socrates believed that you had the totality of knowledge in your head and you simply needed to be asked the right questions to unlock that knowledge. Similarly you may (or may not) have thought enough about a problem, but questioning allows you to ensure you've gone deep enough in checking your assumptions.
This doesn't have to be done in a group or in pairs, but considering we're all fallible, having at least a partner to talk through things helps immensely.
While hard and fast rules don't exist for socratic questioning, six types of questions help you dig to first principles:
- Clarification questions – What do you mean by... ?"
- Probing assumptions – "What could we assume instead?"
- Probing reasons/evidence – "Why do you think this is true?"
- Implications and consequences – "What effect would that have?"
- Different viewpoints – "What would be an alternative?"
- Questioning the original question – "What was the point of this question?"
An important note here is that socratic questioning and the five whys can often feel contentious. Remember, someone's checking your assumptions and clarifying your biases. That can get uncomfortable and these feelings are unavoidable with topics you feel strongly about. Yet, you need to realize you're on the same team seeking truth. Although you may feel this way sometimes, the other person isn't trying to win, they're trying to help you. This is another reason the most charitable interpretation principle (MCI) is so important.
8. Another common framework discussed at ProfitWell is Problem-Cause-Solution.
The premise here is you can't actually solve a problem. Most problems are actually symptoms of a deeper, underlying cause or collection of causes. Instead, you want to break down all of the possible causes of the problem and then evaluate the gravity of each cause. This allows you to start attacking the cause you believe will mitigate the problem when solved for, or at least determine where you'll have the most leverage in helping mitigate the problem.
Take for example, world hunger. We all can agree that we'd like world hunger not to exist. Yet, we can't just throw solutions at the problem, because they may do more harm than good or be ineffective. Our bias and poor reasoning can easily creep in, which leads to fundraisers that cost more than the actual money they raise and only make you feel better.
For world hunger, there are many causes depending on the region or specific group of people going hungry. These causes range from aid being stolen by corrupt governments, lack of logistic infrastructure, irrigation issues, climate change, women not having agency, sickness preventing innovation cycles to exist, and the list goes on.
We could then think through the causes and determine the biggest cause (likely lack of infrastructure, which has many more causes) or the cause we can most directly impact given our strengths and resources (micro-loans or micro-projects for a region we care about in particular).
9. How in the world do you do this for every thought or decision?
First-principles thinking is not a chore or checkbox, it's a mindset. Using this model of thinking hedges our decisions by checking our biases and making sure we're looking at those decisions in context.
We're not going to constantly rethink everything all the time, because some fires are bigger than others. Yet, if you're new to first-principles thinking, a good place to start is whenever you're looking to propose a direction to take or you're implementing something for the first time.
Let's take the example, choosing a conversational marketing product for our mid-funnel team. I may come into the decision with a sneaking suspicion that Drift would be best. David Cancel's a friend of the company, they do a lot of flashy things we find appealing, they were used at a previous company, and even some companies we respect use them.
All of these are terrible reasons to make the switch. It's not that they don't matter in the wider calculus of a decision—all of these things boost trust in your decision. Yet, none of them get to the core of what we're trying to do and if Drift fulfills those aims.
First I should determine what the ultimate goal is for the product. In this case it's facilitating sales opportunities. I should then think about where sales opportunities come from—speedy contact from specialists, automated sign ups from the site or marketing pages, personalized ABM campaigns, etc. From these thought patterns I've now thought through what a solution should look like in our ideal scenario. Only then should I then evaluate Drift and Intercom.
You want to determine your needs and goals first (your first principles), because oftentimes all the options suck and you don't want to be tricked into choosing one that merely sucks less than the others. Other times you may determine that a solution is overkill for your needs and there are options that maybe won't scale in two years, but we can use for now as we build.
Your thinking likely won't be as linear as the above. You'll end up getting a recommendation or reading some sort of article about how great the solution is for a similar business. Yet, before you rush into poor arguments from analogy or simply confirmation bias, you need to go through a first-principles thought process to make sure you're proposing (or making) the right decision.
Keep in mind that sometimes this isn't a super formal process (although it can be if you struggle with this mindset). Once you practice first-principles thinking enough, you'll use the model rapidly to make decisions. Things like responding to an upset customer or responding to a sales inquiry can all use first-principles thinking and take less than 60 seconds. It's a mindset.
10. Another practical time to use first-principles thinking is in interpersonal conversations where you find yourself disagreeing with someone. Using MCI you should assume the person is smart, well intentioned, and may know something you don't based on their proximity to the problem.
First-principles thinking and questioning then comes into play for the two of you (or the group) to clarify the proposal or position the person is taking and dig deeper on their assumptions. You can then figure out a proper course of action or feedback together.
You may feel attacked going through this process, but remember that is almost certainly an unfortunate side effect of the way in which you're wired for survival. These feelings are often unavoidable (although you should work to try and minimize them over time), but rely on MCI and don't be afraid to openly say, "Hey I'm feeling frustrated or attacked, can we talk more collaboratively?" The conversation should still commence, but saying things like this helps you move on from those feelings and allows your sparring partner to soften their language a bit.
Remember—we're all working together to seek truth in how to build and grow ProfitWell.
11. Anti-patterns, or how we can tell we may have veered off track
First-principles thinking is tough if you haven't trained your brain to think in this manner, so there are a few speed bumps to recognize if you've gone off course.
If you find yourself agreeing too quickly with what feels like consequential assumptions you haven't heard before, you're likely moving too quickly and need to challenge those assumptions.
If you find yourself reticent to ask questions for whatever reason—not wanting to ruffle feathers, not wanting to confront someone, optimizing for feelings—you're likely focusing too much on the HOW, instead of the WHY. These instincts come from a good place, but aren't helping you and the team get better.
If you find yourself thinking lazily—not validating your thoughts and the places where they take you for the most basic biases—you're likely going with the flow too much and need to disagree with yourself a bit. You shouldn't succumb to things like straw man, slippery slope, or circular reasoning arguments.
If you find yourself getting defensive when someone asks you why or thinking "I shouldn't have to explain myself to you," you're letting your DNA and ego take over. It's ok to have these emotions, but make sure you're using MCI. No one at ProfitWell is above explaining themselves. Obviously there's a point where this could become destructive or distracting, but we think we're all adult enough to recognize if we cross that threshold.
12 . To recap, first-principles thinking is a method of thought that allows you to break down complicated problems by honing in on their underlying facts, ideas, and assumptions. Using this mental model you're able to step outside of your bias to see what is possible and determine a better course of direction with more confidence.
Thinking in this manner will take some time to develop as instinct, because we're fighting our DNA and convention that's been beaten into us over decades by teachers, bosses, and parents. We think it's easier to just follow what we've been told, rather than breaking things down and thinking for ourselves.
Fortunately you're in a culture that values rigorous thinking and the seeking of truth with plenty of team members to help you through your journey. Our success absolutely depends on more of us thinking from first principles. It's the only way to seek as much leverage as possible and ensure we get outsized returns.
Do us a favor?Part of the way we measure success is by seeing if our content is shareable. If you got value from this episode and write up, we'd appreciate a click to tweet or a click to share on LinkedIn.
This is a ProfitWell Recur production—the first media network dedicated entirely to the SaaS and subscription space.
By Patrick Campbell
Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.