How To Solve Business Problems With First Principles Thinking

Friday, December 08, 2023

Do you want to know why most companies are too companies? Do you want to know why some companies actually dent the universe and some don’t?

If you ask Elon Musk or Peter Thiel they might tell you it comes down to first principles thinking.

I’ve used first principles thinking and think it was the key to innovating and standing out from the crowd.

But what is first principles thinking?

First principles and breaking down things to common sense and not following the crowd.

It’s building processes and creating new ways to do things from the ground up rather than just following the way everyone else has done it in the past.

For founders, this means innovating beyond industry norms and creating products or services that genuinely resonate with market needs.

For executives, it translates to strategies sculpted from a deep understanding of the company's core objectives rather than merely emulating competitors.

For business owners, it's about continuously reevaluating and refining operations, ensuring efficiency and relevance at every turn. In essence, first principles thinking isn't just a methodology—it's a mindset that enables leaders across the spectrum to navigate the volatile business terrain with clarity, originality and vigor.

I learned this through bootstrapping and scaling my last company Order Solutions. We weren’t VC backed so we needed to tap into first principles to come up with innovative ways to increase our margins, lower our operating costs, and improve our offer to resonate with our target market.

For context my company was a restaurant call center company. We centralized and streamlined phone orders for large chains like Denny’s, Famous Dave’s, O’Charley’s, Jersey Mike’s, and outback.

But unlike my previous company LiveVoice which was an answering service with a physical office. I decided that was a waste of money and that we should operate virtually. So all of our reps worked from home. That’s first principles thinking. This not only helped us save money, increase margins, but it also helped us perform better because we didn’t have as many agents no show to work because they no longer had to commute.

We also had all of our reps work from the Philippines which most people thought would have been impossible. I knew our market was operating on thin margins and we could gain a strategic advantage by lowering our costs to pay on some savings to our clients. So we had work from home amazing english speakers we paid a premium to recruit and could not only improve our service levels, increase our retention, but save our clients money compared to our competitors. This was another example of first principles thinking.

Another example we used was when we first started we knew we didn’t have as much credibility as some of our competitors and we had to figure out a way to eliminate risk for potential clients and thats when we came up with the ideas to get clients a result before they paid by implementing a free pilot. Our competitors never did this and we started winning deals over them as the new company on the block and were able to win clients from our competitors by doing this.

If you want to apply first principles thinking in your business you need to

Step 1. Get clear on the problem

Get really clear on what’s the problem you’re trying to solve. Why is it a problem. What causes this problem. Keep asking yourself why to get to the roost cause.

Then from there make a lit of your assumptions. What do you believe is true that you can challenge? For example SpaceX used this to reduce costs for rocket costs by challenging hte assumption that rockets can’t be reused.

Step 2. Break Down Every Aspect Of The Challenge

• Break it down. Divide the problem into simple parts.

Kind of like studying a car by looking at its engine, wheels and body separately.

From there analyze each component. So without judgement look at as if you were doing something for the first time. This will help you figure out where the real bottlenecks or inefficiencies lie.

Step 3. Zero To One Solutions

Think about a new way to do something. Bring in your team and have them brainstorm as well. Think outside of the box and brainstorm on new ways to solve those problems.

Step 4. Test & Validate

Try it and do it small. This could be a new operating procedure. This could me an MVP. This could anything new that could improve your business massively. See how things work in a real environment and gather feedback from employees, users, or customers.

Step 5. Fine-Tune And Tweak

Next look at the your KPI’s and numbers and see how it’s performing compared to your original version. Is it better? What could you do to make it even better from there?

All great companies use first principles thinking to innovate on their products, services, and even distribution.

Hopefully you found this helpful. If you did please share it. And if you want more help with this I have a free First Principles workbook you can by clicking the link below or the link below to

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