First Principles and Elon Musk

first principles elon musk

first principles elon muskWhat are first principles and why are they important?

I recently heard an executive make an argument as to why a software initiative’s budget might be way off. The company had planned to spend 15 million and this executive was making an argument as to why it may cost more than 150 million dollars.

He was giving an argument from analogy.

Analogous estimation is a time honored tradition in human activities. It frequently works. For example, if “this project” is much like “that project” it may be legitimate to assume the costs will be analogous. Or, if “this project” is 10-times bigger than “that project” it may be legitimate to assume the costs will likewise be 10-times bigger.

This is how we got the 150 million dollar project story.

The problem with analogous thinking is it seriously limits you.

You stop asking these other questions:

• Should it cost that much?
• Why does it cost that much?
• What do materials cost?
• What does labor cost?
• What do machines cost?
• Are there ways to reduce the costs?

As opposed to accepting the analogy, instead examine the underlying system and seek to understand the nature of your costs. Look for the fundamental principles driving the system.

Elon Musk in the following short interview, talks about argument from First Principles instead of argument from analogy.

https://www.youtube.com/watch?v=NV3sBlRgzTI

In Elon’s world one interesting question is “How much will it costs to build battery packs for 1 million cars?”

The analogy answer is to say battery packs currently cost $600, and we need Z battery packs per car so: cost = 1 million x $600 x Z

This is a reasonable analogy. Elon Musk rightly rejects it. Elon knows that if we stop there we stop thinking. Most people stop there.

Elon asks other questions instead. Questions like “How much do the raw materials of a battery actually cost to buy?” It turns out, the answer is only $80. The rest of the cost, $520, comes from somewhere else.

Once we realize this we can ask even more questions:

• Should it cost that much?
• Why does it cost that much?
• What do materials cost?
• What does labor cost?
• What do machines cost?
• Are there ways to reduce the costs?

If we ask these questions then we are actively choosing to look deeper. We leave the analogy behind and instead choose to work the problem. We stop limiting our inquiry and start asking fun questions like “How much might it be possible to reduce these costs simply by applying existing technology in new ways?” This question should be asked continually. Never stop asking it.

I love manufacturing executives like Musk who ask these sorts of question. I long for software executives who ask the same question. Is there a way to develop software dramatically less expensively? What does it look like? How might I approach it? Can I test it? Can we prove it? Can we scale it?

I believe the answers for software is yes, yes, yes, yes. First with agile techniques, and then with many other existing technologies.

I’ve built software processes that provide a 10-fold boost in productivity simply by stopping building things users don’t want and can’t use.

I’ve seen, for software, at least two amazing answers to reduce costs by orders of magnitude once you know what to build. What amazes me is almost nobody asks how! This is why I am a Musk fan. He cares. He cares enough to leave analogy behind and ask better questions. In my humble experience, this is extremely rare, even among executives.

By Tom (Thomas) Meloche – www.TomMeloche.com

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