Elon Musk is the first man in almost a hundred years to successfully launch a car company in America. Before that it was Chrysler. And he did it with an electric car.

One of the foundations of Musk’s success, is the way he looks at problems. He uses a way of thinking called First Principles thinking.

He described the process in an interview with Kevin Rose:


“I think it is important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. [When reasoning 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 kind of a physics way of looking at the world. You boil things down to the most fundamental truths and say, “What are we sure is true?” … and then reason up from there.

Somebody could say, “Battery packs are really expensive and that’s just the way they will always be… Historically, it has cost $600 per kilowatt hour. It’s not going to be much better than that in the future.”

With first principles, you say, “What are the material constituents of the batteries? What is the stock market value of the material constituents?”

It’s got cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can. Break that down on a material basis and say, “If we bought that on the London Metal Exchange what would each of those things cost?”

It’s like $80 per kilowatt hour. So clearly you just 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, much cheaper than anyone realizes.”
—Elon Musk


Here’s my example of using this approach to an e-commerce problem:

Problem: “Finding new customers is very hard, finding the best customers is even harder. Competitors are spending $20 to get each new customer on Google adwords.”

First principle thinking applied to the above process could look like this:

  • What are the fundamental truths in this situation?
    1. That there is a product.
    2. That there are customers who have bought this product in the past.
    3. That competitors are spending $20 to acquire each new customer.
  • Here are some questions, we can ask based on the fundamental truths.
    1. What are the reasons that people buy this product?
    2. What are the characteristics of people who buy this product?
    3. Where do these people hang out (online or real world)?
    4. What do these people need to know and feel to buy?


  • Research: Here we go and figure out the answers to the above. Let’s say you come up with the following answers:
    1. People buy this product because they like the style and it makes them feel cool.
    2. Customer characteristics: They are mostly men in their 20s and 30s, single and make about $50K a year.
    3. Potential new customers hang out online on Facebook and youtube. In the real world, they also hang out at bars and clubs.
    4. They need to see the product, try it out and feel that it’s cool.


  • How can we get the above message to this group of men for less than $20 per customer?
    1. And here comes the problem solving part. This is when ours minds can think of solutions to the problem that is novel and creative, which in turn could lead to getting new customers for less than $20/customer.

If you are too busy to do all this thinking, then RewardCamp can help you convert your new customers into repeat customers.

And we will even help you figure out how to find more of your best customers.

Sign up now at www.rewardcamp.com

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