To create anything meaningful, particularly innovating for the market – the approach to one’s thinking is paramount.
Warning to innovators: EXPLAINING one’s innovation by analogy is helpful, but THINKING by analogy is limiting…. Here is more context:
Thinking by ‘analogy’ and thinking by ‘first principles’ are two distinct cognitive approaches used for problem-solving and decision-making. Let’s explore the differences between them:
Thinking by Analogy:
Thinking by analogy involves drawing parallels between a current problem or situation and a previously encountered one. It relies on the assumption that if two situations share similarities, solutions that worked in the past might also be applicable to the present problem.
Here’s how it works:
– Identify a problem: When faced with a new problem, the thinker looks for similarities with other situations they have experienced or learned about.
– Find an analogous situation: The thinker then searches for a previous situation or concept that shares similar key characteristics with the current problem.
– Apply a solution: Based on the similarities identified, the thinker applies the solution or approach that worked in the analogous situation to the current problem.
Pros of Thinking by Analogy:
– Quick problem-solving: It allows for rapid decision-making since it relies on pre-existing knowledge and solutions.
– Requires less effort: Compared to thinking from scratch, thinking by analogy saves cognitive effort and time.
Cons of Thinking by Analogy:
– Limited creativity: It may hinder thinking beyond familiar solutions and restricts innovative problem-solving.
– Risk of incorrect assumptions: Analogies might not always be appropriate, leading to mis-judgments if the two situations are not truly analogous.
Thinking by First Principles:
Thinking by ‘first principles’ involves breaking down a problem into its fundamental components or basic principles and reconstructing a solution from the ground up. It requires questioning assumptions and understanding the fundamental truths underlying the problem. Here’s how it works:
– Analyse the problem: Instead of relying on prior knowledge, the thinker examines the problem at hand without any preconceived notions.
– Identify fundamental principles: The thinker identifies the core principles or basic truths that govern the problem.
– Create a new solution: Armed with the fundamental principles, the thinker builds a solution or approach that fits the specific context of the problem.
Pros of Thinking by First Principles:
– Innovative solutions: It encourages creative problem-solving by challenging conventional wisdom and encouraging unique ideas.
– Deeper understanding: By dissecting the problem into fundamental elements, thinkers gain a more profound comprehension of the issues they face.
Cons of Thinking by First Principles:
– Time-consuming: This approach can be more time-consuming and mentally demanding as it involves starting from scratch.
– Requires expertise: It may require a deeper level of subject knowledge and expertise to identify the first principles correctly.
In summary, thinking by analogy relies on past experiences and similarities to find solutions, while thinking by first principles involves breaking down problems to their fundamental truths to derive innovative and context-specific solutions. Both approaches have their merits and limitations, and the choice of method often depends on the complexity of the problem, available resources, and the thinker’s preferences or expertise.
‘First principle’ thinking is particularly effective at creating new value and driving innovation for several reasons:
- Challenge assumptions: First principle thinking encourages individuals to question the assumptions and limitations inherent in existing solutions or systems. By doing so, it opens up opportunities for new perspectives and ideas that go beyond traditional boundaries.
- Unleash creativity: By breaking a problem down to its fundamental elements, first principle thinking allows for more creative problem-solving. It enables thinkers to explore a wide range of possibilities and come up with novel approaches that may not have been considered before.
- Foster innovation: Innovation often stems from challenging the status quo and finding unconventional solutions. First principle thinking provides a framework to approach problems with a fresh mindset, leading to innovative breakthroughs.
- Overcome limitations: Analogies are useful for leveraging existing knowledge, but they can also be limiting if the current problem requires a completely different approach. First principle thinking empowers individuals to devise solutions that are tailored to the unique aspects of the problem at hand.
- Address complex problems: Some problems are so complex that there might not be direct analogies available. First principle thinking allows thinkers to tackle these challenges systematically, starting from the foundational principles and gradually building up solutions.
- Adapt to changing circumstances: Analogies might work well in familiar contexts, but they may not hold up in rapidly changing environments. First principle thinking equips individuals with the ability to adapt and develop solutions for new and evolving challenges.
- Transform industries: First principle thinking has historically been behind some of the most significant breakthroughs and disruptive innovations across industries. By reimagining the fundamentals of how things work, it can lead to transformative changes and the creation of entirely new industries.
- Address efficiency and optimization: First principle thinking can help identify inefficiencies and redundancies in existing processes or products. By re-evaluating the fundamental components, thinkers can streamline operations and create more efficient systems.
- Encourage entrepreneurship: Entrepreneurs often use first principle thinking to identify market gaps and build unique solutions that cater to unmet needs. It serves as a foundational approach for developing ground-breaking products and services.
Overall, while thinking by analogy is valuable for drawing from past experiences and established solutions, first principle thinking offers a powerful toolset for generating new value, fostering innovation, and driving meaningful change in diverse domains. By understanding the underlying principles and rethinking assumptions, individuals can push the boundaries of what’s possible and create transformative solutions with a lasting impact.
First Principle thinking example: Why Bezos started selling books online
An important component of first principles thinking is the idea of consciously favouring first principles over analogy. Now, what does this exactly mean?
Well, you see, an analogy is when you compare a system with another system to point out marginal similarities between them. When you develop something through analogy, you only think of marginally improving an existing system rather than tackling the core problems with it.
Henry Ford, CEO of Ford Motors, described it perfectly — “If I had asked the public what they wanted, they would have said a faster horse (instead of a car!)”
Jeff Bezos, back in 1994, had a similar choice. While working at a hedge fund, Bezos realized that internet usage was increasing by 2000% every year. He needed to get into the WWW action. So, he decided to sell books on Amazon.com!
Now, he could either land on the analogy approach or take the first principles approach. Let’s explore them both!
Marginally improving on an analogy ⇒ Here Bezos could have started a physical bookstore holding book inventory in a storage facility and used the internet to reach more users. So, essentially, he would only slightly improve the traditional bookstore model by adding the “selling online” component to it.
But, instead, he did something very different!
Thinking from First Principles ⇒ Bezos identified that there were 2 fundamental problems limiting the profitability of these physical bookstores:
- Inventory cost
- And, the fact that these bookstores only sold bestsellers, as it was impossible to hold all books in any one store
Amazon’s model solves both of these problems. It was able to sell ALL books on the platform without holding any inventory. It just worked as a connecting tool between the book vendors and the end users.
With this model, Amazon’s growth potential became essentially endless. And, its trillion-dollar market value is a huge testament to that.
Applying first principles to the start-up (innovation) world in general:
To achieve the next level of performance, one has to move beyond thinking by analogy.
There is only one way to move beyond analogy, and that is to find the first principles that govern the creation of great companies.
The first principle way, is far more powerful , because it enables us to create new realities.
By default, it enables creating (finding, co-creating and funding) New Market Category Kings.
To realise the full benefit of the new way, one does however need to adopt a new rule set, in order to move away from educated guessing, and towards rigorous testing (against the first principles)
The first principles governing this early-stage space, have been discovered and codified, and a new way scientifically re-engineered, resulting in a new path for start-ups to become New Market Category Kings.
Today, a virtual factory-style Market Category Creator (MCC) is therefore able to answer the two “IF and WHEN, the Start-Up will take-off” questions for LEAD investors, that were previously impossible.
Furthermore, as an early-stage LEAD investor, if you’re able to gain the critical, non-consensus intel on New Market Category Kings earlier, AND you’re an ‘insider’, then you’ll neutralise the negative effects of the (governing) power law, and beat the market.
The rewards of being a successful LEAD (intrinsic value) investor, means consistently beating the market, and showing great returns.
In other words, if you command the first principles that govern the space of early-stage venturing and investment, then you’ll know IF and WHEN, the Start-Up will take-off (before it becomes obvious to others).
The 2 first principles governing the creation of new market category leaders:
1) The innovation must have the power to remove a significant limitation (not just solve a problem) for the target market, and
2) The market must adopt a new set of rules, to realise the full value.
Thinking this first principle way is a departure from the norm, where inventors, entrepreneurs and founders of Start-Ups, are mainly focusing on merely solving problems, satisfying needs and just giving instruction of how to use it.
www.tmaragroup.com for creating new market category ‘must-haves’ through first principle thinking.
Example Source: https://buildd.co/product/examples-of-first-principles-thinking