Enterprise

How to apply Elon Musk’s first principles to strategy

Thursday October 12 2023

SpaceX and Tesla CEO Elon Musk. PHOTO | AFP

Applying first principles thinking has worked for ‘Africa born’ Elon Musk. With a net worth of $ 252 billion, Musk is the driving force in six companies: SpaceX, Tesla, X (formerly Twitter), The Boring Company, Neuralink and xAI.

The cliché “jack of all trades, master of none” does not appear to apply to Musk. Learning from his success, in business strategy, how can one apply first principles thinking?

In essence, Musk is a ‘serial tasker’ scientist who is not afraid to challenge fundamental assumptions and think for himself. Thanks to his training in physics, his clear-thinking approach to problem-solving is based on the mental model of first principles, as opposed to the more conventional, reasoning by analogy.

Deconstruct – reduce down to the true essence

Boiling down a process down to the fundamental parts that you know are true and building up from there is first principle.

A first principle is a basic assumption that cannot be deduced any further. Over 2,000 years ago, Aristotle defined a first principle as “the first basis from which a thing is known.”

For astute managers, it’s an effective approach to break down complicated problems and generate original solutions. As opposed to analogy-like copying, what others have done. The aim is to deconstruct the problem, and break it down.

Why is space travel so expensive? This is one of the problems Musk faced.

“I tend to approach things from a physics framework,” Musk said in an interview. “Physics teaches you to reason from first principles rather than by analogy. So I said, okay, let’s look at the first principles. What is a rocket made of? Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fibre. Then I asked, what is the value of those materials on the commodity market? It turned out that the materials cost of a rocket was around two percent of the typical price.”

Heart of the matter – first steps

Applying the first principles approach, to the misunderstood, poorly applied concept of business strategy makes one realise a stratagem is about choices. Unfortunately, strategy is a word, often misapplied to look cool, to make the often mundane mediocre appear exotic. The source of much of the confusion is realising that a strategy is not a plan. Once this flash of enlightenment happens, one is able to make insightful distinctions.

As Richard Rumelt points out, at its kernel, a strategy has three parts: diagnosis, guiding policy, and coherent action. Yes, downstream one uses a plan to roll out the strategy, but don’t confuse that with essential elements.

First principles approach

Based on Roger Martin’s thinking, applying a first principles approach, in strategy the fundamental question is: What is the problem to be solved? Or, the opportunity to be addressed? Then, ask, in which marketplace segment does the company choose to play? Where to focus and where not to? How is it possible to win? Lastly, what management capabilities are required to achieve this?

“What would have to be true about, for instance, the customer, completion and management capabilities to create success?” Is the question to keep asking, on every dimension. The co-creating strategy is a problem-solving exercise, where the focus has to be asking the right questions, as opposed to coming up with a glib superficial answer.

Imagine the senior management team, has done their more analytical diagnosis and thrown in a touch of out-of-the-box thinking. After they have formed a hypothesis of what is thought to be true, what is the next step?

Do a test, do some low-risk, low-cost experiments? One judicious line of attack might be to take a portfolio approach and have say three to five strategy distinct possibilities and quiz these with customers. Test in small ways, create a prototype product or service and roll it out in the market, to get the customer feedback in data and insights.

Design thinking

Apply design thinking, ask the customer what problem they want solved? Then keep polishing and adapting, continually going round a ‘build – measure – learn’ feedback loop. Nairobi was not built in a day.

 Keep taking all those two small steps forward, where inevitably there will be, more than one step back, with all sorts of unseen surprises on the way.

Have a mindset of a creative designer, be like an architect, draw out and visualise the business strategy. Many people’s brains work best in seeing pictures.

All this takes time, it can be hard work. Not a fan of the conventional notion of ‘work-life balance’ Musk, who clearly loves what he does says: “If other people are putting in 40-hour work weeks and you’re putting in 100-hour work weeks, then even if you’re doing the same thing, you will achieve in four months what it takes them a year to achieve.”

David is a director at aCatalyst Consulting

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