First Principles Entrepreneurship, à la Elon
(Let's be honest - you'll have a better time reading this post on on Medium here.)
Most founders and companies subscribe to the Wayne Gretsky school of business: they skate to where the puck is inevitably going. Rare are those who figure out where the puck should be in the future, and shoot it in this direction through unchartered terrain. Elon Musk and a few others do this.
(There will be no more hockey metaphors or nods to Canada in this article.)
Over the holidays I finally got around to reading Ashlee Vance’s excellent biography of Elon Musk.
The book goes through a lot of interesting details about Elon’s story — his character, his difficult childhood in South Africa, cool anecdotes (did you know that Elon pitched the Solar City idea to his cousins on the drive up to Burning Man?) — but what really stayed with me is that Elon reasons from “first principles”. In his own words:
I think generally people’s thinking process is too bound by convention or analogy to prior experiences.
It’s rare that people try to think of something on a first principles basis. They’ll say, “We’ll do that because it’s always been done that way.” Or they’ll not do it because “Well, nobody’s ever done that, so it must not be good.” But that’s just a ridiculous way to think. You have to build up the reasoning from the ground up — “from the first principles” is the phrase that’s used in physics.
You look at the fundamentals and construct your reasoning from that, and then you see if you have a conclusion that works or doesn’t work, and it may or may not be different from what people have done in the past.
This frame of mind led Elon to have the following thought process at a young age:
Humanity’s survival rests on Planet Earth staying hospitable, which it won’t at the current rate of global warming.
Survival chances would be increased by (1) becoming an inter-planetary species, and (2) increasing the amount of time Earth stays hospitable.
I am therefore going to do everything in my power to achieve (1) and (2).
🤔 Logic checks out right?
It’s impressive to see how much Elon believes this. From this first-principles thinking he has gone on to deduct what his life’s work should be (and casually worked 100 hour weeks for 15+ years to make it happen!)
Product-First vs Vision-First Companies
This kind of thinking leads to what I’ll call “Vision-first companies”.
A logical deduction that something is wrong in the world and should be addressed fuelling an incredible drive towards this new improved state of the world, even if it’ll take 10 years to get there, and everyone thinks you’re crazy:
What struck me is how this top-down / very long term planning approach contrasts with most current entrepreneurship advice: build in the open, do not execute blindly on a long term plan without continuously validating assumptions with your customers, be ready to pivot if the data tells you to, use Agile rather than Waterfall, etc.
This approach is the low-risk way to build a successful business. You find out through iteration what will be the useful product for your customers, and by showing progress in this discovery and usage you can keep raising money at increasing valuations. Vision-first companies do not have this feedback loop — they are taking a bet on what customers will want in N years, and need financing from VCs (or an adoring user base in the case of Tesla!) who take the leap of faith with them.
So it strikes me that there are really two kinds of startups: Vision-first, and Product-first:
The clearest way to distinguish the two kinds is to think about what success looks like.
For a vision-first company, success is achieving the vision. All the intermediary successes on the way towards the vision are to keep the company going, and generate more resources to drive towards the ultimate vision. The Tesla masterplan is the perfect example. Once the vision-first company has enough odds of success, many startups follow — the path has been de-risked.
In contrast, at a product-first company, success is relative to past performance. Take Facebook as an example — for them this means increasing the number of users connected on the platform. As a result the roadmap contains no specific goals, just themes:
A few other product-first examples: Snapchat/Twitter/Pinterest (improvement on social sharing), Stripe/Braintree (improvements on current payments system), Slack (improvements on team communication), Asana(improvements on task management), Uber/Postmates/Instacart (on demand transport/things).
Vision-first companies of today
These companies are fascinating to follow because they often have an inspiring founder to take you through their vision and the reasoning behind it, and invite you to take that leap of faith. Patience is then key as the company aims to ship products that move it towards the end goal.
Here are a few awesome companies today that I think fit the bill.
Founder & CEO Balaji S. Srinivasan’s thinking for founding 21 goes something like:
Machines need to be able to transfer money to each other, particularly to incentivise sharing idle resources (in a grid computing paradigm.)
All wallets today are tied to people, not machines, meaning a human has to enable a machine to talk to another machine. This will not scale in the IOT & grid computing worlds.
Per-machine wallets should therefore be created.
Check out this video where Balaji goes through this thought process. It’s this ability to step back, realise through a deductive thought process that per-machine wallets will be needed, and then proceed to implementation however difficult & time consuming it will be (building a mining chips no less), that in my view makes this so impressive.
Fossil fuels harm the planet; renewable energies have unpredictable outputs.
Fusion doesn’t harm the planet, is predictable and less wasteful than renewables.
Create a fusion engine.
(Without blowing up the planet ideally.)
Certain important problems in the world appear unsolvable by the human brain.
Artificial General Intelligence can help create new brains to complement ours.
We should therefore build Artificial General Intelligence.
(Disclosure: I work at Improbable :-)
Being able to understand the emergent complexity of real world systems will help solve important problems.
Emergent complexity is discovered in high fidelity simulations of these systems, which is not possible on today’s technology.
We should therefore create high fidelity simulations.
And we’re on our way with SpatialOS, our operating system for building large scale simulations, now in Open Alpha. Sign up and have a play!
Overwhelmingly it seems to me that these kinds of companies are funded by:
Peter Thiel / Founders Fund (not a coincidence that their tagline is “We wanted flying cars, instead we got 140 characters”!)
Following what the investment teams in these funds have to say and who they interview is very interesting. I do that mostly on this twitter list, but if I could keep one source it’d be the a16z podcast, where partners invite founders of their portfolio companies to explain their vision. (It’s also the podcast that led me to discover Improbable and join the team a year later! 👌)
What do you believe that no one else does?
I think product-first companies are also the ones that are more likely to make your mother think “tech has gone too far”. On demand insert physical good, Blincam (take a picture with a wink), Hello Alfred (does all your household chores for you), Yo (Yo!), Zenly (gps track your friends) — to take a few nauseating examples.
Vision-first companies, by working back their plans from an improved state of the world, have more of a chance at solving real societal problems.
So, tell me — who is glaringly missing from my list above?
Thanks for reading 👍
Would love to know what you think. Don't hesitate to comment or find me on twitter!