Using lessons from Tesla’s Elon Musk and biopharmaceutical firm, Regneron, this excerpt from Innovation Capital looks at how you can use first-principles thinking to question assumptions and create new solutions using a blank-slate approach
Elon Musk has been instrumental in building three revolutionary, multibillion-dollar companies in completely different fields. His ability to solve seemingly unsolvable problems is essential to his success and he attributes his problem-solving success to first-principles thinking.
‘I operate on the physics approach of analysis by first principles,’ Musk told us. ‘The first principles approach to thinking is where you boil things down to the most fundamental truths in a particular area and then you reason up from there.’
In lay terms, first-principles thinking – which was first articulated and named by Aristotle – is the practice of identifying what you think is true and then actively questioning every assumption you have about a given problem or scenario.
First-principles thinking helped Regeneron, the New York–based biopharmaceutical company, revolutionise how it develops new therapies. Whereas it costs, on average, $4.3 billion USD for the average company to develop an approved therapy, Regeneron has been estimated to develop therapies for less than $1 billion USD per approved therapy, which is 20% of the cost of its competitors.
How? ‘We challenge everything,’ says Regeneron CoFounder, President, and Chief Scientist, George Yancopoulos. ‘Every concept. Every scientific principle. Nothing is unchallengeable, and you don’t take anything for granted. Most of what we believe are facts are not.’
The next step is to identify the constraints to achieving what you want to achieve and then start with a blank slate and create solutions that might solve those constraints. ‘We always try to figure out what’s limiting in a field. What’s the bottleneck?’ Yancopoulos says. ‘Then you look for a game-breaking idea that addresses the limiting factor.’
Tesla’s approach to expensive batteries
To illustrate how to apply a first-principles process, consider Musk’s description of how automotive and energy company, Tesla, approached the problem of the high cost of battery packs for automobiles.
Some people say: ‘Battery packs are really expensive and that’s just the way they will always be. . . Historically, it has cost $600 USD 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 spot market value of the material constituents?’ It’s got cobalt, nickel, aluminium, 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 USD 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 realises.
Of course, it isn’t that easy to ‘think of clever ways’ to combine the materials into a battery cell, but first-principles thinking starts with a blank slate, questions every assumption, and considers a wide variety of options. Here is a three-step process for first-principles problem solving:
1. Identify the problem you want to solve
In the case of Tesla, the key problems the company needed to solve were reducing the cost of the battery pack (to make it affordable) and increasing the range a car could go on a single charge (to reduce range anxiety).
At Regeneron, two big delays in the creation of successful new medicines were the time required to create and breed accurate animal models, a necessary step in ensuring safety before clinical-stage testing in humans, and the time required to develop ‘fully human’ antibody drug candidates that would be accepted in a human immune system.
2. Break down the problem into its fundamental principles, and list major constraints to solving it
The main constraint to an affordable battery pack might have been the cost of one or more of the materials. So then you would ask, ‘how could we possibly reduce the cost of that key material?’ For Tesla, the challenge of creating a lower-cost battery pack had less to do with materials and more to do with the process of combining them into a battery cell at enough scale to reduce the cost (hence the need for the Gigafactory, Tesla’s facility to design and build lower-cost lithium batteries at scale). A major constraint to increasing the range of a Tesla from a single electric charge was the weight of the car body. Thus, Tesla became the first automaker to use a lightweight, all-aluminium body.
At Regeneron, the limiting factor to rapid, successful drug testing was the time required to carefully test, select, and breed for certain genetic qualities in mice to ensure the closest parallels to future human patients. So Regeneron sped up the process by developing a precision technology capable of directly inserting human immune-system genes in mice, eliminating the need for many generations of breeding to accurately model human diseases and produce antibodies that could be safely introduced into humans. These ‘fully human’ mice have allowed Regeneron to more quickly and accurately identify medicines that will work on humans, thereby reducing the cost of each potential new drug. This breakthrough has contributed to a tenfold increase in the company’s stock price in the 10 years since 2010.
3. Create new solutions using a blank-slate approach
Ask yourself: ‘If I could create any solution I desired, what would that solution be?’ The point here is to imagine the perfect solution and then consider a wide variety of approaches that might eliminate the greatest bottleneck.
At Regeneron, the blank-slate solution was having an animal model respond exactly like a human during early-stage drug testing. Of course, Regeneron needed to figure out how to make this solution a reality, or at least closer to reality.
During this phase, you need to engage four behaviours actively – questioning, observing, networking, and experimenting. Creative problem solvers excel at questioning, constantly challenging the status quo with ‘why not’ questions to turn things upside down. They also frequently ask ‘what if’ questions to envision a different future. They are also intense observers, carefully watching the world around them – especially customers, products, services, and processes— with a beginner’s mindset. Creative problem solvers also stand out at networking, talking with diverse people to spark a new way to solve perplexing problems. Finally, they search for new solutions by constantly experimenting.
First-principles thinking is a helpful approach to attacking problems creatively. And if you want to become an innovative leader, you will need to be as creative as you can in navigating around the obstacles that get in your way.
This is an edited excerpt from Innovation Capital: How to Compete – and Win – Like the World’s Most Innovative Leaders (2019) by Jeff Dyer, Nathan Furr and Curtis Lefrandt, courtesy of Harvard Business Review Press.
BGA members can benefit from a 20% discount on Innovation Capital – click here for details.