If you spend a lot of time in tech, you’ll inevitably hear people extolling the virtues of being a First Principles Thinker – that is, someone who analyzes situations in terms of foundational axioms and then uses their impeccable reasoning to determine a bold and original course of action.
But if you’ve spent significant time operating a business, it’s obvious that the solutions to your problems are rarely unique. In business the optimal move is often just to reason by analogy quickly and decisively.
So I’m going to propose a somewhat different way to break down the debate on whether reasoning from first principles or reasoning by analogy is better. In most situations that I’ve seen, you’ll get better results if you:
- Reason from first principles to establish what your problems actually are.
- Reason from analogy to figure out what solutions you should actually deploy.
A First Principles Example: Retention
Let’s take a conceptually simple problem – why is retention low? This seemingly straightforward problem could have many possible root causes:
- Is the product weak? This could be due to poor product management, design, or engineering. Weakness in any of the three, or a combination, could lead to similarly bad metrics.
- Is something about our support process failing? Is the support team’s leadership bad? (A weak product and a weak support team can manifest in similar symptoms, such as poor response times and broken integrations)
- Is the customer success team failing? Are they under-resourced, incorrectly incentivized, or just not operating well?
- Have we oversold customers because we were forced to stretch out of our Ideal Customer Profile (ICP)? Did sales oversell, or sell to bad-fit customers?
- If sales oversold some customers, was it an execution issue on their side, or were they effectively forced to oversell because they didn’t have enough pipeline? (And keep in mind that a marketing problem might go all the way back to the top – it’s often a product issue!)
With this many possibilities, you can’t just draw from your past experiences to identify the core problem. Unfortunately, it’s all too common for experienced leaders to jump to the conclusion that whatever was most broken at their last team or company is broken again. Poor retention? Seen it before, fire the Head of Support. Seen it before, the product is broken – fire the Head of Product. Seen it before, you need to replatform to remove tech debt. Seen it before, you need to hire more customer success.
This incurious approach consistently leads to poor outcomes. In about 75% of cases that I’ve seen, identifying root cause problems by analogy ends with blaming the nearest leader who’s a weak communicator, somewhat abrasive, overly passive, or all 3. This bystander is usually a problem, but he’s often not the problem.
Using first principles to identify problems is like solving a math proof: Start from your ground truths, use them to generate hypotheses, and check whether those hypotheses would logically lead to the visible symptoms. A good litmus test is whether you can articulate your root problem using the word “therefore.” For example, retention is low because:
- We can see that adoption of our features is low, especially in customers who churn. We also know that our engineering team has high velocity and support response times / CSAT have been improving – they’re likely not the problem. Therefore, we’re probably building the wrong things which is leading to failing product-market fit.
- We can see that our Security team buyers are churning at disproportionately high rates, but our Engineering buyers seem pretty happy. Our growth rate is only barely acceptable as-is. Therefore, we’re likely overselling a Security offering that is not actually competitive in the market, causing customers to churn.
Closely observing the problem also helps. In the retention example, if you actually talk to 5 customers who are churning your learnings should align with your first principles analysis.
There Are Many Solutions, But Not Infinite Solutions
But once you correctly identify your problems, there’s a relatively short list of common solution archetypes in startups and business writ large. Your problem might be unique but the optimal solution is probably not.
As a result, you should pull solutions from a library of similar scenarios wherever possible – this not only improves the odds that you’ll get to a good outcome, but also critically lets you move much faster. The faster you implement fixes the less accurate you need to be, because you can take more shots on goal.
A list of some of the most common solutions to have in your repertoire:
- You have a bad leader at some level of the organization – change them out.
- You are not following best practices in an important function and must re-establish high-quality execution, typically via a time-consuming but conceptually simple back-to-basics approach. This is most common on teams like sales, engineering, and support that have a large number of people doing the same fundamental job.
- You are in the wrong market, and should be shifting the markets where you focus in a dramatic way, e.g. by going up-market or refocusing your geographic footprint.
- You are misallocating financial resources and need to rebaseline. For example, marketing is underfunded vs. sales. Engineering is underfunded vs. customer support.
- You are doing too much and must re-establish focus by cutting projects.
- Your pricing and packaging are unworkable in some regard and need to be changed.
- You must fix broken incentives – for example, compensating sales based upon their deals renewing, not just deals closed.
- (In startups) You do not have product-market fit and need to reset the company.
Using first principles to determine solutions can have equally bad outcomes.
The first pattern is a tendency to over-complicate simple situations. A classic example is a startup that crafts an entirely unique pricing structure, because they have some logical first principles argument that their custom pricing scheme makes more sense than all known industry standards. Enterprise buyers show up, get confused, and run in horror until the startup picks a standard, boring pricing scheme.
Another common failure mode is moving too slowly because teams don’t realize that they’re in a known scenario. For example, maybe our startup is losing competitiveness because we’re building too slowly. The answer is not to get advisors or run a huge analysis on your unique velocity challenges; the answer is almost certainly that you need more senior engineers, better PMs and designers, a culture that pushes everyone to ship with urgency, and basic processes to improve quality of products produced.
You Need Both
It’s worth mentioning that in many circles first principles thinking is viewed as some sort of inherently superior activity – first principles thinking is treated like some kind of lightsaber that only the most worthy can wield to invent new secrets of the universe.
Maybe that’s true in theoretical physics, but in 99.5% of situations it’s just a tool. Few B2B SaaS startups that I’ve seen are busy discovering new laws of the universe. To be effective you need to have the skillset and willingness to both think from first principles and reason by analogy as the situation demands.
This is a really powerful combination, and some of the very strongest leaders that I’ve worked with are older, more experienced people who have a strong ability to reason from first principles about their problems and then draw from a huge array of potential solutions. Because really, the key is to have a bit of humility: To admit that maybe your experience doesn’t mean that you know best, or that maybe the sheer force of your intellect isn’t the only solution.