The formulation of the problem is often more essential than its solution.” — Einstein

When we evaluate whether to allocate capital towards a potential new idea or investment at Kindling Ventures, the most important thing that we look for is a valid first principle problem. In this essay I’ll attempt to describe how we think about first principle problems internally, and how an understanding of the underlying first principle problem forms the basis of how we evaluate a new startup idea.

The concept of first principles (also called first causes) has been around a long time, and has a number of related meanings across a wide range of sciences and disciplines including philosophy, math, and physics. For our purposes, we think of a first principle as a basic, foundational proposition or assumption that cannot be deduced from any other proposition or assumption.

If we extend that definition of first principles to how we think about problems, we can now define a first principle problem as a real problem that is identified through ground-up reasoning and logical deduction based on direct, first-hand observation.

Another way to think about first principle problems is to imagine what their inverse would be. In this case, the inverse of first principle problem would be an imaginary problem that is thought up based on the assumptions and observations of others.

So why is a fundamentally valid first principle problem the most important thing we look when evaluating a new startup idea? Because it’s the foundation that everything else rests on. Solving a first principle problem is what gives a company a real, external purpose and reason to exist among its customer base, outside of its founders simply wanting to start a company for its own sake. In our experience the very best founders understand that their companies do not exist in and of themselves, but rather as a means to an end for their users and customers. A company’s vision, its mission, its very existence, all spring from the core problem that it exists to solve for its customers. As a result, a company that isn’t solving a real problem has no reason to exist.

And if a company has no reason to exist, then nothing else really matters. This helps explain why the #1 company-killer is lack of market, and why when a great team meets a nonexistent or lousy market, the market wins.

“In a sense there’s just one mistake that kills startups: not making something users want. If you make something users want, you’ll probably be fine, whatever else you do or don’t do. And if you don’t make something users want, then you’re dead, whatever else you do or don’t do.” — Paul Graham

In fact, it’s been our experience that the best companies are usually founded only as a means to provide a solution to a first principle problem identified by their founders. Starting a company for its own sake or because it sounds fun and not as a by-product of trying to solve a first principle problem can soon become an especially unpleasant situation to find yourself in.

Initially things are great. The time spent building a product, shielded from the reality of whether a market exists for what the company is creating, can be an extremely fun and rewarding experience. Often teams will enjoy the process of building so much that the product never launches. Not having to think about whether they’re solving a real problem allows a team to do what they love most and just keep building. But building a product and building a company are two vastly different things.

All too often we’ve found that after the excitement wears off and the response from the Internet is a collective shrug, companies without a core vision or purpose centered around a first principle problem end up drifting with no sense of direction before inevitably attempting to turn back to happier, safer waters by adding new features, re-writing their code base, and re-designing their product.

What happens from there is that inconsistency avoidance tendency, doubt avoidance tendency, and good old pain avoiding psychological denial combine to make it really difficult for a founding team to easily extricate themselves from the situation in which they find themselves in. All the flexibility and freedom to explore, discover and build is severely constrained once a company is formally started to work on a specific idea, and especially if the company raises money against that idea. Only too late do they realize that, in the words of Warren Buffett, “should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

Which is why if you’re starting a company, the most important thing you can do is get in the right boat. And that’s why having a first principle problem is the most important thing we look for as investors.

“For me, so much of the lesson that I feel like I’ve learned is…I feel like it’s really hard to decide to start a company. Facebook, I didn’t start it to start a company, I started it because I really wanted this thing personally, and I believed that it should exist globally, although I wasn’t quite sure that we would be able to play a role in doing that. It was mostly just through wanting to build it, and having it be this hobby, and getting people around me excited, that is eventually evolved into and got the momentum to become a company. I never really understood the psychology of deciding that you want to start a company before you understand what you want to do.” — Mark Zuckerberg

I’ve described what a first principle problem is, and why we believe that the best companies are founded as a means to help their customers solve a valid first principle problem that the founders successfully identified. There are two areas left to cover — what makes a first principle problem a great foundation for a startup idea, and how to go about identifying those types of fundamentally valid first principle problems.

We’ve generally found that first principle problems naturally lend themselves to become great startup ideas, mostly because they’re real and not made up (based as they are on a combination of direct observation and original thought). So the question becomes what else they need to have to be considered problems worth solving from a financial perspective.

First, the reasoning and logic behind them needs to be true, and not distorted by any inherent wants or desires (more on this later). They need to actually be real first principle problems. Real first principle problems don’t ignore current solutions for example, because doing so would result in a fake problem that is not based on ground-up, direct observation. Although this is redundant, we’ve found that it ends up being a worthy check.

Second, they usually tend to be non-obvious problems, mostly because if they were obvious a larger company would already be working on solving them.

Third, they tend to be problems with significant depth and width — that is, they matter a lot to the people who have the problem, and ideally there are a lot of those people. It’s worth noting that although a startup can have depth but not width, especially when it’s just getting started, it usually cannot have width but no depth, at least not if it wants to build a sustainable, lasting company. First principle problems with significant depth and width are where billion dollar companies are formed.