First Principles
“The formulation of the problem is often more essential than its solution.” — Einstein
At Kindling Capital, we like to say that the most important thing we look for in a potential investment is a valid first principle problem. In this essay I’ll attempt to explain what we mean by that and how we think about first principle problems as they relate to startups.
To understand what a first principle problem is, we must first understand what first principles are. The concept of a first principle has been around a long time, and is used across a wide range of sciences and disciplines including math, physics, and philosophy. In philosophy, a first principle is a basic, foundational proposition or assumption that cannot be deduced from any other proposition or assumption. More broadly, in any formal logical system, a first principle is one that cannot be deduced from any other.
The godfather of first principles, Aristotle, refers to them in his opening passage of the Physics, where he defines them as “the first basis from which a thing is known.” He wrote:
In every systematic inquiry (methodos) where there are first principles, or causes, or elements, knowledge and science result from acquiring knowledge of these; for we think we know something just in case we acquire knowledge of the primary causes, the primary first principles, all the way to the elements. It is clear, then, that in the science of nature as elsewhere, we should try first to determine questions about the first principles. The naturally proper direction of our road is from things better known and clearer to us, to things that are clearer and better known by nature; for the things known to us are not the same as the things known unconditionally (haplôs). Hence it is necessary for us to progress, following this procedure, from the things that are less clear by nature, but clearer to us, towards things that are clearer and better known by nature.
First principles also appear in the preface to Descartes’ Principle of Philosophy (1644), where he writes:
I should have desired, in the first place, to explain in it what philosophy is, by commencing with the most common matters, as, for example, that the word philosophy signifies the study of wisdom, and that by wisdom is to be understood not merely prudence in the management of affairs, but a perfect knowledge of all that man can know, as well for the conduct of his life as for the preservation of his health and the discovery of all the arts, and that knowledge to subserve these ends must necessarily be deduced from first causes; so that in order to study the acquisition of it (which is properly called philosophizing), we must commence with the investigation of those first causes which are called Principles. Now these principles must possess two conditions: in the first place, they must be so clear and evident that the human mind, when it attentively considers them, cannot doubt of their truth; in the second place, the knowledge of other things must be so dependent on them as that though the principles themselves may indeed be known apart from what depends on them, the latter cannot nevertheless be known apart from the former. It will accordingly be necessary thereafter to endeavor so to deduce from those principles the knowledge of the things that depend on them, as that there may be nothing in the whole series of deductions which is not perfectly manifest.I should have desired, in the first place, to explain in it what philosophy is, by commencing with the most common matters, as, for example, that the word philosophy signifies the study of wisdom, and that by wisdom is to be understood not merely prudence in the management of affairs, but a perfect knowledge of all that man can know, as well for the conduct of his life as for the preservation of his health and the discovery of all the arts, and that knowledge to subserve these ends must necessarily be deduced from first causes; so that in order to study the acquisition of it (which is properly called philosophizing), we must commence with the investigation of those first causes which are called Principles. Now these principles must possess two conditions: in the first place, they must be so clear and evident that the human mind, when it attentively considers them, cannot doubt of their truth; in the second place, the knowledge of other things must be so dependent on them as that though the principles themselves may indeed be known apart from what depends on them, the latter cannot nevertheless be known apart from the former. It will accordingly be necessary thereafter to endeavor so to deduce from those principles the knowledge of the things that depend on them, as that there may be nothing in the whole series of deductions which is not perfectly manifest.
If we extend the 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 for in a startup? 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.
To fully explore the importance of starting with a first principle problem, let’s once again turn to the inverse to try and imagine what might happen when a company is founded based on derivative or second order problems.
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. Once the product does launch there’s a lot of excitement as friends help to promote the product, traffic soars, and people begin to check out what the team’s built. But building a product and building a company as a means to solve a problem are two vastly different things.
All too often we’ve found that after the excitement wears off, the traffic from the launch is all but gone, and it feels like 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, or re-designing their product.
This is compounded by the fact 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.
So how do would-be founders come up with a first principle problem? Well, in our experience, by not being would-be founders, and by realizing that they don’t come up with first principle problems as much as they discover or recognize them.
In “How to Get Startup Ideas”, Paul Graham writes, “Empirically, the way to have good startup ideas is to become the sort of person who has them.” Paul writes “the key is to have a mind that’s prepared in the right way” because “if you look at the way successful founders have had their ideas, it’s generally the result of some external stimulus hitting a prepared mind.”
Similarly, it’s been our experience that the best way to identify a first principle problem is to become the sort of person who is able to identify them. What sort of person is able to do that?
The first characteristic they tend to have is an inherent predisposition toward thinking for themselves and having the courage of their convictions. Because they base their assumptions on what they’ve directly observed and truly believe, regardless of conventional wisdom or what anyone else thinks, they tend to be fearless and relentless in pursuing their ideas, even when nobody else understands what they’re doing yet. They’re more concerned with uncovering the truth than they are of being wrong or looking foolish. This explains why successful companies founded as a means to solve valid first-principle problems don’t usually get acquired early (which often confounds and mystifies third party observers). The founders have a vision based on the first principle problem they’ve identified, and they started the company to pursue that vision, not in search of an “exit”.
Often, but not always, their ability to think for themselves is the result of an outsider’s perspective and/or a healthy contrarian streak. This helps explains why the next generation of great companies always seems to be built by people whose names we don’t know yet. Their outsider status and perspective allows them to identify problems based on their own set of observations and assumptions that have nothing to do with widely held and accepted beliefs today, and in fact may directly contradict them.
The second characteristic that people best able to identify a first principle problem have is what Warren Buffett would call an inner scorecard. Demosthenes, the famous Greek orator said, “What a man wishes, that also will he believe.” Because they’re not interested in starting a startup for it’s own sake, but rather as a means to solve a first principle problem that they’ve identified, they minimize the negative effect that their wishes may have on their logic and reason.
Finally, we’ve found that they often have deep expertise in a specific area, which is usually a result of just being naturally interested in that subject, and obsessively spend their time thinking about and building things in that space. This explains how they’re able to identify non obvious problems. When people who think for themselves identify a first-principle problem in an area that they’re obsessed with, it tends to be a real problem that is really obvious to them, but not all that obvious to everyone else. What’s often mistaken for genius, vision, or a magical ability to see around corners is usually just the result of thinking about a problem for significantly longer than just about anyone else.
“It’s not that I’m so smart, it’s just that I stay with problems longer.” — Albert Einstein
So if you’re passionate about or have significant experience in an area, have stumbled on a first principle problem, and want to start a company to solve that problem, let us know: maz+medium at kindlingcapital.com. We’d love to hear from you.
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