Every year, at the same time, the same thing happened, and the company I worked for responded to it in the same way. It was a crisis, a moment of panic as work threatened to overwhelm the business, damaging client relations along with it.
No-one could see the repeating pattern and after five years – and five new department managers, my manager decided he wasn’t going to be number six. He – we – looked at the historical data, and realised the same thing happened every year.
A fixer: a firefighter would step in and manage the crisis. She was great at putting temporary systems in place to deal with the chaos, which had everyone running around like headless chickens.
The irony – the firefighter didn’t know what the cause of the problem was.
She couldn’t explain it. No one could. Everyone could explain the effects, but no-one could explain why. Earlier managers had gone to great lengths to manage the effects, but none had dealt with the why.
We didn’t want to manage the effects, we wanted to understand the problem – and so, we started asking why.
Why we reason from first principles
Clever people reason from first principles. Reasoning from first principles is a process of critical thinking. It is a way of understanding how the world works, from any level we want. What’s more, it offers a way to solve problems and to find alternative solutions when we become stuck.
It is a means of considered thinking broken into two parts.
- Understanding the fundamental truths which sit at the heart of a problem or question.
- Use this understanding to find an alternative solution.
Finding a solution when you’re faced with a problem requires a new way of doing the same thing. This is how people like Elon Musk solve problems. Having grasped the fundamental principles of flying in space, or working with batteries, Elon can reason from these points to reinvent what’s gone before.
Understanding why launching rockets cost so much, enabled Elon and Space X to create reusable rockets – thus dramatically reducing flight costs.
We all want to be clever – hell – we all think we’re clever.
Seizing on the language of first principles is easy.
But here is the thing, when you try and find examples of people who successfully use first principles thinking, it’s hard. Yes, we know about Elon of course. A Google search reveals a lengthy list of articles, of which, I’m sure this will become one.
But where else are there examples?
I found several involving Nick Kokonas, the CEO of Tock, and the co-owner of Alinea, Next, The Aviary and others including:
- Tuesday is not Saturday.
- Food costs money
- How to self-publish your book
I’m going to reference the first two below, but this link to Nick’s article explains the book deal he crafted for himself.
Tuesday is not Saturday.
When Grant Achatz, Nick’s partner and head chef fell ill with Cancer, it led to Nick becoming more involved in operations at the restaurant. Observant as he was, he quickly noticed empty tables on a Tuesday evening, but overbooking on a Saturday night. 
“Why?” he asked.
As he searched for answers, so began to learn what was happening. Demand for tables on a Friday and Saturday was massive, with tables booked ahead for weeks. But some wouldn’t turn up, leaving empty tables and lost revenue. Customers made a verbal reservation, meaning if something came up, it was easy not to go.
The customer stood to lose nothing.
Some would turn up having booked a table for six when they wanted a table for two – and only two would attend – losing the restaurant more revenue. To factor against this and the no shows, the restaurant would overbook, allowing customers to wait as they juggle tables on busy nights.
It was a poor experience for the customer – and the restaurant.
The beginning of Tock
Nick now understood the fundamental truths of selling seats in a restaurant. He understood the first principles and could now reason from them. He could see this was a supply and demand problem.
Reasoning from first principles enabled Nick to mimic other supply and demand businesses. Nick could see his restaurant was no different from a theatre selling tickets. In a theatre, the better the view, the more the seats cost. Applying the same logic in a restaurant, the busier the night, the more a table should cost. Conversely, the less demand, the cheaper the table could be.
The other issue Nick could see was prepayment. When you go to the theatre, you pay upfront for your seat, not after, or not even at all if you don’t show up.
So, Nick opted to build an online booking system which would enable customers to book online – and pay a deposit – to secure their table. Tuesdays were cheaper than Saturday’s, and so on. It became a system of dynamic pricing for restaurant reservations.
The skin in the game – the payment to secure the booking – changed everything. Empty tables became a thing of the past. As quickly as they released new dates for reservations, they would sell out, the demand beyond expectation.
It not only led Nick to increase seating occupancy at The Aviary, but it also turned the cashflow model on its head. Oh, and it also led Nick to create Tock, a software system he could licence to other restaurants to use. 
Food costs money
As previously noted, taking payments upfront from customers changed the cash flow model for the restaurant. Instead, of collecting payment at the end of the meal, The Aviary had a huge chunk of it paid in advance.
Nick began thinking about how they could use this to their advantage. Typically, like most restaurants, suppliers got their money several months after they had supplied their products. Credit terms were sometimes as high as 120 days – 4 months after supply. 
With the cash in the bank, Nick contacted a meat supplier and asked him a question.
“What the price be if paid you in advance for the next four months meat orders?”
“I’ll get back to you.” came the reply. The reply blew Nick away. The price was now $18 a kilo, down from $34 kilo, which was nearly half.
“I’ll pay you $20, if you tell me why”, Nick wanted to know.
The answer lied in the hidden cost of selling meat. Once beef went past a certain age, price reductions occurred to help sell it or dispose of it. With the security of the payment and the amount the supplier needed to deliver, disposal costs were irrelevant.
Of course, Nick was quick to try this with other suppliers, and the restaurant’s food costs tumbled, increasing margins significantly.
Nick’s method is the same as Elon’s. First, they understand.
Make Better Decisions
Helping you make better decisions
In a world of irrational behaviour, Your Weekly Resolve will help you with making better decisions. Sign up here and every Tuesday, I’ll share valuable insights on the complex art of decision-making.
First, you need to understand.
We think we understand things, but we don’t – not like Nick and Elon.
More importantly, we don’t take the right steps to understand. We miss opportunities to learn; we don’t ask questions like a child.
Assumptions dress up our knowledge, fooling ourselves and others we understand. When I think of the way Elon looks to learn, I can see how we fool ourselves. Elon takes a subject, and like a tree, he is only interested in the trunk and main branches. These reveal the fundamental truths, which he focuses on, as these are the first principles. The detail, the assumptions – all lie within the smaller branches and leaves.
A child needs to learn.
Children’s reasoning from first principles – understanding.
As any parent will know, when a child reaches the age of 3-4, they suddenly become inquisitive of the world around them. They seek understanding – not knowledge –they want the tree trunk.
The word ‘why’ is a word parents begin to fear from their pre-school children. The reason is simple. Children want the trunk; they want to understand, and they can’t accept assumptions – they must understand. And so, they ask why.
In my piece, First Principles Thinking: Why We Need to Ask Questions Like a Child, I explain how children ask questions not to learn, but to understand.
My nephew is five. Like every five-year-old, he questions everything. “Why is it bedtime?” “Because it’s dark and time for you to get some sleep.” Replies dad. “Why does it get dark?” and often this is swiftly followed by “Why do I need to sleep?” My brother-in-law tolerates the questioning to a point, but as with most parents’ his patience soon disappears.
Like every five-year-old, my nephews’ brain is like a sponge, and he wants to fill it. But, even at such an early age, his mind wants to utterly understand what is in front of him. If the first answer he gets doesn’t make sense to him, he keeps asking why until the explanation is something he understands.
First-principles thinking is the way children learn until they reach school age, at which point memorization becomes the dominate way they learn.
Young children have an innate urge to want to understand. It drives their questioning and their thinking beyond just knowing something. They want to fully understand what they see and hear.
Richard Feynman said it best when he said, “If you can’t explain it to a six-year-old, you don’t understand it yourself.” The simple reason being a child will keep questioning. It is the first principles thinking in action.First Principles thinking: why we need to ask questions like a child
Understanding is the quest for young children with hollow brains. They aren’t interested in the second part I highlighted earlier. All they need is to develop an understanding of the world around them.
Nick Kokonas is no different. He always asks why – he is looking for the same tree trunk of knowledge so he can understand.
Of course, this takes effort. Which is why as adults we don’t ask questions. Instead, we accept assumptions, we accept the insights from the leaves and small branches of knowledge, rather than look for the fundamental truths of something.
Reasoning from first principles
As my boss and I began to ask why, so the trunk of the knowledge tree in this situation revealed itself. One fundamental truth was the algorithm the company used to distribute work – and unsurprisingly – no-one understood it.
As we unpacked this pathway, so the historical data made sense. Surges in work, combined with a limited ability created bottlenecks the software couldn’t process. The effects were clear and highly visible to clients and customers.
The first principles of this business were now within our hands – and now – we could reason from them to overcome the problem. We understood. The trunk from the tree of knowledge was where we focused, and thus, we developed the understanding so we could reason from first principles.
We were able to make tweaks to the algorithm, but also increase our ability to handle surges in work. The crisis became a thing of the past, meaning no more firefighting.
Maybe the earlier managers weren’t aware of first principles. The firefighter wasn’t. But whether they were or weren’t, without understanding the fundamental truths of the problem, they had no hope of fixing it.
It sounds utterly simple, doesn’t it? To reason from first principles, you first need to understand. But understand what exactly?
The answer: The fundamental truths of what you’re trying to reason from.
We all marvel at first principles thinking. We lap up the wisdom which flows from Elon Musk and his use of this powerful way of thinking.
But then, we ignore the hard part.
We assume we understand. We don’t question our assumptions or what others are telling us. Instead, we try and solve problems without understanding the underlying principles of what stands before us.
To reason from first principles, you first must understand what those first principles are. This means – as Elon puts it – boiling things down to their fundamental truths.
The challenge we all face is we think we know those truths already. So, when we reason from them, we’re reasoning by analogy, not first principles. We end up with saying like “We’ve always done it this way.”
We accept what’s gone before as fact.
And that’s the crux of this. If you want to reason from first principles, first, you must understand.
 Tim Ferriss Podcast with Nick Kokonas – 18th October 2018 – Nick Kokonas — How to Apply World-Class Creativity to Business, Art, and Life (#341) – The Blog of Author Tim Ferriss
 Medium – Nick Kokonas – https://medium.com/tock/tocks-bridge-to-the-future-tock-20-2f510b0d1938
 Nick Kokonas – Know What You Are Selling – Podcast with Patrick O’Shaughnessy Know What You Are Selling – Colossus (joincolossus.com)