First principles
“First-principles” is a word that people in tech bring up when they discuss a skill set that someone should have, and yet when asked to explain it, they struggle to define it. It’s something that someone intuitively brings up in a conversation, slipping it in as a characteristic someone brilliant has, but has a hard time explaining when asked to explain what they mean.
However, I’ve found first principles to be extremely helpful as I’ve grown as a PM and taken more risky and complex bets for the business
Definition
First, let’s define what first principles means.
First principles thinking is a mental model. Mental models are a good way to break down your approach to facing a situation, addressing a problem, or, super simple example, getting started on your product brief.
According to Farnam Street, first-principles thinking is “a foundational proposition or assumption that stands alone. We cannot deduce first principles from any other proposition or assumption.” ……. 🤔🤔🤔
No wonder people struggle to understand what it means as the definition is an assumption that can’t be deduced by another assumption.
So, to put it simply, it’s a foundational truth that can’t be broken down even further.
This definition likely sounds vague and a little ambiguous so let’s use an example instead to clarify this.
Let’s say you’re a product leader for a SaaS product in the transportation space. Your product is a ride app and you charge per ride. You’ve seen success, with people using it consistently to go from point A to point B.
Let’s say now, that you’re building a new business line and you’ve gotten traction with a product that provides loans to drivers so that they can purchase electric vehicles (“EV”). As the product leader, you’re tasked to price the project.
You have some early customers and you’re trying to figure out how you would charge these customers.
You have a few customer segments:
Drivers who are immigrants who don’t have any credit and where having an innovative credit underwriting process could be helpful
Stay-at-home parents who need to boost their partner’s income and might want to keep an EV car and pay off the loan within a short period of time, and
Larger cab companies that want to transition their drivers to using your app on EVs
Example
Let’s look at two scenarios for how you approach the problem:
Scenario #1:
As a product leader, you might try to determine to price and build out a business model separately for each persona.
You may decide first to price a loan product at a higher APR and not require an upfront down payment on the car for the first segment
For stay-at-home parents, you might offer them the ability to use their FICO scores and have the car directly in their name for a higher upfront payment, and allow them to chip at the principal and interest flexibly, as long as the loan is paid off within two years
For the cab company, you might offer a discount as long as they purchase 100 EVs together and they can get a lower interest rate on their loan.
If you’ve followed me so far, this thought process required a lot of cognitive load.
I had to make a decision on pricing for every single customer segment separately. I needed to think about the context and what each persona would want and made multiple assumptions per customer segment. In addition, I now am heading toward a world where I might need to manage three separate pricing models for one product.
Even though this is one example of cognitive load for decision-making, imagine having to think from scratch about how you decide on something every single time. PMs are tasked with making dozens of decisions every day, and suddenly you’ll understand why you need a framework to reduce the mental load.
This is why you might introduce the idea of first-principles thinking.
Scenario #2:
Instead of thinking of the user groups separately to figure out how I might price my loan product for EVs, I might start with a simple principle:
⇒ Customers want a loan that they can afford with the revenue they make driving their EV every month.
It’s a first principle because:
It’s a foundational assumption across customer segments that I make from my research
I can’t break down this assumption even further
I will use this principle to build out a holistic pricing mechanism across my customer segments.
Some decisions that I might make because of this first principle are:
I’ll come up with a pricing model where the cost on average is below the revenue for the product
I’ll charge for the EV typically at the end of the month and assume that revenue made during the month will be put towards that cost
I wouldn’t want an upfront down payment to be prohibitive and limit it to <10%
Now I’ll use this to build a holistic pricing strategy for this product.
There are a few benefits from scenario #2:
I’ve reduced my cognitive load to make a decision for every use case and every persona I’m building for
I’ve managed to come up with a single pricing model
I built consistency in my decision-making, which will be reflected in a consistent how customers perceive what the company brand
If my first principles change because of more data, I can easily use the updated principles to update my pricing
Use cases
Hopefully, I’ve convinced you about the importance of first-principles thinking. Let’s look at some simple use cases where you can start with first-principles as a product leader:
Product brief: first principles for how you determined what was most important to tackle and how you build your product
Product strategy: first principles for how you believe the world works (and what strategy works best, knowing that the world operates this way)
Important XFN discussion: first principles you set for context to make a decision together with your cross-functional stakeholders
Challenges
For first principles to work, you need a strong foundation and to keep this foundation up to code.
You need a strong foundation. It’s important to remember that first principles thinking are only as good as the assumptions you make for your principles. If your principle isn’t based on the correct foundation assumption, then you might make decisions based on the wrong assumptions: “garbage in, garbage out.”
You need to update and reinforce your foundation. You need to consider principles as a living and breathing thing: if you have data that shows you that it might not be true, it’s important to update your principles and review previous decisions you’ve made and update them.
Tips
Subscribe to Farnam Street: they focus on mental models to improve your decision-making process
In my product briefs, at the top of my document, after my goals and North Star sections, I have a “First Principles” sections to share what foundational assumptions I’ve made to guide the user in what lens they would be looking at the product decisions I’ve made
In building the right product org, I’ve also thought about “first principles” and the general role of a product manager within the context of a start-up and what role product plays
Be comfortable using a different mental model depending on the situation. These are instruments and they’re not absolute
P.S.: What I’m watching
I recently watched Ami Vora’s 15-minute talk on the Career Growth Playbook she wishes she had. It’s from 2018, but I consider this to be evergreen content. Tl;dr was:
The best way to get a job is to do the job
Build your career the way you build your product
Ask for help
Career success follows personal satisfaction
Keep showing up