Pascal Finette shows how first-principles reasoning reveals hidden opportunities. He breaks down examples: battery costs drop when you calculate material expenses instead of accepting industry assumptions, and Google predicted LiDAR would shrink from a $50k roof unit to a penny chip. Real change happens in layers, from fast (fashion) to slow (governance), and Uber's speed collided with regulation because it tried to move too fast in the wrong layer.
Chapters
First principles. I believe it's fundamentally important for you to understand what first principles are and like going back to arguing from first principles. Let me show you a short clip from our all-time hero, Elon Musk, who's talking about first principles.
It's important to reason from first principles rather than by analogy. So the normal way that we conduct our lives is we We reason by analogy. We're doing this because it's like something else that was done, or it's like what other people are doing. But first principles is kind of a physics way of looking at the world, and what that really means is you kind of boil things down to the most fundamental truths and say, okay, what are we sure is true, or as sure as possible is true, and then reason up from there. That takes a lot more mental energy. And for batteries, they would say, oh, it's going to cost— historically, it's cost $600 per kilowatt-hour. And so it's not going to be much better than that in the future. And you say, no, OK, what are the batteries made of? So first principles would be to say, OK, what are the material constituents of the batteries? What is the spot market value of the material constituents? So you can say, okay, it's got cobalt, nickel, aluminum, carbon, and some polymers for separation, and a steel can. So break that down on a material basis and say, okay, what if we bought that on the London Metal Exchange? What would each of those things cost? Like, oh geez, it's like $80 per kilowatt hour. So clearly you just need to think of clever ways to Take those materials and combine them into the shape of a battery cell and you can have batteries that are much, much cheaper than anyone realizes.
So if you want to have breakthrough innovation, if you really want to build something new, I heavily encourage you to go back to first principles. To think about like how can you go back to like the very fundamental which builds your product and argue up from there. Don't be lazy and do the We are Uber for cats, and thus this is our business model. Go down to what are we actually doing. I'll give you another interesting example. So this is a story from the guys who built the self-driving car at Google. When they started building the self-driving car, on the self-driving car you've got this big LiDAR unit, which is the radar, the spinning radar. The size of the unit was literally the size of the roof. I don't know if you've seen the early self-driving cars. And the thing cost about $40,000, $50,000. They showed the car to the car manufacturers in Detroit. And all the car manufacturers, they looked at this and they said, like, this is never going to work. Because A, it looks shit. Secondly, it's $50,000. We are not going to build this. Like, no way in hell. You know, we're optimizing for, like, cents on a single screw. Now, the Google people could argue from first principles. They could take the self-driving car, could take the individual components and say, Where do we think LiDAR will be in 10 years? Because it will take us 10 years to build a car anyway. So today LiDAR is about this size, costs you about $8,000. There's now a LiDAR unit which comes out by the end of the year, beginning of next year, which is this size, which costs you about $250.
Ooh.
And MIT just announced a LiDAR unit which is a flat chip, which is this size. and cost you pennies. Right? So the Google guys basically argued from first principle up, whereas all the car manufacturers, they basically reasoned by analogy. They looked at the thing and they're like, this doesn't work. It's really important for you to understand. Let me give you one last model. This is Stewart Brand. He's the guy who invented the Whole Earth Catalog, which is the spiritual successor to the internet or the World Wide Web. Really interesting thought. provoking person. And he developed an interesting model. He's basically saying if you want to create change in the world, change happens at different paces. So it starts out with nature. Nature moves super, super slow. It takes millennia for nature, like, to move. And goes to culture, governance, infrastructure, commerce, and fashion. Fashion moves on a daily basis, right? Like what I'm wearing today might be out of fashion tomorrow. Now here's the challenge. All our attention is up here. This is the stuff we're looking at all the time. All the change, the real change happens down here. And you need to be aware of how this looks like. Let me show you an example. Uber. Uber is changing the commerce layer by and at large. A little bit the infrastructure layer, but mostly commerce. The commerce layer moves super fast. And Uber is trying to move that speed and pushing it down on the governance layer, right. The legislation which allows them to do The work they're doing. Now that doesn't work because the governance layer says like, whoa, this is moving way too fast. Which is the reason why in Germany there's no Uber. It's like literally forbidden. In France they burned down the freaking cabs because there's Uber. In Austin, Texas there's no Uber. Because they ignored the fact that if they want to change the governance layer, they need to move much slower. They need to actually engage on this layer. Now they're doing this. Now they're deploying People who are working in policy and public policy who are like trying to make those changes because they understand that if they make those changes, this becomes super easy for them. So as you're thinking about your product, your change, if it has an impact such as an Uber, you really want to think which of those layers are you hitting and which— what does this mean in terms of your change and your culture? An interesting example for that is Apple pinch-to-zoom. I don't know if you know the story behind pinch-to-zoom. So pinch-to-zoom is this magic gesture, right? Like once you've done it, it becomes super like, oh yeah, of course. Now here's the thing. If I never show you pinch-to-zoom, you will never, ever get it. Like if I give you a phone and you've never seen pinch-to-zoom, you can't— it doesn't make sense. It's a cultural thing. It's ingrained in us. Apple spent $100 million in advertising All the initial advertising for the iPhone was showing you pinch to zoom. When you walked into an Apple Store back in the day when they had the first iPhone, the first thing the Apple clerk was doing was like, hey, look at the iPhone. Look at this. And they made you do it because they understood they need to teach you the culture, like this movement. And if they don't, you will never understand it, and thus you will miss the point. So really interesting.
