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The Guiding Principle That Makes Elon Musk Rich

And will make you just as smart.



Let’s take it back to 2002. Ebay buys PayPal for $1.5 billion, making Elon Musk—the majority shareholder of PayPal—$180 million richer. A friend asks what he wants to do with all that money and Musk says he wants to go to space. He grew up devouring science fiction, launched model rockets from the lawn of his elite South African high school, and for just as many years has talked about “colonizing” other planets, specifically Mars. Now, with his PayPal cash, he plans to buy the rockets that’ll, he hopes, get him there.

Problem is they’re super expensive. Sixty-five million dollars on the open market. Musk will need at least two to start. So that’s $130 million.

Imagine yourself as Elon Musk in this moment. Do you really want to drop two-thirds of your fortune on rockets, about which, by the way, you know nothing—your background is in physics and economics—after you just spent years of your life in the all-consuming start-up culture of Silicon Valley, which you described as “eating glass and staring into the abyss?”


Two rockets which are of course just the price of entry, because to build an actual business in the aerospace industry? You’ll spend every dime, then have to borrow millions more, and all for the privilege of very likely failing to honor your childhood fantasy of landing on Mars.


Does any of that sound appealing to you?


It doesn’t to Elon Musk either.


But here’s the difference between Musk and the rest of us. He doesn’t walk away from his dream. Not at all. He just questions reality as no one has before him.


It’s that sort of questioning that’s his real insight, a sort of mental model which is frankly available to all of us. It’s the sort of principle by which you can not only view the world but thrive.


****


To understand how, let’s take it back to those rockets. Can they be had cheaper? Musk flies to Russia three times, “to see if I could negotiate the purchase of two ICBMs. Without the nukes, obviously,” he later tells Wired.


Two ICBMs, without the nuclear warheads, will cost him as little as $30 million. Hey hey, Musk thinks. Now we’re talkin.’ But the more he weighs those ICBMs the more he sees a problem in the whole of the aerospace industry. It’s a complicated problem but basically rocket technology is pricey because only a few companies—and only a few people within those companies—know how to do the work, and they often receive no-bid contracts from governments. These no-bid contracts drive up the costs of purchasing rockets on the open market because aerospace firms have no incentive to build rockets at a fair and reasonable cost. Governments will just pay whatever the price. Those are literally the terms of the contract.


Incredibly wasteful, Musk thinks. The production costs inflate the price of rockets and inhibit creativity, stall the whole of the industry from making real advancements, like moving beyond the moon and making it to Mars.


So Musk begins to ask experts in the industry: What if we built the rockets ourselves?


People tell him he can’t do that.


Why not?


Because you’re not a rocket scientist, Elon Musk.


What if I learn to become one?


People laugh. But Musk is by this point already reading the seminal texts of the field, like Fundamentals of Aerodynamics and Aerodynamics of Gas Turbine and Rocket Propulsion.

When people quit laughing they say: Even if you learn to become a rocket scientist, Elon, what are you going to do with your expertise? Go work for NASA?


What if I take my expertise and suss out the scientists who know their stuff from the ones who don’t—and then ask the really knowledgeable people to work for me?


And what would they do?


Build the rockets at one-tenth the costs.


People laugh again. Then they say: You can’t do that.


Why?


Because rockets are expensive to build. Always have been.


Why is that the case?


Because...it is.


That’s when Musk smiles. Because he knows he’s on to something.


***


I am of course paraphrasing multiple exchanges Musk had in those years, but only to get at the point of this article and one of the guiding premises of Musk’s career. It’s called The Law of First Principles. The basic idea is to question what you know until you can arrive at fundamental truths. Aristotle initially wrote about First Principles in Physics and then Metaphysics, saying a First Principle is “the first basis of which a thing is known.” Or, as other authors have put it when talking about First Principles: Don’t assume anything. Question everything. Think, in other words, like a scientist.


It’s amazing how often we all, even scientists, don’t think like scientists though, which begins to explain why the Law of First Principles is simple to understand but hard to implement. Our lives are informed by empty dogmas that masquerade as essential truths: Buy this and you will be happy. Worship this and you will be saved. Business is full of dogmas, too: That’s just the way we do things around here.


Even, it seems, the business of rocket science.


After his exchanges with the aerospace experts, here’s what Musk tells Wired (emphasis mine):


“I tend to approach things from a physics framework. And physics teaches you to reason from first principles rather than by analogy. So I said, OK, let’s look at the first principles. What is a rocket made of? Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fiber. And then I asked, What is the value of those materials on the commodity market? It turned out that the material cost of a rocket was around 2 percent of the typical price—which is a crazy ratio for a large mechanical product.


So If a rocket costs $65 million on the open market, Musk found he could buy the materials that comprise that rocket for $1.3 million.


For $1.3 million, then, Musk could build his rocket.


That’s the power of First Principles: You strip something to its essential elements to arrive at an even more essential truth.


And that’s how Musk started SpaceX, how it became the first private company to build a rocket that broke through the atmosphere; the first company to build a rocket that re-entered the atmosphere and then landed vertically, and where SpaceX wanted it to. Something no one had done before. SpaceX then became the first company or government to relaunch a used rocket. Why relaunch a rocket that’s already launched once?


How else, Musk argues, will the people who make it to Mars get back to Earth? Or, to take it one step further, and that much closer to Musk’s childhood fantasy: How else will the people who live on Mars get back home when they visit Earth?


***


Now, you may be thinking, That’s great for Elon Musk and his interplanetary dream but how does any of this First Principles stuff apply to my life? I’m not a multi-industry entrepreneur worth billions.


The Law of First Principles works for us all. In any business, any venture, and any relationship. Always has. We just need to find the tools to harness it. I think the best tools are the Socratic Method, which Aristotle’s predecessor Socrates developed. Simply put: The Socratic Method is a series of questions that delves ever deeper into one’s intent to arrive at a core truth. (Full credit here to the former intelligence agent Shane Parrish, who loves the Law of First

Principles as much as Musk and I do, and whose blog introduced me to the idea of using the Socratic Method to figure out what is true when thinking about First Principles.)


If we use the Socratic Method to evaluate anything—literally any circumstance or problem or issue in life—we should ask questions along these lines, and in roughly this sequence:

  1. Why do I think this?

  2. How do I know this to be true?

  3. How can I back this up?

  4. How do I know I’m right? (Put another way: How do I know others are not?)

  5. What are the consequences if I’m wrong?

  6. And then, after we’ve reached our conclusion and acted on it: Was I correct?

For me, this last bit leaves me questioning my questions, which is the best way to stay honest about how I think and why. As a whole, the tools within the Law of First Principles turned me away from signing one book project and turned me toward another, the book I’m researching now, which will pay me 300 percent more. These tools and the Law of First Principles help me deal with my kids and become a better father. They’ve helped me overcome my fears as an entrepreneur.


It may sound overly scientific—in fact the Scientific Method is indebted to the Socratic Method—but the principles I’ve mentioned here are simple to understand and not really cumbersome to implement. All of these questions are really an iteration of one question. In fact the genius of Elon Musk, and Aristotle and Socrates before him, is that they all learned at some point in their brilliant lives to think like toddlers, and apply the Law of First Principles by continually asking the world some version of that single question:


Why?


Why?


Why?


So here's the final question: What will you do with this knowledge?




New to my blog? I'm an award-winning journalist and best-selling author. My first book, The Saboteur, was optioned by DreamWorks to be turned into a film. I'm now at work on a second book for Celadon about a pivotal 10-week period in the Civil Rights Movement that still defines our lives.




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