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"For centuries Swiss watchmakers competed to improve the accuracy of their mechanical watches. Competition was exhausting, requiring tremendous craftsmanship, precise tools, and miniscule advancements. Accuracy improvements were measured in tiny percentages." —Ken NortonAnd when Seiko brought the first electronic quartz watch to market in 1969—a watch that was ten times more accurate for less than 10% the cost—the traditional Swiss watchmakers were devastated. Over the next decade, the number of Swiss mechanical watches exported per year dropped from 40 million to 3 million. And the number of jobs available plummeted by 50%. This example illustrates why most companies slowly decline over time. When you only work to make things 10% better, you take the obvious path that everyone else is on. You do what you’ve seen work for others, make the same assumptions your competition is making and build on the conventional wisdom other people have passed down to you. And most of the time you find yourself stuck in the same old slog. Investing your energy and resources into making slight improvements; trying to out-do some other company that does roughly the same thing. So what does it take to make something ten times better? Or to grow by an order of magnitude? It requires you to approach the problem from a different angle: by starting with first principles.
“Historically, all rockets have been expensive, so therefore, in the future, all rockets will be expensive. But actually that’s not true. If you say, what is a rocket made of? It’s made of aluminum, titanium, copper, carbon fiber.
And you can break it down and say, what is the raw material cost of all these components? And if you have them stacked on the floor and could wave a magic wand so that the cost of rearranging the atoms was zero, then what would the cost of the rocket be? And I was like, wow, okay, it’s really small—it’s like 2% of what a rocket costs. So clearly it would be in how the atoms are arranged—so you’ve got to figure out how can we get the atoms in the right shape much more efficiently.
And so I had a series of meetings on Saturdays with people, some of whom were still working at the big aerospace companies, just to try to figure out if there’s some catch here that I’m not appreciating. And I couldn’t figure it out. There doesn’t seem to be any catch. So I started SpaceX.” —Elon Musk
In order to improve something by an order of magnitude, you have to start by identifying the fundamental truths and reason up from there. This is the framework for thinking that allowed the SpaceX team to reduce the cost of launching a rocket into orbit from $380 million to $133 million—with the audacious goal of making it 10 times less expensive than the industry average in the next decade. And it's the same thought process that helped Google make the leap from just being a search company to building an email product that gave people 100 times more storage than anywhere else (more details on this later).And it doesn’t just apply to entrepreneurs and big technology companies. It applies to anyone who designs, builds, and markets physical and digital products.“It’s natural for people to want to work on things that they know aren’t going to fail. But incremental improvement is guaranteed to be obsolete over time. Especially in technology, where you know there’s going to be non-incremental change.” —Larry Page, Google CEOWe go through most of our life reasoning from analogy—even Larry Page and Elon Musk. And there’s nothing wrong with that. We have to do it. The first principles approach take so much mental energy that if you did it all the time you wouldn’t be able to get through the day. But perhaps the most significant difference between 10% companies and 10x companies is that—in the most crucial moments, when decisions are made about what to do next—the latter is dedicated to throwing out convention and analogy to prior experiences, and investing the intense mental effort that first principles reasoning demands. This commitment leads them to bring innovative products and services to market that are 10 times better than the competition—rather than investing effort, resources, and money into making incremental 10% improvements and enduring the exhausting competition that necessarily goes with it. OK, now that you know what first principles reasoning is and why it's important—how do you practically implement it into your workflow? Let’s take a look at a few ideas, as well as the common pitfalls to avoid.
(a) Take on massive risk, or
(b) You can’t engage in 10x thinking at all
But this is an example of a well-researched cognitive bias called dichotomous thinking, where you experience things in terms of extremes—black or white, good or bad, right or wrong—and no nuances exist. But life is full of nuances.And 10x thinking doesn't have to be all-or-nothing. Two ways you can avoid this bias is to think like an investor and bet on big trends.Of course. But periodically, every n years, you should work on something new that you think is really amazing. —Larry PageIf you never take calculated risks, then you never expose yourself to the potential rewards they bring. You may never fail spectacularly, but you’ll never succeed wildly either. The key here is that you don’t bet the whole farm. Invest an amount that, if it all disappeared tomorrow, you would be fine. That way if you lose, you lose small. But if you win, you win big.
“It was to train people to be willing to work in the factory. It was to train people to behave, to comply, to fit in. We process you for a whole year. If you are defective, we hold you back and process you again.” —Seth GodinCombine that concept with what writer James Clear recently explained on his blog:
"In the 1960s, a creative performance researcher named George Land conducted a study of 1,600 five-year-olds and 98 percent of the children scored in the “highly creative” range. Dr. Land re-tested each subject during five year increments. When the same children were 10-years-old, only 30 percent scored in the highly creative range. This number dropped to 12 percent by age 15 and just 2 percent by age 25. As the children grew into adults they effectively had the creativity trained out of them. In the words of Dr. Land, “non-creative behavior is learned.” —James Clear
Creative thinking is closely related to first principles reasoning. In order to do it effectively, you need to be able to discover new ways of solving problems that haven’t been done before. You can foster a culture that encourages and rewards 10x thinking in a few different ways: by making failure an option, making decisions based on data, and dedicating time for first principles reasoning before making big decisions about what to do next.“If you aren’t experiencing failure, then you are making a far worse mistake: You are being driven by the desire to avoid it.” – Ed Catmull, PixarIf you believe that you hire the best and brightest people, then you should trust them to do great work. When they make mistakes, it’s usually the result of good intentions. And if expect your team to make products that are 10x better than anything else in the market, then failures are the inevitable stepping stones to discovering what works. Create an environment where people are working on problems that excite them, where they feel comfortable speaking up and weighing in, and where they have the ability to take on big, hairy, audacious goals.
A delightful thing happens when you stop relying on the opinion of the highest paid person in the room and start demanding data: you move faster. Rather than arguing for weeks, you test your assumptions and see what works and what doesn’t. —Ken NortonAnd if anyone’s opinion says a project won’t work, data can be used to prove them wrong.
“Here is the surprising truth: It’s often easier to make something 10 times better than it is to make it 10 percent better.” —Astro TellerThe stories about Gmail, electronic watches, and low-cost rockets demonstrate a counter-intuitive lesson. The teams who were involved in these projects accomplished incredible things, but they didn't work harder than their competitors. Instead, they worked smarter. Making 10% improvements means using the same assumptions, processes, and tactics that everyone else is using. But 10x improvements require you to throw out your existing assumptions, boil things down to their fundamental truths, and reason up from there. A process which may or may not lead you to do things the way others have done them in the past.
A big part of my job is to get people focused on things that are not just incremental. —Larry PageAnd that should be a big part of your job, too. Because thousand percent gains require a completely different way of thinking.
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