First Principles Problem Solving

Summary

In this video, Michael Baker introduces a problem-solving method called 'First Principles Problem Solving' aimed at improving management skills and business growth. He encourages viewers to document core principles, ask critical questions, and devise strategies based on fundamental truths. Using a business sales example, Baker explains how to break problems down to basic elements, formulating actionable plans for improvement. He emphasizes continuous refinement, collaboration, and practical steps to drive success. This approach, he adds, can be applied to any aspect of life, from personal to professional challenges.

Takeaways

• 📝 Take notes and identify actionable steps to implement in your business for immediate improvement.
• 🔑 The focus of the session is on first principles problem solving, which applies both in business and personal life.
• 🎯 First principles problem solving involves breaking down issues to their fundamental truths or axioms.
• 🛠️ In business, first principles for sales include building trust, reducing fear of mistakes, and acting in self-interest.
• 🤝 People buy from those they know, like, and trust, so fostering relationships is key to increasing sales.
• ⚖️ Customers always act in their own self-interest, so your business strategies should align with what benefits them.
• 💡 To solve business problems, ask questions based on your axioms, such as how to build trust or reduce customers' fear.
• 📋 Strategizing involves documenting your answers, creating tasks, and action items to implement solutions.
• 📈 Focus on continuous improvement and tackle low-hanging fruit first for maximum impact with minimal resources.
• ⏱️ Speed is a key determinant of business success, so ensure quick execution and efficiency in your strategies.

Q & A

What is the main objective of the session led by Michael Baker?

The main objective of the session is to help improve management skills and grow businesses by exploring first principles problem-solving techniques.

Why does Michael Baker encourage participants to take notes during the session?

Michael Baker encourages participants to take notes so they can document actionable items specific to their business that they can implement immediately.

What is first principles problem-solving?

First principles problem-solving is a technique that involves breaking down a problem to its most basic elements (or principles) and then building solutions from those fundamental truths.

How does the concept of first principles apply to business problems?

In business, first principles help to simplify complex problems by focusing on fundamental truths such as customer behavior, sales strategies, and operational efficiencies, which can then guide more effective solutions.

What are some axioms Baker suggests are important for increasing sales?

Some of the axioms Baker mentions include: people buy from those they know, like, and trust; fear of making a mistake is a key reason people don't buy; people act in their self-interest, asking 'what's in it for me'; and people engage in commensurate value exchanges.

What are the three main steps in first principles problem-solving according to the session?

The three steps are: 1) Consider your axioms (what you know for certain), 2) Ask questions based on those axioms, and 3) Strategize and plan based on the answers to those questions.

How does Michael Baker suggest managers handle fear of mistakes in customer decision-making?

Baker suggests identifying and addressing customers' fears by minimizing the risk of making a mistake when dealing with your business, and, where appropriate, emphasizing the risks of choosing a competitor.

Why is documenting answers to the questions important in this problem-solving method?

Documenting the answers helps to solidify insights, keeps the process organized, and ensures that the solutions can be effectively communicated and executed across the business.

How does speed play a role in business success, according to Baker?

Baker cites speed as a fundamental determinant of business success, suggesting that operating efficiently and quickly can provide a competitive advantage.

What is the role of collaboration in first principles problem-solving?

Collaboration is important for aligning objectives and ensuring that all key stakeholders, such as team members or customers, contribute to solving the problem and executing the solution.

Outlines

00:00

📚 Introduction to Improving Management Skills

In this opening segment, Michael Baker introduces the focus of the session: improving management skills to drive business growth. He encourages viewers to actively participate by taking notes and identifying actionable items to implement immediately. He reassures viewers that he will provide notes for free download but stresses that their personal notes should reflect relevant takeaways. The central theme is problem-solving using first principles, which can be applied both in business and life.

05:00

🔍 First Principles Problem Solving Explained

Michael introduces 'first principles' problem-solving, emphasizing its universality in addressing business challenges, whether related to human resources, sales, or customer satisfaction. He explains that first principles involve returning to the basic truths or axioms that underpin problems. Through this method, even complex problems, such as increasing sales, can be broken down and addressed step by step, starting from fundamental beliefs that guide decision-making.

10:02

📈 Axioms for Increasing Sales

Michael outlines key axioms related to sales: 1) People buy from those they know, like, and trust; 2) Fear of making a mistake prevents people from buying; 3) People act in self-interest; 4) Value is exchanged only when the perceived benefit exceeds the cost; 5) Value is determined by customer experience, convenience, quality, and pricing; 6) Speed is critical for business success. These principles form the basis for solving the problem of increasing sales through the first principles approach.

15:02

🤔 Crafting Questions from First Principles

Michael describes the next step in problem-solving: generating questions based on the identified axioms. For example, since trust influences sales, he suggests asking, 'What can be done to increase trust with our target market?' The goal of these questions is to stimulate thoughtful exploration of the problem. They encourage decision-makers to confront assumptions and challenge practices that go against fundamental truths, leading to more effective strategies for improving sales.

20:04

📊 Strategy and Action Planning

The third step involves turning the answers to these questions into actionable strategies. Michael stresses continuous improvement over perfection and recommends collaborating with key stakeholders in developing solutions. He also advises documenting insights, translating them into tasks, and creating a clear plan from the current to the desired state. This process ensures that the business is continually refining its approach and targeting the most effective actions to solve the problem.

👥 Collaborating with Stakeholders

Michael underscores the importance of collaboration with all stakeholders during the problem-solving process. Whether dealing with customer service, production, or logistics, involving relevant team members ensures alignment and more robust solutions. He emphasizes documenting everything to avoid relying on memory and to clearly communicate strategies and tasks with the team. This approach ensures everyone is working together towards solving the business problem.

📝 From Questions to Tasks

Michael elaborates on how to convert the answers to your problem-solving questions into concrete tasks and action items. For instance, if existing customers are the ones who know and trust the business the most, then a task might be to reach out to them or create a customer satisfaction survey. These tasks form part of a broader strategic plan that moves the business from its current state to its desired goals. The aim is to address actionable areas, ensuring incremental improvements.

🚀 Prioritizing Low-Hanging Fruit

Michael advises prioritizing low-hanging fruit—those tasks that require minimal resources but offer significant returns. He also introduces the RACI (Responsible, Accountable, Consulted, Informed) model for assigning responsibilities during implementation. This ensures accountability and deadlines, fostering effective execution of the strategy. These best practices help teams focus on the most practical solutions and ensure progress toward solving problems efficiently.

🎯 First Principles Beyond Business

In the final section, Michael reflects on how the first principles approach is not limited to business but can be applied to personal problems as well. He shares an example of how he used this method to resolve a family issue, illustrating its versatility. He invites feedback and engagement from viewers, encouraging open discussion about first principles problem-solving and its applications across different areas of life.

Keywords

💡First Principles

First principles refer to the foundational concepts or axioms that are assumed to be true and used as the basis for problem-solving. In the video, Michael Baker emphasizes the importance of returning to these fundamental truths when tackling business problems, suggesting that these principles guide effective decision-making.

💡Problem Solving

Problem solving is the process of identifying challenges and finding effective solutions. The video focuses on 'first principles' problem-solving, encouraging business owners to break down problems into their most basic components and use foundational truths to devise strategies for improvement, such as increasing sales.

💡Axioms

Axioms are basic assumptions or beliefs that are accepted as true without requiring proof. In the video, Michael Baker discusses how these are essential in first principles thinking, particularly for solving business challenges, like the belief that 'people buy from those they know, like, and trust.'

💡Sales

Sales refer to the process of selling goods or services in exchange for money. The video uses this concept to explain how business strategies can be built on the foundational principles discussed.

Highlights

The session focuses on improving management skills and growing businesses by implementing actionable insights.

The importance of taking notes and committing to implementing something relevant in one's business is emphasized.

First principles problem-solving is introduced as a core method to tackle business and personal challenges.

First principles are fundamental axioms or paradigms that serve as the foundation for problem-solving.

The example of increasing sales is used to demonstrate the practical application of first principles thinking.

Axioms such as 'people buy from those they know, like, and trust' and 'people act in their own self-interest' are highlighted as key principles.

Step one of problem-solving involves identifying and documenting relevant axioms for the specific problem.

Step two includes formulating questions based on those axioms, such as 'What can be done to increase our target market's trust?'

Step three involves strategizing and planning solutions based on the answers to these questions.

Emphasis is placed on continuous improvement and being 'better than yesterday' rather than striving for perfection.

Collaboration with key stakeholders is presented as essential in the strategizing and problem-solving process.

Documenting answers and translating them into actionable tasks and action items is critical for execution.

The importance of a 'current-to-desired state' plan to track progress and solutions is explained.

The 'low hanging fruit' principle is encouraged, meaning to pursue the easiest and most impactful opportunities first.

The RACI framework (Responsible, Accountable, Consultant, Informed) is recommended for structuring task responsibility and accountability.

Transcripts

welcome i'm michael baker thanks for

joining me today as we explore concepts

with the objective of improving your

management skills and growing your

business now you know i want you to grab

a notepad and a pen because i want you

to take notes i want you to make a

commitment that you will jot down some

sort of action item that you can

implement in your business today that's

what this is all about implementation to

drive your business forward now i do

have some good news i'm going to share

some notes on the screen and those notes

will be made available to you for free

download you can just uh go to the link

in the description

and uh enter your name and email address

and we'll send you a pdf copy of the

notes that i share on the screen so

those aren't the notes that i want you

to take i want you to be stimulated by

some part of our discussion and think

about your business and implement

something that is very relevant in your

business now today we are going to talk

about problem solving and that's really

critical in business of course it's

critical in life in fact what i share

with you today is is so often the case

you can use in all parts of your life to

become more effective as a person but

we're going to focus on becoming more

effective in management and running our

businesses and so we will as i give you

the examples we'll be looking at this

through

the

case uh

the instance of a business problem and

solving business problems but really i'm

telling you what we go through today

which will be first principles

problem solving i'm sure you're familiar

with that you've heard of that first

principles problem solving taking things

back to basics going right back to the

very fundamental things those principles

those axioms on which you sort of hang

your hat on which you govern yourself

those paradigms day to day that you live

by taking things back to that in order

to solve any problems so you may have

problems uh in your business that relate

to human resources you're having a

challenge between a couple of members of

your team uh it could be to do with

sales and profitability expenses or

logistically somehow you're running into

some problems with customer satisfaction

it doesn't matter what the problem is

you can use this technique this simple

technique we're going to go through

today

to solve your problem so i'll bring up

some notes on the screen and i'll just

take you through

there's sort of three

steps three simple steps to

utilize to engage in in order to

try to

execute

first principles

problem solving so let me bring up those

notes

okay first principles problem solving

and as you can see on the screen here

what we're going to use as a case study

or an example case rather is increasing

sales so let's say you have a challenge

and you're like well how do i increase

sales

so

the first thing you do is you consider

your axioms what are the first

principles what are those things that we

know for certain now you may say to me

well i don't know anything for certain

and philosophically you might be correct

there may be

a little bit of doubt theoretically in

everything all the premises that we have

all of the paradigms we have are subject

to change over time and we learn and

i've heard it said i think elon musk

likes to say that we know for sure we're

wrong we just don't know the degree to

which we're wrong so

but when we talk about an axiom a first

principle it's those things that's why

having quotation marks there that you

would think you know for certain you're

pretty sure about and what i would argue

is that whether you know we wouldn't get

hung up on that uh philosophical or uh

theoretical point about you may have

some flaws in whatever you have for an

axiom i wouldn't get hung up on that

because you're already acting in a way

that would demonstrate that you believe

these things to be true in other words

we can only operate

on those premises that we believe to be

true so consider your axiom so the very

first step that we have in solving the

problems through first principles is to

consider those principles that are most

relevant in this area so i'll bring up

some things related to increasing sales

some first principles these are things

that i definitely believe in the first

one here is people buy from those that

they know like and trust that's an axiom

that i live by and i believe that that's

what i have found to be true time and

again are there exceptions there are

perhaps exceptions to every rule to

every principal perhaps

but when you're using this technique

go to the most fundamental things that

you believe in and that you have found

to be true

and

document those bring them up and they're

those things that are related to the

problem that you're trying to uh solve

in this case uh increasing sales the

second one i have up here is the primary

reason people do not buy is fear of

making a mistake i believe that to be

true the third thing i have is people

always act in their own self-interest

they always need an answer to the

subconscious subconscious

question

the subconscious question that's a bit

of a tongue twister there what's in it

for me

w-i-i-f-m

97.9 on your fm dial people are always

asking what's in it for me

they're always acting in their own

self-interest that's an axiom that i

live by i believe that to be true

number four people willingly engage in

commensurate value exchange they only

pay for something that they value more

than what they are giving

and that's how we all operate in any

exchange we are giving away something

that in our perception

is worth less than that what we are

getting back

and you know there's a whole video on

that if you say well what about when

people are being charitable and that

kind of thing we discussed that in that

video but this is another axiom as it

relates to sales that i can hang my hat

on i can count on this being true almost

all the time number five there are four

constituents of value those being

customer experience convenience quality

and pricing

if i understand that to be true that

will affect how i solve my problems

number six

speed is a fundamental determinant of

any business success now i took that one

from elon elon musk he just worded it in

a way that i thought was uh really

concise and i believe that to be true as

well we need to operate

with great efficiency that leads to

[Music]

speed and gives us a competitive

advantage so those were some axioms i

put down that i believe in that relate

to increasing sales that's the first

step you document those so if it's a

human resource problem you're gonna

figure out what things do you believe in

as they relate to

the humanities portion of your business

or if it's a customer satisfaction thing

and some of these axioms might be the

same they may spill over from one

problem to another often first

principles do they relate to everything

you know people acting in their own

self-interest certainly that affects the

humanities of your business and by all

means you that's why i say you can

download these notes and you you're

welcome to use these you may disagree

with some of my axioms they may not be

on your list of first principles as it

relates to the problem you're trying to

solve but they may be and uh

go ahead and use those all right the

next step once you've done that is

you're going to ask questions you're

going to ask yourself questions

and your questions are going to be based

on the axiom so have those questions

that you've documented or rather have

those axioms that you've documented

those first principles beside you

somewhere and then ask yourself a

question

just chronologically go through the list

and ask yourself a question so the first

example i have up there is what can be

done to increase our target markets

knowledge affinity and trust for us so

that's based on that axiom that people

buy from those that they know like and

trust since that's the first principle

since that's the axiom i believe in

then if i want to increase sales i

create a question based on those axioms

and the first question i have up there

what can be done to increase our target

markets knowledge affinity and trust for

us another question i put down is who

presently knows likes and trusts us the

most so you might say well actually you

know our our present customers people

who've already decided to do business

with us and they

love us so those delighted customers

they love us the most and you can see

where you would go in in step three as

your strategy might say to increase

sales based on the answer to that

question perhaps we should be looking at

how we can get more sales from our

existing customers but this is very

thought-provoking these questions are

meant to stimulate

your

you know there it's not gonna be

completely revolutionary it's not going

to be like an aha magic pill moment

you're going to

like i say it's going to be thought

provoking and it's going to stimulate

you to remind yourself of things you

already know the third question i have

up there is how can we remove people's

fear of making mistake associated with

buying from us so of course that's based

on the axiom that the number one thing

that prevents people from buying his

fear of making mistakes so based on that

axiom based on that first principle i

come up with a question

also what can we do to increase people's

fear of making a mistake associated with

buying from the competition you might

think that's a little underhanded but

that is a very common technique based on

that axiom if you believe that people

or the number one thing preventing

people from buying is fear of making a

mistake not only do you want to

minimize their fear of making a mistake

in dealing with you you may want to

emphasize those things that could be a

mistake in dealing with the competition

again based on transparency and honesty

you don't want to make up uh anything

about your competition that's that's not

true but if you know that your

competition is more expensive for

example you might

have something in your marketing that

emphasizes that uh as a as a

mistake if somebody's going to pay too

much by dealing with the competition the

fifth question i have down here and

these are again just examples uh in my

case of increasing sales

are we expecting or asking prospective

customers to do anything that isn't our

best interest not there so that question

came

as reading the axiom and considering

contemplating the axiom

that people always act in their own best

interest so if if i'm doing something

that expects someone to do something

that's in my best interest but not

theirs then i'm fighting an axiom i'm

going against the grain i'm going

against the laws of nature i'm going

against those first principles anytime

you operate and make business decisions

that go against your axioms you're going

to run into problems that's at the

premise in the heart of how you solve

these problems using first principles

thinking that's why it pays to take the

time to reevaluate and contemplate to

consider meditate upon those axioms and

consider what do we know for certain and

then ask yourself questions that might

reveal and expose areas that you're

going against something you already know

and then it's not surprising to you that

you're encountering a problem

another question i have up here based on

the axiom what can be done to better

communicate the value of our processes

methodologies and models in order to

answer their what's in it for me

question

so

people are always asking that question

so i want to consider well when i

communicate value to my customers

am i truly considering

what's in it for me am i answering that

question in a way that resonates with my

customers another question what is our

unique value proposition for each

service offered

and if i can't answer that question very

clearly then i'm probably not

communicating it well to my customers

which services do we offer that

represent the best value

should we focus more on these and not

fret when other services don't sell so

we're getting a little more granular

with our questions but it's still based

on those first principles based on those

axioms based on the paradigm what we

know for sure because we don't want to

be going against

the flow of what we know for certain

are there new service offerings that

represent uncommon value that we should

consider offering

do we need to add or reorganize existing

resources to execute this again just

examples of questions you should ask if

you're trying to increase sales what

measures do we employ to ensure that we

execute quickly and of course you can

see that relates to that speed is a

fundamental determinant of success for

any business and if you believe that

then you want to ask yourself what are

we doing how are we making sure that we

are executing quickly in the delivery of

our products or services so those are

the questions and now what do we do with

that information

how do we

what's this third step you can see it on

the screen right now you strategize and

plan so you

um went through your axioms you

documented all those then you wrote down

some good questions and here is just

some best practices i'm not going to

share a strategy with you because that

would be very business dependent but we

we could throw out some examples or

whatever instead i'm going to give you

some best practices of how of things you

need to implement uh during your

strategizing and your planning stage so

based on the answers to questions

you need to focus on becoming better

than yesterday don't get hung up on

perfection instead what you want to make

sure you're doing is just improving we

believe in continuous improvement

perpetual refinement better than

yesterday that's something we talk about

all the time at bmi what are we doing to

become better than yesterday that's in

in alignment with our value of perpetual

refinement and i really would encourage

people because i see this all the time

managers are trying to make something

perfect and and maybe they think of

something unless it's perfect or darn

near perfect it's not a solution that's

not a good way to think instead

what can we implement based on those

questions we asked and those questions

were based on the axioms what can we

implement that makes us a little bit

better than we were yesterday that's

going to help to improve sales to solve

the problem

collaborate with key stakeholders now

you

as the manager as an entrepreneur as a

business owner and you're watching this

if you wish to try to solve a problem by

yourself i'm there's nothing really

wrong with that i can appreciate you

doing that but you always want to

collaborate with your key stakeholders

and ensure that you have some sort of

alignment of objectives and share you

know you have a team and many of you

have different size businesses some of

you are mostly relying on yourself but

don't forget any of your other

stakeholders this could include your

frontline personnel your logistics

personnel those that execute on the

delivery of your products or services

they may be involved in manufacturing of

it or it could be your frontline

personnel reception people that are

involved in customer service it could be

your customers themselves

any number of other stakeholders can

help you solve your problem so that's a

key best practice as it relates to first

pro first

principles problem solving collaborate

with other key stakeholders don't leave

it all on your shoulders

document your answers to these questions

when you're contemplating this stuff

don't leave it in your head i've seen

people discuss things and they're doing

the right steps they are considering

axioms they're going yeah well we know

that people buy from those that they

know like and trust in my example

and then they ask themselves okay so who

most knows likes and trusts us they ask

that question they're not documenting it

and then they're considering the answer

leaving it all in your head you can

still get some especially if you're you

know thinking on the fly and you're

trying to solve a problem really quickly

for a scenario you're going into maybe

you're in the

quote unquote the heat of a battle with

a customer and you're trying to solve a

problem really quickly yes you can do

that in your head but when you're

dealing with those major problems in

your business

you want to document everything okay so

that's why we talk about strategizing

and planning so don't just leave this in

your head and then try to communicate it

and remember it for later that's not a

best practice translate your answers

into tasks and action items

so if your answer is for example um who

knows and likes us and trusts us the

most and you say well our existing

delighted customers

and it's like okay that's the answer now

what's a task or an action item it might

be well we need to reach out to them and

find out or or maybe a

action item is let's find out who is

most delighted you may then say well

what is an action item we're going to

create a customer satisfaction survey

and then you know from there we're going

to offer a

sales promotion to those people and so

on those are what i mean on creating

tasks and action items the answers to

your questions in and of themselves may

not

be

an action item so that's another step

you have to do is create these action

items as part of your strategizing and

planning and then what you do is you

create a current to desired state plan

and all that is we've got a whole video

on that so watch that video but you're

taking all of these action items and

these tasks that you've created and

you're documenting them sort of

chronologically and uh there's steps i i

i don't want to make this video go too

long so make sure you watch that video

and then a couple of the next things

that i'm going to bring up on the screen

will help you with

creating that current to desired state

plan that you're going to progress

through you'll be in a transitional

state as you implement some of these

improvements and that's how you're going

to solve your problems

tackle low hanging fruit and best

opportunities for a refinement first and

we have videos on that as well of which

opportunities should i per pursue first

and and sort of plotting those things

that are the best opportunities those

things that will give you the best

return on your investment with the

lowest application of resources the the

lowest utilization and deployment of

resources those things that maybe have

that are really practical to implement

and they have

large returns so as you're considering

these things and they're manifesting

becoming clear to you from the answers

to your questions and you're creating

tasks and action items with it then what

i'm saying is you have to

put those in order and figure out what

you're going to do and you're going to

pursue those

the low hanging fruit first

and then the last one is utilize racy

for implementation now racy stands for

responsible accountable consultant

informed again i have a whole video on

that and please consult that if you

don't know what this means don't write

this off and say well i kind of get the

premise i got the first uh two and a

half three steps i i get that so these

other things are going to be really

important and in that video we'll talk

about for example that when you're

implementing race you have to have

deadlines and that helps to hold

all the various stakeholders accountable

and so

make sure that you're doing all of these

best practices as part of your

strategizing and your planning process

so there it is there in three simple

steps is how you implement

first principles problem solving and

remember this relates to anything in

life you can solve any problem whether

it's personal or professional in your

business or otherwise and after i went

through this with somebody recently

very

soon thereafter i encountered a

issue with something in family life and

i remember immediately my brain just

naturally because i had so recently gone

through this exercise in business my

brain went to the same thing and i said

well what do i know for certain what

axioms do i have what paradigms and

first principles can i rely on

and there is a difference i'm using that

term almost anonymously our paradigms

tend to be things that we believe are

first principles you want to challenge

your paradigms we have a video on that

as well but

what happened was i realized that you

can easily

utilize this exact same problem-solving

strategy for anything in life and so

whether it's philosophy theology

family all these kinds of things that

your you know your hobbies cooking

whatever you're trying to do start with

those first principles and list those

and then ask yourself questions based on

that and then take those questions and

contemplate them

convert them into action items well you

got the idea download the notes i think

i want to leave it there for now for

today i'm curious

what you thought of this i hope you got

something out of this leave a comment

and ask me if you want me to follow up

on this and elaborate or if you're

pushing back on this and you say well i

don't agree with that you're missing

something it has to be first principles

have to be based on things that are

entirely true there can't be any you

know i don't know where you would uh

debate me on this but i think it is

healthy for us to have a little bit of

dissension and debate and uh discussion

so leave that kind of stuff in the

comments and when you leave that in the

comments then other people in the

community who are watching this and

they're trying to solve problems they

read your comment and it helps them to

learn and we need to learn from one

another perpetual refinement