Yesterday I mentioned the concept of 1st principle thinking.
The summary is that you break down an item or service into the simplest, basic features or products that can’t be broken down any further.
Today I wanted to add that you should ask the following questions or whys.
You keep asking until you get to the 1st principle.
Here is an example as to why a watch designed for the youth is not selling.
- Why is it not selling? Answer – because its selling price is higher than the competitors.
- Why is it higher? – Well the manufacturing costs are high.
- Why are the manufacturing costs so high? Well one of the materials we use has disproportionately increased in price which pushes the manufacturing costs up which pushes the selling price up.
- Why is that material so expensive? Because that material is imported from a remote location – which causes the costs to be high etc etc etc
Now we have the 1st principle cause!
We can source materials from a local supplier which will reduce all the procurement costs and in such make our watch competitive.
If you don’t understand the basics you can never understand the advanced metrics. You can apply this thinking and questioning process to every decision you are face with in your business.
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