In a fast-moving ecommerce environment, two tendencies have developed for the sake of moving quickly and being as efficient as possible. One, we make assumptions: “The more units we sell, the more money we’ll make.” “Consumer demand will continue to go up.” “Digital marketing is not a cost center.”
The other habit we have started to form is to reason by analogy, that is, take a particular approach because it is like what others have done or are doing, and we want to get the same results or see the same level of success.
With first principles, you boil things down to the most fundamental truths and then reason up from there. Elon Musk certainly didn’t invent first principles—that was Aristotle—but he popularized it as an innovation method. He breaks down situations or problems into core pieces (e.g., source materials for rockets) and then put them back together in a more effective way. Deconstruct, to reconstruct.
In ecommerce, we rarely take the time to question or test our assumptions, let alone take anything apart—it’s too scary. But the danger in that is getting trapped in doing things the way they’ve always done them. And we know what happens to companies that don’t innovate to adapt to changing times – they disappear. Sears didn’t see Walmart coming—and then Walmart didn’t see Amazon coming. (Though they’re doing a great job at playing catchup!)
How first-principle thinking can spur innovation
Below are three ways that first-principle thinking can impact your ecommerce business.
- Destroying the myth of the first-mover advantage Google was not the first search engine; it wasn’t even the first to use web crawling and indexing technology. The iPhone wasn’t the first smartphone. It was simply better. Tradeswell isn’t the first company to build tools for brands looking to maximize their digital channels. But there is a luxury in being able to step back to understand the structural problems that you see from others moving faster into a market segment and address those in your solution. Once you start growing quickly, it becomes harder to change direction, even if the growth is simply organic market growth and not new value creation.
- Adapting to significant changes in the retail value chain: One significant problem that today’s CPG companies face due to changing times is how the retail value chain has shifted entirely. R&D and manufacturing are still at the beginning. However, now retail, marketing and final fulfillment are no longer linear—yet many CPG companies are still producing their products as if they will ship them in palettes to a retail location. They’re not designed for end-consumer shipment and often face problems in last-mile delivery. CPG companies now must reverse-engineer to make fundamental changes in creating and packaging their product to nail the correct sizing for direct-to-consumer purchases.
- Defining the new ecommerce super team: The way things have always been done included a clear delineation between functions: You had roles in marketing, finance, supply chain, inventory management, etc. Yet that assumes marketing departments operate in a broad, open environment like broadcast media, not the closed-loop of affiliate, sponsored search and other performance-driven media that are direct levers for demand. A first-principle approach would ask, what are the business goals overall, and then how do we create a team that is all focused on that goal while still maintaining core competencies and leveraging specialty skills? This might bring about more of a unified ecommerce hub with a leader who is solely responsible for the primary outcome, who then is supported by those other roles.
There are multiple other ways that first-principle thinking will impact your business, particularly as consumer behavior changes around important aspects like discoverability. Ecommerce teams who are stuck with old ways of thinking and mired in assumptions around purchase intent, for instance, may fail to anticipate a shift away from sponsored search results and toward influencers and finding niche markets at scale, globally.
Don’t fall into the bag-manufacturer trap. For hundreds of years, “innovators” made iterations on the same product, keeping the form of the bag the same, but adding zippers (1938), new materials like nylon (1967) or adapting them for school, hiking and travel. It wasn’t until 1970 that the first rolling suitcase emerged—after someone thought to improve the function of a bag rather than improve upon the existing form.
Consider the “function” of your ecommerce business first and find new ways to meet that outcome instead of making minor tweaks to “forms” you may have picked up along the way.
Tradeswell is a cross-channel algorithmic trading platform designed to help DTC and CPG brands sell more successfully on digital platforms like Amazon.com and Walmart.com.