How to evaluate the long-term sustainability of a startup idea using first principles?

Good question. Let's discuss this without getting into complex business models and corporate jargon. Instead, let's use "First Principles" as a tool, peeling back the layers like an onion to see what remains at the core. If the core is solid, the idea might succeed; if there's nothing left after peeling, then it's probably not worth pursuing.

In essence, "First Principles" means: Don't worry about how others are doing it, or what's currently popular. Instead, focus on what the most fundamental and basic aspect of the matter is.

Imagine you're not "starting a business," but rather building something, and you need to determine if it can "last long." You can start with these three fundamental questions:

1. Whose "must-have" problem does it solve?

This is the most important first layer. You need to discard all "I think," "maybe," and "perhaps," and find that most solid demand.

• Ask yourself: If my product disappeared tomorrow, who would feel like "the sky is falling"? Who would be frantic? Who would desperately search for alternatives?
• Then ask yourself: Is this "problem" real, or is it something I've imagined? Is it a "painkiller" or a "vitamin"? If you have a cold, you must take medicine – that's a painkiller. But you might only take a vitamin occasionally, and it doesn't matter much if you have it or not. A long-term sustainable business is definitely more like a "painkiller."

For example: A decade or so ago, people used Nokia phones to send SMS messages, costing ten cents per message and limited to dozens of characters. This was a real "pain point": high communication costs and inconvenience. Then WeChat emerged, allowing messages, voice, and pictures to be sent using data, almost for free. It solved the most fundamental problem of "efficient, low-cost communication." This problem is eternal, which is why WeChat's foundation is very solid.

Judging by First Principles: Is your idea solving such a fundamental, widespread, and painful "pain point"? If your answer is "making some people's lives a bit cooler," then be careful, because "cool" goes out of style.

2. Is your solution's cost structure the most superior?

Okay, so you've found a real problem. Now, from the perspective of physical and economic laws, does your solution offer a "magnitude" advantage over existing methods? Note: it's a magnitude, not just a slight improvement.

• Ask yourself: What are the core costs of providing this solution? Is it labor, traffic/data, raw materials, or R&D?
• Then ask yourself: As my user base grows, will my "marginal cost" (i.e., the cost of serving one additional user) decrease sharply or remain largely unchanged?

For example: When running a restaurant, serving one more customer means buying more ingredients and having an additional chef and waiter; costs increase linearly. However, when developing software, serving 100 people or 1 million people has almost zero marginal cost, just a bit more server expense. This is a huge difference in cost structure.

Judging by First Principles: At its core, is your business model a "money-printing machine" rather than a "brick-moving" model? That is, can your cost structure enable you to provide service that is at least as good, or even better, at a much lower cost than competitors? If your cost structure is no different from others, why would you survive longer?

3. Even if others completely copy you, why would you still survive?

This is key for the "long term." Once your good idea is discovered by the market, countless people will copy it. At this point, you need a "moat" that others cannot take away. But this moat cannot be vague, like "our brand is better" or "our team is stronger"; these are too fragile.

From First Principles, there are only a few types of true moats:

• Network Effect: The more people use your product, the more valuable it becomes for each user. For example, with WeChat, all your friends are on it. Even if another app is better, it's hard to switch because your "social network" isn't there. Newcomers starting from scratch find it very difficult to break into this network.
• High Switching Costs: It would be very, very troublesome for users to switch from your product to another. For instance, your company's financial software, with all its data accumulated over years – switching to a new one would be a disaster. So even if there's a better option, you'll likely stick with what you have.
• Unique Resources or Technological Barriers: You possess something others don't. For example, you have an exclusive patent, protected by law; or like TSMC, whose chip manufacturing process is generations ahead, making it impossible for others to copy. This is the most robust barrier.
• Economies of Scale: You've grown so large that your costs are significantly lower than any newcomer's. Take Amazon's logistics, for example: with so many warehouses built globally, they can achieve next-day delivery. Any new e-commerce platform trying to compete with them on logistics would have to burn hundreds of billions first, which is almost impossible.

Judging by First Principles: Can your business establish any of the "structural" advantages mentioned above? Will this advantage grow stronger as you develop, rather than weaker? If your only advantage is "I'm fast," then eventually someone faster will catch up.

To summarize:

Don't dwell on trends, concepts, or narratives. Just return to these three simple questions:

1. Demand: Are you offering water to someone who's dying of thirst?
2. Cost: Is the cost of your bottle of water cheaper than others drawing water from a river?
3. Barrier: Do you have exclusive ownership of this river, making it impossible for others to draw water?

If the answer to all three questions is a resounding "yes," then your idea possesses the DNA for "long-term sustainability." The rest are matters of "tactics" like execution, operations, and marketing.