Root vs. Proximate Causality — Why Many of Today’s Business Opportunities Are “Quick Fixes”
I finally got to Ray Dalio’s Principles and am thankful I did so sooner rather than later. Below is one of the many learnings that I can’t seem to shake:
You must distinguish proximate causes from root causes. Proximate causes are the reasons or actions that led to the problem. When you start describing the qualities behind these reasons or actions, you are getting closer to the root cause.
A disproportionate number of startups fail to follow a similar logic when thinking about the problem they set out to solve.
Take student loans, for instance. I would argue that current solutions — with regard to refinancing (e.g., SoFi, CommonBond, Earnest) and education/repayment (e.g., Student Loan Hero, Tuition.io) — aim to alleviate the existing problem as opposed to eliminating it altogether.
Isn’t this the same thing as catching a leak with a bucket, instead of patching the leak itself? In other words, it doesn’t get at the heart of the issue. It’s temporary by nature.
This is a fundamental human tendency (more on that here); a default setting we turn to frequently. And, while it isn’t inherently wrong, I would encourage founders to seek out the root cause of a problem before aiming to solve it.
Take student loans, for example. The logic might look something like this:
Truth: U.S. student debt has grown 5x faster than wages over the past decade. — Why?
Proximate Cause: The cost of attending public university has increased by roughly 213% over the last 30 years, while the cost of attending private university has increased by roughly 129%. — Why?
Proximate Cause: Operational costs (i.e., faculty/staff salaries) have jumped significantly, in line with the steady growth seen across all service businesses. — Why?
Root Cause: The current university system in the U.S. utilizes an unregulated fee structure, much the same way healthcare does.
Depending on which line of logic you follow, you may even go further. The point is that more opportunity often exists. But, it takes digging. It’s messy work. However, following a thought process similar to the one outlined above can increase both your scope of opportunity and the likelihood that the problem you’re focusing on is permanently solved.
Jackson Feder — Venture Partner at Contrary Capital, Ex-Summer Venture Analyst at Bowery Capital, & Senior at Boston University’s QSB
