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Forget fancy techniques, just scale alone is enough to shock you when looking into manufacturing. We got quotes from various providers at $4-$12/part. Meanwhi

Forget fancy techniques, just scale alone is enough to shock you when looking into manufacturing. We got quotes from various providers at $4-$12/part. Meanwhile, in grocery stores, department stores, even dollar stores we would see similar products (using the same materials) being sold for $1-2. The difference is mostly related to the number of parts being ordered. For a startup, ordering 100,000+ parts just to get pricing reasonable is a no-go unless you (or your backers) take a major risk. Makes you feel like getting off the ground is almost impossible, when you can't even get your wholesale cost below the retail cost of similar products.

jkestner 12y ago
You can live with it - it should just guide your product strategy. Moves that Tesla used with the Roadster: - Start with the high end/low volume market. - Minimize custom parts. - Architect a completely different approach to change the cost equation. (Throw software at the problem instead of hardware.)
- sedachv 12y ago
  > Architect a completely different approach to change the cost equation. (Throw software at the problem instead of hardware.) I'll bite: what does that sentence even mean? How did Tesla "architect" a different approach to the "cost equation" of manufacturing, sourcing, and assembling the parts of an automobile? What are they "throwing" software at?
  - jkestner 12y ago
    This one's a looser fit to Tesla. Better examples might be anything that replaces a built-in touchscreen with your smartphone's. In Tesla's case, by going all-electric they were able to make a drastically simpler drivetrain (and sure, this in some ways contradicts the previous point). I think that resulted in a much better cost-for-performance than a startup would've been able to get building around a combustion engine.
lkrubner 12y ago
It's important to note that 20 years ago the surprising thing would be the surprise that you express here: "The difference is mostly related to the number of parts being ordered. For a startup, ordering 100,000+ parts just to get pricing reasonable is a no-go unless you (or your backers) take a major risk. Makes you feel like getting off the ground is almost impossible, when you can't even get your wholesale cost below the retail cost of similar products." We just had 150 years where this was so normal that most people didn't think much of it, and very few people ever thought about starting their own business, exactly because it was understood that you could not compete with the economies of scale enjoyed by John Davison Rockefeller, Andrew Carnegie and Andrew W. Mellon. What's interesting is that this attitude has recently been changing. The economist Larry Summers has made this point about WhatsApp, using WhatsApp as an example of the falling need for capital: http://www.businessinsider.com/larry-summers-on-whatsapp-2014-2 http://www.businessinsider.com/larry-summers-on-whatsapp-201... "Ponder for example that the leading technological companies of this age, I think for example of Apple and Google, find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture. Significance new ventures today are seeded with hundreds of thousands of dollars in the information technology era. All of this means reduced demand for investment with consequences for the flow of - with consequences for equilibrium levels of interest rates." He suggests a negative consequence, that it is difficult to get real interest rates above 0% in a world where people can start a business with little capital, and he suggests that this might contribute to secular stagnation. Of course, things don't need to be as grim as he suggests. Ideally, the low costs would lead to a flood of research, but that hasn't happened so far, in part because VCs are scornful of what they refer to as "science projects" and the financial community continues to look for returns within 10 years, which is almost certainly the wrong timeframe for 0% interest rates (the low rate suggests a low discount rate which suggests that investors should think long term).
- DenisM 12y ago
  Very insightful comment, thank you lkrubner. It feels to me that capitalism has successfully created abundance of capital, so we need something else to now to allow longer-term projects to run.
ctdonath 12y ago
I understand that a big part of why Tim Cook filled Steve Jobs' shoes was that he's a master of supply chain management. He understands what it takes to move a product idea's components from "nonexistent supplies" to "commodity pricing".

jkestner 12y ago

You can live with it - it should just guide your product strategy. Moves that Tesla used with the Roadster: - Start with the high end/low volume market. - Minimize custom parts. - Architect a completely different approach to change the cost equation. (Throw software at the problem instead of hardware.)

sedachv 12y ago
> Architect a completely different approach to change the cost equation. (Throw software at the problem instead of hardware.) I'll bite: what does that sentence even mean? How did Tesla "architect" a different approach to the "cost equation" of manufacturing, sourcing, and assembling the parts of an automobile? What are they "throwing" software at?
- jkestner 12y ago
  This one's a looser fit to Tesla. Better examples might be anything that replaces a built-in touchscreen with your smartphone's. In Tesla's case, by going all-electric they were able to make a drastically simpler drivetrain (and sure, this in some ways contradicts the previous point). I think that resulted in a much better cost-for-performance than a startup would've been able to get building around a combustion engine.

lkrubner 12y ago

It's important to note that 20 years ago the surprising thing would be the surprise that you express here: "The difference is mostly related to the number of parts being ordered. For a startup, ordering 100,000+ parts just to get pricing reasonable is a no-go unless you (or your backers) take a major risk. Makes you feel like getting off the ground is almost impossible, when you can't even get your wholesale cost below the retail cost of similar products." We just had 150 years where this was so normal that most people didn't think much of it, and very few people ever thought about starting their own business, exactly because it was understood that you could not compete with the economies of scale enjoyed by John Davison Rockefeller, Andrew Carnegie and Andrew W. Mellon. What's interesting is that this attitude has recently been changing. The economist Larry Summers has made this point about WhatsApp, using WhatsApp as an example of the falling need for capital: http://www.businessinsider.com/larry-summers-on-whatsapp-2014-2 http://www.businessinsider.com/larry-summers-on-whatsapp-201... "Ponder for example that the leading technological companies of this age, I think for example of Apple and Google, find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture. Significance new ventures today are seeded with hundreds of thousands of dollars in the information technology era. All of this means reduced demand for investment with consequences for the flow of - with consequences for equilibrium levels of interest rates." He suggests a negative consequence, that it is difficult to get real interest rates above 0% in a world where people can start a business with little capital, and he suggests that this might contribute to secular stagnation. Of course, things don't need to be as grim as he suggests. Ideally, the low costs would lead to a flood of research, but that hasn't happened so far, in part because VCs are scornful of what they refer to as "science projects" and the financial community continues to look for returns within 10 years, which is almost certainly the wrong timeframe for 0% interest rates (the low rate suggests a low discount rate which suggests that investors should think long term).

DenisM 12y ago
Very insightful comment, thank you lkrubner. It feels to me that capitalism has successfully created abundance of capital, so we need something else to now to allow longer-term projects to run.

ctdonath 12y ago

I understand that a big part of why Tim Cook filled Steve Jobs' shoes was that he's a master of supply chain management. He understands what it takes to move a product idea's components from "nonexistent supplies" to "commodity pricing".