A first-principles test for where a product's cost can be cut by redesigning how it is made.
Walter Isaacson's framework, from Elon Musk, pp. 124 to 130.
Price the materials
Work out the cost of the basic materials that go into the product, such as carbon fibre, metal and fuel for a rocket.
Compare with the finished cost
Divide the cost of the finished product by the cost of its materials to get the idiot index.
Attack the high ratios
Where the index is high, cost can be cut significantly by devising a more efficient way to make it.
From chapter: Chapter 15: Rocket Man: SpaceX, 2002, pp. 124–130
In Moscow, Musk, Cantrell and Ressi try and fail to buy a used Russian rocket, ending up spat on and quoted $21 million each for old Dnepr missiles. Angry, he reframes the problem with first principles and an idiot index, the ratio of a product's finished cost to its materials, and decides on the flight home that SpaceX can build the rocket itself. Friends stage an intervention with a reel of exploding rockets, which only strengthens his resolve. He founds SpaceX in May 2002 with a cost per pound to orbit as the key metric.
