Devising a first principles return to manufacturing capability
Well over 2,000 years ago, Aristotle is supposed to have described what these days we call “first principles thinking” as “the first basis from which a thing is known”.
In the interests of being more contemporary, I’ll follow with a quote by Elon Musk. He laid out his approach to lowering rocket costs at SpaceX – using first principles thinking – in the following way:
“What is a rocket made of? Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fibre. Then I asked, what is the value of those materials on the commodity market? It turned out that the materials cost of a rocket was around two percent of the typical price.”
First principles thinking (FPT) is an important concept. I’m happy to see it gain popularity among entrepreneurs and others in recent years. Understanding what a problem worth solving is and how to then solve it are critical for any organisation. FPT helps you get there.
Manufacturers might be familiar with it via the “Five whys” approach to dig down into a breakdown in product or process to get to the root cause. Parents might be familiar with repeated “why?” enquiries via a child reaching a certain stage of development and demanding an explanation for a thing, the thing that led up to it, the thing before that, and so on.
If you burrow far enough into any problem, you can strip away layer upon layer of assumptions to get at the irreducible parts of the issue. These are where you can focus.
To borrow another analogy involving childhood, I don’t think it’s any accident that I’ve heard of so many engineers pulling apart appliances during their youth, seeking a better understanding of how things really work.
FPT involves disassembly, and it is about mindset. It is not about recipe-following.
Our brains have a tendency towards recipe-following in day-to-day life. It saves time, helps us not get overwhelmed by too many deep thoughts, and is generally good enough.
It’s often fine for knowing how to act in social settings. It can deceive when we’re trying to innovate.
Recipe-following comes to mind when I think about manufacturing in Australia. You’ll often hear “Australia is too expensive to make things,” which is in many people’s mental recipe books.
The recipe was a popular one between 2011 and 2013, when our dollar was above parity with the US dollar. Our high dollar valuation really challenged manufacturing. However, in 2025/2026, with a dollar between $0.65 and $0.70, the equation is significantly different.
Many of the manufacturers that closed when the dollar was at historical highs delivered a break-even product at $0.85-90. If they were still with us today, they would be enjoying profit margins of about 30 per cent.
Another recipe is “Australia is too far away to export products”. However, 37-38 per cent of all iron ore for steel and about 22 per cent of the world’s bauxite for aluminium comes from Australia.
About 85 per cent of this iron ore goes to China, Japan or South Korea, where it is converted into crude steel, then shipped all over the world to places such as the USA or Europe, where it is turned into finished products such as cars, appliances or construction steel.
It takes 1.6 tonnes of iron ore to make a tonne of crude steel, so the cost of shipping (plus the CO2 emissions) is increased just in the first step by 38 per cent.
The shortest and cheapest pathway would be to make products in Australia and ship them to the world, instead of bringing back the processed iron ore, bauxite or other minerals extracted in Australia.
It seems our recipes, perhaps combined with a bit of policy (which can be changed,) are keeping Australia from the most efficient and valuable pathways for manufacturing.
First principle thinking separates the recipe-followers from the chefs.
It gets you out of the habit of accepting that everything is like this because nothing better is possible. We’ve been lugging things around in bags for the longest time, but it was only in the 1970s that wheeled suitcases came about. It took somebody to decide that there was a better way.
A great example at the engineering level is the early-SpaceX anecdote about cost discipline and ingenuity under Elon Musk.
In 2004, shortly after SpaceX was founded, engineer Steve Davis was tasked with sourcing or building an electro-mechanical actuator. This part was needed to gimbal/steer the upper stage (second stage) of the Falcon 1 rocket.
Davis shopped around for suppliers and received a quote of $120,000 for the component. When he brought this to Elon Musk, Musk laughed and replied something to the effect of: “That part is no more complicated than a garage door opener. Your budget is $5,000. Go make it work.”
Davis took on the challenge, designing and building the actuator from scratch, which he completed for a total of about $3,900.
This tale is often recounted in biographies (such as Ashlee Vance’s) and articles about SpaceX’s early days as an example of Musk’s philosophy: aggressively challenge costs, question assumptions about what’s “impossible” or expensive in aerospace, and force in-house innovation when suppliers overcharge. It helped establish a relentless focus on making rockets dramatically cheaper.
It’s a great illustration of how SpaceX started scrappy and turned “impossible” engineering problems into routine successes. The mindset has been a big part of disrupting the space industry.
You respond to a problem worth solving by digging, then further digging, plus a little more digging. And then, when you’re tired, keep digging, until you’re past all the unhelpful assumptions.
Don’t stop digging until you’re clear on the first principles. That’s where the gold is.
This article originally appeared at InnovationAus on July 7. You can see the original version here.
