A Primer on Factory Economics for Startups

• Factory IS the moat — production process beats product design defensibility.
  • Examples: Hadrian, Senra Systems, Zellerfeld.
• 30% yield loss creates 43% cost premium over theoretical material cost.
  • Yield failures cascade: incoming QC → first-pass → rework → test → field returns.
  • Late-stage failures are exponentially more expensive.
• Wright’s Law: costs fall as cumulative volume compounds — 10M units >> 1M units.
• Track 4-level metric cascade: financials → ops → process drivers → root causes.
  • Most startups stop at level 2; competitive edge lives at levels 3–4.
• Match capital type to risk: equity for R&D, project finance for contracted offtake.
  • Equipment financing for scale, ABL for working capital.
• Working capital blindspot: $10M/mo costs + 60-day inventory = $25M trapped cash.
• Winners share three traits: metric honesty, capital discipline, learning curve obsession.

Oliver Hsu (a16z American Dynamism partner) · 2026-02-17 · Read on a16z.com