Step 1: Collect a bunch of junk and tools
I was fortunate enough to have been the Artist in Residence at the San Francisco Dump a few years ago, and have managed to retain the privilege to salvage there. Scrap yards and second hand stores such as Urban Ore are also frequent sources for materials.
Of course, all these resources would be meaningless without some sort of facility to re-work them. My studio has evolved over the years to be just the sort of place to accomplish this.
I use a wide variety of grinders and sanders to clean old material, as well as many hand tools to disassemble these things for parts. I've come to depend heavily on my collection of wrenches, pliers and screw drivers for this purpose (these links point to Craftsman tools, can you tell I'm entering this instructable in the Crafstman tools contest?).
In the final images for this step you can see my studio and some of my equipment. The scooter being worked on in one photo was the subject of one of my previous instructables. You can see it here. The same goes for my Praying Mantis sculpture seen in another photo.
Step 2: What to make?
Starting a project is the hardest part. For me, it usually begins when I recognize a face or some other life-like feature in an object. In this case it was an old wooden voltage meter. Turned up side down, the window formed a pretty good mouth. Brass keyhole covers made good eyes, and ukelele knobs made perfect teeth.