Potential Energy in Startups

Aug 20, 2021

The total energy of an isolated system must stay constant. And for startups, software, and most other things in business, energy comes in two forms: potential and kinetic energy.

Energy and work aren't foreign concepts. Energy comes from the Latin energia and the Greek ergon, meaning "work." If you remember high school physics, the kinetic energy of an object is the energy it posses due to motion. The potential energy of an object is the energy it has due to its relative position to other parts of the system. Think of a stretched rubber band or compressed spring.

Compared to kinetic energy, we aren't very good at spotting potential energy. Sure it shows up in more obvious ways, like an email list of potential customers, but also in more abstract ways like software modularity.

Optionality has real value (read: Real Options Valuation). In strategy, positioning is often much more powerful than how fast you're currently moving.

For a more tangible example, take chess. In chess, there is the opening, the middlegame, and the endgame. Winning is never about taking as many of your opponent's pieces as soon as possible. Instead, it's about developing your position. Then, at the right time, converting that potential energy into kinetic energy for the checkmate.