# How’s your company going? Well, it’s relative…

## How Einstein’s Theory of Relativity applies to commerce.

Sep 25, 2019 · 3 min read

For truly valuable insight into a companies performance, we need to compare our metrics of success. It’s the comparison that brings relevances and context to any metric of success we measure and comparisons are relative. Thus, understanding relativity is core to understanding measurements of success in business.

How fast is a race car? It’s not a trick question, but the answer isn’t as straight forward as it might seem.

Stand with a pit crew and watch a race car speed by at 220km/h. Relative to you standing in the pit lane, the car is traveling at 220km/h. Now, imagine sitting in the driver’s seat of a competing race car traveling at 220km/h. The original car would now seem to be still, relative to you. Even though you are both doing 220km/h relative to the pit crew, your cars are moving at 0km/h relative to each other.

So, how fast is the car? The answer is that it depends if you’re viewing it from the pit lane or the competitor’s car. The car is traveling at 220km/h, or 0km/h, or both at the same time. The difference between the observations is down to the frame of reference of the measurement.

This is what Einstein’s Theory of Relativity basically is. All measured variables are relative to where we measure them from. And, where we measure them from can provide context and relevance to the observation.

As odd as it may sounds, Einstein’s theory of relativity is as applicable to commerce as it is to physics. It makes sense to assess the growth rate of a New Zealand company relative to its Silicon Valley counterparts if it’s competing in the US and has taken on US VC money. Using this frame of reference will give good context for the company’s performance relative to the market its competing in. It would be less useful to assess and compare the relative growth rate of the company against its counterparts operating in the New Zealand market. The companies growth rate might look comparatively better, but it wouldn’t provide the right context for the board room or the shareholders.

I encounter this a lot in the startup world. Founders intuitively assess themselves and their companies relative to all sorts of things, which sometimes leads to some interesting, but not always helpful, conclusions. Whenever I encounter misaligned frames of reference in person, I tend to use the race car example to illustrate the issue. There’s no point in getting shareholders excited about the race car being 10km/h faster than last year, if it’s also now 10km/h slower than the competition.

There are no rules for what frames of reference we should use to provide context to our measurements. It’s simply important to understand that everything we measure is relative to what we measure it against. Knowing this can help us frame our conclusions correctly to ensure accuracy in our deductions and subsequent decision making. It’s important to be aware of the frame of reference when we are making commercial observations to ensure we don’t bias or misinterpret what we are measuring and observing.

The rules of physics don’t lie nor are they breakable, even in commerce.

About the author — Aidan Kenealy

www.aidankenealy.com

My mission is to help those with high growth businesses realise their vision for success. I draw from the unique lessons learned growing EMGN to help founders and CEOs get the best out of what their businesses can be.

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