Applying Principles of Physical Chemistry to Product-Market Fit

Introduction

At Bloccelerate, we have found that the best entrepreneurs come from varied backgrounds, and the best way to solve big problems is to think laterally. Sometimes it helps to think cross-domain and frame business problems in other terms. To that end, having recently conversed with founders with a scientific bent, I thought putting principles of business in the language of chemistry could be a helpful thought exercise. 

In addition to conversations I’ve had, a recent founder survey we conducted for content to cover in our last BCVC summit in NYC, indicated that product-market fit (PMF) had  risen to the top of the concern list (25%+ of responders named it THE single biggest existential problem faced by their company)

Poll results of 2023 BCVC Web3 Founder Survey  (n=102)

So, I set out to think and outlined a metaphorical framework for this challenge of product market fit, which seems elusive to most founders. 

I imagined, What if we approached it from something tangible or physical that could serve as an analog to guide the journey of finding a PMF ?

The principles of physical chemistry came to mind. Although chemical reactions may not be ‘tangible’, the facility of experimentation in chemistry lends itself to be a model, and fortunately, the analogies don't actually require more than a year's worth of college chemistry to understand. I thought this metaphorical exercise could help inspire original thinking and accelerate the path to PMF, and make it more precise. As I dove deeper, I found that chemical reactions offer a unique lens through which we can understand and navigate finding PMF faster. 

So, here is my honest attempt to produce an analogy for finding PMF,  inspired by tangible, observable, and manipulable analogs found in chemistry.

The Reaction Equation as linchpin in analogy:

 A + B ↔ C

In the language and logic of chemistry, we study reactions at large. Usually they are notated with reactants (A and B) coming together on the left, to form product (C). The reactions are usually notated with a bi-directional arrow to indicate there is a flow in both directions. Reaction happens from left to right and right to left. The speed at reaction transpires in each direction varies due to a variety of factors and when the speed at which the forward and backward reaction reach equivalency the reaction reaches equilibrium.

For example, in the Haber Process - Hydrogen and Nitrogen reacting to form Ammonia.

If we borrow this or any other chemical equilibrium equation as your sales process, it takes us one step closer to finding a physical analog to “product market fit”. Let your product or service  be analogous to reactant A that will meet a customer need. Then, let the ‘customer need’ be reactant B. If A and B react to form C, then we can say that the resultant is your product or service in use. Your service that reacts with customer needs forms your service in use. Guess what? Product market fit means that the product or service you are building will meet a need in that market and will be sustainably in demand. In that regard, we now have the foundation of the analogy. We want a lot of C. When A and B react faster to form C in the forward direction, than the rate at which C will churn back to A and B, we achieve the goal. That is equivalent to shifting the chemical equilibrium where independent A’s and B’s will react to form C and in any given solution you will be more and more likely to find C instead of free floating A and B.

This analogy of a chemical reaction  in a state of equilibrium is important, because it helps you frame your venture not just as a one-time exchange, but a continuous process that can go in both directions. Your company sells a service meeting a need, in one direction. Then clients churn, and your product is  now ready to react with the unmet need of another client out there.

Until your product offering or the customer needs evolve, there’s a basis for how much reaction you can expect, a specific rate at which a reaction will happen in one direction or the other, as a function of how much of A, B, or C exist in a given set of conditions of the environment.

So, in my case, I run a venture fund. My fund’s PMF  C would be a result of my product  A - investment returns via good portfolio investments- continuously meeting the financial needs of investors B to create a successful, repeatable, and scalable sale to investors. If a VC firm is successful at finding PMF, it produces a lasting multi-generational venture firm, pairing the investment services with investors’ need for returns, adding more investors over time until a saturation point is reached.

Let’s look at more specific physical chemistry concepts to help us think about getting more C - “your product sustainably in use” - and in parlance, PMF. Goal here is to develop a mental framework over chemistry to be able to ask questions like How can I ensure my product isn't just a 'flash in the pan,' but instead becomes an integral, sustained part of the customer's life? Or more specifically, what features or services can I add to make my product indispensable over the long term? What are the ways in which the customer's needs may evolve?, or What are some catalysts, conditions, temperature changes that may shift the equilibrium to the right? - all of which are different ways to ask, “How do I get more of C instead of A + B?” 

---

Gibbs Free Energy & Ease of Sale

Chemistry teaches us the fundamental equation for the ‘spontaneity’ of reactions: ΔH - TΔS = ΔG. This equation ties together three main factors: change in enthalpy (ΔH), change in entropy (ΔS), and the temperature at which the system operates (T). The beauty of this as is applicable to entrepreneurship is that we want our product to be just so that our offering reacts with the market need spontaneously and grows to scale.

Enthalpy (ΔH) reflects the change in energy when new bonds are formed during a reaction. For PMF, the change in enthalpy becomes the strength of the bond between your product and the customer. The stronger the customer's desire or 'affinity' for your product, the greater the value generated by their reaction. If the product is tightly bound to the client, it releases more energy when they choose your service. Instead of customers investing more of their resources elsewhere, a stronger bond with your product liberates their energy, funds, and time. Ah! What a relief to spend less energy to maintain an aspect of your life!

Entropy (ΔS) represents the number of different ways or configurations the new molecules, the resultant particles can adopt. It's the freedom of movement or, more broadly, the 'choice' that a system has in the number of different configurations it can sample. For PMF, change in entropy is analogous to the options or configurations that your product allows the customer while using the service. Just as molecules have varying degrees of freedom to change their state or configuration, your product should offer customers flexibility.

Temperature (T), while not our main focus here, acts as a multiplier, determining how influential the change in entropy will be. (respond in comments if you think our “average busy-ness or global warming has anything to do with it)

Thus, if you can enhance your product's appeal (greater ΔH) and provide versatility (greater ΔS), the effort required in your sales process (akin to ΔG) will be considerably reduced. The more energy you liberate and the more flexibility you offer, the smoother and more "spontaneous" your sales process becomes. And just as in chemistry, where a more spontaneous reaction is always favored, in business, a product that naturally and effortlessly fits the market will always be preferred. So, when optimizing your product-market fit, think of it as a chemical reaction: aim for it to be as spontaneous as possible, releasing the most energy forming stable bonds and allowing lots of degrees of freedom!

In optimizing your value proposition, the equivalent of change in Enthalpy, you might ask, "What can I do to enhance my value proposition so that my customer will walk away with more value, more energy liberated?" or “How can this service release more funds, energy, and talent to be used elsewhere?” In optimizing for configurability, Entropy, you might ask, “What are the different ways, configurations, conformations I could enable my customers to utilize the same services?”

Conclusion

By adapting the principles of physical chemistry to the business landscape, entrepreneurs can gain fresh perspectives. The goal here was not to offer advice, but to stimulate a line of questioning. Inspired by a domain that’s well understood and lends itself more easily to experiments we may be better able to strategize, scale, and sustain a venture. The fact that chemical reactions take minutes or hours instead of weeks also is an added benefit. Who knows maybe we’ll find the answer to the next strategic question looking at a microcosm of chemical reaction. I should also mention that the analogy lends itself to more lines of inquiry than I outlined here; such as the analogy of competing products (substitute goods) is akin to competing reactants; or how improper incentives like corrupt bribes are akin to exogenous short term effects without sustainable results and inevitable churn. Although I did not go into these, I suspect scientifically oriented founders who enjoy deep thinking will find these lines of thinking particularly rewarding. For further extending the analogy, additional ideas and inspirations you’d like to share with me or other founders feel free to share input in response to this post. Feel free to like or subscribe for more edge-giving insights and mental frameworks that can give you a new perspective to our daily entrepreneurial hustles.

Where to Next?

Up next, I am thinking to share more on a couple more ideas. Which would you like most? DM me.

a) How principles of kinetic barriers relate to UX and sales process

b) How polymerization methods relate to GTM and land-expand strategies

c) How Zeolites inform us on how to select for BD avenues

d) How chemical indicators help select relevant business metrics to track

e) How temperature and pressure help us understand the effect of market cycles and timing

f) How competing reactants in chemical equilibrium help us understand substitute goods offered by competition