All things trend towards disorder…as far as we as humans define it that is.

But the stakeholder on the other side of that trade, the Universe, views disorder (or entropy) as its preferred steady state.

Entropy, a concept as well as a measurable physical property, explains why life trends towards more complexity, more disorder, more randomness and more uncertainty rather than less. The concept finds its way into several fields from thermodynamics, statistical physics, information theory and has implications across all the natural sciences.

Depending on the application, the definition can vary somewhat, but as it was first formalized in thermodynamics, we’ll start there with the term disgregation.

Disgregation was defined by the German physicist and mathematician Rudolf Clausius as the magnitude of the degree in which the molecules of a body are separated from each other. (Wiki)

Said in a form you might actually feel comfortable saying at a dinner party, entropy is the speed at which your coffee cools, your car rusts, your eyesight degrades and in an abstract form why you keep in touch with fewer people from high school over time.

As humans, we would naturally prefer less entropy.

Entropy as a Catalyst for the Concept of Time

From the above observation by Calusius comes the second law of thermodynamics. That is, that heat (energy) disperses from warmer bodies to colder bodies and cannot pass in the opposing direction from a cold body to a warmer body (anti-entropy or order). This is the direction of thermodynamic equilibrium. In order to go the other direction, think air conditioning unit, some amount of work must be supplied. Further, not all that energy supplied can be converted into work, the Universe exerts a tax in the form of heat.

That’s getting a little too abstract so using an engine as an example, the loss or “tax” is the heat dissipated by the engine. Even the induction motor of your electric car follows this rule. If you put 100 calories of fuel into an engine, you will not get 100 calories of work out of it. It depends on the efficiency of the engine and 100% efficiency is not attainable.

Similarly, if you eat 100 calories of food, you will not be able to perform 100 calories of work. There is a loss associated with your body temperature increasing and sending some energy to simply convert the food to a useable form. In fact, in biological systems, the energy throughput between each “rung” of the food chain is about 10%. (source)

This means that because the inputs do not equal the intended outputs and there exists waste, the process is a one-way street and is not reversible. You cannot reverse the flame back into the match that created it.

It is one of the concepts giving evidence to the existence of time.

“The increase of disorder or entropy is what distinguishes the past from the future, giving a direction to time.”

-       Stephen Hawking

You Live in a Coffee Mug

Taking a step back to the cosmic level, the Universe is one large cold body containing instances of higher energy or heat while the overall system ultimately moves towards a cold equilibrium.  

Our solar system is one such instance of heat. But, like a giant coffee mug it is slowing cooling and dissipating into equilibrium. Eventually, as stars burn out and the formation of new stars slows, the Universe will reach a cold state of equilibrium. It will be a motionless cold cup of coffee. (paper)

But don’t worry, this is occurring at a pace that means nothing to anyone that may be reading this, it is simply useful to understand this grander scale. Nevertheless, at the micro level down here on Earth, we are subject to this slow march as well.

The key takeaway here is that entropy, and subsequently time, is not something that can be reversed. It is an absolute. We can rebel against it, ignore it, but ultimately one is better off understanding how to exist within it.

It could even be argued that the meaning of life is only to strive against entropy. To organize our world into useful forms and push back on the limitations and eventual destruction it imposes.

Entropy Within Social Constructs

This may be why entrepreneurs are celebrated more than criminals, aside from the obvious moral reasons.

Achieving entropy is easy. For instance, being a serial arsonist is far easier than building a successful company…or building anything really. I would wager that the Earth Liberation Front, one of the most active ecoterrorist groups of the early 2000s (who favored arson), is far less known than say Lee Kaun Yew amongst readers or the general public.

Regardless of where you stand on the environment, building Singapore into what it is today is a far more impressive feat than anything the Earth Liberation Front could accomplish via disorder even if given 100 years.  

Society’s success then can be framed as anti-entropy. It is the rebellion against the friction of our natural world and even our own tendency towards social disorder.

Without intervention and effort, we either succumb to the ravages of nature, disease, natural disasters, age, etc., and/or we fragment as a collective society through warfare and conflict. Increasingly larger populations were only possible alongside incremental advances in technology as well as structured governance and rules. Said another way, technology and systems are our tools against entropy.

For those interested, a look into how well the Dunbar number, or the average maximum number of meaningful social relationships one can maintain, lines up with the population breaking point of communes is eye opening.

Spoiler, it’s approximately one hundred and fifty despite what social media might have to say about it the number of friends people have.

So, even beyond pointing to the existence of time and a rule the physical world is subject to, it seems even our human constructs must obey the law of entropy.  

This is a hint as to why capitalism is brutal and life in general is tough.

Entropy Within Businesses

This presents an interesting and useful way to frame life as we know it. But how might we apply this into decision making towards business or capital allocation?

For a given idea, business plan or thesis, there exists one preferred path to success (plus or minus an acceptable margin of variation). On the flip side, there exists many MANY states of disorder in which those employees, assets, sequence of events, molecules may arrange themselves for a suboptimal outcome as far as we humans are concerned.

And the Universe would be perfectly happy with those other states. Or indifferent to be more accurate.

However, one unique thing we can achieve in business or any capital-intensive endeavor is we can actually exceed the limitation presented by thermodynamics. Where I might have been hindered by the heat loss of my engine above, I can find ways in which the equation (Fuel + Work) < Output within business.

So long as “output” is being defined as the value according to humans.

This is the often touted 1+1 = 3 tagline.

But here is the rub, these occur in pockets where frictional entropy against what we are looking to accomplish is less than the inputs AND they exist only for a fixed duration of time.

To conceptualize this, we’ll use the steam engine. And just as our engine above, as measured by engineering standards, the steam engine is subject to the same limitations imposed by thermodynamics. But when the output is measured by human factors, things changes.

The steam engine as a technology allowed greater and faster movement. With this, society was able to speed up the pace of progress. At the onset, the entropy against it might have been a lack of technological know-how, the necessary capital required (read as R&D Expense) and parties with alternative interests such as those in the business of selling (literal) horsepower.

Add up all of these entropy forces and they clearly did not outweigh the beneficial outcome of this technology as it came to be nonetheless. But that is only the first of the two limiting criteria mentioned above, the other is “for a fixed duration.”

As we’ve stated, entropy is universal and cannot be escaped. There are no perpetual motion machines. While there was not sufficient friction to hinder the steam engine’s development, eventually there will be enough to render it obsolete. That form of entropy is competition.

Eventually other forms of transportation sprung up and while society was better off for having received the steam engine its presence eventually eroded.

Like everything else, good ideas and companies will succumb to entropy of one form or another. Be it competition, waning consumer preferences, regulation, poor management, etc. The key is to find instances where a company is applying capital (fuel) and work (energy) towards endeavors that will be able to outpace the entropy and ideally you find businesses that understand that this is a constant process of recycling resources against disorder.

How to View and Conceptualize Entropy

So, whether you are traversing day to day life, trying to launch a business or making an isolated investment decision understanding entropy as an abstraction across all facets of life can help to accomplish your goals.

As all things move towards disorder, we can and should position ourselves according to the least amount of entropy between our current state and the intended goal. The path of least resistance so to speak.

If you are building a house, best to do it on a level surface that sees little disruption.

If you are launching a business, best to find areas with little competition (Peter Thiel’s “competition is for losers” quote).

If you are picking a partner, best to find one that complements growth rather than exacerbates or introduces negative tendencies.

Paths fraught with more resistance or entropy will take more work to get through. Additionally, from a probabilistic thinking point of view, not only will they be more difficult, but you will ultimately have less successes.