Your Flywheel – A Virtuous Cycle of Success
by Scaling Up Coach, Mark Fenner
“The flywheel for any great company is not a line of business, it is an underlying architecture of momentum that can be renewed and extended into multiple businesses and activities.” ~ Jim Collins
In 2001, Amazon, a relatively new high riding dot com stock, fell from $107 to $6 per share. Barron’s ran a headline calling it “Amazon.bomb.” Wall Street analysts said the company would run out of cash by the end of the year. In response, Amazon founder Jeff Bezos invited Jim Collins, the man Forbes selected as one of the 100 Greatest Living Business Minds, to talk to him and the board about how to save the company.
Collins explained the flywheel concept, a metaphor for viewing their strategy, as a virtuous cycle of success that overtime will create tremendous momentum.
He encouraged Bezos and the board not to react, but rather to sketch out the components of a flywheel and focus his team on pushing it every day. Bezos took the advice, created a flywheel, and applied it to Amazon. To this day, the flywheel is understood by every executive at Amazon and serves as the strategic glue knitting all the different business units together.
At Amazon, the flywheel centers on making their customers’ lives better. If Amazon gives them lower prices, then customer visits will increase. If customer visits increase, they will attract more third-party sellers. More third-party sellers make it possible to expand the store, extend distribution and grow revenues per fixed costs. Growing revenues per fixed costs makes it easier to lower prices on more offerings. And the flywheel turns again.
Bezos and his team have been driving their flywheel for the last 20 years with remarkable success. They have applied artificial intelligence, machine learning, and big data to push the flywheel even harder.
The results of the momentum speak for themselves as Amazon’s stock chart documents below.
Amazon’s Stock Price per Google Finance
Create a Flywheel
Following are seven simple steps you can use to create a flywheel for your organization or your department.
Create a list of replicable successes your organization has achieved.
Compile a list of failures and disappointments. This includes new initiatives that failed or did not meet expectations.
Compare the successes to the failures and identify possible components that should be in your flywheel.
Using the components you have identified, sketch your flywheel. At the top, start with a component that is most within your control, often a core competency. In the example of Amazon, this was lower prices on more offerings. From there, each following component should feed into the next turn of the wheel linked by the phrase “we can’t help but”.
Diagram the loop with 4 to 6 components. Simplify the model and capture the essence of your flywheel. Brainstorm and have a robust dialogue with your team.
Test the flywheel against your list of successes and failures. Do your successes and failures validate your flywheel?
Test the flywheel against the three circles of your hedgehog conceptⁱ, 1) what you’re deeply passionate about, 2) what you can be best in the world at, and 3) what drives your economic engine.
A Final Example
Giro makes sports helmets. Years ago, the company adopted a flywheel. Giro started with inventing great products, something very much within their control.
They reasoned that if they invent great products, they can’t help but get elite athletes to use them. If they get elite athletes to use their helmets in races, they can’t help but inspire weekend warriors. If they inspire weekend warriors, they can’t help but attract mainstream customers. If they attract mainstream customers, they can’t help but build the brand. If they build the brand, they can’t help but develop pricing power enabling them to set high prices and channel profits into R&D. If they set high prices and channel profits into R&D, it will make it easier to invent great products and turn the flywheel again.
The flywheel worked. Today, Giro is the most recognized helmet brand in cycling.
Whether you are Amazon faced with a seemingly huge mountain to climb or Giro who is trying to become the best in their space, remember, as Jim Collins points out, no matter how dramatic the end result, good-to-great transformations never happen in one fell swoop. In building a great company, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.
The flywheel communicates strategy in a way so that everyone understands their role so you can gain the necessary momentum to scale up your organization. It serves as a framework to help your entire team discern between activities that push versus slow the flywheel. A great flywheel builds compounding momentum over time as decisions and actions, turn by turn, loop and add success upon success.
Key Take-Aways
The flywheel is a great way to articulate your strategy and focus the team on drivers of momentum.
Momentum is a good thing. With it, big problems seem small. Without it, even small problems seem big.
There are seven simple steps to creating a flywheel for your organization.
There is no silver bullet. Scaling an organization takes focus, discipline and hard work.
ⁱThe hedgehog concept was also developed by JIm Collins. It is a simple, crystalline concept that flows from deep understanding about the intersection of three circles: 1) what you are deeply passionate about, 2) what you can be the best in the world at, and 3) what best drives your economic or resource engine. You can learn more here.
Learn more about Coach Mark Fenner by clicking here.