Tag: flywheel

In 2001, Jim Collins was invited to Amazon to talk about his just-released book, Good to Great. One of the things he shared was the concept of a flywheel.

The premise is simple. A flywheel is an incredibly heavy wheel that takes huge effort to push. Keep pushing, though, and the flywheel slowly builds momentum; keep adding ways for other initiatives to help push, and in time the flywheel starts generating its own momentum and starts helping turn itself.

Once the flywheel builds up sufficient momentum — especially self-reinforcing momentum — a company can go from good to great.

Pretty cool premise, but admittedly not particularly helpful. Everyone knows success is based on focus and hard work. But dive a little deeper and the flywheel concept can provide clarity and help drive strategy for any business in any industry.

Here’s why. A flywheel is a self-reinforcing loop made up of a few key initiatives. Those initiatives feed and are in turn driven by each other, and build a long-term business.

Here’s how Brad Stone describes an early version of Amazon’s flywheel in his book, The Everything Store:

… Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this: lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website.

This greater efficiency then enabled it to lower prices further.

Feed any part of this flywheel, they reasoned, and it should accelerate the loop.

The key is the last sentence: Feed any part of the flywheel. Adding more third-party sellers meant greater selection, more customers, and more revenue. Greater revenue helped fuel investments in infrastructure which reduced costs, and helped lower prices. Lower prices meant more customers, which meant more revenue… you get the point.

Granted, that’s Amazon. But what about your business? Imagine you sell home heating and air conditioning systems.

New hardware sales and installations make up one part of your flywheel. Preventive maintenance makes up another: the more new systems you install, the more service contracts you can sell, and the more scheduled maintenance visits you make. Those visits create more opportunities for your techs to deliver great service and build long-term customer relationships, which feeds future hardware and installation sales.

And don’t forget emergency service; every call is an opportunity for a tech to save the day, and for you to sell another maintenance contract, and to identify obsolete equipment that could be replaced by new hardware.

Sounds obvious, right? But how you choose to feed your flywheel can be less obvious. One simple approach is to focus largely on sales of new systems. But a dealer near me works extremely hard to sell maintenance contracts, counter-intuitively (at least to me) putting more resources into selling maintenance than he does selling new hardware.

Why? Maintenance contracts drive service calls, which drive customer relationships, which drive sales of new systems, since it’s a lot easier to sell a $250 maintenance contract than it is to sell a $12,000 system. But when that customer does need a new system, since he’s built a great relationship, he’s likely to be the first provider that customer calls.

His flywheel has helped him build a business with locations in multiple cities across the state.

Now for a humble example: me. I write for Inc. I ghostwrite books. I wrote my own book. I do keynotes. My Inc. articles help drive ghostwriting work and sales of my book. My book, and my Inc. articles, help drive speaking engagements. Speaking engagements drive book sales. My Inc. work gets me in front of potential ghostwriting clients. Past ghostwriting clients refer me to new ghostwriting clients, and occasionally for speaking gigs.

Cumulatively, each component of my flywheel supports and pushes the other components.

That’s the key to the flywheel. If you only have one primary initiative, what happens when the momentum from that initiative inevitably stalls? The key is to find initiatives you can add to your business that will help sustain and build momentum, and will be fed by that same momentum.

The key is to build a flywheel that, when you feed any part of it, naturally accelerates the entire loop. (Just don’t think of marketing as a part of your flywheel. Marketing supports initiatives; it’s not an initiative in and of itself.)

Don’t feel bad if your flywheel is currently missing a facet or two. (Mine could use at least one more.) Just make sure you start working to create your own self-reinforcing loop.

Because when you do, that can make your business really roll.