The Flywheel Model of Growing and Sustaining a Business
Sheeba Manish / September 18, 2022
7 min read • 1206 words
Building and sustaining a business are miracles in plain sight. The sheer effort, gumption, and strength required to start, grow, and keep building a business are remarkable. Many a management gurus have tried to capture what it is that makes some businesses extraordinary. What is it that great companies do to create value and outdo market standards? Some opined that it was technology, ESOPs (Employee Stock Ownership Plan) , new technology or market disruption.
Jim Collins, author, researcher and consultant is an authority on company sustainability and growth. In his book **Good to Great **he shares his learnings from observing 1435 companies over 40 years. 11 of them stood out for ‘leaping’ from average to great results. According to his study, a leap constituted an above-industry average performance, about 6.9 times, for at least 3 times in 15 years.
He called it the Flywheel effect.
The flywheel model of growth teaches us that businesses first grow and then at a particular point of inflection some of them move from good to great. They disrupt the market and continue to grow and become enduring brands. They understand how to channelise the key components of growth for their company and focus on improving processes that help develop products and services that engage their audience. They then go on to create extensions, a bigger flywheel, that creates greater momentum.
A flywheel is an important component in engineering. It is used in automobiles and manual sewing machines. It consists of a heavy wheel which requires a lot of effort to rotate on its axis. Due to inertia, it resists rotational movement. The flywheel preserves kinetic energy when it rotates and this energy is used at a later time to start or accelerate. The energy required to get the flywheel moving is high. Once it picks up momentum it helps amplify efficiency and requires less effort to turn.
Similarly, Collins believes that the energy required to get the flywheel of any business going is high and arduous. Once sufficient energy is expended consistently, all stakeholders come on board and the growth engine of the business gets faster and it achieves results that far exceed industry standards after a certain point, often considered a business breakthrough.
The first step in adopting the flywheel model for your business is to identify the factors that make the flywheel moving. In doing so, businesses understand what makes their business create loops of success and growth. This is a departure from the linear model of the sales funnel in which customers seem to march systematically from an awareness stage to brand advocates.
The circular flywheel model is a more practical representation of how great businesses thrive and sustain themselves.
In identifying and understanding the elements of their business flywheel, business owners are setting up for success. How? They start to focus on the elements of the flywheel, and make each component better, thereby, helping the flywheel move with greater momentum and speed. If they allow their focus to dissipate energy across myriad factors, they wear themselves out without seeing any real gains.
Collin stresses on these questions that every business must focus on when they build the flywheel that best fits them :
- How does our flywheel turn?
- What are the components in our flywheel?
- What’s the sequence in the flywheel?
He elucidates what doesn’t constitute a flywheel and what makes a compelling flywheel in this video.
Jim Collins calls Amazon the flywheel archetype. The story goes that Jeff Bezos, the founder of Amazon sat with his team in the early days of the business to identify what constitutes the Amazon flywheel.
He identified sellers, selection of products, customer experience, and traffic as the key components of the Amazon flywheel. Each component feeds into the next to get the flywheel going. The flywheel gained momentum and Amazon introduced newer categories using the same key flywheel components. In this way, Amazon went from an e-tailer of books to an everything store. Bezos labeled the Amazon flywheel model as The Amazon Virtuous cycle.
Good customer experiences lead to increased traffic which increases Amazon’s capacity to attract new sellers and bargain with sellers to bring down costs, which attracts more customers, increases traffic and so the flywheel spins faster and faster.
This video explains the logic underlying the Amazon Virtuous Cycle and how it fuels growth.
Consistent effort in the direction of the flywheel components helps companies reap the benefits of the flywheel. The cumulative outcome of these consistent everyday efforts is so high that it may appear to be a breakthrough to those witnessing it from the outside. There is no one ah-ha moment. The results are an outcome of several measures taken by the business over time.
No single thing helps a company achieve greatness. Companies who search for the next big thing and adopt it without assessing if their business is a good fit for the latest model will change course several times and wonder why they have not achieved success.
The Flywheel model seems deceptively easy. Find out what makes your business tick and repeat it over and over again. Unfortunately, many companies often lose sight of their course, and venture into new areas without a sound base. They tend to join the best new thing hoping it will fix core issues in the business.
The Flywheel model suggests a clear and systematic way to achieve business success by identifying the key factors that power the business. This identification of key drivers requires an understanding of the business processes, its bottlenecks and successes. A review of past performances to see what worked and what hindered business growth is in order. Once this is done, all the key drivers must be tuned for better performance.
The first turns of the flywheel are the hardest and require the most effort. Organizations seeking to adopt the flywheel will face friction from employees, suppliers and customers when they see a departure from the status quo. Persistence, patience and the dissemination of the benefits of the flywheel method, will move the flywheel turn after turn.
Once all stakeholders get behind the flywheel, each revolution will require less effort and yield more success.
The flywheel method is not for businesses seeking quick results. In some cases, companies took the flywheel route, dismantled existing systems and took what the industry observers thought were stupid or risky decisions. They then reoriented themselves in a new direction and got the flywheel going. They worked on getting really good at a few things rather than averaging at many. They worked on perfecting the flywheel components continuously to first meet market averages and then exceed them. Kimberly -Clark tasted the phenomenal benefits of implementing the flywheel 21 years after they first started implementing the flywheel model.
The flywheel is an important strategic tool that can be deployed in a department, a small business, a school, a farm or a large corporation. It is a model that helps build and sustain businesses that continue to overtake industry averages because of their deep focus on their processes and partners, and they are able to capture the mind space of their customers brilliantly.