Two minutes on implementing the Flywheel Effect
At Dawn, we’re constantly discussing frameworks and strategies that are of use to B2B software companies, and to us!
We wanted to test publishing short take-aways pieces — things we’ve shared internally and with our portfolio — hoping they’re valuable to other founders and teams too.
Below is a summary of the Jim Collins Flywheel principle — the compounding approach to growth, originally outlined in his 2001 book Good to Great.
It has become one of my favourite ways to think strategically about a business and its principles can be applied equally to an individual function or product unit, as to the overall fundamentals of a business.
What is the ‘Flywheel effect’?
Think of a flywheel as a large, heavy metal wheel that takes a lot of force to get spinning. But just as hard as getting it in motion, is making it stop once at full speed. It tends to keep spinning, faster and faster, and in doing so, actually generates and stores a great amount of kinetic energy.
This is what Jim Collins had in mind when applying the flywheel concept to business strategy. The most exciting and fastest-growing businesses naturally reinforce themselves in a way that let’s them accelerate and grow almost by themselves.
Who’s doing it well?
One of the businesses most famous for its incredible flywheel effect is Amazon and lots has been written about the company’s application of it. I recommend watching this short video on how they implemented the flywheel approach to grow their business if you haven’t seen it.
But really, each and every business can and should discover its own flywheel. As an example, any product-led growth strategy naturally lends itself to a flywheel effect. If done well, you establish an organically-acquired user base that becomes both advocates and a self-generating pipeline, ultimately driving customer acquisition costs down while ACVs continue to grow.
Here’s the six-step process developed and refined in Good to Great sessions with numerous leading executive teams:
1.Create a list of replicable successes your company or team has achieved. Variations on an essential idea also count as replicable successes.
2.Compile a list of failures and disappointments. This should include new initiatives and offerings that failed outright or fell far below expectations.
3.Compare the successes to the failures and ask, “What do these successes and failures tell us about the possible components of our flywheel, and what isn’t in our flywheel?”
- Make a list of what actions lead to success — what’s in?
- Make a list of actions that lead to failure — what’s out?
4.Using the components you’ve identified, sketch the flywheel. Where does the flywheel start — what’s the top of the loop? What follows next? And next after that? Each component of the flywheel should feed into the next stage of the flywheel. Outline the path back to the top of the loop and be able to explain why this loop cycles back upon itself to accelerate momentum in your particular context.
5.Diagram the entire loop using four to six components. If you have more than six components, you’re making it too complicated; consolidate and simplify the model to capture the essence of your flywheel.
6.Test the flywheel against your list of successes and failures. Does your empirical experience validate it? Tweak the diagram until you can explain your biggest replicable successes as outcomes arising directly from the flywheel and your biggest disappointments as failures to execute or adhere to the flywheel.
For additional reading…
There are some short and great explainers here:
- Collins introducing the concept
- HBR article: Replacing the Sales Funnel with the Sales Flywheel
- The pertinent excerpt from the book
Please feel free to get in touch with me (julie@dawncapital.com) if you’d like to discuss doing the above — or simply to compare notes!
