The flywheel effect is an uncomplicated but high-return theory. Good flywheels can lead to exponential growth. Many people use the flywheel effect to interpret the difficulty and persistence of everything. And I think the value of the flywheel effect is in systems thinking. It metaphorically visualizes long-term effects, systems thinking, insights — the tools and important tasks managers need to accomplish more with less. Have you noticed:
- Some companies can build momentum, compete across new technologies and industries and continue to go from good to great? And other companies can’t?
- There are teams that thrive and continue to break through in the face of different challenges? And the other teams can’t?
- Some people can stand the test of time and different positions, continue to fight strange upgrade, achieve the transition? And no one else?
Yeah, I found that too. So what’s the secret?
Jim Collins’s “Flywheel Effect” in Chapter 8 of Good to Great answers this question. Nine years later, a separate book, “The Flywheel Effect” (the Chinese version just came out in April), further explains its value and how it works. The flywheel effect has great value not only for the longevity of a business, but also for you as a knowledge worker and your team. In today’s fragmented world, no matter who we are, we need to find the right growth flywheel, and focus on continuous to go from good to great.
This article shares with you my understanding of the flywheel effect, including the following:
- What is the flywheel effect
- Amazon’s growth flywheel
- The logic of making the flywheel work
- How do you build a flywheel
- You as a knowledge worker
- Write in the last
What is the flywheel effect
Based on years of research, Jim. No matter how dramatic the outcome, Collins argues, a great business is never made overnight. There is no amazing innovation, no lucky mutation, no miracle. Instead, the process is like constantly pushing a big, heavy flywheel. Round and round, you push hard on the flywheel, and with constant effort, your flywheel spins faster and faster, building up potential energy until a tipping point is reached, where the flywheel’s gravity and momentum become part of the driving force. At this point, you don’t have to use any more effort, the flywheel will still turn fast, and keep turning, unstoppable. This is called the flywheel effect.
You know what? The secret of companies that can continue to go from good to great is to figure out their flywheel structure, identify the first driving force, and follow the laws that keep the flywheel turning, accumulating energy, and achieving leaps and breakthroughs.
Second, Amazon’s growth flywheel
When we talk about the flywheel effect today, we must mention Amazon, and when we talk about Amazon, we must also mention the flywheel effect. So, how did Amazon get its flywheel? Jeff Bezos and his management team learned about the flywheel effect from Collins in the fall of 2001 and set about building Amazon’s flywheel, which has been in operation ever since. Bezos also called this the ‘secret weapon’ of the company’s success [2]. Amazon’s success has made more people aware of the power of the flywheel effect. Let’s take a closer look at amazon’s flywheel to understand how the flywheel effect works.
Below is amazon’s flywheel (reportedly hand-drawn by Bezos on a napkin)
(Figure 1 amazon growth flywheel)
Amazon’s flywheel consists of five variables:
- Customer experience
- traffic
- supplier
- Low cost structure
- Lower prices
Its logic is that a good customer experience brings more traffic, and more traffic attracts more third-party sellers, who provide rich products and bring better customer experience. At the same time, with the increasing scale, Amazon’s operating costs are shared more and more among suppliers, so as to obtain a low cost structure. A lower cost structure generates more revenue, which in turn leads to further price reductions, which in turn leads to better customer experience, and so on.
From 2001 to now, including turning AWS into an external service, Amazon has been constantly practicing and iterating this flywheel. For Bezos, retail is the same thing as AWS: a better customer experience, more traffic, more toolmakers coming in, scale-up costs, lower prices, and so on. Amazon’s flywheel architecture appears to have changed in several versions, but its essence has hardly changed.
Jim Collins sums it up in his book the Flywheel Effect.
(Figure 2. Amazon’s growth flywheel)
As we can see from the chart above, early Amazon established a virtuous business cycle of low price, traffic, and scale operation, ensuring the right flywheel. Bezos gave flywheel another powerful push from the start: to create more value for customers. But the key to making Amazon stand the test of time isn’t just that. It’s that Bezos and his management team are constantly pushing the flywheel, investing in different parts of it to increase its speed. Through cyclic accumulation and storage of energy, the formation of continuous operation of the growth power.
Third, the logic of making the flywheel work
So what’s the logic behind the flywheel?
First, the essence of flywheel operation is a system dynamics reinforcing loop, with front and rear nodes reinforcing each other.
In Figure 2, each node is connected end to end, and there is a strong causal relationship between the nodes. The cause enhances the effect, and the effect in turn enhances the cause. This is the enhancement loop, also known as the positive feedback loop.
There are many examples of this in the real world, for example, the more you run, the more energy you have, the more energy you have, the more work you do, the more time you have to run. The same goes for learning feedback. Of course, there are examples of negative feedback, such as procrastination anxiety more procrastination.
When the enhancement loop acts as a virtuous cycle, it can become a growth engine for any object, also known as a growth engine. For such an engine to work, it needs to know the logical order in which its front and back nodes reinforce each other to keep it running.
Second, the flywheel structure is a reflection of the nature of the business, and you as a manager need to maintain a keen strategic insight.
From amazon’s example, we can also use Amazon’s flywheel to understand the businesses of JD.com, Alibaba and Pinduoduo. You will find that although their flywheels will be slightly different, the essence of each is around the consumer to define their own flywheel structure and starting point from the structure of more, faster, better and less. If JD chooses fast as the entry point, Alibaba is more, and Pinduoduo is more, so as to obtain more traffic, attract more merchants, generate scale benefits, reduce the cost structure, and then deliver faster, more complete, lower prices, better customer experience, and achieve positive cyclical growth.
(FIG. 3 https://istore.alibaba.com/ca…
In the digital age and the post-pandemic era, retailers are expanding their businesses. But no matter what kind of smart retail is designed to enhance the customer experience, the nature of the retail business has not changed. These new contacts give new impetus to the huge corporate flywheel, which keeps spinning.
Therefore, it can be seen that the structure of the flywheel display is not a specific business form, a specific product form or how much innovation, but the underlying logic of the survival of the enterprise.
Third, the flywheel needs to be constantly energized and iterated.
How does the flywheel maintain its power? Is the flywheel always the same? There is no denying that over time, the flywheel loop will change, including the subflywheel may be adjusted altogether. Then your enterprise needs to adjust it according to the situation, including adjusting the components, the order between components, Amazon AWS service is a good example.
But it’s important to note that a flywheel tweak doesn’t have to be a big change. In the history of a company, the reason why the flywheel ceases to work is not because the flywheel itself has lost its potential or has completely failed, but because of two reasons:
- Improper execution;
- A good flywheel architecture was not iterated and extended over time.
(Figure 4 from the network)
At this point, you as the manager of the enterprise should be very vigilant, because when the reinforcement loop acts as a vicious circle, it can cause the business to decline, forming the wheel of doom. One effective approach is to diagnose the current problem and identify the key points for future adjustments:
- Did you not stick to the flywheel concept and direction?
- Is the earlier logic obsolete and the flywheel components need to be updated?
- Or has the flywheel hit a snag and needs a fresh boost?
In conclusion, the flywheel effect needs three key elements as shown in the figure:
How to build a flywheel
In an age of fragmentation, companies, teams, and individuals all need to find their own growth flywheels. So how do you build a flywheel? Here are seven steps to help you land:
- The first step is to find success stories. List significant, reproducible successes that have been achieved in the past, including initiatives and new products that far exceeded expectations.
- The second step is to find failure cases and list the ones that have failed, including those initiatives and products that fell far short of expectations or failed completely.
- In the third step, the conclusions of the first step and the second step are compared and analyzed to identify the flywheel components. Compare successes and failures, and think “what can we learn from these lessons about what makes a flywheel?”
- Step four, draw the flywheel.
- Step 5: Simplify the components to no more than 6.
- Step 6, test the flywheel with both success and failure cases.
- Step 7: Test the flywheel using the three questions of the soul of the hedgehog theory.
This seven-step process is a structure of analysis, refinement, and presentation that gives you insight into how your business works. Therefore, it is more suitable for companies with a certain amount of running time or size. If you’re facing a new challenge (an epidemic, a digital transformation), invite your team to do a seven-step inventory to get started again. If you’re a startup, you can also build a flywheel based on the success of the best companies in your industry.
You as a knowledge worker
What is the logic of knowledge workers?
The core logic of knowledge workers is that knowledge is used as raw material for production, processing and realization. The realization of the value of knowledge workers lies in whether others can consume the knowledge generated by you efficiently and in high quality. No matter when writing plans, communicating or writing codes, your knowledge is consumed and realized.
The challenge for knowledge workers is especially great in an age of fragmented knowledge anxiety and dabbing. All sorts of knowledge fly everywhere, a lot of things should learn to want to master, how to do?
First, you can take a life inventory of yourself using the building methods mentioned in the previous section, or learn from the best people in your industry and analyze their successes to build or upgrade your flywheel.
Here, I share a basic flywheel of knowledge workers that XU Hao and I recently talked about. What drives the flywheel is the spirit of craftsmanship, the fulfillment of values, and the constant love and persistence of excellence.
By finding an area to dig deep, keeping the flywheel running, keeping the cash flowing, going from good to great is a matter of nature. Seeing this, are you still a little anxious? You don’t have to worry too much. Everyone has their own flywheel that works. It just takes time to find it and keep pushing. Earlier this year, I designed a 100-day experiment to answer the question of what the nature of learning is by practicing visual note-taking, and today is day 82, and you can see the results are pretty good.
Write at the end
The flywheel effect is an uncomplicated but high-return theory. Good flywheels can lead to exponential growth. Many people use the flywheel effect to interpret the difficulty and persistence of everything. And I think the value of the flywheel effect is in systems thinking. It metaphorically visualizes long-term effects, systems thinking, insights — the tools and important tasks managers need to accomplish more with less.
The flywheel effect is used to remind us to avoid the wheel of doom by aimless development and passive response. The bigger the business, the more critical it is, and the more uncertain the environment in which you operate, the more alert you need to be. The work of an excellent manager should always focus on the business nature of the enterprise and enhance the loop; Keep thinking about how to maximize the effect of the flywheel, how to maintain consistency and energy storage, and lead the business to one success after another.
In the era of fragmentation, it is more necessary to focus on the underlying logic, and it is more necessary to base on long-term and systematic thinking. Whether it is an individual, a team or an enterprise, identify your growth flywheel, and continue to grow with accumulation and continuity, and you will be able to achieve transition!
Insight
Zhuo Demure
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