Jeff Bezos built Amazon using this simple idea – one that applies to every business, especially a startup.
Jim Collins popularized the concept of the flywheel, but Jeff Bezos has taken it to an incredible extreme. (The Whole Foods purchase is just another spoke on an already huge wheel.)
The premise is simple. A flywheel is an incredibly heavy wheel that takes huge effort to push. Keep pushing and the flywheel builds momentum. Keep pushing and eventually it starts to help turn itself and generate its own momentum – and that’s when a company goes from good to great.
Pretty cool, but admittedly not particularly helpful. We all know 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 also 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.
Brad Stone describes an early version of Amazon’s flywheel in 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 centres 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. Amazon’s purchase of Whole Foods doesn’t just add grocery stores to its flywheel; it adds over 400 distribution hubs as well. (Think Whole Foods locations will simply be used to sell groceries? Think again.)
Here’s a typical example; say 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 $300 maintenance contract than it is to sell an $8,000 system – and when that time comes he’s no longer “selling a new system” to a cold-call customer, he’s “replacing outdated and inefficient systems” for a current customer. And he’s built a great business by feeding his flywheel in a smart way.
Now for an unusual example. You might not think of musicians as entrepreneurs, but they definitely are, even though the average career lasts a handful of years – and that doesn’t even count the scores of people who never get farther than playing local gigs for beer money. Then there are musicians like Joe Satriani, the guitarist and 14-time Grammy nominee whose career has spanned almost thirty years.
Here’s his flywheel:
Joe releases solo albums. Albums generate revenue. He also tours, which also generates revenue and in turn drives album sales. Albums and tours drive endorsements like his signature lines of Ibanez guitars and Vox pedals. Endorsements also feed albums and touring, since advertising for equipment implicitly markets Joe Satriani as a musician… plus if I buy, say, his guitar I have a connection to Joe that makes me want to check out his new music.
Then he’s also in the band Chickenfoot (with Sammy Hagar, Michael Anthony, and Chad Smith), which drives its own album and ticket sales yet also pushes interest back to Joe’s solo music.
Cumulatively, each component of his flywheel both supports and pushes the other components – and has helped him build a multi-decade career in an industry where few even get started, much less endure.
That’s the key to the flywheel. If you only have one primary initiative, what happens when the momentum from that initiative inevitably stalls? What initiatives can you add to your business that will help sustain and build momentum – and get 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. (And 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 still is.) Just make sure you start working to create your own self-reinforcing loop – because when you do, that can make your business really roll.
Jeff Haden: Bestselling non-fiction ghostwriter, speaker and columnist for Inc.com.
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