4 Steps to Create Your Flywheel, Your Virtuous Cycle of Momentum
In 2001, Amazon had been a high riding dotcom stock when the bubble burst. It went from $107 a share down to $6 a share. Barron’s ran a headline “Amazon.bomb.” Wall Street analysts said the company would run out of cash by the end of the year. Bezos was worried and invited Jim Collins to talk to him and the board about how to get out of a crisis.
Jim Collins explained the flywheel concept. Bezos applied it to Amazon. That flywheel looked like this:
- Lower prices on more offerings
- Increase customer visits
- Attract Third-Party Sellers
- Expand the store, extend distributions
- Grow revenues per fixed costs – which leads to lower costs and the flywheel spins another turn
Bezos has been driving this for the last 20 years with remarkable success. He’s applied AI, machine learning, Big Data to the flywheel. The smarter his system is, the lower the prices he can provide to customers. It has allowed Amazon to respond to a huge surge in demand and catapulted Amazon to a trillion dollar valuation and made Jeff Bezos one of the richest guys in the world.
In 2021, Cougar USA, a Houston company with 35 employees, was stuck. Growth was stagnant, profits were low and the vision for the future was un-inspiring. The leadership team documented a flywheel that refocused the company on the most important elements to creating momentum. Two years later they are on track to double revenue this year, they have significantly improved profits and have an inspiring vision for the future. In a recent meeting, the CFO chimed in, “Our success is the result of a relentless focus on pushing the flywheel.”
Everyone understands momentum yet few know how to create it in a business context. Jim Collins made the concept popular in his book Good to Great: Why Some Companies Make the Leap and Others Don’t and put even more emphasis on its importance in his Turning the Flywheel: A Monograph to Accompany Good to Great. I believe every executive team should develop one for their company.
“No matter how dramatic the end result, good-to-great transformations never happen in one fell swoop. In building a great company there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.” ~ Jim Collins, Good to Great
Below are the 4 flywheel creation steps I have evolved from Jim’s teachings.
Focus on The Hedgehog Concept, developed in the book, Good to Great. The Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of three circles: 1) what you are deeply passionate about, 2) what you can be the best in the world at, and 3) what best drives your economic or resource engine.
Take the outputs from the Hedgehog and start working on the components of your flywheel. Determining the first position is important. A good place to look is where you believe you can be best. Each subsequent element should link with, “can’t help but. The last element should link back to the first one with “making it easier to”. The right side of the wheel should focus on how you add value to the market and attract believers. The left side should document how you demonstrate results, build your reputation, and fuel your resource engine.
Consolidate your flywheel to no more than six components and make sure it passes the logic test. Here are some questions to ask:
- If you continue to push the flywheel as specified will you create momentum?
- Does each element link to the other with the transitional phrase, "we can't help but"?
- Does the last element make it easier to do the first element at the top of the wheel?
Test your flywheel by analyzing wins and losses. Your wins should align with the flywheel and your losses should expose where you deviated from your flywheel.
Now that you have your flywheel, it is time to communicate it to your team. The flywheel can serve as the primary answer to the question, what is our strategy? The answer is to wake up every day focused on turning the flywheel.
Some final thoughts on momentum:
- Momentum is magic
- Momentum is a leader’s responsibility. The flywheel is the tool to help you make it happen.
- Momentum requires a focus on success over failure.