An old past time of mine was analyzing businesses, trying to understand how they work on the inside to create this outside appearance that people value and appreciate.
Traditional businesses have a lot of moving parts that are not easy to keep track or made sense of. They have many different aspects or elements that affect their performance.
And these aspects are often connected and dependent, meaning that they can affect each other when one of them changes. For example, it's always a fingers crossed type of situation whenever a new product launches.
The good news is that in the new times businesses are not only getting leaner but much of these moving parts have been streamlined and the data is now available to be studied and make sense of. This has led to new insights that help us discern workable structures that businesses can double down on to increase revenue and growth.
There's this interesting concept about the flywheel effect which describes how a small push on a heavy flywheel can create a large momentum over time, as long as the push is made in the right direction consistently. In basic terms, a flywheel is a spinning object that helps to keep the speed of a system steady within a certain range.
The wheel of a bicycle or a the wheel of a potter's wheel are common examples of a flywheel.
A Bit Of A Background
The flywheel effect originates from the invention of the flywheel itself. I think the inventor must have picked up in his/her imagination the effect it will create when it is put into motion and maintained.
According to the internet, the first known use of a flywheel dates back to ancient India, where it was used in pottery wheels. Later, they were used in various machines and devices, such as steam engines and bicycles. Flywheels are still widely used today in different applications.
From an overview, the flywheel effect can be applied to both physical and conceptual models of systems that involve energy or a transfer in momentum.
In the business space, the term was popularized by legendary business author Jim Collins in his book Good to Great. The flywheel effect is used to describe how a system or organization can create a virtuous cycle of positive feedback loops that amplify the impact of each action or decision. Once followed, it could also lead to exponential growth and sustainability over time.
The key to achieving the flywheel effect in business is to identify the core value propositions and then align all the actions and decisions of the business with its strategy and values.
Flywheel In Motion
Obsession can sometimes be a good thing. Apart from profit and growth, Amazon are obsessed with their customers. Their flywheel basically revolves around the customer through providing low prices, wide selection, fast delivery and convenience.
These factors drives an increase on website traffic, which attracts more sellers, more sellers means a wider selection and lower prices for customers. This improves the customer experience, winning not only loyal customers but also referrals from these customers through word-of-mouth. All of which fuels the growth of Amazon’s revenue and profit.
Of course, this is just one aspect of it. Another aspect is Amazon investing that profit in innovation and technology to enhance its value proposition and create new opportunities. This in itself is another flywheel effect.
The point is that a flywheel effect creates a system that over time boosts itself by producing circles of positive results and enlarges the influence of each other step.
It also reduces the friction that hinders the performance of the business as everything has to be in sync and anything that is not can be removed.
But what I like most about the flywheel effect is it's ability to foster a long term view.
I can't expect any significant results in the short term simply because the flywheel hasn't picked up speed yet, I need to put it the right action consistently to increase the speed and put the system in motion.
This can take a some of months. Or a few years when it is a big system. But when this finally happens, the intensity of the action can be reduced while the results start becoming significant or even exponential. Sustainability comes from the ability to maintain the system.
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