Know Your Flywheel

Jim Collins just released, Turning the Flywheel: A Monograph to Good to Great, and it is focused entirely on his now-famous concept of the flywheel. For the uninitiated, a flywheel is a mechanical device that stores rotational energy. If you’re not an engineer, just picture the classic playground merry-go-round. In order to get it turning – and therefore storing energy/building momentum – the first push is the hardest, and then it gets easier with each successive turn. Collins applies the metaphor to business and explains how the most successful companies build self-reinforcing loops that drive their continued results. Once you understand the concept, you start to see it everywhere. The real question to ask becomes: what is our flywheel? 

 

If we look at Vanguard, their flywheel is: offer low-cost funds, have their clients achieve superior returns (by owning them), build loyalty with those clients, obtain more of their assets, build economies of scale to serve them, and then repeat, repeat, repeat. Notice how every step inevitably flows into the next. Once you have low-cost funds, the clients who reap the benefits will like you more for it, they’ll add to their assets with you, you’ll smartly reinvest in your infrastructure to take on more people like them, and ultimately offer more of your low-cost funds for new clients to buy, completing the loop.  

 

Here is the key: A properly designed flywheel reads like a self-fulfilling prophecy.  In Collins’ terms, “The flywheel captures the sequence that ignites and accelerates momentum.” So, if we want to map out our own flywheel, his advice is to:

 

1. Focus on repeatable successes (pro tip: it’s best to use something we’ve already proven we can do, not something theoretical),

 

2. Break down the sequence of events into 4-6 steps, and,

 

3. Explain why the process loops and accelerates. 

 

Let’s use a financial planner example. The planner could offer completely customized/in-depth family wealth planning, have their clients experience building the plan alongside the planner (“you will get your hands dirty, it’s the only way to really understand it”), build trust and loyalty through those in-depth interactions, obtain more of their assets over time, build economies of scale to service the growing relationship (which doubles as investing in capacity for taking on new relationships), leverage the planning process and their loyalty to offer to help their network (family extends in a lot of directions for starters), and ultimately add new clients to close the loop. It sounds so easy, right?

 

Collins also explains where this goes wrong. Let’s use our planner example again: A planner offers customized plans but then falls back on cookie cutter/boilerplate templates. They produce the plan and briskly explain it to the client, but the client never quite understands the value of the exercise (hint: it’s more in the experience, not the output). They don’t end up with additional assets or receive any referrals due to the way the client perceives them. If they are lucky enough to land a few clients, they fail to properly reinvest in their business and eventually end up over-extended, unable and unwilling to scale their services before increasing their profits. This is not a flywheel, this is what Collins calls a “Doom Loop.” It is as bad as it sounds (and the subject of How the Mighty Fall).

 

The reality is that the flywheel concept is simple to grasp, but hard to implement. If we’re willing to take the time to map it out, we can ignite and accelerate our own momentum to take our businesses from “good to great.” Alternately, we can also stumble forward without a plan, or worse, set ourselves up on a doom loop with a sequence of behaviors that extinguishes and decelerates each successive win.

 

It is a choice, and it is ours to make. A little intentionality can go a long way.

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