Turning the Flywheel

Turning the Flywheel

Author
Jim Collins
Year
2019
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Review

I can remember when I first saw the now famous Amazon flywheel diagram. It’s simplicity and power was genuinely captivating. The flywheel is the single most important concept from ‘Good to Great’. It deserves this monograph. So few companies operate with the clarity of a well understood strategic flywheel. This incredibly brief and insight dense explainer is worth your time.

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Key Takeaways

The 20% that gave me 80% of the value.

  • In a good-to-great transformation, there’s no miracle moment.
  • It feels like turning a a heavy flywheel. Pushing with great effort at first, just to move an inch. With persistent effort you can do an entire rotation. If you don’t stop you’ll build speed, and the wheel will move faster, the time between rotations diminishes. At some point, the flywheel is moving forward with unstoppable momentum.
  • You need to find your flywheel to get the power of strategic compounding.
  • Bezos turned Amazon into a repeating loop, a virtuous cycle
    • Lower prices → more customer visits
    • Move visits → more 3rd party sellers (paying commission)
    • More sellers → expand the store and distribution (fixed costs)
    • Expand distribution → Grow revenues per fixed cost (efficiency)
    • Grow revenues per fixed cost → Lower prices  🔁
  • It takes great discipline in bad times not to abandon the flywheel
  • Get your team together to build your flywheel. It will create a sense of excitement as you see and feel how to generate results
    • What are the essential components?
    • Which component comes first?
    • What follows? Why?
    • How do we complete the loop?
    • Do we have too many components?
    • Is there anything missing?
    • What evidence do we have that this works in practice?
  • Each component isn’t just a next step, it’s an inevitable consequence of the step that came before
  • The most common strategic mistake is failing to aggressively and persistently make the most of victories
    • Don’t be seduced by the endless search for the next best thing
  • Intel didn’t have to abandon it’s flywheel to move from memory to micro-processors. They just had to transfer the momentum from one product to the next.
  • ‘The big thing’ is your underlying flywheel, not a product line.

Steps to Capturing Your Flywheel

  1. Create a list of significant replicable successes your enterprise has achieved
  2. Compile a list of failures and disappointments
  3. Compare the two . What do they tell us about our flywheel components?
  4. Using components you’ve identified sketch the flywheel
    • Where does it start?
    • What follows next?
    • Explain why each component follows the other (and sits before the next)
  5. Limit to 6 or fewer components. Does your empirical experience validate it?
  6. Test it against your success and disappointments. Tweak it until its a better explainer.
  7. Test the flywheel against the three circles of your hedgehog concept?
    • Your hedgehog concept:
      • What you’re deeply passionate about?
      • What you can be the best in the world at?
      • What drives your economic or resource engine?
  • If you’re a new company, and don’t have a flywheel yet. Import concepts from other people’s flywheels
  • Big winners in corporate history surpass a threshold level of innovation required to compete in their industries. They can turn the initial success into a sustained flywheel.
  • You cannot falter on any primary component and sustain momentum.
  • Your performance is only as good as the weakest link
  • Confront the brutal facts, practice productive paranoia
  • Make big bets, after validating that they would pay off.
  • Fire bullets, then cannonballs
  • Many companies that fail abandon the key principles that made them great
  • They hire the wrong people, and don’t follow the hedgehog concept (passion, best, resource engine)
  • Demise tends to happen in 5 stages:
    1. Hubris born of success
    2. Undisciplined pursuit of more
    3. Denial of risk and peril
    4. Grasping for salvation
    5. Capitulation to irrelevance or death
  • The big winners take a flywheel from ten turns to a billion turns, rather than starting new flywheels and taking them through a few turns
  • Exit definitively, or renew obsessively. Never ever neglect your flywheel.
  • Apply creativity and discipline to each and every turn with as much intensity as you cranked out your first turn
  • Be relentless about building momentum.
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Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

  • Amazon’s flywheel is famous, I didn’t know the author actually told them what their flywheel was, way back in 2001.
  • In a good-to-great transformation, there’s no miracle moment.
  • It feels like turning a a heavy flywheel. Pushing with great effort at first, just to move an inch. With persistent effort you can do an entire rotation. If you don’t stop you’ll build speed, and the wheel will move faster, the time between rotations diminishes. At some point, the flywheel is moving forward with unstoppable momentum.
  • You need to find your flywheel to get the power of strategic compounding.
  • Bezos turned Amazon into a repeating loop, a virtuous cycle
    • Lower prices → more customer visits
    • Move visits → more 3rd party sellers (paying commission)
    • More sellers → expand the store and distribution (fixed costs)
    • Expand distribution → Grow revenues per fixed cost (efficiency)
    • Grow revenues per fixed cost → Lower prices  🔁
  • It takes great discipline in bad times with bad results not to abandon the flywheel
  • The Amazon machine was creating a customer value compounding machine that many of the largest companies in the world came to fear
  • Get your team together to build your flywheel. It will create a sense of excitement as you see and feel how to generate results
    • What are the essential components?
    • Which component comes first?
    • What follows? Why?
    • How do we complete the loop?
    • Do we have too many components?
    • Is there anything missing?
    • What evidence do we have that this works in practice?
  • Vanguard Flywheel:
    • Offer lower-cost mutual funds → deliver superior long-term results for clients
    • Deliver superior long-term results for clients → build strong client loyalty
    • Build strong client loyalty → grow assets under management
    • Grow assets under management → generate economics of scale
    • Generate economics of scale → offer lower-cost mutual funds 🔁
  • Each component isn’t just a next step, it’s an inevitable consequence of the step that came before
    • Read as: Deliver x, and you almost can’t help but deliver y… and so on
  • The intellectual discipline required to get the sequence right can produce profound strategic insight
  • Achieving success without knowing why is dangerous in business

The Durability of a Great Flywheel

  • The most common strategic mistake is failing to aggressively and persistently make the most of victories
    • Don’t be seduced by the endless search for the next best thing
  • A company that goes all in on a flywheel is durable.
  • The architecture of a flywheel makes it hard to compare to another line item on a strategic plan (like an arena of activity)
  • Intel Flywheel
    • Design new chips customers crave → price high before competition catches up
    • Price high before competition catches up → drive down unit costs
    • Drive down unit costs → harvest profits even as prices fall
    • Harvest profits even as prices fall → reinvest profits into R&D
    • Reinvest profits into R&D → design new chips customers crave
  • Moore and Grove at Intel had to imagine they were new CEOs to pivot the company from memory to micro-processors
  • Intel didn’t have to abandon it’s flywheel to move from memory to micro-processors. They just had to transfer the momentum from one product to the next.
  • ‘The big thing’ is your underlying flywheel, not a product line.
  • Don’t abandon a great flywheel, when it would be a superior strategy to sustain, renew and extend.

Steps to Capturing Your Flywheel

  1. Create a list of significant replicable successes your enterprise has achieved
  2. Compile a list of failures and disappointments
  3. Compare the two . What do they tell us about our flywheel components?
  4. Using components you’ve identified sketch the flywheel
    • Where does it start?
    • What follows next?
    • Explain why each component follows the other (and sits before the next)
  5. Limit to 6 or fewer components. Does your empirical experience validate it?
  6. Test it against your success and disappointments. Tweak it until its a better explainer.
  7. Test the flywheel against the three circles of your hedgehog concept?
    • Your hedgehog concept:
      • What you’re deeply passionate about?
      • What you can be the best in the world at?
      • What drives your economic or resource engine?
  • If you’re a new company, and don’t have a flywheel yet. Import concepts from other people’s flywheels
  • Big winners in corporate history surpass a threshold level of innovation required to compete in their industries. They can turn the initial success into a sustained flywheel.

Not Just for CEOS

  • A Flywheel for teaching
    • Select passionate teachers → build collaborative improvement teams
    • build collaborative improvement teams → assess student progress early and often
    • assess student progress early and often → achieve learning, each and every kid
    • achieve learning, each and every kid → enhance reputation as a great place to teach
    • enhance reputation as a great place to teach → replenish the passionate teacher pipeline
    • replenish the passionate teacher pipeline → Select passionate teachers
  • Leaders can create pockets of greatness at the unit level of their organisation

Execute and Innovate - Renewing the Flywheel

  • Once the flywheel is in place the question is: What do we need to do better to accelerate momentum?
  • You cannot falter on any primary component and sustain momentum.
  • Your performance is only as good as the weakest link
  • Systematically renew every component in the flywheel
  • If progress is slow, it’s one of two things
    1. You’re not executing brilliantly on one or more components
    2. The flywheel isn’t a good description of reality
  • You can replace or delete components of your flywheel over time (think decades not weeks)
  • Confront the brutal facts, practice productive paranoia

Extending the flywheel

  • Make big bets, after validating that they would pay off.
  • Fire bullets, then cannon balls
  • Some bullets hit nothing.
  • Every large organisation will eventually have multiple sub-flywheels spinning about

How the mighty fall…

  • Many companies that fail abandon the key principles that made them great
  • They hire the wrong people, and don’t follow the hedgehog concept (passion, best, resource engine)
  • Demise tends to happen in 5 stages:
    1. Hubris born of success
    2. Undisciplined pursuit of more
    3. Denial of risk and peril
    4. Grasping for salvation
    5. Capitulation to irrelevance or death
  • The big winners take a flywheel from ten turns to a billion turns, rather than starting new flywheels and taking them through a few turns
  • Exit definitively, or renew obsessively. Never ever neglect your flywheel.
  • Apply creativity and discipline to each and every turn with as much intensity as how you cranked out your first turns.
  • Be relentless about building momentum.