Podcast Ep 117 | Flywheel Model: Part One | 5 Ways to Ensure that Your Flywheel Will Build Momentum

The Fly­wheel Con­cept orig­i­nat­ed from Jim Collins’ book Good to Great and out­lines a series of actions that a busi­ness takes in order to build momen­tum. The Fly­wheel Mod­el is designed to build ever-increas­ing growth in a busi­ness, there­by mak­ing the busi­ness more suc­cess­ful over time.

Suc­cess­ful fly­wheels are built after a deep under­stand­ing of the busi­ness’s fun­da­men­tals, and yet today we see many peo­ple show­cas­ing fly­wheels that are nev­er going to build momentum.

In this pod­cast episode one of two, Brad Giles and Kevin Lawrence dis­cuss five things to ensure that your fly­wheel will build momen­tum over time, and grow your busi­ness organ­i­cal­ly once you get the com­po­nents right.

EPISODE TRAN­SCRIPT

Please note that this episode was tran­scribed using an AI appli­ca­tion and may not be 100% gram­mat­i­cal­ly cor­rect – but it will still allow you to scan the episode for key content.

Kevin Lawrence 00:13

Wel­come to the Growth Whis­per­ers pod­cast where every­thing that Brad and I talked about 117 issues in a row is about build­ing endur­ing great com­pa­nies. And that’s what we’re pas­sion­ate about. That’s what we spend our lives work­ing on with lead­ers and CEOs of com­pa­nies that aspire to do that. I’m Kevin Lawrence, and I’m joined as always 117 times in a row with Brad Giles, my good friend down in Perth, Aus­tralia, Brad, how are things in Aus­tralia today?

Brad Giles 00:45

Excel­lent, rainy, wet win­ter, win­ter. It’s freez­ing over here. I tell you, how you doing?

Kevin Lawrence 00:53

Good. You just took the words out of my mouth. It’s June and it’s wet freez­ing and win­ter here. It’s feels like in Van­cou­ver, Wash­ing­ton and place just out­side the cold Kelow­na and the Okana­gan. Yeah, it’s I don’t know what’s going on here. Last year, at this time we had this ther­mal some­thing. Where are we are we’re like scorch­ing up and burn­ing. And this year? Yeah, I don’t know. It’s weird. I’m not I don’t nor­mal­ly com­plain about the weath­er, but it’s been get­ting to me recent­ly. It’s a lit­tle much. Any­ways, before we dig into a top­ic today, that’s we’re gonna get a lit­tle spooled up about what’s your Word of the Day?

Brad Giles 01:33

Ah. I’m, you know, I’m think­ing about the tech­nol­o­gy crash. Okay. And in par­tic­u­lar, there are some com­pa­nies whose val­u­a­tions may have been, how you say less, based on real­i­ty, and more based on things that aren’t per­haps real like hype? Yeah. Yeah. And it feels very famil­iar to the year 2000. When we crash? Yeah. So I don’t know if it’s just a word. It’s just that’s what’s on my mind is, is there is an eco­nom­ic? No, you know why? Because, in roam­ing, why, in read­ing about it, they were say­ing that, fun­ni­ly enough, they have not focused on growth. They’re focused on the sus­tain­abil­i­ty and how endur­ing a com­pa­ny could be. And so imag­ine that, when you’re talk­ing about what we do every week is talk­ing about endur­ing great com­pa­nies. I’m think­ing about this arti­cle. And these com­pa­nies may not endure because they were all hot air and hype.

Kevin Lawrence 02:48

Yeah, thank you just changed my word of the day. I’ve nev­er done that before. You haven’t done that. And it’s, it’s, you know, it’s hype. I was talk­ing to a CEO last week, just catch­ing up with a CEO and they went to work for an orga­ni­za­tion as a paid CEO, and had a rude awak­en­ing, what they found when they got there was­n’t what they thought they signed up for. Turns out that the orga­ni­za­tion was more inter­est­ed in the hype and the sto­ry than they were in build­ing an endur­ing great com­pa­ny. And they thought this is a CEO that likes to build great com­pa­nies has done it in the past. But they were more about the hype and the stock than they were about actu­al­ly doing some­thing great. And they were very dis­ap­point­ed. Now they’re, you know, the good news is, is they’re on the mar­ket look­ing for a new oppor­tu­ni­ty. And they’ll quick­ly find one because you’re a great CEO. But it’s they just, you know, it’s just like, be care­ful. There’s a song, there’s some­thing in a rap song or some­thing, and I don’t have it off the top of my head, but it’s about hype. It’s not like beware of the hype. It’s way cool­er than that. But it’s, it is it’s hype. So what was your word? I got caught up in my word because you changed it on me. But what was your word?

Brad Giles 04:17

It was it was endur­ing, endur­ing that the tech crash was all hot air. And you know, yeah, you got to build some­thing to endure.

Kevin Lawrence 04:28

It isn’t it reminds me back in my days in the Mid­dle East, and I was work­ing in Dubai for years when I first went there and five or six, sev­en away when the mar­ket crashed or start­ed there became Oh, 8 or 9 in the world. It was just it was like I could­n’t no six or sev­en. Like I’m touch­ing this. This does­n’t seem real, too much hype. It’s not it’s a lot, a lot of fun­da­men­tals. Awe­some. Well, with that in mind, you know, let’s take that into what we’re talk­ing about today. And that’s the prob­lem with most fly­wheels, Jim Collins devel­oped this thing called the fly­wheel he found in his research, and it was good to great, yes, that could be great. And, you know, and lots of peo­ple got excit­ed about and try and build them, we’re try­ing to build them. And there’s some big prob­lems with them that we’ve seen. But before we get fur­ther into that, hey, if you haven’t sub­scribed yet, please hit that sub­scribe but­ton, wher­ev­er you are lis­ten­ing to this pod­cast, and you can get the great ver­sions of this that we put our hard work into every week. And if you are sub­scribed, please feel free to give it a rat­ing, we pre­fer fives. And if it’s not great, or there’s a con­cern, please also send us a com­ment or send us a note, we would love to hear from you and know how we can do bet­ter. And you can reach us in the con­tact infor­ma­tions at the end. But any­ways, please, please feel free to do that. Alright, so get­ting into this thing, like, Brad like, we’re both lovers of the fly­wheel and like any of Collins’s con­cepts, or any tool or dis­ci­pline we bring to life and com­pa­nies doing a mediocre job of it’s pret­ty easy, doing a very good job of it’s hard doing a great job. It’s a lot of work. A lot of work but doing any­thing well is is is is work. So Collins talks about the mana the fly­wheel in his mono­graph, it’s a great guide. But we’re gonna dig more into this today because of after work­ing with dozens of com­pa­nies through this and we’ve done, you know, in pri­vate ses­sions with the com­pa­nies after pri­vate ses­sions with Jim, we’ve done work with them to help them dial it in with our clients or peo­ple that we help. It’s just it’s hard to real­ly, you know, get it right. And we’re going to dig into the things that make it so that they’re not right now next week, we’re going to do episode and so this is episode 117. Next week on Episode 118, we’re going to talk about once you know what’s right, how do you spool this thing up and get this thing fir­ing to build a lot more momen­tum in your busi­ness. But that’s next week. So Brad, you want to kick us off into kind of the first of the main things that make it hard to get these things?

Brad Giles 07:12

I would start by say­ing that goals are garbage, many. And what do I mean by that a goal is it’s just a guess it’s just you’re just throw­ing some­thing out there. But when you get to a goal with a plan, then it’s worth some­thing. So we’re going to achieve $50 mil­lion in rev­enue in three years time is worth­less, once you put that with, and this is how we’re going to get there. That’s more valu­able. But then when you do the work behind that as well, there’s even more val­ue to it. Okay, so fly­wheels look sim­ple. Like they’re even drawn in pen­cil in Jim Collins mono­graph, yes. To rather than, you know, on a com­put­er that even drawn in pen­cil to make them seem even more sim­pler, okay. Yep. But it is the depth of under­stand­ing of all of the things that are in there that enables that lev­el of sim­plic­i­ty. You could­n’t just draw the Ama­zon fly­wheel today and expect because we’ve drawn the fly­wheel we are now des­tined for suc­cess. It’s, it’s all of the pre work that occurs, all of the under­stand­ing that mat­ters. So fly­wheels must be sim­ple. But not too sim­ple. And what that means is, just because you’ve drawn some, some phras­es, and you’ve drawn an arrow between them in the shape of a cir­cle, it does not build momen­tum in your busi­ness. And that’s why it’s called a fly­wheel because of fly­wheel builds momentum.

Kevin Lawrence 09:01

Yes. And it’s almost like it’s like dyna­mite. The com­po­nents of dyna­mite are very, very sim­ple. Now, I can’t name them. I’m not a sci­ence. I’m not an expert. But the com­po­nents of dyna­mite and the con­cept is very of dyna­mite is very sim­ple. And you lay a wick at the end and it burns and explodes and it can crack open big chunks of rock and move and breezy break down chunks of moun­tain very, very sim­ple. But it’s hard. It took a lot of exper­i­men­ta­tion and work to get it right. And it takes a lot of work to ensure that it’s safe and effec­tive, but it’s sup­posed to be so all all all pow­er­ful. Things are sim­ple, but get­ting to that point where it tru­ly is pow­er­ful because if you get a few the ingre­di­ents wrong and you’re mak­ing some dyna­mite one, it could be a dud and do noth­ing or you could die. Right. So sim­plic­i­ty is hard and incred­i­bly pow­er­ful and fly­wheels like we’ve seen a bunch at first glance, they look good. We’ve dragged Did some that a first class look good? We come back to them a lit­tle bit lat­er, well, wait a sec­ond. That does­n’t work. Like, you know, you go back and debate it. And so to get it, so that is very, very pow­er­ful. Yeah, it’s hard. It’s very hard.

Brad Giles 10:16

We’ve seen so many fly­wheels. And we’ve seen a lot where we’ve just looked at it and said, there is no way in the world that will build momen­tum. Like that is just a series of state­ments. Yeah. And that’s what real­ly prompt­ed us to start talk­ing about this episode. So the sec­ond point is that, as I just said, fly­wheels must build momen­tum. And in order to stress test your fly­wheel, there’s one real­ly sim­ple way to stress test it. And that is, we can’t help but it’s a phrase that tests each stage. So if at the 12 o’clock posi­tion, you have a state­ment, and then there’s an arrow going to the sec­ond part of your fly­wheel, you should that arrow should say we can’t help but or that’s what that inter­me­di­ates. And so if you say step one, and then step two, and you’re not say­ing we can’t help, but it’s not a log­i­cal exten­sion, that will be the out­come of the first action, where you’re not going to build momentum.

Kevin Lawrence 11:25

And that’s hard, because you need on every sin­gle step one, when some­thing hap­pens, and I can’t help but do this. And because that hap­pens, it can’t help but so it’s almost like, you ever see those videos of peo­ple lay­ing out domi­noes? Yeah, right, and ALC domi­noes and wrig­gle around a whole room and they’ll be ramps, and there’ll be like balls rolling down to the next one. It’s like, this domi­no falls into this one, it can’t help but knock it over, which falls into the next one, which can’t be they can’t help but knock it over. That’s very sim­ple. But that is the con­cept. If it does­n’t dri­ve or pow­er the next piece, then then you haven’t quite got it. And that’s a very high bar now. Does it need to be 99.9%? Per­fect? No, but it needs to have an incred­i­bly strong cor­re­la­tion or rela­tion­ship with or even going back to cause and effect. This one caus­es an effect on the next one.

Brad Giles 12:31

If you hear the phrase build it, and they will come. Well, that’s not true. That’s, well, you can’t apply that think­ing here. You can’t just say, if we do some­thing at one part of the fly­wheel will of course cus­tomers will come because it’s, it’s, it must be pred­i­cat­ed by the pre­vail­ing log­ic of the pre­vi­ous step.

Kevin Lawrence 12:53

Right? It’s like if we build a great restau­rant, they will come. That’s not how it works, right? They won’t. There’s anoth­er piece that Jim gets, do I remem­ber him say­ing this in one of our ses­sions. But what he talks about is along the right side, it con­verts into fuel. Right, it’s few and it adds a lay­er of com­plex­i­ty, which is the oppo­site of sim­plic­i­ty. I’m just pulled this up off an arti­cle, I’m gonna go ahead, you’re laughing.

Brad Giles 13:25

I remem­ber I say­ing that. On the right height, on the right hand side, is where you put in the effort. And then on the left hand side as you’re look­ing at it, so let’s say six, nine and 12pm. If it was a clock, that’s where yes, it out­puts mon­ey or ener­gy or some­thing like that.

Kevin Lawrence 13:46

Yes, what it is, is that the right side actu­al­ly says it’s how you actu­al­ize your pur­pose in the world. The left side is how it con­verts into fuel. I’m look­ing at our tran­script here. And, and fuel is economies of scale, rep­u­ta­tion or build­ing resources. Point of it. Again, that’s just anoth­er lens on it no mat­ter what, go ahead.

Brad Giles 14:07

The rea­son that I was laugh­ing is because I ran it with an engi­neer­ing com­pa­ny. And they all looked at me like I was the dumb­est per­son in the room, and they said, That, of course, that’s exact­ly what fly­wheels do they the right side and the left side, so it will real­ly boy.

Kevin Lawrence 14:27

That’s the les­son from the engi­neer. So get­ting back to it. The idea is, we can’t help but is the crit­i­cal piece that is bro­ken in some of these fly­wheels that we look at. It’s a, it’s a bunch of great ideas, but one does not nec­es­sar­i­ly dri­ve the rest or have a sub­stan­tial impact on the rest. That is the hard part. And that is the acid test to go around your fly­wheel and see if it’s true.

Brad Giles 14:54

Yeah, yeah. So let’s give you an exam­ple of how that trans­lates into Ama­zon, we all know Ama­zon. So this is the Ama­zon fly­wheel exam­ple from Jim Collins book. So point num­ber one is low­er prices on more offer­ings. If we achieve that we can’t help but increase cus­tomer vis­its, because we’ve got low­er prices on more offer­ings. So that means that there will be more peo­ple who come to our online store. If we increase cus­tomer vis­its, we can’t help but attract third par­ty sell­ers. Because we’ve got a big­ger audi­ence of cus­tomer vis­i­tors, more third par­ty, peo­ple will want to come onto our site. And if we attract third par­ty sell­ers, we can’t help but expand our store and extend our dis­tri­b­u­tion. That’s anoth­er log­i­cal step. If we do that, we can’t help but grow rev­enues per fixed costs, which is the har­vest­ing the fuel for the engine that you just men­tioned. And then if we do that, this is kind of eight 910 o’clock, we can’t help but and then we go back to 12 o’clock, low­er prices on more offer­ings. And that’s build­ing momentum.

Kevin Lawrence 16:19

If you take that last one we grow rev­enues for so we make more mon­ey based on the assets we have run­ning or the fixed costs we have. Right. And that gives us addi­tion­al prof­itabil­i­ty, which direct­ly enables us it does­n’t auto­mat­i­cal­ly low­er prices, it gives us the abil­i­ty to low­er prices, because we’ve got more spread between rev­enue and costs. And so because we low­er prices, it’s eas­i­er to increase cus­tomer we can’t help but get cus­tomers we have more attrac­tive pric­ing. Because we have more peo­ple we can get oth­er peo­ple want to sell to them because there’s more peo­ple to sell to. And because we got more more more peo­ple sell­ing stuff, we got a big­ger store, and we can extend our dis­tri­b­u­tion, which means we get more vol­ume over the fixed costs, which again, it just it’s, it’s amaz­ing. So it’s a very, very good and I would say poten­tial­ly not per­fect, but it’s a you know, nine point some­thing out of 10. And they exe­cut­ed it relent­less­ly, which is what we’ll talk about in next week’s show. How do you ful­ly exe­cute this relent­less­ly to ful­ly max­i­mize the power.

Brad Giles 17:30

And so the pow­er again of we can’t help but as a sim­ple stress test, any­time you look at some­one’s pro­posed fly­wheel or yours, if you can’t say that, like, it explains what will log­i­cal­ly fol­low that it’s about build­ing momen­tum. Again, the rea­son it’s called the fly­wheel is because momen­tum is what we want. That fly­wheel momen­tum, it, it con­tin­ues to grow the busi­ness organ­i­cal­ly once we get these com­po­nents, right.

Kevin Lawrence 18:03

It does indeed become a force to be reck­oned with. And ide­al­ly, you get to the point where it’s such a force that your com­peti­tors get very, very unhap­py. And it’s hard to com­pete with you because you’re so good to give an exam­ple, when we go and do health checks on the fly­wheels, which, again, we’ll talk about a lit­tle bit next week about how we’re liv­ing them. You know, we find like one com­pa­ny we went through this and is that we went through and rat­ed where they were at what they real­ized is even though they had it, right, they had under invest­ed in one area dra­mat­i­cal­ly, which dra­mat­i­cal­ly hurt their suc­cess. And even by look­ing at that one under invest­ment even val­i­dat­ed that we nailed the fly­wheel, because they can see what hap­pened to them. Because their growth had stalled. It was­n’t like it used to be real­ly pow­er­ful, just hard to do. Anoth­er exam­ple of a com­pa­ny and this one out of the US when we nailed it, and it was so sim­ple. But it was the one slide that the CEO used to share the vision of the com­pa­ny with every­body and just made it because it here’s how we work. Because we do this, we do this, we do this, every­one can see their role in it and how they help to speed it up. Because the idea here is get it right once you nail it and speed it up so we have more momen­tum. It’s very pow­er­ful. So the fifth one that you’ve got here is is that they are sim­ple, but they tie back into oth­er crit­i­cal stuff or at least work in sync with like the hedge­hog. Right. The Hedge­hog has your pur­pose your prof­it prod­ucts and what you can be the best in the world at and I remem­ber in one ses­sion, you know, and I don’t think that’s the per­ma­nent way that Jim does it. But you know, he had actu­al­ly talked about it being at the cen­ter of your fly­wheel because it’s like your strat­e­gy it’s your what you make pri­ma­ry focus would be and the fly­wheel It’ll being the dri­vers around that. So I’ve always in my mind, visu­al­ize it. Hedge­hog in the mid­dle in the mid­dle of the hatch. So it’s a BHAG is in the mid­dle Hedge­hog has the BHAG in the mid­dle, and a fly­wheel rotat­ing around it. That’s just an image of the way that I like to pull it togeth­er. But any­way, so you got­ta you know, hav­ing your hedge­hog in the mid­dle of it. And Brad want you talk about how you use SMAC with some peo­ple on the fly­wheel as well.

Brad Giles 20:22

Yeah, SMAC is spe­cif­ic, method­i­cal and con­sis­tent recipe for suc­cess again from Jim Collins. So before you try to build us a fly­wheel, you’ve got to under­stand your hedge­hog, you’ve got to under­stand your SMAC recipe. And you’ve also got to under­stand the mar­ket­place and busi­ness mod­el and cus­tomer oppor­tu­ni­ties. So the smack recipe is a list of items. It’s the do’s and do nots that is drawn from your suc­cess­es and dis­ap­point­ments. So, you know, one of the ones I love is a an IT tech­nol­o­gy com­pa­ny. And one of the items on their SMAC recipe says, We do not work for lawyers of doc­tors. Now, obvi­ous­ly, they’ve had a prob­lem pro­vid­ing IT ser­vices to those peo­ple. And it result­ed in dis­ap­point­ments. And they said, we don’t do that. Anoth­er one they had was, we only work in a 50 kilo­me­ter radius of our office. So maybe 50 mile. But the point, the point being it’s a spe­cif­ic list of suc­cess. It’s the recipe for suc­cess. So you got to under­stand your pur­pose, how you make mon­ey, prof­it per X, and what you can do bet­ter than any oth­er orga­ni­za­tion got to under­stand your smack recipe, you got to under­stand, again, the mar­ket­place, busi­ness mod­el and cus­tomer oppor­tu­ni­ties before you build that because all of those things pro­vide deep insights into your flywheel.

Kevin Lawrence 21:56

And on top of it, you need a bunch of time because to get a good draft of it is one thing. And then to revise it with in minute we can’t help but in mind to get it so it’s actu­al­ly it. Some­times it’s a seri­ous invest­ment of time to get it right. Some peo­ple it comes eas­i­er than oth­ers for what­ev­er rea­son. But all of that and a bunch of time was smart brains chip­ping away at it. Dif­fer­ent per­spec­tives. super pow­er­ful. So that was that’s real­ly the points about the mis­takes with fly­wheel. The main thing if we go back to the points is, is that need to be sim­ple, but not sim­plis­tic or too sim­ple. Some peo­ple just have a bunch of things where there’s not a strong cor­re­la­tion or cause and effect between the pieces. And the fly­wheel is about build­ing momen­tum. One thing gen­er­ates a lot of pow­er or many cas­es of resources to the next. It’s got to build momen­tum and pass the we can’t help but stress test. And then Brad walked us through the Ama­zon fly­wheel, which is a very great and sim­ple exam­ple. And it’s easy for us to see it as we’ve expe­ri­enced it and it’s why a lot of us might you know, today I was look­ing for a table that I need­ed for an event. First thing was Ama­zon. And away I went right sim­ple, get it done, got it ordered, don’t even have to go to a store. Of course Ama­zon had it. And of course I can get it in two days because it’s Ama­zon. Right, I want to cov­er the ones there.

Brad Giles 23:22

Sure. So the pair of we can’t help but it’s log­i­cal and then fly plumb­ing. Final­ly, you know, fly­wheels are the sim­ple out­put of deep insights into hedge­hog smack in the mar­ket­place, busi­ness mod­el and cus­tomer oppor­tu­ni­ties that you can find. So, with that good episode today, dig­ging into the real the biggest prob­lem with most fly­wheels and it is, I guess we’ve left us until the end, the biggest prob­lem is, is that you can’t say we can’t help but they don’t have that log­i­cal flow to build that momen­tum. So that’s the sim­ple way to stress test your fly­wheel. Okay, so good episode today. I hope you’ve enjoyed it. As always, Kevin has a newslet­ter that is quite inter­est­ing about all of the top­ics build­ing endur­ing great com­pa­nies, and you’ll find him and his newslet­ter at Lawrence and co​.com. My name is Brett and I can be found with my newslet­ter at evo­lu­tion part​ners​.com dot au of course, don’t for­get to hit the sub­scribe but­ton and to like our pod­cast, and you can see us on YouTube as well. And I think that’s about it. Hope that you have a great week and look for­ward to next week’s episode where we’re dig­ging into the sec­ond part of the fly­wheel. So if you’ve solved the prob­lem now we’re talk­ing about how to pow­er up your fly­wheel episode two of two I look for­ward to chat­ting to you next week have a great one.