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.
SUBSCRIBE TO THE GROWTH WHISPERERS:
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 partners.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.