Like the late Peter Drucker, I find anything written by Jim Collins compelling. He is a keen observer of human behavior through the lens of companies. One of his more poignant insights was that of the Flywheel concept. He first articulated this concept in his bestseller “Good to Great” and has now expanded on it in a short form book (monograph) appropriately entitled “Turning the Flywheel.”
As Collins writes:
“Once you fully grasp how to create flywheel momentum in your particular circumstance, and apply that understanding with creativity and discipline, you get the power of strategic compounding. Each turn builds upon previous work as you make a series of good decisions, supremely well executed, that compound one upon the other. This is how you build greatness.”
The concept is powerful as a framework for understanding why some businesses build momentum while others idle or die. As an investor I particularly love anything that leverages the concept of compounding.
Collins shares the story of how Amazon embraced and honed their flywheel and went on to become a juggernaut. The flywheel behind Vanguard also presents a solid reference.
But flywheels aren’t easy. If they were, every company would get them right. Rather, they require rigorous thought, experimentation and iteration. If there are five key elements of the flywheel and only three of the five are operating efficiently, then the flywheel doesn’t work.
Each of the core elements has to contribute to the momentum,
I suspect there are a lot of flywheels in training out there that need some consideration and polish, but with effort could transform a mediocre business into a force. Part of that consideration and polish is implementing a core system like OKRs that can help a company keep itself guided toward its true north.
This post is being written as a book recommendation for both startups and investors. Every business owner needs to be considering whether or not there is an opportunity to build a flywheel effect into their business. Similarly, every student of business, otherwise known as an investor, should have a clear grasp of this concept in order to determine if an investment candidate has a flywheel embedded into their business model.
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