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The Flywheel Effect


Starting businesses tends to involve tons of hard work: bureaucratic nightmare, for hours on end of driving from town to town, and the ever-presence stress of dealing with suppliers, etc. However, with the right actions, hard work will start to pay off, and companies will gain tractions that drive themselves forward. Professor Jim Collins from Stanford University coined this phenomenon “the Flywheel Effect.” With many brands still navigating their ways toward the right market, the lesson from the Flywheel Effect is always applicable.


HARD WORK PAYS OFF, OR DOES IT?

A flywheel is a mechanical device that needs significant pressure to start moving, but once it does, it is hard to stop. Like its namesake, the Flywheel Effect goes that when starting an enterprise, hard work must be put in to set up its various operations. Sometimes, even after much laboring is done, the wheel is not yet turned—wrong kinds of efforts are put in, or a suitable market has not been found. According to Prof. Collins, the firm will take off after a particular sweet spot has been crossed—this begs the question: “where is that spot?”


THE RIGHT COMBINATION OF HARD WORK

The key lies in knowing the customers, the outside landscape (economics, geopolitics, etc.), and the company’s nature. This allows businesses to understand better what to do and not to do when they aim to take off. Amazon is an excellent example of a firm that successfully conforms to the flywheel model and found the sweet spot. When it was set up, it knew it catered to a large market with price sensitivity. Therefore, it tried to keep the price as low as possible to draw in demand. The sweet spot was finally discovered when lower price translated to higher demands and good customer experience, which led to more sellers and selection of products. While the company grew through this cycle, it could also lower its cost structure and, therefore, reduce its prices even more. Now, Amazon is completely divested—with selection of more expensive goods and various corporate service operations, thus covering all customer segments. These all drove Amazon’s flywheel—making it one of the world’s largest, unstoppable conglomerates it is today.


On the surface, the Flywheel Effect might convey a mere “work hard.” However, at a deeper level, it is knowing what “good kind of work” is, then implementing it, which makes successful operations. Working hard and smart is the key to conducting business: know yourself, know your market, and Good actions can translate into GREAT results.


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