What makes a product truly, organically, and sustainably grow? Extensive literature exists on theories, hypotheses, and approaches for organic growth. My favourite one is the flywheel effect. First coined by Jim Collins in ‘Good to great’, I’ve (as usual) mangled and modified it to better suit my product building needs.
I think of flywheels as a cycle of steps that, if done right, lead to growth. Here’s THE most successful flywheel (Amazon, of course):
Why build a flywheel
Flywheels make for a sustainable business model, and here’s why:
Flywheels identify interrelated components for growth. These components, when independently triggered, accelerate the entire growth funnel, and cause sustained business impact.
They help define growth levers and areas of risk. Flywheels isolate components that need attention and those that can do without. This helps with prioritisation in restricted budgets, and maximises return on the time spent building features.
Flywheels maximise the return on marketing spend. Traffic can be bought, but a solid flywheel helps convert this traffic to users, and users to loyal customers.
Flywheels are most suited for B2C products, and even within those, double sided marketplaces seem to benefit most. While this may seem restrictive, a slew of products actually fit into the b2c double sided marketplace extrapolation. Aside from e-commerce products, most social platforms, banking and personal finance applications, content creators and distributors including Netflix, Prime, or your favourite streaming service, online learning platforms (everything from Duolingo to Coursera), and messaging platforms can use flywheels for their product development.
How to build a flywheel
The process of flywheel creation is more art than science, and I usually trust my gut and iterate multiple times, but here are the steps I usually take. I use Amazon as an example throughout this post, so bear with me on the e-commerce references.
Define creators - who brings value to the platform? Sellers, writers, video makers? For Amazon, sellers create value on the platform.
Define consumers - who consumes this value? Buyers, readers, watchers? Buyers consume the value created by sellers on Amazon.
Define creator goals - what do creators want to accomplish by putting out their creations? Revenue? Visibility? Recognition? Amazon’s sellers want to maximise transactions for their goods.
Define consumer goals -what are the consumer’s goals? Buying what they need? Being entertained? Gaining knowledge? Amazon’s consumers want a wide range of products to select from.
Define product actions that enable consumption - what could you do within the product to achieve the consumer’s goals? For amazon, this means building a platform that gives a great customer experience and makes the buying process easy.
Find common incentives - do creators and consumers have common incentives? In Amazon’s case, buyers as well as sellers benefit from more traffic on the platform - for sellers, this means more transactions, and for buyers, it means more choice.
We connect all of these together and in sequence to arrive at our flywheel. The general flow looks like this: Creators generate value, which is best served through product actions, and therefore gets maximum consumption (or consumers), which enhances the incentive for creators, which in turn lead to more creators, which leads to more value, and so on.
In Amazon’s case, it means this:
Sellers put their products up for sale, and this product selection attracts customers. Buyers enjoy the easy experience and make a purchase. They recommend the platform, and it leads to more traffic. As more traffic comes on to the platform, it attracts more sellers, creating a wider selection of products. This further attracts more customers, who enjoy the buying experience and make a purchase, and so on.
As the flywheel kicks in and business starts to grow, economies of scale make products inexpensive and kick off a second loop: more sales lead to a lower cost structure, leading to lower price, leading to more customers.
Amazon’s flywheel tells us that the most crucial bottleneck to focus on is customer experience. This is the one aspect of the flywheel that amazon entirely controls, and if done wrong, will halt growth. This is the reason Amazon invests in its platform, optimising for product discovery, easy selection and checkout, and fast deliveries.
The flywheel also offers avenues to accelerate growth. Amazon can and did accelerate its growth by artificially increasing selection. This was done through incentivising more sellers to join through advertising, and starting own lines of production (think Amazon Basic).
Another avenue for accelerated growth is increasing traffic on its platform. Amazon does this through paid marketing on the web, media advertisements, and SEO channels. This is done only after a critical selection of products is launched on the platform. Amazon recently launched in the Netherlands, and for almost a year after launch, there was limited paid media - they waited for selection to reach a critical threshold.
Most two sided marketplaces start with creators first, because the cost of waiting for the creator is far less than the cost of a consumer coming onto the platform and finding nothing. Think about it this way - once a product is available for sale, a seller will want to list it on as many platforms as possible to increase the chances of sale. On the other hand if a consumer went to a marketplace that had no products to offer, they will most likely not come back because of this bad experience.
All of this analysis around Amazon’s strategy is impossible without first understanding their growth flywheel. For most businesses, forming a growth strategy without first understanding the flywheels doesn’t make sense.
You’ve probably used a flywheel before without realising that you did - most representations of customer funnels are actually flywheels! Think of it this way - we define a customer funnel from landing on the website to completing the desired action. A flywheel represents this funnel, plus the action of connecting the last step to the first - going from one completed transaction to the next set of new or repeating users.
Flywheels take some time and thinking to get right, but with patience and a few iterations, the benefits they offer can supercharge growth. Every time I get to make a product from scratch, I spend a significant amount of time defining its growth flywheel. Even when working with larger organisations, understanding the flywheel of the entire product has helped me understand what’s most important for business, and how my team and our contributions fit within the organisation.
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