Turning the Flywheel: A Monograph to Accompany Good to Great

by Jim Collins

As Brad Stone later wrote in The Everything Store, “Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this: Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.” And so, the flywheel would turn, building momentum. Push the flywheel; accelerate momentum. Then repeat. Bezos, Stone continued, considered Amazon’s application of the flywheel concept “the secret sauce.

Bezos and his team could have panicked during the dot-com bust, abandoned the flywheel, and succumbed to what I described in Good to Great as the doom loop. When caught in the doom loop, companies react to disappointing results without discipline—grasping for a new savior, program, fad, event, or direction—only to experience more disappointment. Then they react without discipline yet again, leading to even more disappointment.

Robert Burgelman once observed to a classroom full of students in 1982 (of which I was one), the greatest danger in business and life lies not in outright failure but in achieving success without understanding why you were successful in the first place.

One of the biggest, and most common, strategic mistakes lies in failing to aggressively and persistently make the most of victories. One reason why some leaders make this mistake is that they become seduced by an endless search for the Next Big Thing.

the flywheel construct, Intel’s bold memories-to-microprocessors shift wasn’t quite as discontinuous as it appeared on the surface. It was really more of a transfer of momentum from memories to microprocessors, not a jagged break to create an entirely new flywheel. If Intel had tossed out its underlying flywheel architecture when it exited memories, it wouldn’t have become the dominant chip maker that powered the personal computer revolution.

Amazon, Vanguard, and Intel didn’t destroy their flywheels in response to a turbulent world; they disrupted the world around

what truly set the big winners apart was their ability to turn initial success into a sustained flywheel, even if they started out behind the pioneers.

Leaders who create pockets of greatness at the unit level of their organization—leaders like school principal Gustafson—don’t sit around hoping for perfection from the organization or system around them. They figure out how to harness the flywheel effect within their unit of responsibility. No matter what your walk of life, no matter how big or small your enterprise, no matter whether it’s for-profit or nonprofit, no matter whether you’re CEO or a unit leader, the question stands, How does your flywheel turn?

those who build enduring great companies reject the “Tyranny of the OR” (the view that things must be either A OR B but not both). Instead, they liberate themselves with the “Genius of the AND.” Instead of choosing between A OR B, they figure out a way to have both A AND B. When it comes to the flywheel, you need to fully embrace the Genius of the AND, sustain the flywheel AND renew the flywheel.

There are two possible explanations for a stalled or stuck flywheel. Possible explanation #1: The underlying flywheel is just fine, but you’re failing to innovate and execute brilliantly on every single component; the flywheel needs to be reinvigorated. Possible explanation #2: The underlying flywheel no longer fits reality and must be changed in some significant way. It’s imperative that you make the right diagnosis.

it’s run out of potential or is fundamentally broken. More often, momentum stalls due to either poor execution and/or failure to renew and extend within a fundamentally sound flywheel architecture. It is to the topic of extending the flywheel that we now turn.

it had fired a bullet on this little thing called an iPod, described in its 2001 form 10-K as simply “an important and natural extension” of Apple’s personal computer strategy. In 2002, the iPod generated less than 3 percent of Apple sales. Apple kept firing bullets on the iPod, developing an online music store along the way (iTunes). The bullets kept hitting, the iPod kept adding momentum to the flywheel, and Apple eventually fired a huge cannonball, betting big on the iPod and iTunes. And Apple kept extending the flywheel, from iPod to iPhone, from iPhone to iPad, and Apple’s flywheel extension became the largest generator of momentum.20

In studying the horrifying fall of once-great companies, we see them abandoning the key principles that made them great in the first place. They vest the wrong leaders with power. They veer from the First Who principle and cease to get the right people on the bus

In our research for How the Mighty Fall, we found that the demise of once-great companies happens in five stages: (1) Hubris Born of Success, (2) Undisciplined Pursuit of More, (3) Denial of Risk and Peril, (4) Grasping for Salvation, and (5) Capitulation to Irrelevance or Death. Take special note of Stage 4, Grasping for Salvation.

An overarching theme across our research findings is the role of discipline in separating the great from the mediocre. True discipline requires the independence of mind to reject pressures to conform in ways incompatible with values, performance standards, and long-term aspirations. The only legitimate form of discipline is self-discipline, having the inner will to do whatever it takes to create a great outcome, no matter how difficult. When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you create a powerful mixture that correlates with great performance.

RETURN ON LUCK Finally, there’s a principle that amplifies all the other principles in the framework, the principle of return on luck. Our research showed that the great companies were not generally luckier than the comparisons—they didn’t get more good luck, less bad luck, bigger spikes of luck, or better timing of luck. Instead, they got a higher return on luck, making more of their luck than others. The critical question is not, will you get luck? But what will you do with the luck that you get? If you get a high return on a luck event, it can add a big boost of momentum to the flywheel. Conversely, if you are ill-prepared to absorb a bad-luck event, it can stall or imperil the flywheel. This concept is fully developed in the book Great by Choice.