You need a Flywheel
The Big Lies of Strategy | Revenue Development
I had a go at a regular newsletter two years ago as an experiment. I published five issues and the initial feedback was good. But then things got extremely busy and I put it on the back burner, which I regret.
I realised I shouldn't start it again until I was seriously ready to commit to a monthly schedule, which I am now. More information on what I’m trying to do in the about section.
You need a Flywheel
Image Credit: Jim CollinsI’ve been listening to longform podcasts lately. Which is how I came across this great conversation between Tim Ferris and Jim Collins, the author of “Good to Great” and a bunch of other business books. I haven’t read these books before because I thought they mostly dealt with large companies, and that’s not a big interest for me.
But their conversation ranges over a bunch of topics I wasn’t expecting, including how Collins makes sure he puts in a 1,000 hours on creative work a year (47:42). The whole thing is definitely worth a listen, but I would suggest listening to it in small chunks.
As a result, I bought Jim Collins’ monograph Turning the Flywheel. There’s a lot startups—even freelancers— can learn from corporate strategy as they get ready to grow.
What is a flywheel?
In Engineering, a flywheel is an energy storage unit which is used to increase momentum. But Collins applies the same principle to building a business:
In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.
The Flywheel seems like an essential tool for startups making the transition from product-market fit to scale readiness. It’s about looking at your company as a system and creating a virtuous circle of steps:
Reduce friction
Increase strategic focus
Integrate your development, operations and marketing systems
Accelerate growth.
Collins describes a 7-step process for designing your own flywheel. The key is to identify the 4-6 components that drive your success and use them to answer the following questions:
What’s the ultimate goal of the flywheel? Where do we start? What’s after that? And, after that? Each component of the flywheel should be a side-effect of the last, and the loop should be completed by the last element of the flywheel perpetuating success back into the first.
This is a deep concept that is best understood by reading the book and sketching your own flywheel.
Hubspot has as good post on how to apply it to inbound marketing. But it’s important to remember that the concept works best when you apply it to your whole business, not just one function.
The Big Lies of Strategy
Roger Martin is one of the most practical writers on strategy, because he is skeptical about most traditional approaches and he gives you actionable insights as he does here. My favourite is his advice to focus on asking yourself “what would have to be true?” and doing reality checks instead of trying to predict the future.
Expenses are completely within a company’s control. A firm can decide exactly how much in the way of raw materials to purchase, how many people to hire, how many square feet of office space or manufacturing space they need; all of those are completely within the company’s control, so you can actually plan for these things. On the other hand, sales targets are entirely dependent upon customers. You can hope for future sales. You can say, ‘We want to hit one billion dollars in sales this year’, or $10 billion — as much as you want; but that is not going to make it happen.
Sales will come from making choices that compel customers to want to buy your products. Yet we never see any mention of that in any strategic plan.
…but often, when you look backwards, your actual strategy changed and shifted, based on emergent conditions in the marketplace. This is a great insight…Unfortunately, some strategic planners have taken it to mean that ‘You shouldn’t bother planning ahead’.
You can’t say, ‘We have done the analysis, and we have come up with the right answer’. What you can do is imagine possibilities and make choices that you believe to be the most compelling you can make. Sometimes you will be right, and sometimes you will be wrong. That is the nature of strategy, because that is the nature of life.
The challenge is to figure out ‘What 10 things must be true for this strategy to be a great one?’ Your answers might be things like, ‘Customers will have to behave this way; the distribution channel will have to value X; competitors will have to not do Y’, etc.
Revenue Development
Sometimes it’s useful to be reminded of the basics, and shown how to implement them. Manu Kumar’s post on Revenue Development is a good example:
We quickly figured out that though we had a product built, and the product was exactly what our customers wanted, we still had another problem on our hands—our customers didn't want to pay! It wasn't that they didn’t want to pay, but for anything above a certain dollar amount, it had to be committee decision.
what we’d failed to do was validate how much our customers would be willing to pay, and what it would take to get them to pay.
In my mind, there are two facets to Revenue Development: a) Business model iteration, and, b) Pricing iteration.
The goal is to try and answer a few key questions:
Does your target customer have the capacity and ability to pay?
How much would they be willing to pay?
How should you price your product/service?
Is it a one-time purchase, a recurring purchase, a subscription, a pay-as-you-go offering, etc?
Can you build a sustainable business at that price point?
Google’s first business model was to sell/license search to the major portals (Yahoo! being the dominant one at the time) So it wasn’t that they had the right business model to start. But they were thinking about it, and they iterated on the business model to get to something that worked.
In a nutshell, Product Development is about building something. Customer Development is about building something people want. Revenue Development is about building something people want, and are willing/able to pay for, while letting you build a sustainable company.
Shameless Self-Promotion and Free Coaching Offer
I’ve been running this two-week intensive Business Design Course course for the past three summers. It's the most comprehensive course I do every year and gets really good feedback. The course is aimed at anyone who wants to learn how to use the latest methods to plan new ventures--from lean to design thinking. Useful for designing a new corporate innovation initiative, a startup, or a lifestyle business.
But it usually only gets filled up at the last moment, which means I can’t plan as far ahead as I’d like to. So if you refer anyone who registers before 3 June, I will give you—or anyone you choose— a 90-minute business coaching session. Just email me their names once they've signed up. The course is aimed at anyone who wants to learn how to use the latest methods to plan new ventures--from lean to design thinking. Useful for designing a new corporate innovation initiative, a startup, or a lifestyle business.
You can also check out interviews with two previous students below:
Becks Armstrong Founder, Clarity
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Thanks again,
Paul