Issue#6: Driving growth at your start up
Lessons learned from great businesses
Reading time: 4 minsCompanies from Amazon to token economies such as Ethereum have a self reinforcing business flywheel that drives their growth.
Building your own flywheel for your start up will give your great understanding of what inputs you can tweak to speed up growth.
Without an idea of what is making your business work and (more importantly) what’s not working will help to build an enduring, fast growing company.
Standard model
Where did the flywheel come from?
The Flywheel effect is a concept developed in the book Good to Great. No matter how dramatic the end result, good-to-great transformations never happen in one fell swoop. 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.
~ Jim Collins (source: JimCollins.com accessed 06/02/23)
In it’s simplest form this flywheel shows how you take strangers and turn them into customers through to promoters as shown here:
You can layer this up with different inputs that drive growth and add complexity.
So how can a start up take this concept and actually use it?
Step 1: Study other Flywheels
Familiarise yourself with growth flywheel, including its components and how it drives growth for the company.
Analyse the key elements of the value proposition, customer segments, and operating model.
Let’s look at a couple of examples:
Example 1: Amazon’s Flywheel
Amazons famous flywheel looks a bit different in that they had a two layer “attract” part with lower prices + bigger selection to win new users…
Value prop: Everyday low prices
Customer Segments: Started with avid book readers and expanded outwards
Operating model: Maintain low cost structure
Example 2: Tokenomic Flywheel
When thinking about token economies in Web3 we can also see these flywheel effects:
The token model is far more complicated but you can see how each part of the model compliments the next stage and drives growth.
Different L1s tout alternative value propositions so their customer segments & operating model will depend on use cases.
Bottom line
Find similar businesses and break them down into their flywheel parts.
Using the research you can then customise to your use case…
Step 2: Customize the model
Based on your understanding of flywheels, tailor the model to fit your start-up's unique needs.
This might involve adjusting the priorities, focus, or sequence of the components to better align with your business goals and strengths.
When building a flywheel for their start-up, many people make the following mistakes:
Not starting with a clear value proposition: A strong value proposition is the foundation of a successful flywheel. Without a clear understanding of what sets your business apart, it can be difficult to attract and retain customers, and to drive growth.
Focusing too narrowly on customer acquisition: While customer acquisition is important, it's just one part of the flywheel. Neglecting other aspects, such as customer experience or retention, can lead to a fragile and unsustainable growth engine.
Neglecting the customer experience: A poor customer experience can quickly derail your flywheel. It's important to focus on delivering an outstanding experience at every touchpoint, from initial contact through to post-sales support.
By avoiding these common mistakes, you can build a strong and sustainable flywheel that drives growth for your start-up.
If you are building a new category you may need to build from the ground up, but it is likely you will find some similarities between companies operating in different sectors.
Step 3: Apply and test
You’ve now got an idea of what you think drives your business.
How do you know if you’re right?
Measure it.
Regularly tracking key metrics is crucial for optimizing your flywheel. Without this data, it's difficult to know what's working and what's not, and to make informed decisions about how to improve.
There are a whole host of tools that can show you reporting on various areas of your business.
A modern start-up stack could look like:
Hubspot - sales and marketing metrics to monitor everything from traffic on the website to number of deals closed per month.
Xero - Profit and loss data over the lifetime of the business. Check this to see if your efforts are having an impact on the bottom line.
Review sites - checking reviews of the business on Clutch/Google/Amazon etc will give you feedback on whether the long term customer experience is delight
For opensource / Web3 companies this stack is different and I’ve broken down a few on my substack in the past.
That’s it!
A flywheel is not a one-time project, but a continuous process of improvement and refinement.
As your business grows and changes, it's important to continuously assess and adjust your flywheel to ensure it remains relevant and effective.
Good luck!
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