Turning the Flywheel is a monograph that was meant to accompany Jim Collins' famous book Good to Great — which is all about what separate good companies from great ones, and how companies can make the journey to greatness. As Jim Collins writes in Turning the Flywheel:

I wrote this monograph to share practical insights about the flywheel principles that became clear in the years after first writing about the flywheel effect in Chapter 8 of Good to Great. I decided to create this monograph because I've witnessed the power of the flywheel, when properly conceived and harnessed, in a wide range of organizations: in public corporations and private companies, in large multinationals and small family businesses, in military organizations and professional sports teams, in school systems and medical centers, in social movements and nonprofits.

Since learning about the concept of the Flywheel, I've since explained it and helped many of the portfolio companies I've invested in — both personally and through my venture fund Ligature — to create and implement their own flywheel.

It's a fantastic way to force deep strategic thinking as it forces you to identify the disciplines, that sit far above any product or month or quarter, that will help you build and sustain momentum. The best flywheels are both timely and timeless, acting as a source of strength in turbulent times and a fantastic guardrail when making strategic decisions.

Flywheels ultimately explain why some companies build momentum and others don't.‍

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Overview

Turning the Flywheel is a monograph that was meant to accompany Jim Collins' famous book Good to Great — which is all about what separate good companies from great ones, and how companies can make the journey to greatness. As Jim Collins writes in Turning the Flywheel:

I wrote this monograph to share practical insights about the flywheel principles that became clear in the years after first writing about the flywheel effect in Chapter 8 of Good to Great. I decided to create this monograph because I've witnessed the power of the flywheel, when properly conceived and harnessed, in a wide range of organizations: in public corporations and private companies, in large multinationals and small family businesses, in military organizations and professional sports teams, in school systems and medical centers, in social movements and nonprofits.

Since learning about the concept of the Flywheel, I've since explained it and helped many of the portfolio companies I've invested in — both personally and through my venture fund Ligature — to create and implement their own flywheel.

It's a fantastic way to force deep strategic thinking as it forces you to identify the disciplines, that sit far above any product or month or quarter, that will help you build and sustain momentum. The best flywheels are both timely and timeless, acting as a source of strength in turbulent times and a fantastic guardrail when making strategic decisions.

Flywheels ultimately explain why some companies build momentum and others don't.

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The Book in Three Sentences

Turning the Flywheel, which is a monograph Jim Collins wrote to accompany his famous book Good to Great, introduces the concept of the Flywheel. Which serves both as a way to breakdown and analyze any business, as well as a framework to understand why some companies build momentum and others don't. The best flywheels are both timely and timeless, acting as a source of strength in turbulent times and a fantastic guardrail when making strategic decisions.

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Introduction by Jim Collins

In the autumn of 2001, just as Good to Great first hit the market, Amazon.com invited me to engage in a spirited dialogue with founder Jeff Bezos and a few members of his executive team. This was right in the middle of the dot-com bust, when some wondered how (or if) Amazon could recover and prevail as a great company. I taught them about "the flywheel effect" that we'd uncovered in our research. In creating a good-to-great transformation, there's no single defining action, no grand program, no single killer innovation, no solitary lucky break, no miracle moment.

Rather it feels like turning a giant, heavy flywheel. Pushing with great effort, you get the flywheel to inch forward. You keep pushing, and with persistent effort, you get the flywheel to inch forward. You keep pushing, and with persistent effort, you get the flywheel to complete one entire turn. You don't stop. You keep pushing. The flywheel moves a bit faster. Two turns… then four… then eight… the flywheel builds momentum… sixteen… thirty-two… moving faster… a thousand… ten thousand… a hundred thousand. Then at some point—breakthrough! The flywheel flies forward with almost unstoppable momentum.

Once you fully grasp how to create flywheel momentum in your particular circumstance (which is the topic of this monograph) and apply that understanding with creativity and discipline, you get the power of strategic compounding. Each turn builds upon previous work as you make a series of good decisions, supremely well executed, that compound one upon another. This is how you build greatness.‍‍‍‍

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Steps to Capturing Your Flywheel

So, then, how might you go about capturing your own flywheel? At our management lab, we’ve developed a basic process, refined during Socratic-dialogue sessions with a wide range of organizations. Here are the essential steps:

1. Create a list of significant replicable successes your enterprise has achieved. This should include new initiatives and offerings that have far exceeded expectations.
2. Compile a list of failures and disappointments. This should include new initiatives and offerings by your enterprise that have failed outright or fell far below expectations.
3. Compare the successes to the disappointments and ask, “What do these successes and disappointments tell us about the possible components of our flywheel?”
4. Using the components you’ve identified (keeping it to four to six), sketch the flywheel. Where does the flywheel start—what’s the top of the loop? What follows next? And next after that? You should be able to explain why each component follows from the prior component. Outline the path back to the top of the loop. You should be able to explain how this loop cycles back upon itself to accelerate momentum.
5. If you have more than six components, you’re making it too complicated; consolidate and simplify to capture the essence of the flywheel.
6. Test the flywheel against your list of successes and disappointments. Does your empirical experience validate it? Tweak the diagram until you can explain your biggest replicable successes as outcomes arising directly from the flywheel, and your biggest disappointments as failures to execute or adhere to the flywheel.
7. Test the flywheel against the three circles of your Hedgehog Concept. A Hedgehog Concept is a simple, crystalline concept that flows from deeply understanding the intersection of the following three circles: (1) what you’re deeply passionate about, (2) what you can be the best in the world at, and (3) what drives your economic or resource engine. Does the flywheel fit with what you’re deeply passionate about—especially the guiding core purpose and enduring core values of the enterprise? Does the flywheel build upon what you can be the best in the world at? Does the flywheel help fuel your economic or resource engine?

As inspiration, here are two examples of flywheels from the book for Amazon.com and Vanguard:

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Tips and Tactics for Building Your Flywheel

Never underestimate the power of a great flywheel, especially when it builds compounding momentum over a very long time. Once you get your flywheel right, you want to renew and extend that flywheel for years to decades — decision upon decision, action upon action, turn by turn — each loop adding to the cumulative effect. But to best accomplish this, you need to understand how your specific flywheel turns. Your flywheel will almost certainly not be identical to Amazon’s, but it should be just as clear and it’s logic equally sound.

As you nail each component in your flywheel, you’re propelled into the next component, and the next, and the next, and the next — almost like a chain reaction. I’m thinking about your own flywheel, it’s absolutely vital that it not be conceived as merely a list of static objectives thst you’ve simply drawn as a circle. It must capture the sequence that ignites and accelerates momentum.

For a truly great company, the Big Thing is never any specific line of business or product or idea or invention. The Big Thing is your underlying flywheel architecture, properly conceived. If you get your flywheel right, it can guide and drive momentum (with renewal and extensions) for at least a decade, and like much longer.

A flywheel need not be entirely unique. Two successful organizations can have similar flywheels. What matters most is how well you understand your flywheel and how well you execute on each component over a long series of iterations.

Leaders who create pockets of greatness at the unit level of their organization 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.

The flywheel, when properly conceived and executed, creates both continuity and change. On the one hand, you need to stay with a flywheel long enough to get its full compounding effect. Ok the other hand, to keep the flywheel spinning, you need to continually renew, and improve each and every component.

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. In this case, 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.

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Renewing Your Flywheel

Once you get the flywheel right, the question becomes, What do we need to do better to accelerate momentum? The very nature of a flywheel—that it depends upon getting the sequence right and that every component depends on all the other components—means that you simply cannot falter on any primary component and sustain momentum. Think of it this way. Suppose you have, say, six components in the flywheel, and you score your performance in each from 1 to 10. What happens if your execution scores are 9, 10, 8, 3, 9, and 10? The entire flywheel stalls at the component scoring 3. To regain momentum, you need to bring that 3 up to at least an 8.

Over the long course of time (multiple decades), a flywheel might evolve significantly. You might replace components. You might delete components. You might revise components. You might narrow or broaden the scope of a component. You might adjust the sequence. These changes might happen by a process of invention, as you discover or create fundamentally new activities or businesses. **Or they might happen by a process wherein you confront the brutal facts and practice productive paranoia about existential threats to your flywheel.** For example, a company whose business model depended on collecting the personal information of millions of people found its flywheel imperiled by a data breach. Members of the executive team realized that they needed to insert a component dedicated to protecting privacy and earning trust. The rest of the flywheel remained intact, but without this vital new component, the company might have woken up one day on the verge of extinction.

That said, if you feel compelled to continuously make fundamental changes to the sequence or components of the flywheel, you’ve likely failed to get your flywheel right in the first place. Rarely does a great flywheel stall because 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.

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Extending Your Flywheel

In looking across the history of great companies in all our research studies, we find a frequent pattern. They usually begin life being successful in a specific business arena, making the most of their early big bets. But sook they make a conceptual shift from “running a business” to turning the flywheel. And over time, they extend that flywheel by firing bullets, then cannonballs. They crank the flywheel in their first arena of success, while simultaneously firing bullets to discover new things that might work and act as a hedge against uncertainty.

How do great companies go about extending a flywheel? The answer lies in a concept I developed with my colleague Morten Hansen in our book, Great by Choice. Morten and I systematically studied small entrepreneurial companies that became the 10X winners (beating their industries by more than ten times, in returns to investors) in highly turbulent industries in contrast to less successful comparison cases in the same environments. We found that both sets of companies made big bets but with a huge difference. The big successes tended to make big bets after they’d empirically validated that the bet would pay off, whereas the less successful comparisons tended to make big bets before having empirical validation. We coined the concept fire bullets, then cannonballs to capture the difference.

Here’s the idea: Imagine a hostile ship bearing down on you. You have a limited amount of gunpowder. You take all your gunpowder and use it to fire a big cannonball. The cannonball flies out and splashes in the ocean, missing the oncoming ship. You turn to your stockpile and discover that you’re out of gunpowder. You’re in trouble. But suppose instead that when you see the ship bearing down, you take a little bit of gunpowder and fire a bullet. It misses by 40 degrees. You make another bullet and fire. It misses by 30 degrees. You make a third bullet and fire, missing by only 10 degrees. The next bullet hits—ping!—the hull of the oncoming ship. You have empirical validation, a calibrated line of sight. Now, you take all the remaining gunpowder and fire a big cannonball along the calibrated line of sight, which sinks the enemy ship.

Some bullets hit nothing, but some give enough empirical validation that the company then fires a cannonball, providing a big burst of momentum. In some cases, these extensions come to generate the vast majority of momentum in the flywheel, and in a few cases (such as when Intel moved from memory to microprocessors), they entirely replace what came before.

The most important thing is to keep turning the overall flywheel — and every component and sub-flywheel — with creative intensity and relentless discipline.

Every large organization will eventually have multiple sub-flywheels spinning about, each with its own nuance. But to achieve greatest momentum, they should be held together by an underlying logic. And each sub-flywheel should clear fit within and contribute to the whole.

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The 5 Stages of Business Decline

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. They fail to confront the brutal facts. They stray far beyond the three circles of their Hedgehog Concept, throwing themselves into activities at which they could never become best in the world. They subvert discipline with bureaucracy. They corrupt their core values and lose their purpose. And one of the biggest patterns exhibited by once-great companies that bring about their own senseless self-destruction is failure to adhere to the flywheel principle.

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. When companies fall into Stage 4, they succumb to the doom loop, the exact opposite of building flywheel momentum. They grasp for charismatic saviors or untested strategies or big uncalibrated cannonballs or cultural revolutions or “game-changing” acquisitions or transformative technologies or radical restructurings (then another and another) or . . . well, you get the idea.

In Stage 4, each grasp for salvation creates a burst of hope and momentary momentum. But if there’s no underlying flywheel, the momentum doesn’t last. And with each grasp, the enterprise erodes capital—financial capital, cultural capital, stakeholder capital—and weakens. If the company never gets back to the discipline of the flywheel, it will likely continue to spiral downward until it enters Stage 5. No enterprise comes back from Stage 5. Game over.

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The Verdict of History

After conducting a quarter-venture of research into the question of what makes great companies tick — more than six thousand years of combined corporations history in the research database — we can issue a clear verdict. The bigger winners are those who take a flywheel from the turns to a billion turns rather than crank through ten turns, start over with a new flywheel, push it to ten turns, only to divert energy into yet another new flywheel, then another and another.

When you reach a hundred turns on a flywheel, go for a thousand turns, then ten thousand, then a million, then ten million, and keep going until (and unless) you make a conscious decisions to abandon that flywheel. Apply your creativity and discipline to each and every turn with as much intensity as when you cranked out your first turns on the flywheel, nonstop, relentlessly, ever building momentum.

If you do this, your organization will be much more likely to stay out of How The Mighty Fall and earn a place amongst those rare few that not only make the leap from good to great but also become built to last.

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Watch Jim Collins Explain "The Flywheel"

"One of the key disciplines for building a great organization is to recognize that it's never a single event. It's a cumulative process. There's no big bang, no big breakthrough, no big aha. Rather, it's like pushing a giant heavy flywheel." Sustained progress is like a chain reaction that just runs in a loop. Watch Jim Collins breakdown and explain "The Flywheel" in the YouTube playlist below.

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Who is Jim Collins?

Driven by a relentless curiosity, Jim Collins spent more than a quarter-century doing rigorous research around the differences between good and great companies, what the world's most durable companies got right, and how once great businesses fall from greatness. Out of this research he's written 6 books that have sold more than 10 million copies worldwide. Those include Good to Great, Built to Last, How the Mighty Fall, Great by Choice, and BE 2.0 (Beyond Entrepreneurship 2.0).‍

Daniel Scrivner (00:01.182)
In the autumn of 2001, just as Good to Great first hit the market, Amazon.com invited me to engage in a spirited dialogue with founder Jeff Bezos and a few members of his executive team. This was right in the middle of the dot com bust when some wondered how or if Amazon could recover and prevail as a great company. I taught them about the flywheel effect that we'd uncovered in our research. In creating a good to great transformation, there's no single defining action.

There's no grand program, no single killer innovation, no solitary lucky break, no miracle moment. Rather, it feels like turning a giant heavy flywheel. Pushing with great effort, you get the flywheel to inch forward. You keep pushing. And with persistent effort, you get the flywheel to complete one entire turn. You don't stop. You keep pushing. The flywheel moves a bit faster. Two turns, then four, then eight.

The flywheel builds momentum 16 32 moving faster 1000 10,000 100,000 then at some point breakthrough the flywheel flies forward with almost unstoppable momentum. Once you fully grasp how to create flywheel momentum in your particular circumstance which is the topic of this monograph and apply that understanding with creativity and discipline you get the power of strategic compounding.

Each turn builds upon previous work as you make a series of good decisions, supremely well executed that compound one upon the other. This is how you build greatness. That was an excerpt from the book I'm going to talk to you about today, which is Turning the Flywheel by Jim Collins. It's a very short book. It's about 30 pages in length about why some companies build momentum and others don't.

Turning the Flywheel is a monograph that was meant to accompany Jim Collins famous book, Good to Great, which is all about what separates good companies from great ones and how companies can make the journey to greatness. As Jim Collin writes, I wrote this monograph to share practical insights about the flywheel principles that became clear in the years after first writing about the flywheel effect in Chapter 8 of Good to Great. I decided to create this monograph because I've witnessed the power of the flywheel when properly conceived and harnessed in a wide range of businesses.

Daniel Scrivner (02:07.986)
in public corporations and private companies, in large multinationals, in a small private family business, in military organizations and professional sports teams, in school systems, in medical centers, in social movements and nonprofits. Now, since first learning about the flywheel, I want to say maybe five years ago now, I've since explained and helped many of the portfolio companies I've invested in, both personally and through my Venture Fund ligature to create and implement their own flywheels.

And what I love about the concept is I think it's a fantastic way to force deep strategic thinking. And it forces you to identify the disciplines that sit far above any product or month or quarter that will help you build momentum and sustain it. The best flywheels are both timely and timeless. They're a source of strength and turbulent times because you know exactly what your strategic advantages and you can double down on it and focus on it. And it's a fantastic guardrail when making strategic decisions.

But what I think is maybe most powerful about them is they explain why some companies build momentum and others don't. And I'm super excited to jump into this book. It's relatively short, but this is probably one of the most like idea-dense and useful concepts that I have ever learned. This is something that is literally constantly on my mind. I probably think about this at least once a month. And it comes up as a tool that I'm using constantly, whether I'm thinking about my own businesses or I'm working with a founder to think about theirs.

So before we dive in, you can find my full notes on this book as well as the transcript for this episode at outlieracademy.com slash flywheel. So there's a ton of ground to cover. And where I wanted to start with this is with a couple of examples to try to explain this. And I think I might try it's not gonna be helpful for those of you that are listening. This will be in the YouTube video. I'll try to just share a quick graphic of what one of the flywheels looks like. And what a flywheel is to try to explain it conceptually to you really quickly is

You know, so what you're trying to think about, and this will become much clearer when we talk about two practical examples in a second in Amazon and Vanguard. But what you're trying to think about is really your business's enduring strategic advantage and how you turn that into a series of actions that you're basically plotting around a circle. So imagine on a piece of paper you to draw a circle, you're going to start with one idea or discipline up at the top, and you're going to have a second, a third, a fourth, a fifth. Typically there's something like five or six of these.

Daniel Scrivner (04:29.138)
And literally they're placed kind of clockwise around the circle. And the idea is each one of these actions, each one of these disciplines should feed into the next. And together, they they're basically self reinforcing. And so I'll jump in and explain a couple of quick examples, starting with Amazon. One second, grab the book. OK, so I'm going to jump into the book and talk about the Amazon example.

The Amazon team grabbed onto the flywheel concept and deployed it to articulate the momentum machine that drove the enterprise at its best. From its inception, Bezos had infused Amazon with an obsession to create ever more value for ever more customers. It's a powerful animating force, perhaps even a noble purpose, but the key differentiator lay not just in good intent, but in the way Bezos and company turned it into a repeating loop. And that is just to jump in for a second, the core idea.

You're figuring out your competitive advantage, the one that's going to help you compete and win in your given market, and you're turning it into a repeating loop. Back to the book. 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. So again just to recap that really quickly here is literally I'm going to talk about each of the actions. This is as simple as Amazon's flywheel is and if you've studied Amazon I think everyone that's listening I'm sure this will resonate with you as I'm sure you've thought about it to some degree.

This flywheel will make sense immediately. So the first action the flywheel is up at the top is lower prices on more offerings. This then leads to increased customer visits which leads to attracting more third-party sellers because if more customers are visiting you should have you know more exposure to third-party sellers as they're also customers. This then leads into expanding the store and extending distribution which leads into growing revenues per fixed costs which helps them again, lower prices on more offerings.

Daniel Scrivner (06:46.922)
And you know, in this example, it's not exactly one for one, but you can almost swap out Amazon for something like Costco. You know, at the end of the day, what is their competitive moat? Their competitive advantage. It's effectively, they're trying to be a low cost retailer and they're trying to continually reinforce that they want to obviously be able to have a wonderful selection. But at the end of the day, people go there because of the low cost nature.

And so I think what's helpful is it helps every company to articulate number one, how are we going to compete? And so what's not said here is, you know, how is Amazon going to compete? But it's pretty obvious when you look at the flywheel, it's all around lower prices on more offerings, more customers, you're then attracting more sellers. So you're expanding the store and you're expanding distribution, and then you're growing revenues. And again, you're keeping the fixed costs the same. And so, and then you're lowering prices on more offerings again, and it's this virtuous cycle. And so what's helpful about this is, you know, once you get clear on how you're going to compete and win,

You can turn that into a series of actions that again forms a repeating 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, quote unquote, the secret sauce. I've sketched my own take on the essence of the original Amazon flywheel in the nearby diagram. This again will be included in the show notes. If you want to go and look at it, go to outlieracademy.com slash flywheel.

Note throughout this monograph I've included sketches of specific flywheels to illustrate the concept. To be clear these reflect my own take on the flywheel from each case. The leaders who built these flywheels would draw them with more nuance than I have. Use these illustrative sketches to grasp the flywheel concept and to stimulate thinking about your own flywheel. Okay a couple other quick thoughts and then we'll move on and talk about a similar flywheel that's vanguards. So just maybe diving a little you know one level deeper.

You know, notice the inexorable logic. Trace your way around the Amazon flywheel a few times in your mind and you almost get swept up in the momentum. Each component in the flywheel sets you up for the next component indeed, almost throwing you around the loop. Bezos and his team could have panicked during the dot-com bust, abandoned the flywheel and succumbed to what I describe in good to great as the doom loop.

Daniel Scrivner (09:07.118)
When caught in the doom loop, companies react to disappointing results without disappointing — 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. Instead, Amazon committed fully to its flywheel and then innovated aggressively within that flywheel to build and accelerate momentum. Amazon not only survived, but also became one of the most successful and enduring companies to emerge from the dot com era.

Over time, Amazon would renew and extend the flywheel. These are both concepts renewing and extending that we'll talk about a little bit later in the book and in this episode. You know, so they would renew and extend the flywheel beyond a simple e-commerce website and enhance the flywheel with new technology accelerators such as artificial intelligence and machine learning. But throughout the underlying flywheel architecture remained largely intact, creating a customer value compounding machine that many of the largest companies in the world came to fear.

This is just a quick kind of excerpt that Jim called out. And this is, you know, just right in this section of the book, never underestimate the power of a great flywheel, especially when it builds compounding momentum over a very long time. Once you get your flywheel right, you want to renew and extend that flywheel for years to decades, decision upon decision, action upon action, turn by turn, each loop adding to the cumulative effect.

But to best accomplish this, you need to understand how your specific flywheel turns. Your flywheel will almost certainly not be identical to Amazon's, but it should be just as clear. So again, you know, Amazon's flywheel, just to reiterate it, starts by offering low prices, you know, basically trying to achieve lower prices on more offerings. To get that, you're going to work to increase customer visits, which is then going to help you attract more third party sellers.

Which is going to help you expand the store, expand the, you know, the products and services that you can offer as well as extending your distribution, which will then help you grow revenues per fixed costs, which all again helps you then lower costs. So again, it's a flywheel itself reinforcing and kind of the meta question here. It's on the back of the book. I'll read it now because it's helpful is no matter what 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 the CEO or a unit leader.

Daniel Scrivner (11:14.806)
The question stands, how does your flywheel turn? And I think that's one of the powerful concepts here. I would almost consider the flywheel a mental model. It's an extremely powerful mental model. And because, you know, if you actually want to think about it and apply it, you can create and conceive your own flywheel at the individual level. You know, I've thought about that a lot in my own actions and how everything that I do reinforces the other things that I do. And I think especially for ambitious people that want to do a lot.

It's an incredible forcing function to help you be clear on what you're doing and how it all makes sense and why each piece is necessary to reinforce others. Okay. I'm going to jump in and now talk about a Vanguard example. So similar, but different. Bill McNabb, then CEO of the mutual fund giant Vanguard brought his senior team to Boulder in 2009 and they worked for two days to crystallize their flywheel. They did an impressive job of capturing the essence of the Vanguard momentum machine, which I've sketched in a simplified flywheel diagram below.

Again, you can see this at outlieracademy.com slash flywheel. I'm going to quickly describe it. So Vanguard's again, this is going to sound similar, but different. So the top of their flywheel starts with offering lower costs, mutual funds, which leads into delivering superior long-term returns for clients. Why? Vanguard can't just have be a low cost, you know, leader. They also need to be able to deliver. And so they're trying to both offer lower costs and deliver superior long-term returns.

So by delivering those superior long-term returns for clients, they then build strong client loyalty, which helps them grow assets under management, which helps them generate economies of scale, which again helps them offer lower cost mutual funds. It's all makes sense. Each action leads into the others. Notice how each component in the Vanguard flywheel isn't merely a next action step on a list, but almost an inevitable consequence of the step that came before it. I'm going to say this one more time because it's really helpful.

Notice how each component in the Vanguard flywheel isn't merely a next action step on the list, but almost an inevitable consequence of the step that came before it. As you're sketching this out and thinking about this for your own business, this is incredibly important. You know, these basically each action, each discipline on the flywheel, each, each proceeding action or discipline should, should flow into and inform the next one. But again, they should, you know, each subsequent action or discipline should almost feel inevitable. It should feel like, well, of course that's the next thing that's going to happen.

Daniel Scrivner (13:32.486)
And it all again makes sense and is self-reinforcing. If you offer lower cost mutual funds, you almost can't help but deliver superior long-term returns to investors relative to higher cost funds that invest in the same assets. And if you deliver superior returns to investors, you almost can't help but build client loyalty. And if you build strong client loyalty, you almost can't help but grow assets under management. And if you grow assets under management, you almost can't help but generate economies of scale.

And if you increase economies of skills, you almost can't help but have lower costs that you can pass along to clients. Vanguard have been turning some form of this flywheel for decades, built upon the insights and principles of its visionary founder, Jack Bogle, who championed the world's first index mutual funds. But pausing to crystallize the underlying flywheel architecture gave the leadership team the clarity it needed to keep building momentum with fantastic in sorry, fanatic intensity.

Especially coming out of the 2008, 2009 financial crisis. From 2009 to 2017, Vanguard's flywheel continued to build momentum more than doubling its assets under management to exceed $4 trillion. And just here's kind of a final conclusion. The Vanguard case exemplifies a key aspect of how the best flywheels work. If you nail one component, you're propelled into the next component and the next in the next and the next almost like a chain reaction.

In thinking about your own flywheel, it's absolutely vital that it is not conceived as merely a list of static objectives that you've simply drawn as a circle. It must capture the sequence that ignites and accelerates momentum. And I think this is another fantastic way to think about flywheels. They are a chain reaction. They're almost catalytic in nature. Each action necessitates, brings about the action that comes after it.

And then altogether, you can see how this built each actions reinforcing the other action and it's all driving towards one sort of strategic advantage or strategic goal. And you know, I think this is an important point. This is, this is around the same area in the book that Jim Collins make where it makes, which is, you know, why, why is the flywheel important? Well, one of the greatest dangers in business and life lies not an outright failure, but in achieving success without understanding why you're successful in the first place. And you know, one of Jim Collins ideas, we're going to come back to this a little bit later on.

Daniel Scrivner (15:48.918)
When we talk about the flywheel within the framework of good to great. But one of his, his big kind of, um, I don't know, drums to pound is just around discipline and the importance of discipline and companies. And in a lot of how he thinks about what differentiates a great company from a good company is insane discipline and insane clarity applied at every single level of how the business operates. So it's got, you know, discipline of thought, discipline of action, discipline of people within the organization.

Similarly with the flywheel, I think of it as a way to bring discipline to strategy and bring discipline to how you're going to compete and win in your given space. So now I want to go on to this concept of you know flywheels need to be extended and renewed, which is a little bit further in the book. Let me come over to this.

Okay, to be clear, my point is not, oh, sorry, let me go a little bit further. This doesn't mean mindlessly repeating what you've done before. So this is talking about, you know, you have a flywheel in place. So you've, you know, you've kind of sorted out this first action. Well, then how do you actually go about, you know, renewing this and extending this? We're going to come back to this in a second. We're also going to talk about steps to capturing your flywheel in just a moment. But I thought I would start with this because I do think it's helpful.

This doesn't mean mindlessly repeating what you've done before. It means evolving, expanding, extending. It doesn't mean just offering Jack Bogle's revolutionary S&P 500 index fund. It means creating a plethora of low cost funds and a wide range of asset categories that fit within the Vanguard flywheel. It doesn't mean just selling books online. It means expanding and evolving the Amazon flywheel into the biggest, most comprehensive e-commerce system in the world. And later extending that flywheel into selling its own devices such as Kindle and Alexa and moving into physical retail.

It doesn't mean sticking doggedly with memory chips in the case of Intel, which is another example in the book. It means redeploying the Intel flywheel to entirely new chip categories. And so here, I'm sure this is obvious, but what Jim Collins is talking about is the flywheel again, and I think this is what's so helpful to understand. You know, so much of how businesses think about strategy, and its goals and disciplines, at a very granular level.

Daniel Scrivner (17:53.258)
It's often focused on kind of near term objectives. And this might be something that's, uh, you want to accomplish this month, something you want to accomplish this quarter or something you want to accomplish this year, the flywheel I think of as being extremely meta. So you're really thinking about at the end of the day, regardless of what we do, you know, so put yourself in, in Costco shoes, regardless of what we end up selling, regardless of where we end up opening stores, it could be internationally, it could be in the US.

What will always be true, what will be true about our strategic advantage and about the way we compete and win. And with Costco, it's a low cost advantage. And I would say with Amazon, it's low cost plus a massively bigger, larger store than you could ever offer in real life and in kind of a physical store. And so it's just making the point that kind of one flywheels are meant to be meta. So it should be almost timeless in nature.

But flywheels also help, they actually, they provide a lot of strategic clarity because ultimately every business needs to expand and evolve and take on new challenges. To be clear, my point is not that a flywheel will necessarily last forever, but just look at these three cases, Amazon, Vanguard, and Intel, each operating in a highly turbulent industry. In each company, the underlying flywheel propelled growth for decades. Intel did eventually evolve substantially beyond the chip business, but that doesn't change the fact that its initial flywheel architecture powered Intel's rise to a great company for more than 30 years.

The logic underlying Vanguard's flywheel architecture remained essentially intact, intact even as it approached the half century mark. And at the time of this writing in 2018, the original Amazon flywheel has remained robust and relevant thanks to renewal and extension nearly two decades after it was first articulated. Later in this text, I'll address how companies renew and extend their flywheels.

If you wake up one day to realize that your underlying flywheel no longer works, or that it's going to be disrupted into oblivion, then accept the fact that it must be recreated or replaced. But before you decide to toss out your flywheel, first make sure you understand its underlying structure. Don't abandon a great flywheel when it should when it would be a superior strategy to sustain, renew and extend. And so again, just to underscore the point, one of the reasons this is so helpful is, you know, this is a concept we talked about, you know, recently kind of time timeless knowledge versus time bound knowledge.

Daniel Scrivner (20:11.03)
When you as a company put in the work to articulate what your flywheel is, this flywheel can serve you for decades. And yes, you will potentially have to change and tweak and evolve. You know, if we go to Amazon's flywheel, nowhere is it talking about technological advantages that allow it to, you know, as an example, offer lower prices or help offer the right products to customers.

And so there's a bunch of nuance that's not captured in the flywheel, but at a high level, a flywheel is meant to be a source of rigor, a source of intellectual honesty about what makes your business special and what's defining, what's definitive about the way that you're going to run your business. And so it's a helpful exercise. It can be useful for decades, like anything. It has to be renewed and updated, but you should absolutely avoid throwing it out. So now I thought we would switch to talking about capturing your flywheel.

So again, you know, what I have found most helpful is just this overarching mental model. I think of the flywheel constantly. I think it's incredibly useful at an individual level, a company level. Um, just conceptually this idea, you have a series of actions that are self reinforcing and really the strategic clarity of, of knowing why those are the right actions. Um, but we obviously need to go into, if you want to do this exercise, how do you go about capturing your flywheel? And so if you're a founder listening,

I'm going to walk you through kind of the seven steps that Jim Collins lays out in the book. So then how might you go about capturing your own flywheel? At our management lab, we've developed a basic process refined during Socratic dialogue sessions with a wide range of organizations. Here are the essential steps. Number one, create a list of significant replicable successes your enterprise has achieved. This should include new initiatives and offerings that have far exceeded expectations. Number two.

Compile a list of failures and disappointments. This should include new initiatives and offerings by your enterprise that have failed outright or fell far below expectations. So you're kind of capturing replicable successes, then you're capturing a list of failures and disappointments. Third, compare the successes to the disappointments and ask what do these successes and disappointments tell us about the possible components of our flywheel? So again, you're looking at things you've actually done, you're trying to compare and contrast the two.

Daniel Scrivner (22:26.13)
And you're trying to, you know, discern via the Delta between these things, what are the possible components of your flywheel? Number four, using the components you've identified, keep it to four to six. So that's kind of the ideal number of spokes on the flywheel, if you will, sketch the flywheel. Where does the flywheel start? What's the top of the loop? What's next? What's next after that? You should be able to explain why each component follows from the prior component, outline the path back to the top of the loop.

You should be able to explain how this loop cycles back upon itself to accelerate momentum. I'll say that again. This one's, this is a really important point. So you want to go ahead and sketch your flywheel and you want to start at the top. So what is this definitive action or discipline at the top of your loop? What happens next? What happens next? Again, you're trying to get to about four to six course sort of spokes actions or disciplines.

And you want to be able to explain why each component follows from the prior component and you want to explain why this actually forms a loop. So again, the goal is it starts with one kind of catalytic action, but it's ultimately going to double back to that catalytic action and ideally self-reinforce. So you should be able to explain how this loop cycles back upon itself to accelerate momentum. Number five, if you have more than six components, you're making it too complicated, consolidate and simplify to capture the essence of the flywheel. Number six.

Test the flywheel against your list of successes and disappointments. Does your empirical evidence validate it? Tweak the diagram until you can explain your biggest replicable successes as outcomes arising directly from the flywheel. So I'll say that again, tweak the diagram until you can explain your biggest replicable successes as outcomes arising directly from the flywheel and your biggest disappointments as failures to execute or adhere to the flywheel. Again, this is getting at the idea.

You know, the flywheel is almost a set of guardrails. It should inform the actions you take. And when you deviate from those actions, you should experience failure. You should, you should experience sub subpar results. It's the flywheel is meant to be the kind of driver, the invisible force behind the scenes that's powering your business forward. And number seven, test the flywheel against the three circles of your hedgehog concept and this idea is hedgehog concept. I'll explain it in a second, but this is a concept that Jim Collins uses heavily.

Daniel Scrivner (24:40.638)
A hedgehog concept is a simple crystalline concept that flows from deeply understanding the intersection of the following three circles. Number one, what you're deeply passionate about. Number two, what you can be the best in the world at. And number three, what drives your economic or resource engine. Number one, what you're deeply passionate about. Number two, what you can be best in the world at. And number three, what drives your economic or resource engine.

Does the flywheel fit with what you're deeply passionate about, especially the guiding core purpose and enduring core values of the enterprise? Does the flywheel build upon what you can be the best in the world at? Does the flywheel help fuel your economic or resource engine? In the appendix to this monograph, and we'll jump into this a little bit later, the appendix is phenomenal, which sounds hilarious, but it is in this book. It's very clear that Jim Collins is, you know, his background is in research. Maybe I'll talk in a second a little bit about how he came up with this, because I think it's very interesting.

But the appendix is great. It's got a ton of stuff in it that's going to be very helpful for kind of fleshing out this concept. The appendix I've created a short summary of the framework of concepts that have come from our research concepts such as the hedgehog concept along with the brief definition of each concept. This appendix also shows where the flywheel fits in the overall conceptual map for the journey from good to great. The first time I mentioned any of these concepts in the main text, I will put them in bold. So again, we'll jump into that in a second, but I think it's really helpful.

So just maybe as a little interlude, I probably should have done this at the beginning, but for anyone that's wondering who is Jim Collins, let me quickly give you a little bit of background. And this is how I would describe him. He's driven by relentless curiosity. Jim Collins spent more than a quarter century, so more than 25 years doing rigorous research. This is all at the kind of university level into the differences between good to great companies, what the world's most durable companies got right.

So companies that are able to perform at an exceptional level for decades and how once great businesses fall from greatness. And so what's fascinating here is, you know, these are all of these topics will be as relevant a hundred years from now as they are now. So these are very powerful topics and everything that he's sharing is driven from insights and research, which is why I think the intermix of those things, deeply researched.

Daniel Scrivner (26:54.33)
Concepts that for you and I are incredibly relevant. We all want to create great companies We all want to create durable companies and we all want to make sure that once we're able to create something durable and great That it never falls from greatness. This is all stuff that we deeply care about So out of this research, he's written six books Those books have sold more than 10 million copies worldwide. This is old data It's probably more than 15 million worldwide now, maybe more In those books, you know, there's so there's quite a few

The ones that come to mind for me are good to great. That's the absolute must read classic. Again, this book is actually an appendix. It's meant to build on the concepts and this, this concept of the flywheel that was introduced in good to great. I think this is incredibly powerful book, just as good as good to great, which is why I'm covering it. So that's one built to last as a second, how the mighty fall great by choice in BE 2.0 or Beyond Entrepreneurship 2.0, which is kind of his latest edition, updating on a lot of these concepts.

All of these are going to be linked in the show notes below. You can find all of these as well in the show notes that we actually have on the website as well as the transcript which has excerpts, quotes, and a bunch of other stuff. And again, you can find that at outlieracademy.com slash flywheel. Okay, so now what I thought I would do is kind of jump into a couple of tips about flywheels. And this is just there's these, you know, random little excerpts throughout the book that are loosely related to the content around them, but I think they're really helpful.

So I thought I would just read some. So here's one of those. Leaders who create pockets of greatness at the unit level of their organization. Leaders like school principal, Gustafon. We're not going to share this case study. This is another case study in the book all around. A principal that comes in is able to improve a dramatically underperforming school, basically school system. They 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 the CEO or a unit leader, the question stands, how does your flywheel turn? And so again, you know, I think one of the important concepts here is we're talking about the flywheel through the lens of applying it to a business you're building or a company you're building, but it is deeply, deeply relevant on an individual level.

Daniel Scrivner (29:13.002)
And it's deeply relevant at the unit level. So again, you can almost imagine, and I think this would be the ideal scenario, that in a given company, you not only have a company level, an organizational level flywheel, but you should also have unit level flywheels. You should know what your individual team or disciplines flywheel is and what that looks like, what those self-reinforcing disciplines are. And so again, it's just this idea that, this is deeply applicable far beyond this kind of narrow lens of, oh, it's only useful for companies.

That's not the case. You know, to further that point, here's one other excerpt that I really like. Every large organization will eventually have multiple sub-flywheels spinning about, each with its own nuance. But to achieve the greatest momentum, they should be held together by an underlying logic. So again, what is that underlying logic? Well, it's understanding your deep, unique competitive advantage, something like a cost advantage. And each sub-flywheel should clearly fit within and contribute to the whole.

So now I thought I would talk a little bit about renewing the flywheel. So we've talked, we've talked about the examples of Amazon and Vanguard. We've talked about a little, what it means to extend and renew, talked about the seven steps of capturing your flywheel by looking at replicable successes, failures, things that have disappointed you, looking at the contrast between those, and then refining, distilling, simplifying your flywheel until it's able to both explain your successes.

And the flywheel should make clear that those are replicable because they come out of this invisible force, this self-reinforcing loop that you're constantly doing as a business, and then you're obviously going to want to basically refine that and improve that and make sure that it's as durable as possible. So now let's talk about, you know, effectively renewing the flywheel and then we'll go on to extending the flywheel just to flesh out this concept. Okay, execute and innovate renewing the flywheel.

Once you get the flywheel right, the question becomes, what do we need to do to accelerate momentum? The very nature of a flywheel that it depends upon getting the sequence right, and that every component depends on all the other components, means that you simply cannot falter on any primary component and sustain momentum. This is another really important concept, is this idea that basically, you know, so you imagine this sketch of your flywheel that you have, you have these four to six actions going around a circular shape that reinforces each other.

Daniel Scrivner (31:33.718)
One of the things we're going to talk about, one of the things that's very important is, you know, what does it look like to actually grade yourself on your flywheel? Well, you're effectively two grades or two levels of grading. There's how are we doing overall at effectively, you know, building momentum and being able to really drive quick iteration and, you know, just quick execution of looping this flywheel. That's one. So it's effectively a high level meta grade on how you're doing it, just executing the flywheel overall.

But a secondary grade is actually how are we doing at each component? And one of the ideas that's incredibly powerful in here is that, you know, with flywheels, it's about compounding. So what is, you know, and I think one of the deep insights I've had around compounding is that compounding actually, you know, like compounding is almost, it's an outcome of consistency. And that the consistency is actually what creates compounding, just meaning that anything that you do, if you look at anything you want to compound, so good investing returns, you look at, you know, working out and, and improving your fitness.

These are things where consistency really matters. And if you just bring intensity, but you actually fail at consistency, you're never going to achieve those compounding effects. And so again, one of the other grades you can give is how are we doing it? Each one of these components, knowing that they actually each have to be executed at a really high level. And one simple way to do that would be to say, how are we going to grade ourselves? How are we doing on a scale of one to 10? And your goal is that, you know, what does success looks like? Success looks like on

each spoke of your flywheel, you are executing somewhere between eight and 10 on that scale. What failure looks like, because it will not allow you to be able to do this consistently and build momentum and actually compound, is when some things you'd grade yourself at a five or a six and some things you'd grade yourself at a 10. Okay, let's jump back into the text. The very nature of a flywheel that it depends upon getting the sequence right and that every component depends on all the other components means that you simply cannot falter on any primary component and sustain momentum.

Think of it this way. Suppose you have say six components in the flywheel and you score your performance in each of them from one to ten. What happens if your execution scores are nine, ten, eight, three, nine, ten? The entire flywheel stalls at the component scoring three. To regain momentum you need to bring three up to at least an eight. The flywheel when properly conceived and executed creates both continuity and change. On the one hand you need to stay

Daniel Scrivner (33:57.59)
with a flywheel long enough to get its full compounding effect. On the other hand, to keep the flywheel spinning, you need to continually renew and improve each and every component. In Build to Last, Jerry Porras and I observed that those who build enduring great companies reject the tyranny of ore. And I love this concept. Love this concept. They reject the tyranny of ore. The view that things must be either A or B, but not both.

Instead, they liberate themselves with the genius of 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 end, sustain the flywheel and renew the flywheel. And again, this concept, I've applied this so many times in my life, because I think it's incredibly powerful, where all of us, I think by default tend to have this view.

And this comes up all the time in the teams that I manage and the businesses I'm a part of where I will just be able to spot when someone is thinking in or terms. So they're thinking that, you know, as in it give you a really kind of simple example. One of the companies I've been working with has historically done a phenomenal job at shipping really quickly. And they've done a, you know, objectively pretty poor job at shipping quickly at a really high bar. And, you know, anytime I notice that tension, what I ultimately what I kind of generally tend to find is when I dig in.

The reason that that's the case is because people believe it's an or choice. It's either we move fast or we move slow and we actually improve quality. And I would say some of the biggest unlocks that I've been able to have with founders, some of the biggest unlocks I've been able to have with myself is pushing myself to get out of or mode and get into and mode.

And I, and I think of just to make me one last point on this, I think of and as being reality, meaning, you know, when you look at, uh, just anything in, in nature, you know, as a marker you know, like there is and behavior, you have to be good at multiple things, you can't just be good on one category. And so again, how does that apply to the flywheel? It's this idea. You know, it's this idea that you have to be good at all the things. So it's not an or it's not a we can be good at, you know, the second spoke in our flywheel, we can be good at the fifth spoke of our flywheel notes, and you have to be good at all of them. Every single one of them has to be at a really high level.

Daniel Scrivner (36:11.358)
Okay, so that's all about renewing the flywheel. So just making sure that you are just to, you know, and kind of encapsulate that, put a point on it. Renewing your flywheel is saying you're gonna grade yourself on each spoke and you're going to make sure that your grades are all consistently high on every single spoke. And if you find a spoke where the score is low, you know, to maybe switch to another way of thinking, you know, you have identified your bottleneck, meaning that spoke that you would grade say a three or say a five out of 10.

That's actually your limiting factor. And so I think it's also again, it's just helpful to kind of grade yourself at the holistic level. And it's helpful to dive into each given component. And again, the goal, so it's you're not allowed, it is not positive, it is actually, you know, counter this will this will run against you building momentum with your flywheel, to have even one component, even one spoke on that flywheel that your would grade at a three or four, everything needs to be done at an exceptional level. Because talk about extending the flywheel, which is

A slightly different take here. Extending the flywheel. How do great companies go about extending a flywheel? The answer lies in a concept I developed with my colleague Morton Hansen in our book, Great by Choice. Morton and I systematically studied small entrepreneurial companies that became the 10x winners, beating their industries by more than 10 times in returns to investors in highly turbulent industries in contrast to less successful comparison cases in the same environments.

We found that both sets of companies made big bets with a huge difference. The big successes tended to make big bets after they'd empirically validated that the best bet that the bet would pay off. Let me say that again. The big successes tended to make big bets after they'd empirically validated that the bet would pay off. Whereas the less successful comparisons tended to make big bets before having empirical validation. Again, this ties in with this concept that the best companies are incredibly disciplined. So a disciplined company would never go all in on a bet.

Unless they had validated that and basically gut check themselves, held their feet to the fire, made sure they were viewing the world and their business realistically and that bet was going to actually pay off. And this is another mental model that I find enormously helpful is about to introduce. We coined the concept fire bullets, then cannonballs to capture the difference. Here's the idea. Imagine a hostile ship bearing down on you. You have a limited amount of gunpowder.

Daniel Scrivner (38:31.382)
You take all your gunpowder and use it to fire a big cannonball. The cannonball flies out and splashes in the ocean, missing the oncoming ship. You turn to your stockpile and discover that you're out of gunpowder. You're in trouble. But suppose instead that when the, when you see the ship bearing down, you take a little bit of gunpowder and fire a bullet. It misses by 40 degrees. You make another bullet and fire. It misses by 30 degrees. You make a third bullet in fire missing only by 10 degrees. The next bullet hits ping the whole of the oncoming ship.

You have empirical validation, a calibrated line of sight. Now you can take all the remaining gunpowder and fire a big cannonball along the calibrated line of sight, which sinks the enemy ship. And looking across the history of great companies in all our research studies, we find a frequent pattern. They usually begin life being successful in a specific business arena, making the most of their early big bets. But soon they make a conceptual shift from running a business to turning a flywheel.

And over time, they extend that flywheel by firing bullets and then cannonballs. They crank the flywheel in their first arena of success while simultaneously firing bullets to discover new things that might work and as a hedge against uncertainty. Okay. Going back to this idea, some bullets hit nothing, but some give enough empirical validation that the company then fires a cannonball providing a big burst of momentum. In some cases, these extensions come to generate the vast majority of momentum in the flywheel.

And in a few cases, such as when Intel moved from memory to microprocessors, they entirely replace what came before. Okay. How is this applicable? And again, you know, the, the idea here that I love is, okay, if you're a disciplined company and you're going to make a bet in a new area, and this is something every, you know, every company, uh, will should start out its life being focused on a very simple, very niche problem.

But every company at the end of the day is looking to build something great and is looking to build, you know, sort of a mini empire where all the basically continue to tackle a bigger and bigger vision of what they can create. Okay. So what does that look like? Well, how do you go about doing that? Well, every company eventually has to face the decision of doing something new. So in a great example of this, this is one of the examples that Jim talks about in terms of extending is this idea of Apple.

Daniel Scrivner (40:46.054)
You know, Apple started with personal computers at a certain point, they decided that they were going to move on to smart handhelds and it started with the iPod. I would say the iPhone is probably the best example of you know, Apple firing a cannonball and it goes back to what Jim says at the end of this last paragraph where you know, so you're extending a flywheel, you've identified the flywheel for your business. Well, your business is going to change and so in Apple's example, their business used to be driven completely by laptop sales.

Today it's driven almost completely by you know, iPhone sales, iPad sales, you know, they have now a massive plethora of products that all tie into one another. But it's still, you know, all of these still reinforce Apple's flywheel and you know, every company has to go about making decisions to extend. And I think what's clear here is it's very easy to make pitfalls because you're going to want to use the lenses, the tools, the disciplines that have made you successful in one area in your new area.

And that actually is typically exactly how you get to failure. And what you need to recognize that this is a net new thing. You want to de-risk it. You want to figure out its flywheel and how it works. And so I just love this concept of when you're doing that, you want to make sure that you're finding you're pushing yourself to make sure that you can empirically prove that this bet is going to pull, you know, is going to pay off before making it and that you do that by firing bullets and then by firing cannonballs. OK, now we're going to talk about kind of the next piece of this. Keep your flywheel turning and stay on the flywheel.

Which basically goes into making sure that you're actually using this and focusing on it and not discarding it. The most important thing is to keep the overall flywheel and every component and sub-flywheel with... Sorry. The most important thing is to keep turning the overall flywheel and every component and sub-flywheel with creative intensity and relentless discipline.

Even with the early growth and profitability of Amazon Web Services, Bezos remained obsessed with keeping Amazon's consumer retail business is vibrant and energized is when the company first began. After all, even as Amazon approached 200 billion in annual revenues, it had less than 1% of the global retail market. In studying, and so this is interesting, like the importance of staying on the flywheel and actually how that can help you to not fall apart as a business and not eventually fail. And this is captured in Jim's book, How the Mighty Fall.

Daniel Scrivner (42:59.274)
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. They fail to confront brutal facts. They stray far beyond the three circles of their hedgehog concept, throwing themselves into activities at which they could never become the best in the world. They subvert discipline with bureaucracy.

They corrupt their core values and lose their purpose. And one of the biggest patterns exhibited by once great companies bring about their own senseless self-destruction is failure to adhere to the flywheel concept. In our research for How the Mighty Fall, we found that the demise of once great companies happen in five stages. Number one, hubris born from success, have a big success, are now way overly confident, and they go out and start using that confidence, which it's basically hubris at that point, because it's not checked with reality, it's not grounded.

Number two, they do the undisciplined pursuit of more. So again, they stray from, and again, this goes back to like, why are great companies, why is discipline a superpower? Well, because discipline prevents you from making mistakes, making unforced errors. And one of those is this undisciplined pursuit of more, which is effectively, you shouldn't be doing it. You can't be the world, you know, you can't be one of the best in the world at it, or the best in the world at it. And yet you do it anyways, undisciplined pursuit of more. Number three, the denial of risk and peril.

Number four, grasping for salvation. And number five, capitulation to irrelevance or death. Take special note of stage four, grasping for salvation. When companies fall into stage four, they succumb to the doom loop, the exact opposite of building flywheel momentum. And so again, the doom loop actually kind of looks like a flywheel going in reverse. It's a negative feedback loop instead of a positive feedback loop.

They grasp for charismatic saviors or untested strategies or big, uncalibrated cannonballs or cultural revolutions or game-changing acquisitions or transformative technologies or radical restructurings. Then another and another, or will you get the idea? In stage four, each grasp for salvation creates a burst of hope and momentary momentum. But if there's no underlying flywheel, if there's no invisible force that is well thought out, that's pushing you forward, the momentum doesn't last.

Daniel Scrivner (45:13.342)
And with each grasp, the enterprise erodes capital, financial capital, cultural capital, stakeholder capital and weekends. If the company never gets back to the discipline of the flywheel, it will continue to spiral downward until it enters stage five. No enterprise comes back from stage five. Game over. Okay, now I want to talk a little bit about super short, but he has two paragraphs that he ends the book with that I think are just a great encapsulation.

And then we'll move on to the other piece of this, which is the flywheel within a framework. After conducting a quarter century of research into the question of what makes great companies tick, more than 6,000 years of combined corporate history in the research database, we can issue a clear verdict. The big winners are those who take a flywheel from 10 turns to a billion turns, rather than crank through 10 turns, start over with the new flywheel, push it to 10 turns, only to divert energy into yet another flywheel.

Then another and another. When you reach 100 turns on a flywheel, go for 1,000 turns, then 10,000, then a million, then 10 million, and keep going until and unless you make a conscious decision to abandon that flywheel. Exit definitively or renew obsessively. Never, ever neglect your flywheel. Apply your creativity and discipline to each and every turn with as much intensity as when you cranked out your first turns on the flywheel, ever building momentum.

If you do this, your organization will be much more likely to stay out of how the mighty fall and earn a place amongst those rare few that not only make the leap from good to great, but also become built to last. Okay, this next section, I'm going to try to make it relatively brief, but it just I feel like I can't leave it out because I think it helps complete this idea here. And so, you know, we've now been talking about this concept of a flywheel.

We've given examples. We've talked about how you extend it how you renew it Why you need to keep it turning we've talked about you know That just given some examples throughout history of flywheels being incredibly important But I think what's helpful here is again just going back to the genesis of this book the flywheel was originally a concept in good to great and So Jim basically at the end of the book ends up connecting it with the concepts and good to great and basically This is the flywheel within a framework

Daniel Scrivner (47:35.87)
So if you're listening to this and you're thinking, well, the flywheel is amazing. How does that actually fit into an overarching framework? Well, this is going to be all about that. Okay, I'm going to jump. So at the beginning, I shared, you know, kind of a first paragraph here. I'm just going to jump into the second paragraph. The flywheel effect alone does not make an organization great. The flywheel fits within a framework of principles we uncovered through more than a quarter century of research into the question of what makes a great company tick.

We derived these principles using a rigorous match-paired research method, comparing companies that became great with companies in similar circumstances that did not. We'd systematically analyze the histories of the contrasting cases and ask what explains the difference. My research colleagues and I applied the historical match-paired research method in four major studies, each using a different lens that resulted in four books, built to last, good to great, How the Mighty Fall, and Great by Choice.

We've also extended the principles beyond business in the monograph good to great in the social sectors. 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. To build an enduring great organization, whether in the business or social sectors, you need disciplined people who engage in disciplined thought and take disciplined action to produce superior results and make a distinctive impact on the world.

Then you need the discipline to sustain momentum over a long period of time and to lay the foundations for lasting endurance. This forms the backbone of the framework laid out as four basic stages. Stage one, you first need to get disciplined people. Stage two, you need to get those disciplined people to engage in disciplined thought. Stage three, you then need to get them to take discipline action. In stage four, you need to make sure that everything that they're doing, they're built to last.

Daniel Scrivner (49:54.378)
And I kind of think of disciplined people, disciplined thought, disciplined action is solving for the zero to one. So that's helping you as a company go from nothing to something. In stage four is all about how you keep that going. And these you know, just like and this has been said in many different, you know, many different ways, many different areas of life, building wealth, kind of generating your first wealth is very different from keeping wealth. Well, the same thing is here for company building, you know, being able to actually find initial product market fit, find customers, build a business, build a flywheel that actually starts to build momentum is great.

That's also a different challenge than actually building something to last. Each of these four stages consists of two or three fundamental principles. The fly, the flywheel principle falls at a central point in the framework, right at the pivot from disciplined thought into disciplined action. Okay. I'm going to say that again, you know, so the flywheel falls right at the pivot point from disciplined thought to discipline action. So what is the flywheel? It's basically a framework for taking disciplined action and the flywheel is created with discipline thought.

Okay, I've provided a brief description of the principles below. So I'm just going to kind of read a handful of things here just to maybe flesh out this concept a little bit more. So the first one with disciplined people, you know, so first who then what get the right people on the bus. Those who lead organizations from good to great first get the right people on the bus and the wrong people off the bus and then figure out where to drive the bus. They always think first about who then about what.

When you're facing chaos and uncertainty, you cannot possibly predict what's coming around the corner. Your best strategy is to have a busload of people who can adapt and perform brilliantly no matter what comes next. Great vision without great people is irrelevant. Such a good quote. Okay, so that was all around disciplined people. Just a couple of thoughts here on stage two around discipline thought. This is about the genius of the end. Builders of greatness reject the tyranny of the or and embrace the genius of end.

They embrace both extremes across a number of dimensions at the same time. For example, creativity and discipline, freedom and responsibility, confront the brutal facts and never lose faith, empirical validation and decisive action, bounded risk and big bets, productive paranoia and a bold vision, purpose and profit, continuity and change, short term and long term. This concept is first introduced in the book Built to Last and further developed in the book Good to Great.

Daniel Scrivner (52:17.706)
And a part of that, so again, this is all about discipline thought is, you know, have to share this, is this idea that part of discipline thought, and I think this is not talked about enough, is just seeing reality clearly. I think another way of saying those same words is confronting brutal facts. Productive change begins when you have the discipline to confront the brutal facts. The best mind frame to have for leading from good to great is represented in the Stockdale's Paradox.

Faith that you can and will prevail in the end, regardless of the difficulties, and at the same time, exercise the discipline to confront the most brutal facts of your current reality, whatever they might be. And then, you know, also talking about this hedgehog concept, which I'll just reiterate again, because I think it's helpful. And so again, this idea is that you're looking for things at the intersection of the following three circles. Circle number one, what you're deeply passionate about. Again, this can be applied the individual level, it can be applied at the company level.

Number two, what you can be the best in the world at. And number three, what drives your economic or resource engine. Stage three again is all about disciplined action. Just read a couple of thoughts that Jim shares here. No matter how dramatic the end result, building a great enterprise never happens in one fell swoop. There's no single defining action. No grand program, no one killer innovation, no solitary lucky break.

Rather, the process resembles relentlessly pushing a giant heavy flywheel turn by turn, building momentum until a point of breakthrough and beyond. To maximize the flywheel effect, you need to understand how your specific flywheel turns. Again, we covered that earlier. We talked about the seven steps for capturing your flywheel. Just a couple other ideas, again, kind of reiterating what we've talked about in the book. One of these concepts is this idea of a 20-mile march.

Companies that thrive in a turbulent world self-impose rigorous performance marks to hit with relentless consistency. Like walking across a gigantic continent by marching at least 20 miles a day every day, regardless of the conditions. The march imposes order amidst disorder, discipline amidst chaos, and consistency amidst uncertainty. For most organizations, a one-year 20-mile march cycle works well, although it could be shorter or longer.

Daniel Scrivner (54:33.986)
But whatever the cycle, the 20 mile march requires both short-term focus. You have to hit the march, this cycle and long-term building. You have to hit the march every subsequent cycle for years to decades. And say this again, because I think this is such just a phenomenal insight into what basically the precursor of success, which is focusing both short-term and long-term. And so the short-term you're focused on hitting the march, this cycle. So again, to go back to this idea, you have, you know, you're going to cross an entire continent.

And the way that you're going to do that is just by focusing on marching 20 miles a day every day, regardless of the conditions. So number one, you have to do that today. If you don't do that today, you're not using you know, you're not using consistency to enable, which will enable compounding. But you also have to have a long term approach. It doesn't matter if you just do it today, you have to do it every subsequent cycle for years to decades. You know, compounding and I'm going to include this in the show notes, there's kind of a wonderful graphic I found online.

that I think like it is a good way of visually describing compounding. And, you know, it just goes into, I think, reality versus how we, the narratives we like to create in our head. And when we think about success, you often think of a linear line heading up and to the right, you know, it's this beautiful idea, never works that way. And I think what's helpful to understand about exponential growth, you know, and exponential growth, you can interchange that with compounding the same idea. But exponential growth, rather than looking like a, you know, kind of a 45 degree line going from bottom left corner to top right corner, it looks more like a, like a wave.

And so it actually starts very flat and that flatness stays for quite a while. That, you know, the line, basically the line that's created ends up looking flat for, I would say, at least 50% of the width. And then you see this wicked arc as it starts to move up and into the right. And so you're still arriving at the same, you know, kind of destination. But what it helps you understand is the path to travel and the path to travel is you're going to need to you have to bring consistency every single day.

Because what you ultimately are relying on is that over time, you're going to build momentum via compounding. That's going to make you unstoppable. And that's actually what this kind of, when the line starts arcing up into the top, it's, that is the, that's the compounding actually taking shape. That's all the results of work that you've done one year previously, a few quarters previously. You know, one way of maybe thinking about this that I like as a quote that, um,

Daniel Scrivner (56:51.49)
Jeff Bezos once said, I'm sure I'm going to butcher it, but I'll find it include the right version in the show notes. But he said something along the lines of, you know, whenever he's looking at a quarter today, like the quarterly results for Amazon, he knows that those results were actually baked three years ago. And I think that's a wonderful way of articulating compounding and exponential growth, that what you're experiencing today is what you are the seeds of what you sowed years ago. And what you're going to experience three years in the future are the seeds that you're sowing today.

And so again, just this idea of 20 mile march, you need to be consistent both in the short term and the long term. We talked about firing bullets, firing cannonballs. I'll just share a couple of thoughts on that. The ability to scale innovation, to turn small proven ideas or bullets into huge successes, cannonballs can provide big bursts of momentum. First, you fire bullets. They're low cost, low risk, low distraction experiments to figure out what will work and what are you doing while you're firing bullets?

You're calibrating your line of sight by taking small shots. Then once you have empirical validation, you've taken a bunch of small shots. You've actually proven to yourself that you have something that you figured this out, that there is some, some actual useful signal. Then you fire a cannonball and you concentrate resources into a big bet on a calibrated line of sight. Calibrated cannonballs correlate with outsized results. Uncalibrated cannonballs correlate with disaster. So well said.

Stage four is all about building to last. And one of the ideas that Jim talks about is productive paranoia. The only mistakes you can learn from are the ones you survive. Leaders who navigate turbulence and stave off decline assume that conditions can unexpectedly change violently and fast. They obsessively ask, what if, what if, what if? By preparing ahead of time, building reserves.

preserving a margin of safety, bounding risk, and honing their discipline in good times and bad, they handle disruptions from a position of strength and flexibility. There's another idea inside here called clock building, not time telling. Leading as a charismatic visionary, a genius with a thousand helpers upon whom everything depends is time telling. Shaping a culture that can thrive far beyond any single leader is clock building. Searching for a single great idea upon which to build success is time building.

Daniel Scrivner (59:03.906)
Building an organization that can generate many ideas is clock building. Leaders who build enduring companies tend to be clock builders, not time tellers. For true clock builders, success comes when the organization proves its greatness, not just during one leader's tenure, but also when the next generation of leadership further increases flywheel momentum.

Daniel Scrivner (59:27.506)
And there's a couple other ideas here that I'll go into. So it's effectively kind of a 10x multiplier and some of the outputs of greatness. OK. So one of the ideas he shares is kind of this 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. This is an important insight.

You know, just gets you gets this notion out of your head that luck is what's going to make you successful. It's not true. They didn't get more 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? He also talks about this idea of the outputs of greatness. The above principles are the inputs to building a great organization. That's all the things we've just covered.

You can think of them almost as a map to follow for building a great company. But what are the outputs that define a great organization? Not how you get there, but what is a great organization? What are the criteria of greatness? There are three tests, superior results, distinctive impact, and lasting endurance. Superior results in business performances defined by financial results, return on invested capital, and achievement of corporate purpose. To use an analogy, if you're a sports team, you must win championships. If you don't find a way,

to win at your chosen game, you cannot be considered truly great. So, you know, regardless of what your business looks like, you must achieve top flight results. It's clear for everybody, but just to say it unequivocally, absolutely important. Second that he, you know, second kind of criteria that defines greatness is distinctive impact. I think this is something all of us get excited about when we think about what we're building.

A truly great enterprise makes such a unique contribution to the communities it touches and does its work with such unadulterated excellence that if it were to disappear, it would leave a gaping hole that could not be easily filled by any other institution on the planet. If you just quickly think of great companies, whatever you define as a great company, this is absolutely true. These things are distinctive. They are very unique in their culture. They're very unique in what they've built. They are irreplaceable. And so when they were, you know, if they do leave, if they were to disappear, they would leave a gaping hole.

Daniel Scrivner (01:01:46.014)
This does not require being big. Think of small but fabulous local restaurant that would be terribly missed if it disappears. Big does not equal great and great does not equal big. It's the second criteria, distinctive impact. And the third criteria, lasting endurance. A truly great organization prospers over a long period of time beyond any great idea, market opportunity, technology cycle or well-funded program. When clobbered by setbacks, it finds a way to bounce back stronger than before.

A great enterprise transcends dependence on any single extraordinary leader. If your organization cannot be great without you, then it's not yet a truly great organization. Finally, I caution against ever believing that your organization has achieved ultimate success. Good to great is never done, no matter how far we have gone or how much we have achieved. We are merely good relative to what we can do next. Greatness is an inherently dynamic process, not an endpoint.

The moment you think of yourself as great, your slide toward mediocrity will already have begun. With that, I highly encourage you to read Turning the Flywheel in full. You can find a link to buy the book in the show notes below, and you can find my notes as well as my favorite excerpts and quotes from the book at outlieracademy.com/turning-the-flywheel. Just have one other thing to share to get my top 10 highlights from this book, essay, monograph, whatever you want to call it.

And every book, letter and speech that I share, sign up for our new newsletter. You can find that at newsletter.outlieracademy.com. You can also sign up anywhere on the website. Thank you so much for listening. This again was Turning the Flywheel by Jim Collins.