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Understanding the Flywheel: How To Build a Product That Sells Itself

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Most founders aren't thinking in terms of creating a sustainable growth machine when starting a company. 

That's a mistake.

Whether you're bootstrapping your business or raising money from investors, you need to build a product that can grow on its own.

In this article, we'll explain what a flywheel is, how it can help your business grow, and how to implement one in your own company.

What Is a Flywheel?

A flywheel is a heavy wheel that stores kinetic energy. When it's spinning, it can help a vehicle move forward with less effort.

In business, this allegory can be applied to growth. A company's flywheel is the engine that powers its long-term success.

If you can keep the flywheel moving, it will eventually reach a point where it's self-sustaining. 

This is the goal you should be striving for as a founder.

How Does a Flywheel Work?

There are three main forces that keep a flywheel moving:

  • Momentum: Once the flywheel starts spinning, it's hard to stop. The same is true for a company with positive momentum. Each new customer creates more momentum and makes it easier to acquire the next one. 
  • Friction: To keep the flywheel moving, you need to overcome friction created by the resistance of the environment. In business, this means overcoming barriers to entry and creating a better product or service than your competitors. 
  • Power: The flywheel won't move without a power source. In business, this power comes from your team. You need to have a talented and motivated team to keep the flywheel moving. 

These three forces work together to create a flywheel effect. The flywheel starts spinning when you have enough momentum, power, and friction to overcome the resistance of the environment. 

As it spins, the flywheel builds momentum and starts to move faster. This creates a feedback loop that makes it easier to acquire new customers and grow the business.

Why Should You Build a Flywheel?

The goal of building a flywheel is to develop a self-sustainable growth engine.

To do this, you need to create three interconnected loops that reinforce each other:

  1. The Customer Loop
  2. The Employee Loop
  3. The Business Loop

The customer loop is the engine that powers the flywheel.

It starts with acquiring new customers and ends with them becoming repeat customers. To keep the flywheel moving, you need to make sure the customer loop is constantly turning.

The employee loop is what keeps the customer loop turning.

Employees need to be motivated and engaged to provide excellent customer service.

The business loop is what keeps the employee loop turning.

The business needs to be profitable so that employees can be paid and motivated to do their jobs well.

If any of these loops break down, the flywheel will come to a stop.

That's why it's so important to make sure they're all working together.

Also, a successful flywheel should empower users to evangelize on your behalf.

This is the power of word-of-mouth marketing. 

When users love your product, they'll tell their friends and family about it. This is the best kind of marketing, because it's organic and doesn't cost anything.

But building a flywheel isn't just about promotion. It's also about functionality.

The more users you acquire, the more functional your product becomes.

Take Google, for example.

Without people searching for information, Google would have no reason to exist.

But as more people use it, the company keeps adding new features, like Gmail and Google Maps.

This is the virtuous circle of growth.

Examples of Companies Using a Flywheel

There are many companies that have used the flywheel to achieve long-term success.

Some of the most notable examples are:

Amazon

Amazon is probably the most notorious example of a company with a successful flywheel.

Amazon started as an online bookstore and grew into the largest retailer in the world.

How did they do it?

By focusing on two things:

  1. Building a network of sellers and merchants. This gave them a large selection of products to sell and made it easy for customers to find what they were looking for.
  2. Creating a better customer experience. They did this by offering fast shipping and excellent customer service.

These two elements fed each other, building momentum and growing the business.

As Amazon improved the user experience, more people started buying from them, which attracted more sellers and merchants.

It was a virtuous circle of growth that powered the company to the top.

Netflix

Netflix is another company that's using the flywheel to great effect. They started as a DVD rental service, but they knew that the future was in streaming.

So Netflix decided to cannibalize their own business model and move to streaming.

It was a risky move, but it paid off.

Netflix now has over 100 million streaming subscribers and is worth over $100 billion.

Netflix’s flywheel consists of three interconnected elements:

  1. Subscription customers
  2. A wide movie catalog
  3. A personalized experience

The more users Netflix has, the better their catalog becomes.

And the better their catalog is, the more users they'll acquire.

Besides, by personalizing the experience for each user, Netflix makes sure that they keep coming back.

It's a never-ending cycle of growth that has helped Netflix become the largest streaming service in the world.

Facebook

Facebook is another company that has implemented a flywheel successfully.

Facebook started as a social networking site for college students, but they quickly expanded to include anyone with an email address.

Now, Facebook has over 2 billion users and is worth over $500 billion.

Facebook's flywheel consists of two groups:

  1. Users
  2. Advertisers

The more users Facebook has, the more advertisers they'll attract.

And the more advertisers they have, the more money they'll make from ads, which they can use to improve the user experience.

It's a simple but effective flywheel that has helped Facebook become one of the most successful companies in the world.

How to Implement a Flywheel in Your Own SaaS Organization

Now that you understand how the flywheel works, you may be wondering how you can implement it in your own SaaS organization.

Here are five steps to get you started:

1. Figure Out Your Key Metrics

The first step is to figure out which metrics are most important to your business.

These could be metrics like active users, monthly recurring revenue (MRR), or customer lifetime value (CLV).

Once you know your key metrics, you can track them and use them to guide your decisions.

How can you find these metrics?

There are a few ways:

  • Historical data: Look at your historical data to see which metrics have been most important in the past.
  • Customer feedback: Ask your customers which metrics they find most important.
  • Analytics tools: Use tools like Mixpanel or Kissmetrics to track and analyze your data.

Whatever method you use, the important thing is to identify the metrics that will have the biggest impact on your business.

Without metrics,  it's impossible to know whether your flywheel is working.

2. Identify Which Actions Will Move the Needle

Once you know your key metrics, you need to identify which actions will move the needle on them.These could be things like adding new users, increasing MRR, or reducing churn.

For instance,if your key metric is active users, you might want to focus on actions that will increase the number of people using your product.

This could include things like improving your product's onboarding experience or running marketing campaigns.

On the other hand,  if your key metric is MRR, you might want to focus on actions that will increase the amount of money each customer spends.

This could include things like offering discounts or increasing the number of features in your product.

The important thing is to identify the actions that will have the biggest impact on your key metrics.

3. Create a Feedback Loop

Once you've identified the actions you need to take, you need to create a feedback loop.

This feedback loop will help you track how your actions are impacting your key metrics.

For instance, you could track active users, MRR, or churn on a weekly or monthly basis.

This will help you see whether your actions are having the desired effect.

If they're not, you can adjust your strategy and try something else.

Feedback loops are often overlooked, but they're essential for understanding how your business is performing.

4. Set Targets for Your Key Metrics

Once you have a feedback loop in place, you need to set targets for your key metrics.

These targets should be ambitious but achievable.

For instance,  if your goal is to increase active users, you might want to set a target of doubling or tripling your current number.

If you hit your targets, you'll know that your flywheel is working.

5. Keep the Flywheel Spinning

The final step is to keep the flywheel spinning.

This means constantly experimenting and trying new things to improve your key metrics.

It also means maintaining a focus on your key metrics and making sure they're always moving in the right direction.

For example,  you might want to adjust your targets every few months or change the actions you're taking based on how your key metrics are performing.

Start Designing Your Flywheel Now

The flywheel is a powerful tool, but it's not a magic bullet.

It takes time, effort, and experimentation to get it working.

However,  if you're patient and you focus on the right things, the flywheel can have a huge impact on your business.

Hopefully, this article has given you a better understanding of the flywheel and how it works.

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