What’s a company’s “flywheel,” according to Jim Collins? Why’s it important to keep your focus on said flywheel?
According to How the Mighty Fall by Jim Collins, flywheel means the small wins that gain momentum for your business. If you take your mind off the flywheel for even just a moment, it could have dire consequences.
Check out why the flywheel is the foundation of a business strategy.
A Successful Company Loses Its Focus
Overconfidence harms companies when leaders take their focus off what’s called the “flywheel”: Jim Collins’ concept for the momentum keeping the company moving forward. Because the company may seek to expand its success to new ventures unrelated to their core business, it may pay little attention to what drives its success in the first place. When the company finds that success is hard to replicate in other fields, it may turn its attention back to the flywheel, which by then has become shaky from neglect.
(Shortform note: Collins introduces the concept of flywheels in Good to Great. He explains that a company’s spinning flywheel results from a “buildup phase,” wherein the company focuses on sound management practices: having highly driven people, facing facts, sticking to its core philosophy, and using technology tactically. He explains that companies fail when they take shortcuts, barreling into new projects without gaining the necessary momentum in the buildup phase.)
According to Collins, one example of a company that lost its focus is Circuit City, a consumer electronics retailer that enjoyed impressive growth in the 1980s and ’90s. Collins argues that the company’s decline began when it turned its attention to building up other unrelated businesses, such as used car dealerships. In the process, its electronics superstores stagnated. Circuit City filed for bankruptcy in 2008.
(Shortform note: Some experts say that Circuit City had plenty of other problems aside from being distracted by unrelated businesses. It couldn’t differentiate itself from its competitors, it opened too many stores that ended up competing against each other, and it mismanaged its inventory. In a bid to keep its share price from plummeting further, it also disposed of valuable assets to buy back its own stock.)
Collins adds, however, that focusing on your flywheel doesn’t mean that your company shouldn’t innovate. Rather, it means building on what you’re good at. For example, if your company is successful at selling baked goods, you shouldn’t suddenly venture into manufacturing car parts. Instead, you might expand into baked goods for dogs, boxed mixes of your muffins, or kitchen equipment like cake pans and mixing bowls.
(Shortform note: Innovating by building on what you’re good at doesn’t automatically lead to success. In Ten Types of Innovation, the authors contend that some innovations fail because many companies don’t know how to innovate. The authors thus recommend treating innovation as a formal discipline with a standard set of strategies. For example, you can start by defining the specific objectives of a project and clarifying how it fits into the bigger business strategy.)
The only time you should consider completely pivoting away from your flywheel, says Collins, is when it’s bound to become obsolete in a few years or when it no longer excites you. (Shortform note: If your flywheel looks like it’s destined to become obsolete, you don’t have to completely pivot from it right away. In The Innovator’s Dilemma, Clayton M. Christensen recommends establishing an autonomous organization within the company to explore and develop disruptive innovations. And if you’re no longer excited by your flywheel, you don’t have to abandon it, as Collins suggests—instead, consider channeling your passion into something else that can keep you going, whether it’s entrepreneurship or helping your employees grow.)