Jim Collins, Turning The Flywheel

Jim Collins, Turning The Flywheel [Book Review]

Turning the Flywheel: Why Some Companies Build Momentum … and Others Don’t (HarperBusiness, 2019) is a short (40-page) monograph intended to accompany Jim Collins’s iconic bestseller Good to Great, published back in 2001. I never read Good to Great, so I can attest that Turning the Flywheel stands proudly on its own.

Q4 hedge fund letters, conference, scoops etc

Jim Collins, Turning The Flywheel

Underlying the success of the flywheel as a business principle are two concepts known to every investor: momentum and compounding. As Collins writes, “Never underestimate the power of a great flywheel, especially when it builds compounding momentum over a very long time.”

What exactly is a business flywheel? In the case of Amazon, it goes something like this (imagine these steps laid out in a circle): lower prices on more offerings, increase customer visits, attract third-party sellers, expand the store and extend distribution, grow revenues per fixed costs. “Push the flywheel; accelerate momentum. Then repeat.” Or, with Vanguard, offer lower-cost mutual funds, deliver superior long-term returns for clients, build strong client loyalty, grow assets under management, generate economies of scale—and repeat. Notice, Collins writes, “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.”

The flywheel isn’t just for CEOs. Anyone can use this model to propel a venture, for example, in education or medicine—or, for that matter, in trading. The point is that once you identify the right components of the flywheel, and once you have all these components performing at a high level, you must then keep cranking. “The big winners are those who take a flywheel from ten 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 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 decision to abandon that flywheel. Exit definitively or renew obsessively, but never—ever—neglect your flywheel.”

In 2017, Forbes selected Collins as one of the 100 Greatest Living Business Minds. Turning the Flywheel justifies that accolade.

Article by Brenda Jubin, Reading The Markets


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