Are you re-thinking your entire approach to your business? You won’t be alone.
The economic disruption of the pandemic is starting to bite. Many business owners are wondering if they need to change course or re-structure. One thing’s for sure. You’re going to need momentum behind whatever course of action you take.
A Harvard Business Review article from 2010, Roaring Out of Recession, reveals that three years after recession:
Interestingly firms that cut costs faster and deeper than rivals didn’t necessarily flourish. They had the lowest probability—21%—of pulling ahead of the competition when times got better, according to the study.
Transformation doesn’t happen in one fell swoop. There’s no single big action, or killer innovation, or miracle moment. Instead, it’s more like relentlessly pushing a giant, heavy flywheel. Turn by slow turn, you gradually build momentum until, at last, it starts to spin for itself.
I often discuss this idea with new clients and suggest we look for flywheels in their business. It’s soon evident that they don’t exist. Revenue is flat or only growing at 1 or 2%. They may have a few repeat customers, but not many. When customers do repeat, they’re not buying the same things. There’s no mechanism for word of mouth referral and the quality of their service is adequate but not amazing. In short, their business is plodding along.
That’s not what you want right now. You need your business to be firing on all cylinders to survive and, hopefully, thrive in the future. So how do you do this? How do you build powerful momentum in your business?
Jim Collins came up with these concepts in his internationally recognised book, 'Good to Great'. He described how behavioural patterns can set in within a business and become self-reinforcing. If companies can understand how to engineer a flywheel, they will avoid the opposite which is the brilliantly named ‘doom loop’!
Years ago, I read a study by McKinsey looking at the proportion of businesses that do an IT project successfully and then go on to do more – 17% from memory. At the other end of the scale, a larger chunk (25%) experienced one catastrophic IT project which put them off doing any more. Over time, these businesses diverged in terms of their growth and success. If you’re not careful, ‘group-think’ can creep inside the business. It’s only human to get up in the morning, look in the mirror and think that everyone is like you and thinks in the same way. But this needs to be challenged. You don’t want to get stuck in a doom loop where failure breeds further failure.
This is about being deliberate and habitual to build momentum around success. So, what tools could help with this? One of the best is a pre-mortem before any big initiative. It’s far more common to do post-mortems which, if you’re not careful, can turn into witch hunts or blame games – pretty toxic for a business. Instead, a pre-mortem promotes psychological safety by encouraging staff to speak out if they can foresee any possible issues before they happen.
Get your teams together as a matter of habit to brainstorm at the very beginning of any new approach. Say you’re announcing a plan for the next 12 months. You tell them you’re aiming for revenue at £100m, growth of 25% and you present your top 3 to 5 objectives. Encourage them to take themselves forward by a year. Why didn’t it work? What were the barriers? How could you overcome them together?
This can be hugely powerful. Suggest that every person comes up with two or three things that might not work. If everyone does this, there’s no fear of speaking up and looking like the only negative person in the room. This way, you’ll get a full 360-degree view of the problem that can be incredibly valuable. You’ll also ensure total buy-in from your team before you start.
Here’s my suggested format for a thorough pre-mortem:
1. Introduction. Open and honest discussion. Imagine that the project failed and think about why.
2. Debrief responses.
3. Prioritise the threats – get the team to work out the top two or three.
4. Brainstorm the mitigation strategies. Identify ways to address the top two or three threats.
5. Document and follow up. Then build outcomes from your pre-mortem into the plan.
At all times, you’re trying to create elements of your business model that are self-reinforcing. One activity naturally leading to another. You can do that at a whole business level or at a sub-system level. For example, a flywheel can be incredibly effective when it’s applied to the recruitment and retention of A-Players (these being the top 5 to 10% of available talent for a given job, salary and location).
There’s no doubt in my mind that A-Players do more work than B or C-Players. They also take far less management. So, it makes sense to put in processes that make their recruitment and retention self-reinforcing. Create job adverts that are more likely to attract them and ensure they’re interviewed by other A-Players – this will make it more likely they’ll come and work for you. Get rid of any irritating, bureaucratic rules that are likely to annoy and slow them down. Remember, if you can create the right environment for recruitment and retention of great people, you’ll have an organisation with 5x or 10x output for your salary dollars. And if you keep this flywheel turning, you’ll increase your overall percentage of A-Players substantially over time. Your whole business will be moving faster, creating momentum.
Look at all your human systems – recruitment, onboarding, performance management – to ensure they’re focused around attracting and retaining top talent.
Imagine a new customer coming in at the top of your flywheel. They buy from you because you’ve been competitive. Maybe your service reputation is part of this decision and you’ve made sure that you’ve gone to market promoting this. The customer buys, you deliver. They experience your great service so they give you a good NPS result. As this suggests, the customer continues to buy from you. And they also refer you to other customers. These referrals come in and buy with a shorter sales cycle, which means less money spent on sales and marketing. Your existing customers start to spend more with you and therefore have a higher lifetime value than your competitors. Dollar for dollar, you’re generating new business revenue cheaper than your competitors. A dollar of new customer revenue is worth more to you. And so it goes on, spinning and spinning, building and building on an exponential curve. Suddenly you’re a break-out business in your sector.
I experienced exactly this during my time at Rackspace. When I joined as UK managing director, the average lifetime value of our customers was £2,000. When I left five years later, this had shot up to £200,000 – that’s a pretty stratospheric growth curve.
In his recent monograph 'Turning the Flywheel', Jim Collins looks at a highly successful example of his concept at work in Amazon. It’s a fascinating read. Really the approach was so simple – Amazon based their model on low prices for an increased volume of offerings. This drove increased customer visits. The visit volumes drove third-party sellers onto their platform. Which extended the store range and distribution. This drove increases in revenue per fixed cost. Which came full circle around again to lower margins on more offerings. Brilliant!
Amazon are the masters of creating flywheels around innovation. Amazon Prime is a great example. This turned their e-commerce business into a recurring revenue business. In the same way, CostCo’s profitability comes from its membership fees. Because they’re making their money from selling memberships, they don’t have to make money on goods. So, when they buy in volume, they can pass on significant discounts to members. Which ensures they renew the next year. As their membership grows, they take the decision to open another store, and then another. They’ve applied a flywheel to their business model and can grow through word of mouth.
It’s always possible to identify new flywheels based around patterns of behaviour that are self-reinforcing. Remember success will build on success, so examine all your systems and processes to ensure they interlink and move your wheel in the right direction. It takes time and effort to get things spinning but once they do, you’ll find powerful momentum in your business.
Dominic has spent 14 years working in sales, marketing and business management within the IT sector. He has held executive positions at Peer 1 Hosting, IT Lab and Rackspace. At Peer 1 he built the UK business to £30m run rate in 5 years. He won many awards for creating a great place to work. At Rackspace Dominic built the UK company from four to 150 staff, and increased annual revenues from £595,000 to £25 million in just four years. Under his management, Rackspace was recognised as one of the most outstanding workplaces in Europe, and won several service awards for its Fanatical Support TM. Dominic has a BSc in Agricultural and Food Marketing from Newcastle and a MBA from Sheffield Business School. Dominic is also a regular public speaker on creating great places to work and achieving continuous client satisfaction and an assessor on the Sunday Times Customer Experience Awards.