A few years ago I read the Amazon/Jeff Bezos bio – The Everything Store: Jeff Bezos and the Age of Amazon.
In the book, the author highlighted how much Bezos was impacted by Jim Collin’s book ‘Good To Great‘, and in particular the concept of the ‘Flywheel Effect’ and the Virtuous Cycle that drives it.
You can think of the Flywheel as the engine of your business. Every day you push the wheel to give it some momentum, but it takes a long time before it starts spinning quickly. Eventually though, once you put in enough daily work, the wheel has momentum and only requires minimal effort to keep it going — all your previous hard work has paid off!
The Virtuous Cycle refers to building an engine in your business that feeds itself. Each component impacts the other components in the machine, so as you make incremental improvements to each individual aspect, the machine as a whole improves.
The Genius Flywheel Behind Amazon’s Success
Jeff Bezos started to see where different components of his company could form synergies that would create compound effects (the virtuous cycle in action) and competitive advantages.
One of the interesting manifestations of this was the creation of Amazon Prime’s entertainment division.
It made sense that Prime offer free shipping on purchases made from Amazon, but seeing how offering movies and television series as a way to increase sales of Amazon products wasn’t an obvious connection at first.
When you understand it though, you can see the genius.
By increasing how much value is offered to Prime members, you not only increase how much subscription revenue you receive from the service itself (a cash-cow revenue stream), you also impact sales of all Amazon products.
For example, a person may sign up to watch a series like Man In The High Castle, only available to stream on Prime.
Now this person has a Prime subscription, so when Christmas comes around, they decide to buy presents for the family via Amazon because of the free shipping they qualify for as a Prime member.
The end result is keeping the customer within the Amazon ecosystem. It makes the decision to buy from Amazon instead of the competition an obvious one.
The more Prime members there are, the more Amazon products sell, and the more cash they have to invest into more Prime entertainment, leading to more Prime customers, and more product sales, and so on and on.
The engine feeds itself, locks people into the Amazon ecosystem and eliminates competition.
The Newest Amazon Flywheel: AWS and Gaming
I recently read this article on a new gaming company acquisition Amazon completed recently –
Amazon quietly bought a gaming company for $10 million, according to reports
This paragraph stood out to me:
Lumberyard, which was introduced back in February 2016, is an all-in-one game development engine. In English, that means it can be used to create games that can then be supported by Amazon’s internet hosting services (AWS) and Amazon’s game streaming service (Twitch). It’s a kind of “closed ecosystem” approach to game development that encourages any developers using the service to also use Amazon’s other services to support their games.
Amazon is building another Flywheel around its Amazon Web Services (AWS) suite of hosting offers.
By creating and acquiring tools for game developers and services for game players, it makes the decision to use AWS for game development a foregone conclusion.
Once again, Amazon is creating value for customers by offering solutions to problems that might not seem connected at first, but when you zoom out and see the big picture, you can see another closed ecosystem come together.
Can You Foster A Virtuous Cycle In Your Business?
There’s a great lesson to take away from what Jeff Bezos and Amazon are doing, which you can apply to your own business.
- Where can you create interconnections between the products and services you sell, to encourage customers to stay within your ecosystem when making purchasing decisions?
- How can you make one product or service improve the results of another product or service and create competitive barriers?
The connections might not seem obvious at first, but if you look at the various needs your customers have, you may see that there are overlapping needs.
Usually, there is one product or service that acts as the engine. It might be a subscription product like Prime, or a core service like AWS, which other products and services support and help to grow.
For many information marketers, experts who sell their expertise through education and coaching (like me and probably you!), you may have a membership site, or flagship course as the ‘engine’ product, and all other product and service offerings serve to make the choice to purchase the engine product (or stay a member of it), an obvious one.
You may also look to create software (a SAAS for example), or a tool or even a live event or mastermind group as the engine, with all other elements of your business linked to this one main offer.
No matter what business you are in, it pays to think about the Flywheel and the virtuous cycle, as these can transform your business from good to great.