Bezos grew Amazon to $1.75T as CEO.
But, in 2001 after the dot-com crash, Amazon’s stock had fallen 90% to $5B.
In a hail mary attempt, Bezos invited a book author to Amazon.
Together, they created the foundation for trillions in market cap:
The author was Jim Collins, who published Built to Last in ‘94.
By ‘01, Bezos had adapted several of its concepts into Amazon’s principles:
Tyranny Of Or —> Avoid 1-Way Doors
Homegrown Leadership —> Hire & Develop the Best
Good Enough Never Is —> Insist on the Highest Standards
So, when Collins told Bezos that the key concept in his upcoming book was a flywheel, Bezos was eager to adapt it.
Collins had in mind the 5,000 lb old style flywheels.
They took hours to turn at first.
But at some point, WHOOSH!
Their own momentum kept them going.
Collins had commissioned a large team of Harvard MBA researchers for the new book.
They identified good-to-great companies that had delivered sustainable, S&P 500 beating results for years.
They then compared those to mediocre companies that had flailed.
What Collins found is the great companies were spinning flywheels.
It wasn’t the first, or fifth, or one hundredth rotation that got them spinning.
It was their concentrated effort that led to the breakthrough momentum.
Thereafter, the heavy disk would spin on its own.
On the other hand, mediocre companies were constantly launching new initiatives.
Instead of achieving breakthrough momentum on one flywheel, they tried to create many.
But each never achieved breakthrough velocity.
They had to keep manually cranking them.
Given the insight, Bezos and Collins began sketching out Amazon’s e-commerce flywheel.
They identified that Amazon could generate self-reinforcing momentum in 2 ways:
1. Lower cost structure leading to lower prices leading to more scale and back to lower costs.
2. Greater selection leading to customer experience leading to traffic leading to more sellers and back to greater selection.
These two elements have been the backbone of Amazon’s e-commerce business for the 20+ years since the pair initially founded them.
To this date, the flywheel continues to extract market share for Amazon.
Last year, Amazon reached a tremendous 56.7% of total US e-commerce sales.
At $614B in revenue, it has left the competition - like Walmart - in the dust.
So, what can we learn from Amazon’s e-commerce flywheel?
As product and business people, we are tempted to start new flywheels constantly.
But, it usually pays to focus on spinning our main one with self-reinforcing momentum faster.
Sketch out your flywheel, and go get it.