Amazon has grown from an online bookstore into the world’s third-largest retailer by using the flywheel effect. The flywheel is a business model first discovered by an organization called the Hawthory Group in a document about their consulting with Amazon. Since then, other businesses have used the flywheel model to explain how they grow their company and achieve success. The flywheel effect not only explains how Amazon has grown so much as a retailer, but also how you can use it to grow your ecommerce business. By applying these principles to your business, you can reach new levels of success and expansion that you may not have considered before now. Let’s take a look at how you can use the flywheel effect to grow your business.
What is the Flywheel Effect?
The flywheel effect is a business model that explains how you can use strategies to accelerate your growth and achieve success. Originally used to describe the growth of Amazon as an online retailer, the flywheel effect can help you to achieve success in your business too. The idea of the flywheel is that you must start with something small that can then build momentum and become a very large success. The key to the flywheel effect is that you must identify the small initial piece of your business that can be the catalyst that makes the rest of your business grow. Once you have this initial piece, it will begin to turn and spin the rest of your business and help it to grow exponentially. The flywheel effect is a great model to follow and can help your business to grow exponentially.
The Amazon Flywheel
The Amazon Flywheel is called the virtuous cycle. It is per definition the core approach that Amazon has taken to take care of his customers and to grow.
- Customer experience
Amazon wants to achieve great customer experience to grow.
- Traffic
If Amazon succeeds in creating great customer experience, this will generate lots of traffic. Several consumers will be interested in that customer experience. They’ll hear about it through word-of-mouth, will have their own experiences and they’ll come to the Amazon website.
- Sellers
With all this traffic, Amazon has two options: it can sell to its consumers but it can also allow other sellers to offer their items on Amazon detail pages.
- Selection
The main reason why Amazon would open up its detail pages and store to competitors to sell on its platform, is twofold: a better customer experience through Amazon Fast Track Instock and FBA (Fulfillment by Amazon). Amazon Fast Track Instock is meant to improve selection, availability, pricing, and fast delivery of products and FBA is the seller selection. FBA is a service offered by Amazon, which allows a seller to entrust Amazon with the storage of his products and let Amazon take care of the delivery and after-sales service. FBA is made much more valuable in the virtuous circle because sellers will have products in many categories and subcategories that Amazon is not even in. This expansive retail selection makes the experience much better by backfilling Amazon when it is out of stock. It also allows Amazon to speed up the seller selection and the growth as well. This makes the virtuous cycle complete and a better customer experience.
- Lower Cost Structure
When growing the company, a side benefit of Amazon’s growth over the last 10 years has been that it builds a lower cost structure. As it get bigger, it get to leverage the buys, the fulfillment infrastructure and logistics infrastructure. It also gets to leverage the website, which in turn lowers the cost per unit of everything.
- Lower Prices
Once Amazon succeeds in lowering cost, it then has two choices. Amazon can keep that cash paid as dividend or lower its prices. Over the years, Amazon has chosen to lower prices, which again completes another cycle of great customer experience.
So for Amazon, growing is about looking for virtuous cycles everywhere, for things that are completely closed-loop and that as you inject energy into each piece of them, the flywheel spins faster and faster.
How to Build a Flywheel For Your Business
Start with a Small Piece of the Puzzle
The flywheel effect is all about starting with a small piece of your business. In fact, it can start as small as a single customer. When you have this, you can add more customers and products to the system and have them contribute to the same effect, making it bigger and more powerful. When you are starting your business, you might feel like you need to have all of the pieces in place in order to succeed. However, it’s important to know that you can start with a small piece of your puzzle and the rest will come. Once you have this small piece, you can use it as a catalyst to build a much bigger and more effective business.
Add New Behaviors to your Flywheel
Once you have added this initial piece of your flywheel, you can then add new behaviors that will help your business to grow even faster. These can be any activities that you want to develop as part of your business, such as marketing, sales, or customer service. Depending on what the original piece is, you can add different behaviors to help increase and accelerate the effect. For example, if your initial piece is customer service, you can add new behaviors such as responding to emails and calls. This will have a positive impact on your business and help you to grow and increase revenue much faster.
Add New Channels to your Flywheel
After you have added new behaviors to your flywheel, you can then add new channels to your business. Essentially, these are the ways that you interact with your customers and communicate with them. For example, if you use email marketing, then this is a channel that you can add to the flywheel. By adding more channels, you are increasing the amount of customers and orders that you get, allowing you to grow your business even more. You can use this model to add channels such as email marketing, advertising, or affiliate marketing. Once you begin using these channels, they will help to contribute to the flywheel effect and keep it going. By adding more channels, you are allowing customers to find you in new ways and communicate with you more easily. This will help to increase your business and grow your flywheel even more.
Create New Events for your Flywheel
Finally, you can also add new events to the flywheel effect. These are things that you schedule that will have a positive impact on your business and help it to grow. For example, you could host a webinar or online event that helps customers to understand your product or service better. This will give you the opportunity to interact with your customers and help them to understand your product or service better. This will also allow you to add them to your mailing list and give you the chance to offer them more products or services that they may need. Adding new events to your flywheel is an easy way to accelerate your growth and make your business more successful. By adding events to your flywheel, you are giving customers more opportunities to interact with you and learn more about your product or service. This will help to increase your growth and make your business more successful.
Conclusion
The flywheel effect is a great model that can help your business to grow exponentially. By starting with a small piece of your business and adding new behaviors, channels, and events to your flywheel, you can accelerate your growth and achieve success. This model can be applied to any business and can help you to achieve success quicker than ever before. All you have to do is identify the initial piece of your small business and you can begin to add more pieces to your flywheel.
What is a Flywheel? Understanding How Businesses Achieve Success
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