In October 2001, Amazon was in trouble. The first dot-com bubble had popped a year earlier, and Amazon’s stock price was languishing in the single digits, less than half of where it was trading a year before.
That’s when founder and CEO Jeff Bezos called Jim Collins, a former Stanford business professor who had written the widely-admired book Good to Great: Why Some Companies Make the Leap…and Others Don’t. Collins visited Amazon’s campus to talk about some ideas from the book, including a concept he called “turning the flywheel” — in essence, figuring out how to push your business so that it starts to gain momentum, growing faster and faster.
“Now the wonderful thing about great students — and Jeff Bezos and company are really thoughtful, smart people — is they take an idea and then they took it even further,” Collins said on the latest episode of Recode Decode with Kara Swisher. “So they took the flywheel and they said, ‘We’re going to make the flywheel ours.’
“That flywheel essentially was, we offer lower prices on more stuff,” he added. “If we do that, we’re going to increase customer visits. If we do that, we can’t help but get more third-party sellers. And if we do that, then we can’t help but expand the store and extend distribution. If we do that, we’re going to raise revenues per fixed costs, and if we do that, we can lower prices on more stuff, and around it goes.”
Since then, Amazon has done okay (Thursday’s closing stock price: $1,907 per share) and Collins has urged all the companies that come to him for advice to think about the “causal links” in their work. He’s also written a new companion piece to Good to Great, appropriately titled Turning the Flywheel. But he warns that not all of his students have understood the material as well as Bezos and company.
“Sometimes what I find is that people confuse a really deep understanding of why the flywheel really works with kind of an aspirational set of steps,” Collins said. “[They say,] ‘We want to do customer service and fast delivery and increase in capital. Okay, we’ll list them all out, now let’s just draw a circle.’ That’s not a flywheel. That’s just saying we have a flywheel when it’s just a list of things you want……..Read More>>