Why Flywheels

Understanding the not-so-obvious.

The funnel has been the dominant mental model to understand product performance for software startups. It was coined by Dave McClure of 500 Startups fame, and describes a customer journey through a product, from the channel they arrived to the point they start paying you.

For a lot of software, this experience encapsulated the user journey well enough, and funnels became the most common model to measure startup health.

They highlight some important measures of success. The proportions of users that make it through each step, especially over a time-series, can give us a really good understanding of how well a specific part of the business is doing.

The problem is that funnels are still an incomplete model. A funnel is simply one part of the flywheel, and only operates in a single direction. We know how much things are happening, but don't know why.

A more complete model for growing products is the flywheel.

A flywheel is a cyclical graph, where each node represents a key event or user action that drives the business forward. This makes them a more complete way of understanding how a business actually grows, by tying together the events that create continued usage.

The best products create flywheel effects where the effects of one event can cause that event to happen again. For example, a user joining a social network might interact with some content and share it to someone outside the network, causing someone new to join the network, and so on.

This is a simple example but in reality, the nuanced events that drive businesses forward are pretty fascinating.

In this newsletter I intend to explore fast growing businesses across industries, and also look at some already successful businesses retrospectively to examine how they grew through the lens of a flywheel.

Image courtesy of Reforge, which has an excellent article on Growth Loops.