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Flywheel Effect in Startups

Have you heard of the phenomenon of “flywheel effect”. It is widely popular in physics but has been quoted recently in some leadership books and startup theories. Jim Collins, author of “Good To Great” shares his definition as follows:

“No matter how dramatic the end result, good-to-great transformations never happen in one fell swoop. In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.”

One of my favorite startup “original” thinkers Dave Payne talks about this phenomenon in product-focussed startups quite frequently.

Flywheel Effect in startups:

What is it?

When product and distribution is mixed together really well and growth comes from a spiral;

Product usage naturally brings more and more people into the spiral;

How do you observe this phenomenon?

When 1st layer target users organically (almost unknowingly) bring 2nd layer new consumers as part of the work flow — the new consumers often have no idea about the product/offering and become curious

Who’s done it before?

  • Product Hunt (founders/makers launch on PH but also drive social traffic to their new launches who then find out about Product Hunt and wonder how they can launch too (thanks Ryan for sharing this!)

  • Dropbox (users upload files into Dropbox and share them w other users who in turn become curious)

  • Hotmail (users send email with hotmail at the end of their email address that naturally makes the receipients curious)

  • DocSend (users share pitch decks with a URL instead of the actual deck which in turn makes recipients curious

  • Venmo (users sign up and link bank accounts and sending money to friends/family, the recipients naturally need a Venmo account to get money)

Network Effects vs Flywheel Effect:

As Eric has suggested in this well-articulated blog post, Network Effects and Flywheel Effect are very commonly conflated, because they so commonly occur together. Network effects almost always lead to or create a Flywheel Effect, but the Flywheel Effect can occur where network effects do not.

An example would explain this difference better. Linkedin is a startup that can be called the poster child of network effects. They didn’t hit vitality until they had about 500k users (professionals) using the platform to find jobs or post resumes. But it hit decent scale, it became unstoppable. More people joined just because of the existing user base (Network Effects) and resulted in getting the “Flywheel” moving. But in the case with Dropbox, Flywheel was built into the product right from day 1. It didn’t need hundreds of thousands of users to create the sticky growth spiral. Flywheel can happen without network effects/scale.

What else? What are some other thoughts/opinions you have about the phenomenon of Flywheel Effect?

Can you think of any more examples that demonstrate this very well?