Every business needs a Flywheel

From tractors to Ferrari’s and everything in between, engines of all sorts are incapable of functioning without a heavy disc of spinning metal known as a Flywheel. The more you know about the role of and characteristics of the Flywheel, the more you may see parallels with your own organisation.

First, some basics about the operation of an engine when used to generate enough energy to move things.

Strip out all the fancy from an engine, and you are left with a few basic principles;

  1. Fuel is injected into a chamber along with some air, the chamber or Cylinder has a rod or piston at one end.
  2. The fuel mixture is ignited by an electric spark causing the expanding gasses from the explosion to push the piston outward.
  3. The other end of the piston is attached to a shaft, which turns as the piston moves, converting the piston’s outward movement into rotation
  4. A number of ignitions are timed in a number of chambers creating a continuous rotation of the shaft
  5. The end of the shaft is attached to a Flywheel which is hard to turn at first due to its weight (hence why engines have electric starter motors to get the flywheel turning)
  6. Now that the Flywheel is moving, and it has momentum, it has much more energy than any individual ignition could produce, meaning that the Flywheel is storing up the energy from hundreds of individual sparks, ready to move the wheels
  7. When you want to move, the clutch plate is allowed rub against the Flywheel transferring the Flywheel’s energy out to move the wheels and overcoming the vehicle’s inertia.

Like an organisation, the engine needs to be in balance to perform as a whole, and it also needs to be optimised for the function it is intended to perform.

The amount of fuel and the size of the spark, the timing of ignition and in which order. And finally, the size of the flywheel are critical in order to get the balance right between the need for agility (lighter is better) versus the need for power (heavier is better).

I love the concept of a Flywheel because it is so critical yet so often ignored, and so much of the of an engine’s power comes for the energy stored in the Flywheel. Kids debate number of cylinders, capacity, etc, but never the size of the Flywheel!

Organisations of all sizes need to have a Flywheel function too, a place to store the sparks of innovation ready to release them at the optimal moment. Sure, a powerful Flywheel can be the enemy of Agility, but that’s about right-sizing the Flywheel to make sure an appropriate trade-off is made between power and control. But like engines, if the Flywheel is too small the whole thing will grind to a halt when things get tough, too big and it will be hard to alter the speed of the engine easily.

Crankshaft (red), pistons (gray) in their cyli...
Crankshaft (red), pistons (gray) in their cylinders (blue), and flywheel (black) (Photo credit: Wikipedia)

When I think about a Flywheel Function, I think about Finance, IT, Project Management Office, HR and other corporate services. The rightsizing of those functions is essential if the business is to perform, both to ensure that momentum is maintained when new ideas are scarce, but able to respond quickly when innovation emerges.

Is your business gearing up for in-car Internet?

ABI Research are forecasting a significant growth in Internet Enabled cars, with 50m vehicles sold by 2017 with native Internet connectivity.

In car connectivity is already broadly available with smartphone-dependent products like HondaLink available in most markets today. However like any new technology, the real breakthrough comes when new applications are developed by a broader ecosystem, which, as far as we can tell, is yet to happen.

It’s quite possible that 30 – 40% of new cars sold in Australia will be Internet Enabled with 5 years, yet few business have connected cars in their 3 year plan.

Is Privacy dead, or just too hard?

Lorrie Faith Cranor and Aleecia McDonald from Carnegie Mellon conducted a study recently which repositioned the lack of online privacy as a time issue.

They reported “To read every [online] privacy policy you encountered in a single year would take 76 work days……”

So we all want our time online to be a more private affair, but find it impossible to wade through the policies and figure out what’s what? Further, even if you had the time to read them, would anyone but a Privacy Specialist understand them, and worse, be willing to forgo the benefits brought by Facebook and Google in an effort to maintain some sort of online anonymity? I suspect not in each case.

It’s hard to see how to solve this issue.

At a minimum it would seem appropriate to provide a simplified privacy policy, which would at least encourage consumers to become familiar with the terms they are signing up to. Controlling what your cookies are used for may also be key, Personalisation, yes, targeted advertising, no.

Over time I worry that the role of government will be to reign in on the issue if left unsolved, which would be a bad outcome for all.

What’s a great product without great service?

It’s rare that a great product would win without the support of great service, so why then are the two so quick to grow apart?

The problem, I think, is success.

Scale and its associated economies support the development of a product  but rarely do they support the development of the accompanying services. There are exceptions, of course, but not many; McDonalds is one, Apple another, Sadly I’m at a loss to think of a third.

It’s worth noting of course that Apple and McDonalds are are notable exceptions to the rule, albeit for vastly different reasons. McDonalds is a very, very large franchisor, and the “product” being sold does not come in a bun, the product is the Franchise. The Franchisee buys a proven recipe for fast food and efficient service. If McDonalds didn’t have control of the entire McD’s ecosystem through a tightly wound Franchise Agreement it would be impossible to maintain its brand of high-margin consistency that allows it to continue selling to franchisees at a premium.

Apple, on the other hand, is all about brand, and that brand extends through the product supply chain to the lifestyle, which includes the process of purchasing and ownership. Prior to Apple seizing control of its supply chain the service part was delivered by 3rd parties, now it is a powerful pillar in the house of Apple.

When a typical business grows, investment is poured into improvements in the production process, reducing the cost of goods and improving margins. The same can’t be said for service, great service at scale is costly, and returns to scale are minimal. In addition, training great service to new staff takes time, so the gap between product uptake and service delivery can grow rapidly if the growth was sudden and unforseen.

Improved margins are seductive, investments in service are not, and so the conflict begins.

As a business owner, you can get ahead. At a minimum there should be a record kept of a consistent service KPI such as Net Promoter that can serve as an early indicator of customer sentiment taking a turn for the worst. Where growth is happening at the expense of service the growth should be arrested until the issue is identified and resolved, hard as it may be to do so.

Positioning your entire business as a product is smart, have a McDonalds-like operating manual with detailed descriptions of service procedures and quality standards, or emulate Apple by asserting service as a key part of your brand, then live it with every touch-point!

To favour growth at the expense of service is a short term win, the positive sentiment that propelled growth in the first place is already evaporating, allow that to continue and chances are your brand will never recover.

Is your business suffering a Group Buying Hangover?

Group Buying helped good businesses access revenues that had previously eluded them, improving utilisation, buoying their P&L and promising a sustainable new revenue stream from this exciting new consumer channel.

But now that the sector has waned and desperate Group Buying businesses have become fixated on stack ‘em high sell ‘em low product chuff – those once buoyed businesses are left feeling a little queasy.

Just one of the problems they face stems from prepayment, one of the headline benefits touted by most group buying companies (including me).

Although quick access to cash is manna from heaven for most business owners, prepayment has left behind a tequila-like side effect.

The problem is this. A top priority for all online businesses should be around Funnel Conversion, i.e. the ability for the business to convert leads into dollars, however in a world of prepayment, conversion becomes somewhat unimportant. In fact, if breakage (unused vouchers) is a profitable exercise for the merchant, higher conversion may actually mean lower short term profits.

Now that Group Buying is providing an ever declining proportion of revenues, many online businesses that signed up to breakeven or lossmaking campaigns in order to grow their subscriber base, now find they are unable to monetize that base due to poor site performance, especially in the area of conversion.

Faced with lower than expected revenues, these companies often head back to Group Buying to find that like-for-like offers work only half as well as they did before. Now the business is in a pickle, the drug is half as effective, risk its brand by doing twice as much? Surely you know your drug dealer is never your friend?

The key is to get the fundamentals of your businesses working right before looking to Group Buying or any type of Marketing for that matter. Ensure that the purchase funnel is converting 60% or more of the people who hit “Buy Now”, that your Subscription Channel is effective, and your email strategy is delivering appropriate Open, Click and Purchase rates.

When cloaked by the shiny veneer of Group Buying dollars your site performance will look a whole lot better than it really is. Time to sober up, shake off that hangover and see if your bedfellow looks as good as you remember.

Solving service issues.

American Express recently published a report into the impact of Service on Customers, focusing on how the new socially connected consumer behaves versus their less connected counterparts, the findings are startling.

One data point out of the report that should provide cause for concern is that an unhappy Social Media Savvy customer will voice their complaint to 53 of their friends, often through Facebook and other channels.

Amex also report that more than 80% of Online Savvy consumers say they’ve bailed on a purchase because of a poor service experience, compared to 55% overall.

It isn’t all bad news though, customers reported that they would be willing to pay an average of up to 13% more for products and services if the business provided excellent customer service – that’s a healthy return for showing you care.

The report concludes with tips for better service:

1) Great service starts with the people who deliver it – Motivate and enable your employees to go above and beyond for your customers.

2) It’s all about relationships – Good service comes down to forming relationships with customers. Look at customer service as an opportunity to deepen your connection with your customers, not just as a transaction to be completed.

3) Make it easy for customers to do business with you – Listen to your customers and use their feedback to improve your product and service.

4) Exceeding expectations is easier than you think – Customers aren’t unreasonable and don’t except every problem to be solved instantly.  They simply want to be treated like individuals, know that you genuinely care about their issue, and are working hard to address it.

5) Listen to your employees – They are closest to your customers and understand the most about what customers want and need. Don’t miss out on their incredibly valuable insight.

6) Seek opportunities to make an impression – Understand and act on the notion that every customer interaction is an opportunity to create a connection and to drive customer loyalty and engagement

What’s clear is that the service expectation is increasing and consumers expect more than ever to be able engage with businesses directly or via social media when they have a gripe – sadly though, the number of businesses that can engage in this way is relatively flat.

Yabbit is here to provide those capabilities to businesses of all types. Check out yabbit.com to sign up to the Beta commencing early August.

The full report including a nice Infographic is here

Related articles

Australian Retailers are frozen in time, what they need is Online support.

In a previous post I said that “Pricing alone will never lead to a long term strategic advantage, only service quality and inspiration can” – something similar to a quote today from CEO of Masters, the challenger hardware-retail brand from Woolworths.

Don Stallings commented: “more than half the people shopping for whitegoods at Masters hardware stores use smartphones to check competitors’ prices… to get those sales over the line in a traditional store, customer service and the personal touch had to be of the highest quality. [at] Masters [we have] spent as much on training staff to deliver customer service as on the rest of the business”

Meanwhile, across town at Myer, Bernie Brooks laments that “[the] customers’ propensity to purchase is not improving” so they are “pinning hopes on their midyear stocktake sale”

Sadly, I suspect a slash and burn approach will not be the answer long term, unless Myer fancy jumping onto JC Penny’s EveryDayLowPrices strategy? (The downside of which I blogged about earlier).

Myer + Myer One Loyalty club have the bones of a very defensible Retail strategy when Multichannel is fully embraced; where Lifetime Value, upsell and cross sell are key and are driven by what is already known about each customer segment, customer cohort or even, individual customer. But each retail touchpoint has to be aligned to the vision of “lifetime customer value is king”, something that may be easier to achieve when the business is built from the ground up with no technical or cultural legacy, sadly Mr Brooks doesn’t have that luxury.

“Discount heavily and I will love you right now, inspire me with insights and ideas and great service and I will love you for ever”