Reinventing the flywheel
Rob Long
A very rich friend of mine once told me that before he invests in a company or analyzes a business opportunity, the first question he asks himself is, “Where is the flywheel?”
My friend clearly knows what he’s doing. He made a fortune manufacturing and delivering a product that a lot of businesses need, and once he had the basic system set up, he just let the machines go.
When he delivered this advice to me, I’m ashamed to say that I nodded sagely and said, “Exactly so, my fine friend. Couldn’t agree more,” even though I had basically zero idea what he meant. But I did what I always do when someone starts talking about something I know nothing about — I nodded and smiled genially and waited until he left the room for a moment to Google “flywheel what is” and got the basic gist before he sat down again.
A flywheel — and I apologize if this is too technical — is a heavy thingy on a machine-y thing that makes it thump more regularly and with a bigger push as it goes around the machine part of the thing, and it’s cool, and it makes the making part of the process much easier and more efficient. And once it’s in place, the machine goes faster and makes more stuff.
Again, apologies for the technical language.
The 1980s, notorious and iconic investment banker Michael Milken is said to have announced, were brought to you by the software company Lotus. Which will be a meaningless statement to anyone under a certain age, but what it means is this: When computer processing power reached a certain threshold in the 1980s, and the financial calculation software manufactured by Lotus became easy to use, complicated bond issues could be adjusted and readjusted and recalculated in seconds — what used to take tedious hours of really hard arithmetic.
In other words, a “junk bond flywheel.” That meant more junk bonds, which meant a financial bubble, and everything that always comes after a financial bubble. (Flywheels often fly off the wheel.)
Or, another example: When Ray Kroc systematized the operation of a fast food restaurant, he created a “hamburger and fries flywheel,” or, I guess, a “Type 2 diabetes flywheel,” depending on which end of the telescope you’re looking through. Again, sometimes, when you automate something, it gets out of hand.
The reason everyone loves a flywheel is, first, money! But also, with a flywheel, you can relax. You can trust the system. You can slowly let it all drift into autopilot instead of relying on those irritating and unreliable things such as your intuition, your taste, your inventiveness, your hard work. And it’s the last one in that list that’s usually what we want to avoid the most.
Almost every get-rich-quick scheme and Ponzi scam involves selling a system in which the flywheel is other people, as with multilevel marketing scams. The trick to those systems is to convince your friends to buy into a business and kick a little money back to you. If you have enough friends, and they have enough friends, it’s supposed to be a very lucrative flywheel. But what really happens is that everyone ends up owing everyone else a lot of money, the people at the top of the organization get rich, and you end up with no friends at all.
When I finished my furtive Googling and knew more about the subject, I asked my very rich friend about all of this. “Isn’t the trouble with the Flywheel Theory that there isn’t really a shortcut to financial success? It still requires a lot of hard work and ingenuity?”
He thought about this for a moment. “Yes,” he said, “but by that time, you’re long gone. The key to having a flywheel isn’t to stick around. It’s to sell the sucker as soon as you can.” And I guess that’s the difference between the very rich and the very not rich. The very not rich think there’s always a shortcut, and the very rich are happy to sell that to them.
Rob Long is a television writer and producer and the co-founder of Ricochet.com.