In his superb biography, The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone explains that Bezos once retained Jim Collins to participate in Amazon.com’s executive retreat (in 2001) to help him and his senior managers clarify their thoughts about the company’s future. This was just before Good to Great was published.
After several intensive discussions during the offsite, Collins told Bezos and his colleagues, “You’ve got to decide what you’re great at.”
Stone then explains, “Drawing on Collins’s concept of a fly wheel, or self-reinforcing loops, Bezos and his lieutenants sketched their own virtuous circle, which they believed powered their business. It went something like this: ”Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of foxed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.” Bezos remains convinced that this is Amazon.com’s “secret sauce.”
During one of my interviews of Collins, he explained it this way:
“Picture a huge, heavy fly wheel — a massive metal disk mounted horizontally on an axle about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and as long as possible…You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort.”
It is worth noting, also, that compound interest is the “secret sauce” of Warren Buffet’s success as an investor. One winter in Omaha when he was a child and sledding with friends, he observed a snowman that had fallen over and was rolling down the hill, becoming an increasingly larger snowball.
TAGs: The “secret sauce” that Jeff Bezos learned about from Jim Collins, The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone, Jim Collins Good to Great, “You’ve got to decide what you’re great at”, concept of a fly wheel or self-reinforcing loops, virtuous circle, Amazon.com’s “secret sauce”, compound interest is the “secret sauce” of Warren Buffet’s success as an investor.