The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
Aspect
Explanation
Virtuous Cycle
A Virtuous Cycle, also known as a Positive Feedback Loop, is a self-reinforcing process or mechanism in which a positive outcome leads to further positive outcomes or improvements in a continuous, upward-spiraling manner.
Key Elements
Virtuous cycles typically involve interconnected elements, such as actions, behaviors, or factors, that mutually reinforce each other. These elements feed into one another to create a continuous loop of improvement.
Examples
Virtuous cycles can be observed in various contexts. Economic Growth: Increased consumer spending leads to higher business revenues, which, in turn, result in more job opportunities and higher incomes, encouraging further spending. Health and Fitness: Regular exercise leads to improved health, increased energy, and better mood, motivating individuals to continue exercising.
Business Application
In business, creating and sustaining virtuous cycles is a strategic goal. For example, a company with exceptional customer service may attract more customers, leading to increased revenue, which can be reinvested in further improving customer service, creating a positive feedback loop.
Positive Outcomes
Virtuous cycles often lead to positive outcomes, such as growth, improvement, increased efficiency, and innovation. They can contribute to long-term success and competitiveness in various fields.
Challenge
While virtuous cycles can be highly beneficial, they can also be fragile. Disruptions or negative influences in any part of the cycle can reverse the process, leading to a vicious cycle, where negative outcomes reinforce each other.
Strategy
Businesses and organizations often strategize to initiate and maintain virtuous cycles by identifying key areas for improvement, investing in those areas, and ensuring that the positive outcomes continue to feed back into the cycle.
Measurement
The success of a virtuous cycle can be measured through various metrics, depending on the specific context. For a business, metrics might include customer retention rates, revenue growth, and employee satisfaction levels. In other contexts, different indicators would be relevant.
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
An imaginary flywheel of the development of a crypto ecosystem, and more, in particular, the Ethereum ecosystem. As developers join in and the community strengthens, more use cases are built, which attract more and more users. As users grow exponentially, businesses become interested in the underlying ecosystem, thus investing more in it. These resources are invested back in the protocol to make it more scalable, thus reducing gas fees for developers and users, facilitating the adoption of the whole business platform.
Cycle Description: Netflix’s flywheel revolves around content creation and subscriber growth. As Netflix produces compelling original content, it attracts more subscribers to its platform. This increased subscriber base provides more revenue for content creation, enabling the company to produce even more high-quality shows and movies. This cycle of content creation and subscriber growth drives Netflix’s non-linear expansion.
Google Flywheel:
Cycle Description: Google’s flywheel centers around its search engine. As more users conduct searches on Google, it gathers more data and insights about user behavior and preferences. This data, in turn, improves its search algorithms and personalized recommendations, making the search results more relevant. This enhanced user experience encourages even more users to choose Google as their primary search engine, thus perpetuating the cycle of data-driven improvements and user acquisition.
Facebook (Meta Platforms) Flywheel:
Cycle Description: Facebook’s flywheel focuses on user engagement and content creation. More user engagement generates more data for personalization and targeted advertising. As the platform offers a tailored experience, users spend more time on it. This increased engagement attracts more advertisers, who, in turn, provide resources for further content creation and platform improvements. This cycle strengthens user engagement and drives the company’s growth.
Twitter Flywheel:
Cycle Description: Twitter’s flywheel centers around user-generated content and audience engagement. When users create engaging and relevant tweets, it attracts more followers and increases the overall user base. As the platform grows, advertisers are more interested in reaching this larger audience, leading to ad revenue. The revenue allows Twitter to invest in improving the user experience and providing better tools for content creators, fostering a self-reinforcing loop of user growth and engagement.
Spotify Flywheel:
Cycle Description: Spotify’s flywheel revolves around music streaming and content discovery. As users listen to music and create playlists, Spotify gathers data on their music preferences. This data is used to enhance personalized playlists and recommendations, making the listening experience better. Satisfied users spend more time on the platform, increasing their loyalty and attracting more users to discover new music. This cycle drives Spotify’s growth in the competitive music streaming industry.
Microsoft Flywheel:
Cycle Description: Microsoft’s flywheel focuses on software and cloud services. As businesses and individuals adopt Microsoft’s software products and cloud services, they become part of the Microsoft ecosystem. This ecosystem provides valuable data and insights, enabling Microsoft to improve its offerings and tailor solutions to user needs. Enhanced products and services attract more customers, leading to further ecosystem expansion. This cycle reinforces Microsoft’s position in the tech industry.
Key Takeaways
Amazon Flywheel: The Amazon Flywheel, also known as the Amazon Virtuous Cycle, leverages customer experience to drive traffic to the platform and attract third-party sellers. This leads to an improved selection of goods and enables Amazon to lower prices, thus creating a cycle of accelerated growth.
Epic Games Flywheel: The Epic Games Flywheel likely revolves around offering compelling gaming experiences and exclusive content on their platform. As more gamers join, the demand for content increases, attracting more developers and publishers to create games for the platform, which in turn draws in more users.
Etsy Flywheel: The Etsy Flywheel relies on a strong community of artists and sellers offering unique and handmade products. As more sellers join, the platform gains a wider variety of products, attracting more buyers. The increased buyer activity further encourages sellers to join, creating a self-reinforcing loop of growth.
Uber Flywheel: The Uber Flywheel centers around providing convenient and affordable ridesharing services. As more drivers join the platform, wait times for riders decrease, attracting more riders. Increased rider demand then leads to more drivers signing up, resulting in a virtuous cycle of growth.
DoorDash Flywheel: The DoorDash Flywheel is likely driven by offering a wide selection of restaurants and fast delivery options. As more customers use the service, more restaurants join the platform to reach a larger audience, leading to increased customer satisfaction and attracting even more customers.
Ethereum Flywheel: In an imaginary flywheel of the Ethereum ecosystem, developers joining the platform contribute to building more use cases. This attracts more users to adopt the platform, leading businesses to invest more resources into the ecosystem. These investments improve the protocol’s scalability, making it more attractive for developers and users, further fostering adoption and growth.
WordPress Flywheel: The WordPress Flywheel likely revolves around offering a user-friendly and customizable website-building platform. As more users adopt WordPress for their websites, it attracts more developers to create themes and plugins, enriching the platform’s offerings and attracting even more users.
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, and sales typically leverage a one-to-one approach. The business development’s role is that of generating distribution.
Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products. Companies utilize the market development strategy to discover new potential buyers of their products or services.
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
Growth engineering is a systematic, technical approach to the improvement of conversion and the user experience. Combined with business engineering it helps business people build valuable companies from scratch.
Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.
Blitzscaling is a business concept and a book written by Reid Hoffman (LinkedIn Co-founder) and Chris Yeh. At its core, the concept of Blitzscaling is about growing at a rate that is so much faster than your competitors, that make you feel uncomfortable. In short, Blitzscaling is prioritizing speed over efficiency in the face of uncertainty.
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.
fixed mindset believes their intelligence and talents are fixed traits that cannot be developed. The two mindsets were developed by American psychologist Carol Dweck while studying human motivation.
Both mindsets are comprised of conscious and subconscious thought patterns established at a very young age. In adult life, they have profound implications for personal and professional success.
Individuals with a growth mindset devote more time and effort to achieving difficult goals and by extension, are less concerned with the opinions or abilities of others. Individuals with a fixed mindset are sensitive to criticism and may be preoccupied with proving their talents to others.
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.
STP marketing simplifies the market segmentation process and is one of the most commonly used approaches in modern marketing. The core focus of STP marketing is commercial effectiveness. Marketers use the approach to select the most valuable segments from a target audience and develop a product positioning strategy and marketing mix for each.
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.
A sales cycle is the process that your company takes to sell your services and products. In simple words, it’s a series of steps that your sales reps need to go through with prospects that lead up to a closed sale.
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.
Zero to One is a book by Peter Thiel. But it also represents a business mindset, more typical of tech, where building something wholly new is the default mode, rather than building something incrementally better. The core premise of Zero to One then is that it’s much more valuable to create a whole new market/product rather than starting from existing markets.
A digital channel is a marketing channel, part of a distributionstrategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.
RevOps – short for Revenue Operations – is a framework that aims to maximize the revenue potential of an organization. RevOps seeks to align these departments by giving them access to the same data and tools. With shared information, each then understands their role in the sales funnel and can work collaboratively to increase revenue.
In a logrolling negotiation, one party offers a concession on one issue to gain ground on another issue. In logrolling, there is no desire by either party to advertise the extent of their power, rights, or entitlements. This makes it a particularly effective strategy in complex negotiations where partial or complete impasses exist.
Win-win negotiations first rose to prominence during the 1980s, thanks in part to books like Roger Fisher, William Ury, and Bruce Patton’s bestseller Getting to Yes: Negotiating Agreement Without Giving In. Having said that, there was also a shifting mindset at the time as negotiators saw win-win negotiations as preferable to the then-dominant win-lose approach. A win-win negotiation is a negotiation outcome resulting in a mutually acceptable and beneficial deal for all involved parties.
In negotiation theory, BATNA stands for “Best Alternative To a Negotiated Agreement,” and it’s one of the key tenets of negotiation theory. Indeed, it describes the best course of action a party can take if negotiations fail to reach an agreement. This simple strategy can help improve the negotiation as each party is (in theory) willing to take the best course of action, as otherwise, an agreement won’t be reached.
In negotiation, WATNA stands for “worst alternative to a negotiated agreement,” representing one of several alternative options if a resolution cannot be reached. This is a useful technique to help understand what might be a negotiation outcome, that even if negative is still better than a WATNA, making the deal still feasible.
The ZOPA (zone of possible agreement) describes an area in which two negotiation parties may find common ground. Indeed, ZOPA is critical to explore the deals where the parties get a mutually beneficial outcome to prevent the risk of a win-lose, or lose-win scenario. And therefore get to the point of a win-win negotiation outcome.
Revenue modeling is a process of incorporating a sustainable financial model for revenue generation within a business model design. Revenue modeling can help to understand what options make more sense in creating a digital business from scratch; alternatively, it can help in analyzing existing digital businesses and reverse engineer them.
Customer experience maps are visual representations of every encounter a customer has with a brand. On a customer experience map, interactions called touchpoints visually denote each interaction that a business has with its consumers. Typically, these include every interaction from the first contact to marketing, branding, sales, and customer support.
AIDA stands for attention, interest, desire, and action. That is a model that is used in marketing to describe the potential journey a customer might go through before purchasing a product or service. The AIDA model helps organizations focus their efforts when optimizing their marketing activities based on the customers’ journeys.
Social selling is a process of developing trust, rapport, and a relationship with a prospect to enhance the sales cycle. It usually happens through tech platforms (like LinkedIn, Twitter, Facebook, and more), which enable salespeople to engage with potential prospects before closing the sale, thus becoming more effective.
The CHAMP methodology is an iteration of the BANT sales process for modern B2B applications. While budget, authority, need, and timing are important aspects of qualifying sales leads, the CHAMP methodology was developed after sales reps questioned the order in which the BANT process is followed.
The BANT process was conceived at IBM in the 1950s as a way to quickly identify prospects most likely to make a purchase. Despite its introduction around 70 years ago, the BANT process remains relevant today and was formally adopted into IBM’s Business Agility Solution Identification Guide.
The MEDDIC sales process was developed in 1996 by Dick Dunkel at software company Parametric Technology Corporation (PTC). The MEDDIC sales process is a framework used by B2B sales teams to foster predictable and efficient growth.
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
Business storytelling is a critical part of developing a business model. Indeed, the way you frame the story of your organization will influence its brand in the long-term. That’s because your brand story is tied to your brand identity, and it enables people to identify with a company.
Enterprise sales describes the procurement of large contracts that tend to be characterized by multiple decision-makers, complicated implementation, higher risk levels, or longer sales cycles.
Outside sales occur when a salesperson meets with prospects or customers in the field. This sort of sales function is critical to acquire larger accounts, like enterprise customers, for which the acquisition process is usually longer, more complex and it requires the understanding of the target organization. Thus the outside sales will cut through the noise to acquire a large enterprise account for the organization.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
Palantir is a software company offering intelligence services from governments and institutions to large commercial organizations. The company’s two main platforms Gotham and Foundry, are integrated at enterprise-level. Its business model follows three phases: Acquire, Expand, and Scale. The company bears the pilot costs in the acquire and expand phases, and it runs at a loss. Where in the scale phase, the customers’ contribution margins become positive.
Consultative selling is a sales approach favoring relationship building and open dialogue to adequately meet the needs of a prospective customer. By building trust quickly a consultative selling approach can help the customer better meet her/his expectations and the salesperson hit her/his targets more effectively.
A unique selling proposition (USP) enables a business to differentiate itself from its competitors. Importantly, a USP enables a business to stand for something that they, in turn, become known among consumers. A strong and recognizable USP is crucial to operating successfully in competitive markets.
A virtuous cycle is a positive feedback loop that aligns with a company’s long-term strategy. The virtuous cycle, over time, builds momentum and enables compounded growth for the organization carrying it. For example, Amazon’s virtuous cycle starts with a wide selection at a low price, driven by customer experience. This drives more sellers on the platform, thus enabling more variety and convenience. In turn, Amazon re-invests these resources to further lower customer costs and increase variety, further enhancing this positive feedback loop.
What are some examples of virtuous cycle?
Some examples of virtuous cycles or flywheels are:
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
