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How To Build A Flywheel - From Amazon To Zomato
How To Build A Flywheel - From Amazon To Zomato
How To Build A Flywheel - From Amazon To Zomato
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Welcome to over 2,000 new subscribers joining us this week. In Today’s Newsletter:
Three sad realities of growing a social media following converge in the case of trends
like metaverse in 2021, web3 in 2022, and AI in 2023:
2. Making readers feel the emotions of wow, hope, and “I can’t believe that!” make
things go viral.
3. Companies building on the latest trend are eager to advertise with large accounts.
This means that content creators have every incentive - from growth to engagement and
monetization - to be as excited and uncritical as possible. As a result, every progression
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The latest dubious claim from this hype train is that AutoGPT signals a turn to
Artificial General Intelligence (AGI). This is usually accompanied by ominous pictures
of Mr. Smith from The Matrix.
But, the fact is: GPT-4 and AutoGPT aren’t close to artificial general intelligence (AGI).
GPT-4 is dumb. It’s like the person at work who always sounds good, but never actually
guides the company toward good decisions. GPT-4 sounds really smart. But it’s just a
large language model (LLM). Its faculty with language and code has pulled the veil over
everyone’s eyes.
GPT-4 can write beautifully for you. It can reconstruct what you want to say in one-
hundred different ways. It can search the web and piece together intelligence from
different parts of the web much faster than any human.
But once you ask GPT-4 to make hard decisions for you, it loses any ability to actually
analyze the situation. That’s because it’s just a language model. It lacks a logical-
semantic underneath to understand what it’s writing.
Auto-GPT is even dumber. For the 99.9% of people who can’t get off the GPT-4 waitlist,
it runs on GPT-3.5. So it’s already at a disadvantage. On top of that, it’s just a large
language model that can run other large language models. Its ability to give itself tasks
has fooled everyone into thinking it’s a breakthrough.
GPT-4 and Auto-GPT have many limitations as artificial intelligence systems. They do
not have a deep or broad understanding of the meaning or context of what they
generate. They do not have a robust or flexible ability to reason, learn, or adapt beyond
their training data. They do not have a clear or reliable way to explain their outputs or
correct their mistakes. They do not have a direct or effective way to interact with the
real world or achieve any goals.
These are some of the essential features of artificial general intelligence (AGI). AGI is
the ability of a machine to perform any intellectual task that a human can do. AGI is not
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So don’t fall for the hype that we have “baby AGI.” Most of that is actually just semantic
confusion, because one of the AutoGPT projects is named BabyAGI (made by my
inimitable Twitter friend Yohei Inakajima).
These projects are a great step towards AGI, but they are not AGI.
This makes them essential features to incorporate into most types of software being
built today. However, their value and benefit come from training them on proprietary
company-owned data and directing their attention to solving your customer’s specific
problems.
1. Memory
2. Internet access
These are capabilities that OpenAI should probably just build itself. But until then, they
are great ways to integrate generative more intelligently.
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Greg Isenberg’s Twitter thread on AutoGPT provides three really controversial example
applications: customer service, social media, and financial advice. The thing is, you
actually don’t want GPT-3.5 doing tasks as important as these for you. I barely trust
GPT-4 doing them. Do you really want an autonomous GPT-3.5 agent doing them for
you without review?
Maybe as a small or medium business (SMB), but not in the enterprise. You want a very
sculpted and scripted set of instructions around AutoGPT to do your customer service,
social media, or provide financial advice. And that’s where the market opportunity for
companies and product builders lies.
Take the LLM advances from GPT-4 and AutoGPT, and build them more intelligently
into your product, with actual knowledge of the problem at hand.
Products that are doing this well include Microsoft Office, Notion, and Adobe
Photoshop. They’ve each integrated the LLMs directly into their core product value.
That’s the type of stuff that really works.
POLL
Growth Marketing 8%
Executive/ Founder 8%
Other 6%
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That’s because, in these tough tech markets, the need to double down on your flywheel
is more important than it has been in 20 years. As Jim Collins said in 2001:
In times like this you want to respond not by reacting to bad news, but by building a
flywheel.
Tech is having a similar moment to that 2001 period: times are tough. But that also
means the companies that grow with maniacal focus could have the trajectory that
Amazon has had.
It’s the perfect time to double down on your flywheel. It can enable your exponential,
Amazon-like growth curve:
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So, the next question naturally is: how do you build a flywheel? And then, how do you
double down on it? Here’s exactly what you need to do.
Product Growth is a reader-supported publication. I am working on this full-time. So, this 2,500
word deep dive on how to identify and build your flywheel is for paid subscribers only.
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Creating a great flywheel is part art, part science. There’s no “right answer,” but there
are flywheels that are more well-constructed than others. To help you get all the
information you need to build a great flywheel, here’s what we’re going to cover:
This deep dive was too long for email, so you may want to read online:
Amazon: E-Commerce
The classic flywheel that Bezos and Collins sketched out in 2001 is deceptively simple:
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They managed to boil down the vectors for competition in their space into two simple
factors: cost and selection. They then created a self-reinforcing flywheel that can drive
breakthrough momentum toward those two drivers.
Amazon: Advertising
Interestingly, Amazon didn’t just stick to that one flywheel. As it built out its $14B
advertising business, it conceived a specific one just for that:
Source: Simpliworks
Similar to Amazon’s E-commerce flywheel, there are two key drivers it loops around:
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But that’s where the similarity ends. The advertising flywheel is a really interesting one,
because marketplace sales aren’t an inherent value that’s going to be good for all
advertising businesses. Amazon has tied marketplace sales into its advertising flywheel
specifically to counter-position against Google & Facebook. It’s genius.
Airbnb
Airbnb has a much more complex flywheel, by virtue of having a more focused business.
It mainly does vacation rentals. But it pursues many flywheels to drive trips in them:
If you boil it down, there’s essentially two key goals in this flywheel:
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But then the company has layered on various loops on top of that to drive those values,
like:
Amazing traveler experience → Lower cost structure → better host tools → great
convenience & low effort → amazing host experience
Epic Games
I worked at Epic Games. Even internally, we referenced Matthew Ball’s diagram for our
flywheel. So, I can tell you, it definitely is accurate:
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What’s so interesting about Epic Games is how it has 5 business lines. At the center of
everything is Unreal Engine. From there, the company has built connections to its
revenue center, Fortnite, and various potential growth initiatives like Epic Games Store,
Epic Online Services, and Epic Games Publishing.
It’s a genius model considering the history of Epic Games. It started off with the Unreal
Tournament games, then it moved on to the Gears of War games, and then recently has
worked on Fortnite. In between those franchises, there were whole years of no games
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revenue. The Unreal Engine provides a centering stability to be able to maintain the
workforce in between the game hits.
Hubspot
Hubspot takes a totally different approach. It is a very basic model that applies to almost
any product:
They drive growth by delighting customers, so they become promoters and turn
strangers into prospects. There’s no insight about their market involved in building it.
It’s just all about having a great focus on driving delight so those folks promote your
product.
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But you can’t really write off the flywheel, just because it’s simple. Hubspot has risen to
a $21B market cap on top of it.
Netflix
Netflix is another interesting example. It’s quite similar to the Amazon examples, but
customized:
Source: LA Times
2. The Data Flywheel: User experience → Time spent watching → Data → User
Experience
In this way, Netflix has done the same thing as Amazon: It’s identified the two features
that matter most to its market, content & data, and built a connected flywheel around
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them.
Spotify
What about the company where execution is everything?
It’s actually a hybrid of the last two: it focuses on data like Netflix does, and promoters
like Hubspot does.
Stripe
While all of the examples thus far have been fairly complex, Stripe keeps it
comparatively simple:
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Stripe is a remarkably focused company for its scale. It builds products to help clients
grow, which drives its payments volume, which increases its revenue, and allows it to
build more products for growth.
Uber
Uber marks a return to our familiar 2 circle pattern:
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At this point, you should be getting a feel for the pattern. The two flywheels are key
drivers of competition in Uber’s market:
1. Faster pickups: More geo coverage → Faster pickups → More demand → More
drivers → More geo coverage
2. Lower prices: More geo coverage → Less driver downtime → Lower prices → More
demand
Uber also has a really interesting component of geographic coverage, which helps
counter-position them against the challenger, Lyft.
Zomato
Zomato is a publicly listed, $5.5B market cap delivery company in India. It has an
interesting variant on the flywheels we’ve seen:
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2. Content: More customers → More content → More value for customers → More
customers
3. Cost: More delivery transactions → Lower cost of fulfillment per unit → Lower
prices → More delivery transactions
It’s taken the selection and cost elements from Amazon, but layered in a key element of
its positioning: content. It’s the classic strategy of personalizing the flywheel.
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Now that we’ve gotten a feel for 10 flywheels that have worked, let’s transition over to
the types of flywheels. You’ve probably already intuited the three types - simple, 2-wheel
model & complex reinforcing system. Let’s define them concretely, and help you identify
when to use which flywheel.
This type of flywheel is best when you have a single key unifying mission for your
business. It’s also good when you are an early-stage company, or a particularly focused
one.
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It’s especially a good fit if you can identify two core drivers of a long-term moat against
your competition. Each of those companies was able to build a flywheel around a core
value that was key to differentiation in their market.
If it’s just that you have three loops, something like Zomato’s model is a good template.
If you have lots of different strategies to compete across different variables in a single
market, the Airbnb or Epic Games models work well.
Also, remember: you can always change it. You don’t need to get it right, like Bezos did,
the first time. Start with something and iterate with your team. This is especially true if
you’re a mid-level worker at a company with an established flywheel. Just by starting to
identify your flywheel, you will help advance the dialogue.
4. Enhance the picture with how you handle quality and/or price
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We’ll use the example of this newsletter, product growth, to help you follow the steps
and build one out.
This is going to be the center of your flywheel (or the key outcome driven by it; in Epic
Games’ case, it isn’t the literal center). You may want to check out my piece on North
Star Metrics to identify this if you don't have it already.
For the Product Growth newsletter, the what of growth is paid newsletter
subscriptions:
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For the Product Growth newsletter, there are two key activities:
1. Social Media
This makes Type 2 the best fit. We can draw out the start of it:
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Try to draw self-sustaining chains that actually reflect how you do business and what
drives success. As you experiment with the items and the lines, you’ll find multiple
connections can work. Try to iterate to get to the version that best represents the reality
of how things work.
For the product growth newsletter, here’s how the dots connect:
1. The Social Media Flywheel: More paid subscribers → More time for social media
content → Great social media content → More free subscribers → More
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conversions to paid
2. The Paid Quality Flywheel: More paid subscribers → More time for paid content
→ Better paid content → More conversions to paid → More paid subscribers
I didn’t get here right away. First, I had more free subscribers lead back into more paid
subscribers. But as I thought it about more, I realized that didn’t represent the reality of
how I do business. So, I changed more free subscribers to connect to more conversions
to paid. Perform such iterations with your own draft.
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In the case of Product Growth’s flywheel, we’ve already got some hints of these
concepts. The story for quality is clear: more time allows for better social media and
paid content.
The story for cost is less clear. What even is a cost in this context? There’s no clear
variable cost for sending another newsletter. Instead, in this case, it’s my opportunity
cost: I could be earning (great) money as a product leader or consultant. So, we’ve
actually got that covered. As the flywheel shows: as I earn more, I can afford to do more
on the newsletter, less on jobs, and eventually go full-time.
Thus, there are no revisions needed to the flywheel for Product Growth in Step 4. You
might need some with a more complex business model.
For Product Growth, it’s not as complex. I don’t have any other departments or people
on the team. But in the case of real businesses, this can get messy quickly.
A great flywheel is also something that is more or less timeless. It doesn’t rely on the
specifics of the business’s state right now. It represents a long-term strategy to win.
That’s one area where thee Step 3 flywheel doesn’t make as much sense for Product
Growth.
What happens when I go 100% full-time on the newsletter? It’s not really time, then. It’s
really resources. As I can afford more, as a result of more paid subscribers, I can hire
editors, researchers, and other folks. So, that’s my Step 5 update: more time becomes
more resources:
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Step 5 is to make sure it unites the company around a singular purpose and
can last.
It’s starting to come together, isn’t it? There’s just one step left.
My friends and family were impressed. Expert Pawel Huryn endorsed what I had built.
And thus, I could solidify my flywheel.
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I just built Product Growth’s this week, but I plan to iterate liberally as I learn more.
The beauty of the flywheel insight is that you shouldn’t go about launching tons of
flywheels. If you launch a new product, build it with an Epic Games-style strategic
focus. Connect it to the larger picture. The real failure pattern here is a launch that’s
totally outside your flywheel.
Driving that maniacal focus to not have ancillary product launches is what I plan to
drive with Product Growth. I don’t plan to create courses. I don’t plan to go on a million
podcasts. I’m going to be laser-focused on creating the highest quality social media &
paid content for you.
As a PM, founder, or techie of any stripe, you, too, should always drive your team’s focus
to the core flywheel. It’s that focus that drives breakthrough momentum!
This is exactly what all the big tech companies are doing with layoffs. The further a
project is from your core flywheel, the stronger a candidate it should be for eliminating.
Pay close attention to anything that’s considered a cost center.
For Product Growth, that means everything like coaching, consulting, conference talks,
sponsorships, and podcast appearances. They aren’t core to my flywheel, and I am
rapidly eliminating them.
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You want every marketing coordinator, every sales rep, and certainly every front-line PM
to know your flywheel backwards. They should be discussing it in their day-to-day work.
“How do we spin the flywheel faster?” To do that, you need to socialize it.
For Product Growth, there’s just me. But even creating it has already driven my focus.
Make sure you drive the focus of your larger teams.
Find the areas of your flywheel that are weakest. There, you should make a few big bets.
You want to actually reallocate resources to your core weaknesses. While competitors
are focused on lame new launches, this is going to make your core momentum much
stronger.
For Product Growth, the weakness in my flywheel is conversions to paid subscribers. So,
you can see my tripling down on quality paid content and reduction of social media
posts. These are crucial reallocations within my business.
That’s it. Doubling down on your flywheel is not rocket science. In fact, it’s just
foolproof enough to work at corporations (which are very dumb on the whole). Just keep
on spinning, and you, too, will achieve breakthrough momentum.
P.S. As a paid subscriber, you have full access to me via comments. Feel free to ask me
any questions as you are building out and iterating upon your flywheel. I’m here to help.
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Write a comment…
Great post (as usual)… I’m going to set myself the task of creating myself a “personal
development” flywheel.
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