You need to enable JavaScript to run this app.

Generating Revenue From Your Digital Product: A Flywheel Approach

 

The Flywheel approach

For leaders, a flywheel representation is a great tool to make sure every stakeholder is in sync and focused on the right steps. Whether you are starting from scratch, pivoting, or in growth mode, this framework can help you reach monetization faster.

Flywheel Framework: This concept was first introduced by Jim Collins in his book Good to Great in which he describes the Flywheel Effect as a process that “resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond”. A good introduction to this framework can be found in the Flywheel of Growth article by Jesse Nieminen.

 

Milestones

The “if you build it, they will come” approach is too risky when it comes to building a digital product. Intermediate milestones must be reached before any new or additional revenue can be generated.

Step One, Build: Take your idea and start building an initial version of the new digital product (or pivot or improvement).

Step Two, Learn: Initial (beta) product is ready. Solicit user feedback, listen, learn, and improve the product.

Step Three, Experience: Take your MVP (minimum viable product) and continue to improve end-user experience.

Step Four, Acquisition: End-users like the product, so focus moves to determining the ideal customers and acquiring more prospects and customers.

Step Five, Monetize/Ideation: Once you have reached monetization, it is time to repeat the cycle/spin and determine how to improve the product further to generate greater monetization.

 

Here is the illustrated Flywheel:

 

Several spins are needed before monetization is meaningful

Monetization does not come by following a process once. It comes with repeating the process and generating more value and growth with each cycle.

The first “spin” (one cycle is called a spin in the Flywheel framework), can be the hardest, as you are starting with zero momentum. With each successive spin, you create more value. 

The example below is for the product Bookflow, which allows end-users to use writing not only for storytelling but also for self-improvement, wellness, and professional development. The first spin for them positioned them for value-add services. (Note: In Bookflow’s case they decided not to grow value-add services but instead to focus on the recurring revenue option in the second spin.) And the second spin resulted in paid subscribers. These two cycles took Bookflow eighteen months.

 

Case Study: Fintech Product for Middle-Market Investments

The Thomson Reuters product for middle-market investments is called BDC Collateral. It is a B2B Fintech play for financial analysts interested in middle-market investment opportunities. 

This product is sold to institutional investors interested in middle-market opportunities. The diagrams below show the first three spins, which took approximately three years.

 

First Spin: Start Revenue Generation

The goal of the first spin was to gain a small number of paid users. The amount of revenue in the first spin is generally not important. What is important is to have a base product with some end-users that can help you improve the product. The first spin is in some ways a starting point.

 

Second Spin: Grow Revenue

In the second spin, the product is enhanced by providing hard-to-get and hard-to-calculate data such as all-in-yield values, tickerization of assets, originations, and disposals associated with each quarterly earnings report.

The user base is increasing and a greater amount of feedback allows for further improvements.

 

Third Spin: Scale Revenue

In the third spin, the product is being enhanced by providing intelligence (such as overlap analysis and slicing & dicing data capabilities) and focusing on data governance. The product is now positioned to scale and to reach a much larger group of end-users.

 

Wrap Up

In both of these examples, the clients leveraged the PixelEdge platform for rapid development of an MVP and discovery of product-market fit. Bookflow was able to capitalize on their deep customer empathy and direct-to-consumer distribution to pivot their business model. In doing so, they decided to double-down on delighting their end-users with the core platform rather than pursuing value-add features. Thomson Reuters has market-leading distribution and data access fueling its flywheel. Rapidly iterating on end-user feedback generates a ‘must-have’ product among their client base, increasing the number of customers, the platform’s value, and eventually the product's pricing power.

 

Glossary of Terms

B2C

Business-to-consumer

Beta

The release used by select end-users only

End-user

A person who uses or is intended to use the product

Flywheel Effect

“The process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond” (Jim Collins in his book Good to Great)

Monetization

Generating revenue and eventually making money from the product

MVP

Minimum viable product with features to be useful to the end-users but lacking other features important for wider adoption of the product

Product-Market Fit

The degree to which the product satisfies demand in a given market

Spin

One complete cycle, or turn, of a flywheel

 

Are there any questions you have regarding the Flywheel framework? Something unclear? We would love to hear your feedback.

Written by the PixelEdge team. Pixeledge is a product studio; building digital products and helping discover product-market fit.

logo

PixelEdge specializes in helping entrepreneurs build and launch successful digital products.

Our platform and expertise mean better products for end-users and better outcomes for entrepreneurs.

Call Us

413-570-0345

Address

9.5 Market Street
Northampton, MA 01060

Join our newsletter

2020 PixelEdge | Powered by PixelEdge