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Generating Revenue From Your Digital Product: A Flywheel Approach

First published in 2020


The success of any digital product depends on monetization. Every business leader and entrepreneur defines this differently depending on the product, short-to-long-term goals, and the industry. Monetization can mean profitability, revenue, cost savings, or simply lowering risk. For this article, we define monetization narrowly to mean direct revenue generation from end-users.

Two main factors for generating revenue

Based on our experience and research, we have determined that two main factors increase the chance of generating revenue from your digital product:


  • Intermediate milestones that position the product for monetization

  • Repeating the process so that with each cycle, you move toward sustainability


When choosing a product monetization model, we prefer the Flywheel framework to elaborate on these two points noted above.

The Flywheel approach

A flywheel representation is an excellent tool for leaders to ensure 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: Jim Collins first introduced this concept in his book Good to Great. 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.” An excellent introduction to this framework can be found in the Flywheel of Growth article by Jesse Nieminen.

Intermediate milestones

The “if you build it, they will come” approach is too risky for building a digital product. Before generating any new or additional revenue, it is essential to realize that there are stepping stones and intermediate milestones to achieve. Start by building a product that end-users understand and can use. Then work hard on product-market fit so that some end-users like the product enough to pay for it. The Flywheel diagram below outlines the various stepping stones.




Flywheel circle for development: Initial versions leads to a build step, which leads to "End-users able to easily use the product/feature" and then Learning step, leading to "End-users start liking the product/feature" and then the Experience step, leading to "Some end-users like the product enough to pay for it" and then the Acquisition step, leading to "Generate $ and new ideas"  and then the Ideation step completes the circle to "Initial version"



Here is one sample framework for intermediate milestones:



Light bulb idea for new product

It all starts with an idea for a new product, a pivot, or an improvement. Just an idea does not move the needle. You must initiate the work to build out the idea.


Skeptical icon for beta software

The initial software product (beta) is ready. Now you improve upon the product based on end-user feedback.


Slightly happier icon for MVP

The minimum viable product (MVP) version of the product is ready. The end-users understand what the product does and how to use it. The focus moves toward improving the end-user experience.


Happy icon for  product build

The product build is ready. End-users like the product, but it does not mean they may not be willing to pay for it. Begin work on product-market fit.


Monetization icon for product launch

The product is ready for launch. Now the marketing and sales efforts can monetize the product. Work begins on what to do for the next spin/idea/feature/benefit.



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.


With each “spin” (one cycle is called a spin in the Flywheel framework), you create more value. The first spin can be the hardest, as you are starting with zero momentum. Sometimes when you have some momentum, a business pivot is needed, in which case, the subsequent spin can be even more challenging.


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


Two charts showing flywheel spins for Bookflow. The first is for a storytelling framework:Beta product to gain interest > Product writers can understand and use > V1.0 Product writers like > Users willing to pay for value-add services. The second spin is for a daily writing exercise: Beta product to gain feedback > Improved experience > Gamification and multi-media > Paid subscriptions

Case Study: Fintech Product for Middle-Market Investments

Thomson Reuters developed BDC Collateral, a B2B fintech tool for financial analysts employed by institutional investors researching middle-market investment opportunities. The diagrams below show the first three spins, which took approximately three years.

First Spin: Start Revenue Generation

For the first spin, the goal was to gain a small number of paid users, and revenue generation was not a primary concern. Because the first spin lacks inertia, it is essential to find end-users who care enough about your base product, and they will provide you with feedback to improve it.



First spin for Thomson Reuters: 10K/10Q data and visualization for middle market (MM) investment funds called BDC > Beta product to gain interest with Analysts interested in MM funds and BDCs > MVP product that Analysts can understand and easily use > Analysts like the product > Analysts like the basic product and are willing to pay for it

Second Spin: Grow Revenue

In the second spin, Thomson Reuters enhanced the product by providing data that was challenging to obtain and calculate 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 more significant amount of feedback enables further improvements.


Thomson Reuters second spin: Analysts interested in yield, origination, and disposals calculations > Base calculations applied > Calculations adjusted based on feedback > Edge cases incorporated > More Analysts agree to pay and subscription value goes up

Third Spin: Scale Revenue

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


Thomson Reuters third spin: Analysts interested in business intelligence > Base business intelligence incorporated > Data cleansing and tickerization to improve data quality > Improving UI and filtering > More Analysts agree to pay and subscription value goes up

Wrap up

In both of these examples, the clients could leverage the PixelEdge platform for rapid software development and focus on their core strengths to accelerate their flywheels. Bookflow was able to capitalize on their deep customer empathy and direct-to-consumer distribution to pivot their business model. In doing so, deciding 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 their 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 Thomson Reuters’ pricing power.


Glossary of Terms

B2C

Business-to-consumer

Beta

The release used by select end-users only

End-User

A person who is a current or potential user of 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 elements necessary for broader 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.


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