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Flywheel

A business has the following setup

Inputs/Capital -> Process -> Outputs/Profit-Loss

Optimizing this equation is the goal of any company. Let us break this down:

  • Inputs. Can be people, technology, relationships, etc. Anything that is unique that we can reuse.
  • Capital. Every input also takes in capital costs. This includes costs for that people, technology, etc.
  • The process includes marketing, sales, value creation, and value delivery. This is function of a company.
  • The output of this process from a business standpoint is profit or loss. If a business spends more on its inputs than it gets in outputs it is not a good business.

However, this flywheel concept has different ways of being understood a low margin business or a high margin business have different optimizations. Say you spend 99 on the input and make 100 dollar on the output. You only make 1 dollar. This may seem like a poor return on investment but the time scales also matter. If you spend 99 dollars and make 100 dollars over a one year time frame the 1% return is terrible. If on the other hand you spend 99 and make 100 in a week that is a high return on investment.