Walk onto the marketing or sales floor of any modern office and chances are you’ll see a funnel, hear people talking about a funnel, or be asked to draw a funnel yourself.
The same is true for startups. When building the marketing and sales strategies that are fundamental to growth, startups turn to the trusty funnel: how much traffic is our website generating? How much of that traffic are we turning into customers?
For years, companies have structured their business strategies around the funnel — and it worked. But recently, the funnel has begun to fail marketers, salespeople, and startup founders alike.
Today, customer referrals and word-of-mouth have become the largest influence on the purchase process.
A study by HubSpot Research in 2018 found that 81% of people trust advice from friends and family over advice from a business. We used to trust marketing materials and salespeople, but not anymore.
Today, we trust friends, family, colleagues, and look to third-party review sites to help us choose the businesses we purchase goods from, the software we use, and even the places we work.
On top of that, customer acquisition costs (CAC) have been steadily rising for B2B and B2C companies. Most businesses focus on lowering CAC. Inbound marketing made this pretty easy, but it’s getting harder as the likes of Facebook and Google make it harder to acquire customers organically (i.e. without large advertising budgets to supplement your organic strategy).
Considering this, the funnel has one major flaw: it views customers as an afterthought, not a driving force.
Funnels produce customers but don’t consider how those customers can help you grow. All of the energy you spent acquiring a customer is wasted, leaving you back at square one, having to use the same amount of energy again to acquire more of them.
That’s why the funnel is a dated and ineffective model for business growth.
The flywheel model
The flywheel model solves that problem, by viewing your existing happy customers as potential advocates. Whilst the flywheel may sound obscure, it is a much more efficient and effective way to think about growing a business.
Invented by James Watt, the flywheel is simply a wheel that’s incredibly energy-efficient. The amount of energy it stores depends on how fast it spins, the amount of friction it encounters, and its size.
Think of it like the wheels on a train or a car. This energy is especially helpful when thinking about how customers can help a business grow — they are part of the force that helps to spin the flywheel.
Startups are in an incredibly advantageous position to adopt the flywheel model, because they can focus on customer delight right from the beginning. And when you delight your customers, they tell their friends, meaning you need to spend less time, effort, and money on marketing and sales.
For larger, older businesses that have viewed their customers as an afterthought for many years, there is often too much bad blood between the brand and the customers they have burned in the past. Their existing customers have never been their priority — all their energy has been spent acquiring new ones.
Insurance providers, banks, and telcos are all examples of organisations that viewed their business as a funnel, not a flywheel, and their reputations have suffered as a result. Luckily for them, they can afford to ‘pay to play’ and have the big budgets to absorb the increasing cost of customer acquisition.
For most startups, that’s simply not the case, and so they must learn to view their business as a flywheel, and consider how their existing customers can help fuel their growth.
Where the funnel works
Despite all of this, the funnel can still serve a purpose for startups — it remains a useful model for assessing individual areas of a business. The marketing funnel is still useful for understanding traffic, lead and customer conversion rates, for example, and the sales funnel is still helpful for understanding the progression between different stages in the sales process. But make no mistake, no startup should be viewing their entire business as a funnel.
The big opportunity for today’s startups is to view the business as a flywheel, focusing on creating a remarkable customer experience and delighting existing customers to the point that they become their strongest marketing channel.
A prime example of this is parcel delivery service Sendle.
Sendle approaches everything from marketing to product development with the view that businesses are comprised of multiple flywheels, and only by concurrently spinning all flywheels at complementary speeds can success occur.
Using cross-functional streams and the kanban system, focus across business functions is aligned and oriented to the same goals, ensuring one part of the flywheel is not perfected at the neglect of another.
Through this, Sendle is able to kick goals in multiple arenas – such as becoming Australia’s first technology B Corp to champion sustainable business, at a price guaranteed lower than Parcel Post, while also rolling out 24/7 parcel drop-off locations to cater to small businesses.
Using flywheels from the start
Ultimately, building a startup around the flywheel model from the very beginning is a huge advantage.
Startups that understand the influence of their existing customers in their growth trajectory will grow better (and be more likely to succeed in the long run) than those who view their customers simply as an output of their marketing and sales funnel.
They will make different decisions — ones that are better for the customer experience — and as a result, those customers become advocates who have a huge amount of influence over a startup’s future success.
- James Gilbert is the director, APAC, of HubSpot