Compound Interest & Flywheel Marketing

An introduction to compound interest

Anyone familiar with the world of pensions and savings will be familiar with the concept of compound interest. Gains in your investment are reinvested, over and over again, typically on a monthly or yearly basis.

Compound interest, where the gains are continually reinvested each year, results in significant gains over time. The longer you invest, and the more frequent the compounding, the more substantial the long-term effects.

https://www.fool.com/knowledge-center/compound-interest.aspx

Albert Einstein described compound interest as “the most powerful force in the universe” and Warren Buffet described it as the 8th wonder of the world.

The first rule of compounding: Never interrupt it unnecessarily

Charlie Munger

The problem with (most) marketing activity

In many respects, marketing campaigns are the antithesis to this compounding concept. Campaigns require a significant investment of time, money and resource but are run in isolation, with little reinvestment into ongoing activities.

If we compare the characteristics of compounding interest versus marketing campaigns:

Compound InterestMarketing Campaign
Strategic PlanTactical Initiative
Long Term GainsShort-Term Temporary Lift
Compounds Over TimeNo Compounding Effect
Exponential GrowthLinear Growth

When running a marketing campaign teams see a temporary boost in key metrics but, in most cases, those metrics fall back to where they started once the effects of the campaign have worn off. In spite of this, we see many marketing teams still structured with campaigns at the core of their yearly planning.

marketing camapign results
http://www.steveseager.com/how-to-develop-strategic-marketing-communication-campaign/

Remember, your customer doesn’t know anything about your campaign. From the customers perspective there is a flurry of activity from your brand which then promptly disappears. Customers will buy when they are ready to buy, which can be at any time, and often outside of your scheduled campaign.

Invest in flywheel marketing

Extraordinary results do not require extraordinary efforts. Speak with any successful growth team leader and you will quickly discover that success lies in making small, consistent, incremental improvements that get amplified over time in unimaginable ways.

There are no magic bullets or hacks to growth, it is about building systems that compound in order to create flywheel marketing. The best growth marketing teams achieve success by continually improving systems, assets and activities that deliver value over time.

Teams build always-on marketing systems using either technology, or by creating repeatable playbooks or processes.

  1. Technology – typically growth teams try to implement and automate as much marketing activity as possible through technology. How can you use technology to drive success at scale?
  2. Playbooks – for an activity that cannot be automated, playbooks are designed to ensure there is a documented, repeatable process as we want to always be standing on the shoulders of our successes.
the marketing flywheel and compounding results

Here are 4 examples of popular always-on marketing systems to help build your marketing flwheel:

1. Content Marketing

A piece of well-researched, well-written content is one of the most widely used examples of a marketing asset that compounds over time. This is because by creating high-ranking guides and other evergreen content the value of backlinks and keyword rankings continues to provide value long after the content was initially created.

HubSpot became one of the fastest growing software companies in the world and grew their organic search traffic to almost 8 million visitors a month through this always-on activity. To this day, content flywheel marketing continues to be their biggest source of traffic growth.

HubSpot Organic Traffic Growth From July 2015
HubSpot Organic Traffic Growth From July 2015

2. Referral Programmes

Referral programmes are another good example of building flywheel marketing by incentivising existing customers to refer others. Once they are in place, referral programmes typically operate in an automated, always-on fashion.

Dropbox referral programme to build a marketing flywheel

The Dropbox referral program is one of the most famous success stories of referral marketing. Existing customers were incentivised with additional free space in return for inviting their friends. Between 2008 and 2010 Dropbox doubled its customer base every 3 months as a direct result of this referral programme.

3. Email Marketing

Email marketing is still the most effective way to both remind people of your brand and to bring them back to your website. It remains the most widely used method of nurturing visitors into qualified leads.

Intermix is a performance monitoring solution for data teams based out of San Francisco. At the time of writing the company has 11 employees. The company starting sending a simple weekly newsletter (using the curation platform Revue) for people interested in building data platforms. At the time of writing the newsletter (SF Data Weekly) has grown to over 5600 subscribers.

Curated newsletters to build a marketing flywheel

This always-on activity allows the small team at Intermix to quickly and easily provide value to well over 5,600 people every week, strengthening their brand and increasing inbound business enquiries.

4. Marketing Engineering

In his book Traction, Justin Mares defines marketing engineering as:

“Using engineering time to create useful tools like calculators, widgets, and educational micro-sites to get your company in front of potential customers. These tools then generate leads and expand your customer base.”

There are literally hundreds of examples where companies have used this successfully:

Moz provide software tools and data to help companies improve their SEO rankings. For years Moz provided a number of free tools (such as Keyword Explorer and Link Explorer) for potential customers to use.

Engineering example to build marketing flywheel

Many years later these tools continue to provide ongoing value to customers, as well as brand exposure, engagement and lead generation. Moz continue to promote these free tools and use the tools to direct visitors to their paid products and services. The tools have driven tens of thousands of leads to paid the Moz product.

Flywheel marketing characteristics

In his best-selling book Good to Great, Jim Collins studied 1,435 companies over a 5 year period to understand what made them great. Jim used the flywheel effect as a metaphor to describe the accumulation of effort applied in a consistent direction, and identified this as the secret of going from good to great.

flywheel image
Source: https://medium.com/evergreen-business-weekly/flywheel-effect-why-positive-feedback-loops-are-a-meta-competitive-advantage-6d0ed55b67c5

Growth teams should strive to build flywheel marketing machines that provide these same characteristics and benefits, namely:

1 Momentum

An object at rest tends to stay at rest, and object in motion tends to continue in motion. Newton’s first law, applied to business. Flywheels (being massive heavy objects) are hard to get moving. If they get moving, they are likely to continue.

2 Feedback Loops

The faster the wheel is spinning, the easier it is to add incremental speed. The faster it moves, the more energy it generates. And the more excited everyone is about how great the flywheel is. Quarterly experiment cycles provide only 4 compounding periods whereas monthly provides 12.

3 Compounding Return on Effort

No “one push” makes it happen. Continuous small inputs add up into an impressive output, eventually. The faster the compounding occurs, the larger the increase. For growth teams, conversions increase over time with the same or less effort.

4 Direction

Sustained effort must be focused in one direction in order to maintain momentum and compounding returns. Misplaced effort is either wasted or counterproductive.

Focus on building self-reinforcing loops made up of a few key initiatives. Those initiatives feed and are in turn driven by each other, and build a long-term value for both customers and business stakeholders.

Evolution, Not Revolution

Building always-on flywheel marketing is about avoiding the valley of death and the wasted assets that typically result from traditional campaign-driven marketing teams.

By investing in always-on assets and programmes, teams can build a foundational machine that creates a permanent, predictable and scalable growth capability. Indeed the most successful marketing teams operate with a machine-like characteristic where variability and marketing moonshots are treated with caution.

What the world of finance and investing proves, similar to agile and lean concepts, is that small incremental improvements to always-on activities practised consistently over time, yield the largest results.

Iteration does not equal incremental.

A final word from Jim Collins:

Once you fully grasp how to create flywheel momentum in your particular circumstance, and apply understanding with creativity and discipline, you get the power of strategic compounding. Each turn builds upon previous work as you make a series of good decisions, supremely well executed, that compound one upon another. This is how you build greatness.

Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel — that adds up to sustained and spectacular results.

Jim Collins, Bestselling Author of Good to Great

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