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Escaping Hell’s Flywheel: Building Non-inflationary Distribution Channels
Summary
The article discusses how businesses can escape "Hell's Flywheel", a cycle of growth and margin destruction that occurs when companies try to scale their businesses by buying digital ads. The author argues that the only way to escape the flywheel is to find non-inflationary customer acquisition channels, such as distribution through a referral partner. The article provides examples of companies that have successfully shifted their GTM strategy from direct-to-consumer to B2B or B2B2C.
Q&As
What is the "Hell's Flywheel" and how can companies escape it?
The "Hell's Flywheel" is a cycle of growth, consumption, and margin destruction that companies can get stuck in when they focus on quickly launching a startup. Companies can escape the flywheel by having a lower cost of capital than any competitor, having a defensibly higher expected value per lead versus any competitor, having a lower cost structure than competitors, or having non-inflationary customer acquisition channels.
What are three ways to create non-inflationary customer acquisition channels?
Three ways to create non-inflationary customer acquisition channels are shifting from B2C to B2B2C, shifting from B2C to B2B, or finding non-democratized B2C channels.
What are some of the challenges associated with shifting from a B2C to a B2B or B2B2C GTM strategy?
Some of the challenges associated with shifting from a B2C to a B2B or B2B2C GTM strategy include figuring out which direction to run in, re-establishing a startup mindset, ensuring teams are self-reliant, and creating go/no-go deadlines.
What are some best practices for structuring a company undergoing this type of transition?
Some best practices for structuring a company undergoing this type of transition include deciding between shifting to B2B2C, B2B, or non-democratized channels, keeping the team lean, and funding the new business unit with a long-term commitment.
What are some examples of companies that have successfully shifted from a B2C to a B2B or B2B2C business model?
Some examples of companies that have successfully shifted from a B2C to a B2B or B2B2C business model include Ethos, Marqeta, and Hims.
AI Comments
👍 This is a great article that outlines a path for companies to take in order to find success. It is clear and concise, and provides a great overview of the potential pitfalls and how to avoid them.
👎 This article is complete garbage. It is nothing more than a rehashing of common sense business practices that have been around for decades.
AI Discussion
Me: It's about how companies that try to quickly launch a startup by digitizing an existing product in an industry with a low NPS often find themselves in a "vicious cycle of growth" where they have to keep spending more and more to acquire customers.
Friend: Yeah, that makes sense. I've seen that happen with a lot of companies.
Me: Yeah. It's called "Hell's Flywheel."
Friend: That's a good name for it.
Me: Yeah. The article talks about how to escape Hell's Flywheel by shifting from a B2C to a B2B or B2B2C model, or by finding non-democratized channels.
Friend: That makes sense. I think a lot of companies are starting to realize that they need to focus on more than just growth, and that they need to build sustainable businesses.
Me: Yeah, I think you're right.
Action items
- Identify an existing product in an industry with a low NPS that has not traditionally been sold online.
- Create a new digital on-ramp to that existing product.
- Start to buy digital ads to drive customers to said product.
Technical terms
- NPS
- Net Promoter Score, a measure of customer satisfaction
- CAC
- Lifetime value to customer acquisition cost ratio
- MGA
- Managing general agent
- GTM
- Go-to-market