Over the last two weeks we covered two of the three primary forms of discipline—disciplined people and disciplined thought—that great companies possess as noted by Jim Collins across his “Good to Great” series of books. We explored ideas of how we can quantify a lot of these qualitative measures in our investing strategies. This week we discuss disciplined action relative to The Flywheel Effect, 20 Mile March and Fire Bullets Then Cannonballs.


The Flywheel Effect


Amazon called Jim Collins in 2001 during the tech bubble bust right around when Good to Great was first published. The company was trying to find their way in very uncertain and turbulent times. Collins spent several days with the executive team including Jeff Bezos to create Amazon’s flywheel as illustrated below. Collins taught the Amazon team about how great companies build momentum over time by turning the flywheel where each component logically leads to the next, revolution after revolution, fueling itself as it turns faster and faster.

Amazon’s disciplined action of lowering prices, increasing visits, attracting sellers, expanding the store and growing revenues has led to incredible outperformance. Since 2002, the AMZN stock has seen a 5,936% return against the S&P 500’s 341% return.


20 Mile March

 

Great companies that take disciplined action to prepare for the unknown and fanatically stick to a cadence with tremendous consistency will always outperform the competition that happen to be facing the same uncertainty and chaos. These companies are more than ready for the elements and forge ahead no matter what. They adhere to what Collins refers to as the 20 Mile March (20MM) in his book Great by Choice—hike 20 miles daily on your expedition, rain or shine, no excuses. In the toughest of circumstances, 20MM companies can still move forward even if incrementally while their competition struggles more drastically and falls further and further behind. As an example, Amazon’s stock performance over the last 5 years is 115%. Alibaba (often called ‘The Amazon of China’) is -39%.

 

Fire Bullets Then Cannonballs


According to Collins, great companies are very disciplined about finding ways to renew and extend their flywheels by homing in on new ideas and innovations—firing small bullets first to get line of sight on the target, then making that big bet and firing that large cannonball with the remaining gunpowder. Over the years Amazon fired bullets with e-readers, tablets, phones and improvements to its web-based retail services, then went big, firing cannonballs with home assistants and enterprise cloud services, which further extended Amazon’s flywheel first conceived in 2001, adding even more revolutions to an already seemingly unstoppable force.


“Small disciplines repeated with consistency every day lead to great achievements gained slowly over time.”— John C. Maxwell


Next week we’ll go over how disciplined companies that outperform can continue building to last.


P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.


Happy Investing,

John


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