Feedback Loops: Gizmos and Runaway Growth (Systems Thinking and Design, Part 2)

This might be the old man in me, but I've started developing strong opinions about thermostats, specifically about how people shouldn't touch them. Once you set it to the ideal temperature, a wonderful thing kicks in—a feedback loop, specifically a balancing loop. If the house gets too warm, the AC turns on. If the house gets too cool, the heat turns on, always striving to return to that ideal temp.

In business, we get excited by another type of feedback loop, the raving fan. When a customer loves your product or service, they go out and tell other people who in turn become customers, who in turn tell more people, creating a reinforcing feedback loop. By learning to create and harness feedback loops, we can help create systems that magnify our efforts, saving us time and effort and creating more value.

Feedback Loops

In systems thinking, we concern ourselves with various inputs and outputs. A feedback loop occurs when an output triggers a change in the original process that created it. There are two basic types of feedback loops we will focus on here: Reinforcing loops and balancing loops.

• Reinforcing loops: A reinforcing loop occurs when the output of the system causes the original stock to increase (and thus increase further output) or decrease (and decrease further output).

• Balancing loops: A balancing loop occurs when a stock has a tendency to remain constant, changing outputs to increase or decrease based on whether the stock is too little or too great.

Both of these feedback loops occur in a wide variety of ways, both in the business world and everyday life. Understanding the properties of each will help you recognize which type of loop you are dealing with and intervene accordingly. Due to the predictable nature of these loops, business leaders can make good use of them by amplifying their efforts and leveraging small actions into massive results.

Reinforcing Loops: Momentum Builders

Reinforcing loops are often called "virtuous cycles" when they produce positive results and "vicious cycles" when they do the opposite. Because they naturally build momentum over time, they can be powerful forces for growth or devastating forces of decline if left unchecked.

• Money management 101: The number one rule of saving for the future is to start early. Compound interest is the powerful reinforcing loop behind this advice. As interest gets added to the principle, even more interest accrues, snowballing into a healthy nest egg.

• Employee development: As a company invests in its people, they produce better results leading to increased revenue. That revenue can then be reinvested in training and development to fuel explosive growth.

• Cutting corners: When companies start cutting corners to save money, quality goes down. This results in lost customers which further lowers revenues. If not corrected, decline and company failure are inevitable.

Balancing loops: The Great Stabilizer

Balancing loops are natural course correctors. They keep growth and decline in check and create stability. The key to leveraging balancing loops is to ensure you are happy with the natural status quo.

• Body signals: Our bodies crave consistency and many of our internal systems attempt to reach homeostasis, or balance. If you need more energy, you get hungry. If you start to consume too much, you become sated.

• Restaurant foot traffic: There are only so many customers a restaurant can serve at one time. As the number of people waiting to get in goes up, the long wait will discourage more people from waiting, leading to a natural equilibrium.

• Growth and bureaucracy: As companies grow, so does bureaucracy. Red tape slows down decision making speed which in turn slows further growth.

Gizmos: Reinforcing loops for runaway growth

Gizmos is a masterclass in feedback loops. In this engine building game, one small trigger sets off a cascade of effects: collect a marble, which triggers a card, which lets you draw another marble, triggering yet another card. Before long, a single action explodes into a chain of rewards. This mirrors reinforcing loops in business,where a small improvement in one area can snowball into massive momentum if aligned correctly. The game reminds us that small actions compound faster than you expect and to harness that speed to propel growth.

Amazon's Recommendation Engine

Amazon's Recommendation engine is a living feedback loop. Every click, search, and purchase feeds into the algorithm, which becomes more accurate and persuasive over time. Better recommendations lead to more sales, which generate more data, which improve the recommendations further. This reinforcing loop explains how Amazon transformed from an online bookstore to one of the world's largest retailers. Balancing loops show up here, too. If recommendations feel too aggressive or irrelevant, customers may disengage, forcing Amazon to refine its algorithms to maintain equilibrium between being helpful and over-bearing. Business leaders take note, that too much of a good thing can sour if not kept in check.

Tying it all together

Feedback loops shape the momentum of systems, determining whether they accelerate, collapse, or stabilize. Reinforcing loops explain why growth can snowball, while balancing loops remind us that no system grows unchecked forever. Board games like Gizmos let us experience these mechanics in miniature, while business examples like Amazon reveal their real-world scale. The leaders who can see these loops in action don't just react to outcomes, they shape the cycles that drive them.