We are diving into the world of business strategy and the key elements that shape the great businesses of today. According to Hamilton Helmer's "7 Powers," any business with long-lasting success, possesses at least one of these Powers: “If you possess none of these, your business is at risk. Period.” The book explores not only the "what", but also the "how" and "when."
🖊️ Hamilton Helmer is the Co-Founder and Partner at Strategy Capital. His career started at Bain & Company, followed by his role as a business strategist at Deep Strategy (formerly Helmer & Associates), before he established Strategy Capital. Hamilton earned his Ph.D. in Economics from Yale University and a B.A. in Economics from Williams College. Strategy is in his blood as he spent a decade teaching Business Strategy in Stanford University's Economics Department.
Power, as defined by Helmer as: “the set of conditions creating the potential for persistent differential returns”, is what drives business success over the long-term. The 7 Powers are:
- Scale Economies: Netflix is the perfect example, Power was achieved through exclusive rights such as the $100M deal to secure House of Cards. As they had 30M subscribers at the time, this only cost $3 per subscriber.
- Network Economies: BranchOut failed to compete with LinkedIn in 2010, as the existing network on LinkedIn was already too large. Markets where such Power holds are often seen as “winner takes all” markets.
- Counter-Positioning: Vanguard disrupted the market by introducing low-cost passive index funds, contrary to the prevailing active management trend, often overlooked by naïve management.
- Switching Costs: SAP's enterprise resource planning software is so integrated into client businesses that switching is either too risky or too expensive. These include financial, procedural, and relational switching costs.
- Branding: Tiffany & Co. can command high prices due to its reputation for quality, status, and craftsmanship, a success built since its founding in 1837.
- Cornered Resource: Pixar managed to corner the resource of human talent — a group of talented, battle-hardened veterans who remained at the company for years.
- Process Power: Toyota Motor Corporation created world-class production techniques. Even with full transparency, GM Motors failed to replicate them, showing how deeply embedded this Power can be.
The book further explores how to achieve and maintain Power in significant markets. As Hamilton Helmer says, “All Power starts with invention.” Every powerful business started with an invention, be it a new business model, a more efficient strategy, or an excellent product. While the path to Power may seem straightforward, it is often unknown. For example, Netflix's management didn't always know their next move. However, understanding the 7 Powers allows businesses to plan their route to achieve one of them or to evaluate if they possess Power.
Invention is just the beginning. For instance, if Netflix had invented the streaming business without introducing Originals, it might have ended up as an easily imitated commodity. Thus, the book serves as a strategic compass, guiding not only the achievement of Power but also the steps to preserve it.
💭 “To fulfill this role as a real-time strategy compass, a Strategy framework must be “simple but not simplistic.” If not simple, then concepts cannot be easily retained for day-to-day reference—usefulness is lost. If simplistic, then you risk missing something crucial. Easier said than done, though. For a subject as complex as Strategy, “simple but not simplistic” is a high hurdle”
Therefore, the book is not a step by step guide to achieving Power. Instead, it offers a toolkit of ideas to analyze whether your business possesses any Power and to prepare thoroughly for maintaining Power in significant markets.