7 Powers

The Foundations of Business Strategy

By: Hamilton Helmer

Narrated by: Joel Richards

Length: 4 hrs and 49 mins

Publisher's summary

7 Powers breaks fresh ground by constructing a comprehensive strategy toolset that is easy for you to learn, communicate, and quickly apply. Drawing on his decades of experience as a business strategy adviser, active equity investor and Stanford University teacher Hamilton Helmer develops from first principles a practical theory of strategy rooted in the notion of power, those conditions which create the potential for persistent differential returns.

Using rich real-world examples, Helmer rigorously characterizes exactly what your business must achieve to create power. And create power it must, for without it your business is at risk. He explains why invention always comes first and then develops the Power Progression to enable you to target when your power must be established: in the origination, take-off, or stability phases of your business. Every business faces a do-or-die strategy moment: a crux directional choice made amidst swirling uncertainty. To get this right you need at your fingertips a real-time strategy compass to discern your true north. 7 Powers is that compass.

PLEASE NOTE: When you purchase this title, the accompanying PDF will be available in your Audible Library along with the audio.

©2016 Hamilton W. Helmer (P)2019 Echo Point Books & Media, LLC

Sustainable Competitive Advantage

The book is a good review of what makes something a sustainable competitive advantage. While I'm not sure everything can be broken down into an economic model, it does present a detailed observation on what makes something a sustainable competitive advantage with stories to back it up. Of course, we'd have to look at these stories over time along with Michael Porter's work on the five forces model along with PESTLE. If some business professor looked at Pan Am or TWA in the 60's, that professor would have held these companies up as models much like People Express airline in the 80's.

However, with an external factor of airline market deregulation, the rules changed and these companies no longer exist in the same form. So, the examples provided today, may not be relevant in 20 years as the external environment and industry changes. I plan to take things away from this book that I can share with my undergraduate business students. Thanks to the author for writing this.

Must-Listen / Read for CEOs & founders

I find this book among the best since Jim Collins "Good to Great".

It's actionable, well thought out, rigorous.

I listen to a _lot_ of audio books while out biking, hiking, driving and don't often review. This, combined with Porter's 5 Forces, form a foundation for business strategy and forming a defensive moat, or attacking a much larger incumbent.

hiddem GEM for understanding Strategy

Simple but not simplistic.
A MECE theory about dynamic strategy and how to establish power as a company.

Bit hard to follow as audiobook

The book more or less requires you to sit down with the pdf supplement for full ubderstanding.

good for huge companies

Its good for a very huge company, where players end up ownning the market but not for a small/medium startup. I have now a more clear idea about how this huge companies keep their power, stories are great, but cant put it on practice on my company.

"Simple but not simplistic," 7 Powers is powerful

Hamilton Helmer's 7 Powers is a must-listen for anyone whose career or interests include business strategy. The book introduces the economics of how a business may achieve superior returns over time, then unpacks the seven ways in which it is possible.

The book's concepts may be understood by just listening (Joel Richard's narration is very good), but 7 Powers also includes unusually rich supplemental material. The accompanying PDF contains visual material that strongly bolsters understanding of the 7 Powers. Kudos to Helmer and team for releasing the audio of this book for busy professionals and not skimping on the additional material that can be reviewed later to lock in the learnings.

Excellent book!

What business strategy is really about!

The best book on strategy that is simple but not simplistic.

Just okay for me

I heard about this one through the “Acquired” podcast. The hosts of that show regularly work Helmer’s “7 powers” into their discussions, so, after listening to several episodes, I felt I had to check this book out for myself.

In the end, I found it to be okay. The work is centered around seven ways that companies can create power (the ability to realize persistent and sustainable returns). I won’t spoil those seven subjects for you here, otherwise, I’d be giving away the bulk of the book.

And that brings to light my main complaint with this one: I didn’t feel as though there was a ton of substance to it besides learning what those seven powers were. Sure, I was still excited to find out about them, but the process of getting there was a bit uninspiring or surface-level at times.

What I did love was the more specific company breakdowns, such as those related to the rise of Netflix. Such stories provide much-needed application and help illustrate the seven powers quite well. However, those stories are lacking in number; I would've liked more of them.

For the reasons above, I’m not too sure I’d recommend this one. That’s not to say it’s a bad book, just that I think there’s more value to be had elsewhere, first.

-Brian Sachetta
Author of “Get Out of Your Head”

Simple but not simplistic breakdown of power

The formulaic description of power is difficult to follow through listening. But good to get the gist and check out the pdf

Good concepts (nothing really new)

7 powers
Summary
The author, Hamilton Helmer is a consultant and portfolio manager that created this framework to analyze the companies he invested in. To me it seems like a gathering of some ideas and I don't think there is something really “new”. Maybe the framework and how he uses it to invest might be something innovative… Basically it is resumed in 7 powers including: scale economics, switching costs, cornered resource, counter positioning, branding, network effects, and process.

Scale Economies
I agree that this is one of the most important concepts. Another very good book about this is “Competition Demystified”. In this chapter it mentions some examples like Intel (also a very used example in several other books).

Network Economies
Also a very well known item. No news here.
Below a summary I found on the internet…

Counter-Positioning
Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
This chapter introduces Counter-Positioning, the next Power type. “I developed this concept to depict a not well-understood competitive dynamic I often have observed both as a strategy advisor and an equity investor. I must confess it is my favorite form of Power, both because of my authorship and because it is so contrarian. As we will see, it is an avenue for defeating an incumbent who appears unassailable by conventional wisdom metrics of competitive strength.”
But nearly always, these featured the same outcome: the incumbent responds either not at all or too late. The incumbent’s failure to respond, more often than not, results from thoughtful calculation. They observe the upstart’s new model, and ask, “Am I better off staying the course, or adopting the new model?” Counter-Positioning applies to the subset of cases in which the expected damage to the existing business elicits a “no” answer from the incumbent. The Barrier, simply put, is collateral damage. In the Vanguard case, Fidelity looked at their highly attractive active management franchise and concluded that the new passive funds’ more modest returns would likely fail to offset the damage done by a migration from their flagship products.
What are the potential causes of such decrements? They could be numerous, but over several decades of client strategy work, I have noted two that seem common. The first involves two characteristics of challenges to incumbency:
The challenger’s approach is novel and, at first, unproven. As a consequence, it is shrouded in uncertainty, especially to those looking in from the outside. The low signal-to-noise of the situation only heightens that uncertainty.
The incumbent has a successful business model. This heritage is influential and deeply embedded, as suggested by Nelson and Winter’s notion of “routines,” and with it comes a certain view of how the world works. The CEO probably can’t help but view circumstances through this lens, at least in part. Together these two characteristics frequently lead incumbents to at first belittle the new approach, grossly underestimating its potential.
As noted in the Introduction, Power must be considered relative to each competitor, actual and implicit. With Counter-Positioning, this is particularly important, because this type of Power only applies relative to the incumbent and says nothing regarding Power relative to other firms utilizing the new business model.
Though this isn’t always the case, I have noticed a frequently repeated script for how an incumbent reacts to a CP challenge. I whimsically refer to it as the Five Stages of Counter-Positioning: Denial Ridicule Fear Anger Capitulation (frequently too late)
Once market erosion becomes severe, a Counter-Positioned incumbent comes under tremendous pressure to do something; at the same time, they face great pressure to not upset the apple cart of the legacy business model. A frequent outcome of this duality? Let’s call it dabbling: the incumbent puts a toe in the water, somehow, but refuses to commit in a way that meaningfully answers the challenge. Counter-Positioning often underlies situations in which the following developments are jointly observed: For the challenger Rapid share gains Strong profitability (or at least the promise of it) For the incumbent Share loss Inability to counter the entrant’s moves Eventual management shake-up (s) Capitulation, often occurring too late
Such reversals are rare in business, because contests typically take place over extended periods and with great thoughtfulness on all sides. Even a momentary lapse by an incumbent won’t present a sufficient opening. The only bet worthwhile for a challenger is one in which even if the incumbent plays its best game, it can be taken off the board. A competent Counter-Positioned challenger must take advantage of the strengths of the incumbent, as it is this strength which molds the Barrier, collateral damage.

Switching Costs
Switching Costs arise when a consumer values compatibility across multiple purchases from a specific firm over time. These can include repeat purchases of the same product or purchases of complementary goods.
Benefit. A company that has embedded Switching Costs for its current customers can charge higher prices than competitors for equivalent products or services. This benefit only accrues to the Power holder in selling follow-on products to their current customers; they hold no Benefit with potential customers and there is no Benefit if there are no follow-on products.
Barrier. To offer an equivalent product, competitors must compensate customers for Switching Costs. The firm that has previously roped in the customer, then, can set or adjust prices in a way that puts their potential rival at a cost disadvantage, rendering such a challenge distinctly unattractive. Thus, as with Scale Economies and Network Economies, the Barrier arises from the unattractive cost/benefit of share gains for the challenger.
Switching Costs can be divided into three broad groups:
Financial.
Procedural.
Relational.
Switching Costs are a non-exclusive Power type: all players can enjoy their benefits.

Branding
Branding is an asset that communicates information and evokes positive emotions in the customer, leading to an increased willingness to pay for the product.
Benefit. A business with Branding is able to charge a higher price for its offering due to one or both of these two reasons:
Affective valence. The built-up associations with the brand elicit good feelings about the offering, distinct from the objective value of the good.
Uncertainty reduction. A customer attains “peace of mind” knowing that the branded product will be as just as expected.
Barrier. A strong brand can only be created over a lengthy period of reinforcing actions (hysteresis), which itself serves as the key Barrier.
Brand Dilution. Firms require focus and diligence to guide Branding over time and ensure that the reputation created remains consistent in the valences it generates. Hence, the biggest pitfall lies in diminishing the brand by releasing products which deviate from, or damage, the brand image. Seeking higher “down market” volumes can reduce affective valence by damaging the aura of exclusivity, weakening positive associations with the product.
Problem is, the qualities that make Branding a Power also make it hard to change; the considerable risk is dilution or brand destruction.
Type of Good. Only certain types of goods have Branding potential as they must clear two conditions:
Magnitude: the promise of eventually justifying a significant price premium. Business-to-business goods typically fail to exhibit meaningful affective valence price premia, since most purchasers are only concerned with objective deliverables. Consumer goods, in particular those associated with a sense of identity, tend to have the purchasing decision more driven by affective valence. Here’s the reason: in order to associate with an identity, there must be some way to signal the exclusion of alternative identities.
For Branding Power derived from uncertainty reduction, the customer’s higher willingness to pay is driven by high perceived costs of uncertainty relative to the cost of the good. Such products tend to be those associated with bad tail events: safety, medicine, food, transport, etc. Branded medicine formulations, for example, are identical to those of generics, yet garner a significantly higher price. Duration: a long enough amount of time to achieve such magnitude. If the requisite duration is not present, the Benefit attained will fall prey to normal arbitraging behavior.

Cornered Resource
Cornered Resource definition: Preferential access at attractive terms to a coveted asset that can independently enhance value.
Benefit. In the Pixar case, this resource produced an uncommonly appealing product—“superior deliverables”—driving demand with very attractive price/volume combinations in the form of huge box office returns. No doubt—this was material (a large m in the Fundamental Equation of Strategy). In other instances, however, the Cornered Resource can emerge in varied forms, offering uniquely different benefits. It might, for example, be preferential access to a valuable patent, such as that for a blockbuster drug; a required input, such as a cement producer’s ownership of a nearby limestone source, or a cost-saving production manufacturing approach, such as Bausch and Lomb’s spin casting technology for soft contact lenses.
Barrier. The Barrier in Cornered Resource is unlike anything we have encountered before. You might wonder: “Why does Pixar retain the Brain Trust?” Any one of this group would be highly sought after by other animated film companies, and yet over this period, and no doubt into the future, they have stayed with Pixar. Even during the company’s rocky beginning, there was a loyalty that went beyond simple financial calculation.
Our general term for this sort of barrier is “fiat”; it is not based on ongoing interaction but rather comes by decree, either general or personal.
Another way to put this is that a Cornered Resource is a sufficient condition for potential for differential returns.

Process Power
I save it until last because it is rare. I will use the Toyota Motor Corporation as a case.
Perhaps the best way to think of it is this: Process Power equals operational excellence, plus hysteresis. Having said that, such hysteresis occurs so rarely that I am in strong agreement with Professor Porter’s sentiments.
Benefit. A company with Process Power is able to improve product attributes and/or lower costs as a result of process improvements embedded within the organization. For example, Toyota has maintained the quality increases and cost reductions of the TPS over a span of decades; these assets do not disappear as new workers are brought in and older workers retire.
Barrier. The Barrier in Process Power is hysteresis: these process advances are difficult to replicate, and can only be achieved over a long time period of sustained evolutionary advance. This inherent speed limit in achieving the Benefit results from two factors:
Complexity. Returning to our example: automobile production, combined with all the logistic chains which support it, entails enormous complexity. If process improvements touch many parts of these chains, as they did with Toyota, then achieving them quickly will prove challenging, if not impossible.
Opacity. The development of TPS should tip us off to the long time constant inevitably faced by would-be imitators. The system was fashioned from the bottom up, over decades of trial and error. The fundamental tenets were never formally codified, and much of the organizational knowledge remained tacit, rather than explicit. It would not be an exaggeration to say that even Toyota did not have a full, top-down understanding of what they had created—it took fully fifteen years, for instance, before they were able to transfer TPS to their suppliers. GM’s experience with NUMMI also implies the tacit character of this knowledge: even when Toyota wanted to illuminate their work processes, they could not entirely do so.