Year of Books 2021: 7 Powers: The Foundations of Business Strategy by Hamilton Helmer

(credit: Education Details Online, October 31, 2017)

All views, opinions and statements are my own.

Greetings, Romulo here! 👋

Welcome to the fourth post of my Year of Books 2021 series 📚. Find here my first post with the introduction to the project and key takeaways from the book High Output Management by Andrew Grove.

As I mentioned there:

This year, I’m trying something new and bringing you value along the way. For each book I read (excludes fiction), I’ll publish a Medium post with my takeaways. While I hope this will spark your interest and help you succeed, this will also help me, since IMO there’s no better way to learn than receiving and digesting new information, processing and summarizing it, and explaining it to someone else (hopefully in an understandable way!) .

Let’s get started!

Overview (description provided by Amazon)

Reference: 7 Powers: The Foundations of Business Strategy (link here)

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 advisor, 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.

Key Takeaways (TL;DR)

Let's start with some important definitions:

• Strategy is a route to continuing Power in significant markets, with an ultimate goal of value creation via increased margin and market share.
• Power is a "configuration" that creates the potential for persistent / significant differential returns, even in the face of fully committed and competent competition.
• "Configuration" can be explained as a benefit and a barrier. It's a benefit for those that hold the power (e.g. increased value and reduced costs) and it's a barrier for the challengers that want to compete in a market (e.g. customers unwilling or unable to change + uncertainty of changing)

The 7 Powers are:

1. Scale Economies: Cost advantage as a result of operational scale and increased output. E.g. Software as a Service (SaaS) companies serving "N" additional customers by leveraging an already-developed-and-deployed infrastructure.
2. Network Economies: Value of the service enhances as new customers join the network. E.g. Social media (of all sorts) is a classic example: Facebook, Twitter, LinkedIn, TikTok, etc.
3. Counter-positioning: New (and one may say "superior") business model pioneered and/or adopted by a newcomer (e.g. startup) but not immediately adopted by the incumbent (e.g. market dominant) due to anticipated damage to the existing business. E.g. Robinhood and its approach that led to an explosion in the volume of retail trading, primarily driven by a killer mix of beautiful UI, engagement flywheel — refer friends and get free stocks — and of course, no-fee trading.
4. Switching Costs: The value loss expected by a customer that would be incurred from switching to an alternate supplier for additional purchases. E.g. back in the days, SAP for ERP (Enterprise Resource Planning) software; these days, cloud-computing providers (e.g. moving from Amazon AWS to a different cloud provider) or stopping using TurboTax for tax preparation after years using the service (this last one is very biased based on my own experience).
5. Branding: Customer’s increased willingness to pay more due to the solid reputation of a company / provider. E.g. unfortunately (or fortunately), I’m old enough to mention this quote “”Nobody ever got fired for choosing IBM”. These days, the quote has lost at lot of its strength, so let me replace it with a question “Have you ever tried to onboard a new software developer and give that person a laptop that’s not an Apple MacBook Pro?”
6. Cornered Resource: Very unique resource possessed by a company — may also speak to production process or method. E.g. Patents, patents, and more patents. See this example “Over the past five years, PayPal has issued 26x more patents than Goldman Sachs.” More here, in the context of FinTech coming big and fast for a space “dominated” by traditional banks.
7. Process Power: Superior, hard-to-copy process that delivers lower costs and/or superior products (typically associated with longer-term commitment to establishing and refining the process). E.g. does the Toyota Production System ring the bell?

Here’s a great chart that puts it all together:

Reference: 7 Powers: The Foundations of Business Strategy (link here)

Key Takeaways (One-click down)

For this particular post, I'm changing my approach for this section. Instead of attempting to distill a couple of extra thoughts on the book, I'm sharing two book-summary-type-of-posts on 7 Powers from authors in the Product Management space that I avidly follow.

First one is from Sachin Rekhi. Here's more about Sachin from the About section in from his blog:

I’ve enjoyed spending the last 20 years creating products to help people be more productive and successful every day. Still honing my craft.

I also love sharing my best practices with the community. I’ve spoken on product management at Wharton, Stanford, Facebook, LinkedIn, Google, P&G, and more. Feel free to reach out to discuss future engagements at sachin.rekhi [at] gmail [dot] com.

You can read Sachin's post on 7 Powers here.

Second one is from Gib Biddle. Here’s more about Gib from his LinkedIn profile:

Past product leader at entertainment (Netflix, Mattel, EA) & education companies (Chegg, The Learning Company). Today, I speak, write and host workshops on product leadership, strategy, and culture.

You can read Gib’s post on Product Strategy — The DHM Model here. It goes beyond 7 Powers, but it’s a great post on ““How will your product delight customers, in hard to copy, margin-enhancing ways?

That’s a wrap!

Since I have you here, please consider reading my previous posts:

• Interview with Rodrigo Iannuzzi, Product Lead and ex-Nubank, a company on a mission of reinventing what’s possible to redefine people’s relationship with money (link here).
• My key takeaways from the book “Range: Why Generalists Triumph in a Specialized World by David Epstein” (link here).

Thank you again for your support and looking forward to continuing my journey with you on Medium.

Cheers, Romulo