🚀 7 Powers by Hamilton Helmer
Hamilton Helmer's "7 Powers" is a framework from his book "7 Powers: The Foundations of Business Strategy," which outlines the seven key strategies businesses can use to achieve a lasting competitive advantage and persistent differential returns against its competitors.
1. Scale Economies
This is when producing more of something makes it cheaper to make each unit. Think of a factory making cars. The more cars it makes, the less it costs to make each one because the factory spreads its costs over more cars.
Example: Walmart uses its huge size to buy products in bulk at lower prices, then sells them cheaper than smaller stores can.
Example: Amazon operates on a massive scale, allowing it to offer a wide range of products at competitive prices. Its large-scale operations enable it to negotiate better deals with suppliers, reduce shipping costs, and spread its infrastructure costs over millions of items, making each item cheaper to sell and deliver.
Example: The large-scale production of semiconductors by companies like Intel and TSMC allows them to achieve economies of scale, reducing the cost per chip and making it difficult for smaller competitors to compete on price.
2. Network Economies
This happens when a product or service becomes more valuable as more people use it. Imagine a social media platform like Facebook; the more friends you have there, the more valuable it is to you because you can connect with all of them in one place.
Example: eBay becomes more attractive for both buyers and sellers as the number of users grows because it's easier to find or sell items.
Example: The more people who use WhatsApp, the more valuable the service becomes because users can communicate with a larger network of friends and family. This self-reinforcing loop makes it hard for new messaging apps to compete, as they start with smaller networks.
Example: Visa and Mastercard's payment networks become more valuable as more merchants and consumers use their cards, creating a self-reinforcing loop that makes it difficult for new payment networks to compete.
This is when a new company does business in a way that's so different it makes it hard for existing companies to compete without hurting their own business.
Example: Netflix starting as a DVD delivery service, which was very different from Blockbuster's physical rental stores. Blockbuster couldn't easily switch to Netflix's model without losing its existing business.
Example: Tesla counter-positioned itself in the auto industry by focusing exclusively on electric vehicles (EVs), a move that traditional automakers were slow to adopt due to their investments in internal combustion engines. Tesla's commitment to EVs and its innovative direct-to-consumer sales model disrupted the traditional auto industry's reliance on dealership networks.
Example: Dollar Shave Club's subscription-based razor delivery service counter-positioned itself against traditional razor manufacturers like Gillette and Schick, which relied on selling razors through retail stores. Dollar Shave Club's direct-to-consumer model and subscription-based pricing made it difficult for traditional razor manufacturers to compete without cannibalizing their existing retail sales.
4. Switching Costs
This refers to making it hard or costly for customers to switch to another product or service. For example, if you use a specific software for your business and it would be expensive or time-consuming to train employees on a new one, you're less likely to switch.
Example: Adobe Creative Suite has become essential for many designers, making it hard for them to switch to alternative software without significant effort and cost.
Example: Apple's ecosystem of products and services, such as the iPhone, iPad, Mac, and iCloud, creates high switching costs for users who have invested in Apple's hardware and software. This makes it difficult for users to switch to other platforms, as they would lose access to their existing apps, data, and services.
Example: Salesforce's customer relationship management (CRM) software is deeply integrated into many businesses' operations, making it difficult for them to switch to alternative CRM solutions without disrupting their sales and marketing processes.
This is creating a strong, positive perception of your company, products, or services in customers' minds. Another way to look at is like buying the product just because of the brand, not because it's the best or cheapest.
Example: When you see a Coca-Cola, and you think of happiness, refreshment, and a globally recognized brand. Coca-Cola's branding makes people choose it over generic cola drinks.
Example: Luxury brands like Louis Vuitton, Gucci, and Chanel have built strong brand images that make people willing to pay a premium for their products, even if similar products are available at lower prices.
Example: Apple's brand is associated with innovation, design, and quality, which has created a loyal customer base willing to pay a premium for its products. Apple's brand image has allowed it to maintain high prices and profit margins, despite intense competition in the consumer electronics industry.
6. Cornered Resource
This involves having exclusive access to a crucial resource or talent that competitors can't easily replicate or obtain.
Example: Google's acquisition of Android, which gave it a huge advantage in the mobile operating system market. Competitors can't use Android in the same way Google can.
Example: De Beers' control of the diamond supply chain, which allowed it to maintain high prices and prevent new competitors from entering the market. By controlling the majority of the world's diamond production, De Beers was able to create artificial scarcity and maintain high prices for diamonds.
Example: NVIDIA's dominance in the graphics processing unit (GPU) market, which has given it a cornered resource in the high-performance computing and artificial intelligence industries. Its GPUs are essential for training and running machine learning models, and its technology leadership has made it difficult for competitors to replicate its performance and capabilities.
7. Process Power
This is when a company develops unique methods that allow it to operate more efficiently or effectively than competitors. This could be a special way of making something or a unique distribution method.
Example: Toyota's lean manufacturing process, which minimizes waste and maximizes efficiency, giving it an edge over competitors in car production.
Example: Zara's fast fashion model, which allows it to design, produce, and deliver new clothing lines to stores in a matter of weeks, giving it a competitive advantage over traditional retailers with longer production cycles.
Example: Amazon's fulfillment and logistics network, which enables it to deliver products to customers quickly and efficiently, giving it a competitive edge in e-commerce.© nem035RSS