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Business strategist Hamilton Helmer’s renowned book ‘7 Powers’ outlines seven ways that businesses can earn consistent differentiated returns.
The presumption is that any business making lots of profits will eventually attract competitors who will copy their methods, increase supply, and reduce the original firm’s ability to attract outsized margins.
How do you fight off competitors? You need to be powerful. Here are the seven forms of power that Helmer has documented from years of study.
Scale Economies: the decrease in unit costs with increased size, like Walmart.
Network Economies: the value of the service to each customer is enhanced as new customers join the network, like Facebook.
Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business. See AWS vs Oracle or Netflix vs Blockbuster.
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. Apple has mastered this.
Branding is an asset that communicates information and evokes positive emotions in the customer, leading to an increased willingness to pay for the product, like Nike.
Cornered Resource: Preferential access at attractive terms to a coveted asset that can independently enhance value. This can be for talent, like McKinsey & Pixar, or a natural resource, like oil.
Process Power: Equals operational excellence. It is the rarest power, in that it is hard to defend. Taiwan Semiconductor and the Toyota Motor Corporation would be the best examples.
You might not have one of these powers yet, but you should have a plan for pursuing it in the future.
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