7 Powers is arguably the best book on business strategy currently available today.
This is a summary of a š³ tree book, arguably the best book on business strategy currently available. 7 Powers is very good, remarkably well written, but deceptively easy to read; the framework that the book develops is āsimple without being simplisticā. To my mind, 7 Powers supplants Michael Porter, shores up several holes in Clayton Christensenās disruption theory, outshines Bruce Greenwaldās Competition Demystified, and makes Richard Rumelt look like a child playing with strategy toys. If you must read only one book on business strategy, make it this one.
7 Powers is arguably the best book on business strategy currently available. It develops a complete theory of business strategy, but is written for the practitioner.
Just a quick note to say that Iāve updated the section on Switching Costs with excerpts from Helmerās interview with Patrick OāShaughnessy. Both post and PDF are now updated.
Bravo! This finally pushed me over the edge of buying the book, despite my wondering what could possibly be of value that is not included in your post.
(I wrongly put the -1 in the second term under the denominator. Special thanks to @rishabhsriv for noticing that it didnāt make sense).
Iāve added an extra paragraph under Power Progression:
This turns out to be really useful! Helmer writes:
The key strategic questions for you are: (1) āWhat Power types do I now have?ā and (2) āWhat Power types do I need to worry about establishing now?ā The 7 Powers informs you that there are only seven possibilities for (1) and usually you can quickly rule out several. The Power Progression informs you that at any given growth stage the maximum number of new Powers that you might explore is 3.(emphasis added) This focusing is very valuable. If you cannot see a route to one of these 7, your strategy problem is not yet solved.
And Iāve added an endnote:
Are there just 7 Powers? To the best of Helmerās knowledge, yes. He writes: āIn the 200+ strategy cases I have led over my career, these seven were sufficient. This is also true of all the cases studied by my students, probably another 200 or so.ā I have no reason to doubt him. It is plausible that a new one might emerge (Process Power emerged in the 70s, for instance), but discovery of a new Power should be regarded as an unlikely event.
I look forward to reading this book. Iāve been on a strategy kick lately, slowly going through Lawrence Freedmanās history of the term. From what Iāve read, there is a dearth of good practical tools to developing strategy; most of the discussion is ontological (i.e., what is strategy, versus, say tactics). I bought the book based on your recommendation and I look forward to using the PDF to guide my reading.
Been a long time reader but this is the post that pulled me over to becoming a paid subscriber. Am pitching for a bigger job and planning to use the 7 Powers framework to build my case as a strategic thinker.
I got the book years ago on the recommendation of a fund manager who had the book recommended to him. Liked it but clearly didnāt fully appreciate it. Looking forward to digging in.
@cedric - as Iāve been getting a company off the ground over the last 1.5 years, this post has really taught me so much about how to think about making my business defensible! Thank you!!!
Iāve been recommending it to many of my founder friends, but it has been hard to get it across since it is paywalled. Is there a way I can share this to founder friends without them having to pay? Open to ideas here including even subsidizing this somewhat for them. Or if thereās a free trial to commoncog, I can recommend them to do it.
Well, thereās a PDF version of this essay at the bottom ā you could download and send that to your founder friends! (It happens to be the first and last time I used LaTeX for a Commoncog essay ā thanks to all the equations).
For what itās worth, I sent the PDF version to some of my friends as well (sorry @cedric ). Thatās just how good this article is. I just have to share it.
A question I have is to what extent should founders care about moats (or path to moats). I see many successful businesses out there with no moat, who seem to maintain their advantage by just continually out-executing their competition. Some examples in tech: Vanta, Ramp, Brex, etc.
The more you think about moats, the more you hunt down concept instantiations of moats, the more you realise that there are nuances to moats building that arenāt immediately obvious.
Off the top of my head (some of these are repeated points that Iāve made in the past, but I shall repeat them anyway):
Competitive arbitrage can happen over a long period of time. So you could very well get rich before arbitrage kicks in and exit stage left (sell the business, retire, etc) before the hard times hit.
Sometimes competitive arbitrage does not kick in. Say, for instance, if the market youāre in is unsexy (trash collection), or you operate in small towns, with few competent competitors, or you operate in a profitable niche that is good for you, but simply too unattractive for the big companies (and therefore most of your direct competitors are not that dangerous).
Buffett likes to say āI like to own a business that can be run by an idiot, because sooner or later one willā ā but the flip side of this saying is that there are management teams that are truly geniuses, and they can outcompete their rivals for a good long period. This is where the perspective between investor and operator diverges. If you are a public (that is: minority + passive) investor, you care about predictability and duration of long term returns, which is more reliable if it comes from a moat. But as an operator, it is absolutely reasonable to think about how to recruit the best people and build the best team to kick the competitionās ass, even if it isnāt a sustainable competitive advantage.
One way Iāve heard it said is that the ālong term consists of many short termsā, which translated would be āthe path to a durable competitive advantage is usually paved with lots of temporary competitive advantages.ā This matches many cases Iāve read.
Hamilton Helmer has said multiple times that founders need to be aware that they need to find a path to a moat, and that time is ticking once theyāve struck gold and found a lucrative business.
I think thatās wise.
Updated to add: if you read my own personal history with moat building, youāll see that I do this weighing-off between different durations of competitive advantage:
The whitelist was a cornered resource, and so long as we were on the whitelist we could outcompete everyone else in the market.
But the whitelist didnāt apply as a competitive advantage to other companies on the whitelist.
But I reasoned that our temporary competitive advantages ā which I listed in the story ā were enough to beat them, because (correctly, as it turned out) none of them were as competent. They didnāt know the shape of the game, they didnāt know how to hire software engineers at our same cost basis, and in theory they could have done all of those things, but they werenāt strategic thinkers. This was only true because our market was small, and filled with subpar operators.
Finally, the whitelist itself would not last forever, so we were rushing against time before it ran out.
I noted you like this book much more than Competition Demystified, which is fair. I probably need to re-read and dust 7 Powers off. I actually read the Platform Delusion by Jonathan Knee, who collaborated with Greenwald on another book. He seems less focused on this. He does a good job on sort nuances of network effects and explains how brand, culture, and leaderships arenāt really structural and are competitive reinforcers.
Some gems:
āKnowing to what extent a company owes its success to efficiency and competitive advantage should fundamentally drive resource allocation. Strategy is all about actions that will allow a business to perform better than its peers over the long term. The focus must accordingly be on establishing or reinforcing competitive advantage and will involve interrelated considerations of how to invest internally and how to interact with other constituents in the broader ecosystem. Efficiency, by contrast, has a relatively shorter-term horizon and is overwhelmingly focused internally on optimizing operating performance.ā
āTwo primary attributes are responsible for the superiority of Airbnb over Uber: product/service complexity on the demand side and the fixed-cost requirements on the supply side. The former determines how many network participants are needed for a viable product and the extent to which additional network participants continue to enhance the product. The latter determines basic break-even economics and the relative financial advantage of being larger than competitors.ā
I just wanted to add on to what @michaeljon said and thank you for the book recommendation. Iād not heard of the book before, and both excerpts you cite are sufficiently remarkable that Iāve immediately added the book to my toread!
I started to read this right in the beginning of 2022 when the market fell apart. The author, Jonathan Knee, wrote curse of the mogul with Bruce Greenwalk a book about strategy in Media. I think he makes some really cogent points. In the book, he does talk about Etsy as a promising business, which has not really worked out. But, he brings up a lot of points I enjoyed. No one is always right.
I have notes to the book in Obsidian that I am happy to share if useful.
I guess I never actually finished reading @cedric 's original summary because I missed the part where Helmer was believable as an equity investor, and had written this for the practitioner. The way the book had been described (even in the start of this post) is as a theoretical construct, and I had assumed Helmer was a professor with a framework (especially with the mathematical models, which never describe reality), so I had dismissed it.
Anyway, just adding a comment here to indicate that if Iād known that Helmer was a believable source, and that, as Cedric put it, āWhen the best contemporary practitioner of business strategy [Reed Hastings of Netflix] says that 7 Powers is the pre-eminent book about business strategy; you learn to pay attention.ā, I would have moved this book way up in my reading order. I guess Iāll fix that mistake this week
