7 Powers - Hamilton Helmer - Quick Summary

0:00 Foreign I've recently finished reading Seven Powers written by Hamilton Helmer and wanted to give you a brief summary. I definitely recommend reading the book, but I'll give you the the quick summary. This book came to my attention. I love listening to the acquired podcast and the two hosts, Ben and David, use the seven powers that we're going to cover as part of their analysis of each of the companies that they are focusing on in their podcast.

0:31 And then I recently heard Hamilton interviewed on Lenny Ryczycki's fantastic product management and strategy focused podcast and it inspired me to get the book and to read through it. Hamilton talks about these seven powers as being able to provide persistent differential returns for a company against the competitors in their so how do some companies continue to lead and exceed against their competition?

1:05 The first of these powers is called scale economies. Now for each one of these powers, Hamilton explains that it's not enough for that power to just give someone a benefit, it also needs to give a barrier to stop others attacking that power.

1:35 So a benefit and a barrier. So for scale economies, as a company gets bigger, it is able to offset its fixed costs amongst a much larger group of customers. And he uses the example of Netflix because Netflix has got more subscribers then when they drop $100 million on producing a fantastic series, the cost of that hundred million is spread across a much larger number of subscribers, which means that their cost to produce is less per subscriber.

2:12 So they get a benefit in that it's cheaper for them. But it's also a barrier because if you're a smaller, smaller streaming provider and you want to create the same level and quantity of content, then you're going to have to pay more per subscriber, which makes it a barrier. The next power is network economies. We're familiar with social networks like an Instagram or a a Facebook or a Twitter Stroke X.

2:46 The more people are on a network or a platform, the more value it provides to the others that are on it. So the benefit if you get to this scale means that you're able to provide a much higher value to the customers that are on your network compared to a smaller network who's got fewer people, provides less. These people have got to spend more to encourage you to spend more spend time on their network than these do.

3:17 The next is counter positioning. And as we'll come on to in a minute, this is very typical as the power that's focused on by a company that is just getting started and scaling up is about you positioning yourself against the incumbent. The current way of Being doing things. Now the benefit is that you're able to talk to your customers about this new and exciting way of doing things.

3:49 But for it to be true, counter positioning for the incumbent to offer a product in the same way that you do it should cause detrimental or complete self destruction to that organization. So if we think about Netflix, when they were starting to do their DVDs in the mail and moving towards streaming, Blockbuster was the big incumbent. Now for them to start offering a similar service would have completely destroyed the retail store outlet, turn up and rent the DVD and get fines for returning it late business model.

4:31 So this is counter positioning. Not only have you got a different way of doing things, but but for the incumbent to complete would actually destroy their value. Next up, we've got switching costs. Once you are the market leader and you brought enough of your customers on board and through acquisitions or rolling up new products, you've now got your customers using you for five, six, seven different things.

5:04 It actually becomes very difficult for a company to switch. Think about the large SaaS platforms. It could be a salesforce, it could be a workday. Think about SAP or Oracle or IBM. Once a customer is using a large number of those products and platforms, then it's not even just moving their data out into a different system. It's all of the people they've hired that have got the certifications. It's all of the integrations that they've built. It's the knowledge of your users of how to use the SAP platform that makes it very, very difficult for a company to switch.

5:41 So that is the benefit. But the barrier is if you are a new upstart to trying to compete with an SAP or Oracle, you've pretty much got to pay the switching costs in terms of the training, the data migration, the new integrations to compete to encourage your customer to come across. The next power is branding. And when we think about brand, we think about the amount that you can command that is over and above the utility value of a specific product.

6:18 So we think of a Tiffany ring. The cost that you would pay to Tiffany is substantially higher than it would cost to get exactly the same physical product from from another provider. And what you're paying for there is brand. What is brand? Well, it's the centuries of heritage. It's what it means to give someone a Tiffany ring in a Tiffany box. It's what it means that you know that you're going to have this consistent experience when you walk into the store and that is what you're paying for.

6:53 So that's the benefit that someone will voluntarily spend a lot more than the utility value of that product. But the barrier is how long has it taken Tiffany to create that brand? Well, it's centuries. And whether it is Louis Vuitton, whether it is Hermes, whether it is Rolex, these brands take decades and centuries to create. And that is the barrier to anyone getting started. Right now the next is cornered resources.

7:32 What is it that a company can have that no one else has got access to? So a great example of this is in healthcare and life sciences, pharmaceuticals, where you develop a compound and then you apply for a patent and then you are protected. So having invested in creating that compound, no one else can create and the same compound and market it a similar product until that patent runs out, you've got a cornered resource. You could think of a commodities organization, a mining company that owns certain mining rights.

8:08 That's a cornered resource. And in the book Hamilton talks about Pixar, where Pixar, when they were getting started had these three key individuals, John Lasseter and two others that owned the direction and the creation of these new movies. No one else had them. And that meant that they were able to roll out film after film after film. That was very effective. So the cornered resource gives you the benefit that you're able to deliver a great high level quality product.

8:38 But the barrier is that no one else can get hold of that cornered resource. And then the final power is process power. And here we're thinking about large scaled organizations globally that have built systems that enable them to deliver a much higher level of service and offering to the customers than anyone else could. Historically we might think about big CPG companies like Procter and Gamble or Unilever that have built up these networks of R and D, of branding, of distribution that allow them to compete in a way that an individual organization just wouldn't be able to.

9:22 We can think about Walmart, the very large supermarket networks that have built up also their supply chain distribution, the logistics network that mean that a local provider, local store just can't compete. And bringing it to today. Think about someone like Amazon who's built this vertically integrated network of marketplace suppliers, of fulfillment networks of next day delivery through prime and of street end cabinets where you can deliver all of your returns through.

9:56 This is a process that makes it very, very difficult for a smaller company to compete. Now there's seven powers there. And Hamilton goes on to talk about, well, whereabouts should you start? You certainly can't tackle all of them. And he draws this chart where we've got the size of your organization here. And then we've got a little bit about the time so when you're originating your company, take off as you really start scaling and then stability as that tails off stability.

10:38 And so any organization will look like this at Sigmoids curve and he breaks it out. So in origination as you're getting going, counter positioning is a key one and, and then the cornered resources as well. Cornered resources, what have you got that no one else has got? These are the two powers that can really help you to position yourself against the incumbents and, and make sure that you've got either some kind of patent or group of people or asset that no one else has got.

11:13 As you move up into scaling and takeoff, then we talk about scale economies, we talk about network economies, and we can talk about switching costs as well that make it difficult for others to compete. And it's only really once you get to stability. Much larger organizations where we can talk about branding and where we can talk about process power.

11:50 So if you are a scaling organization and here we can think about anything up to $100 million of revenue, you might think that you've got branding power, you might think that you've got process power. The reality is you probably don't. If you're in that situation, really think about how you can position yourself against the incumbent way of doing things and that if that incumbent was to try and compete with you, it would devalue or even self destruct their company's value.

12:22 And then cornered resource, can you figure out something that you've got that no one else can have? So that is my quick run through of Hamilton Helmet's seven powers. It's a business classic, business bestseller. Definitely recommend you take a read through it and get some better detail around each of these seven powers.