This blog's content was taken from episode 267, "5 Variables to Consider Before Investing in Oil Stocks"

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7 Powers is a book written by Hamilton Helmer in which the author discusses business strategy foundations. The first two thirds of the book discusses the 7 powers for business.

The 7 Powers are the power dynamics that businesses can use to gain competitive advantages. Think of the 7 powers for business like moats. Same but different in a way. 

Here are the 7 Powers by Hamilton Helmer:

1. Scale Economies

Think, Costco.

2. Network Economies

Think, Meta.

3. Counter-Positioning

Think, Netflix against Blockbuster.

4. Switching Costs

Think, business to business software.

5. Branding

Think, Coca Cola.

6. Cornered Resource

Think, a patent for an important drug.

7. Process Power

Think, Toyota’s manufacturing operational excellence or Amazon’s delivery infrastructure. A process that is a huge barrier to compete with.

The last third of the book talks about establishing and maintaining power.

Looking at a business’ power and moat is great, but how do we recognize getting ro power? How do we recognize a business’ ascent, rise, and stability of power?

The Power Progression

Power progression chart

During the origination phase of power, a business will stumble upon a cornered resource like a patent or an important counter positioning. An example would be Netflix positioning itself against Blockbuster.

The takeoff phase would be network economies. The business will begin building a strong web of networks. The company is gaining more users that is making the platform more powerful. This leads to taking advantage of scale economies. For instance, Costco flexing their pricing power. Then the company reaches a takeoff point of power and switching costs. This leads to stability. The brand begins to matter in the refined power process that has been built up over the years.

There is a correlation of risk and return here on this curve of Power Progression.

As you move up the curve towards more mature stages of power, it becomes more about keeping power and more stalwart growers.