There are 7 Powers:
- Scale Economies
- Network Economies
- Counter-Positioning
- Switching Costs
- Branding
- Cornered Resource
- Process Power.
To his knowledge, these Powers are exhaustive. If there are new ones (which is possible, though unlikely!) they should fit in this:
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Anyone who has spent any amount of time analysing businesses would know these moats exist on a spectrum. Some companies have stronger brands than others; some companies have stronger scale economies than others. How do you evaluate moat strength?
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At the end of each chapter, Helmer gives us an equation for what he terms the Surplus Leader Margin. This is answer to the 'moat strength' question. I'll give you an example for Scale Economies:
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Helmer decomposes each moat into a Benefit and a Barrier. This is actually quite well captured by existing summaries on the web.
He argues that the Barrier is the more important of the two — many things provide Benefits, but only a few things give you a Barrier.
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So: each Power has a Benefit and a Barrier, and moat strength can be measured by the intuition expressed by Helmer's Surplus Leader Margin equation, at the end of each chapter on each of the 7 Powers.
How do you use this?
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At the end of 7 Powers, Helmer introduces one final idea. He points out that each of the 7 Powers emerges at a particular point in the company's life:
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Your job as an operator is to keep the possible Powers that apply to your business at the back of your head. There are only 7, and many can be ruled out early.
More importantly, you know that at any given point in your company's life, there is a max of 3 Powers that apply.
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I think this final argument is why I like 7 Powers so much. It's pragmatic. Helmer recognises that strategy comes from trial & error, rarely from analytical acuity. This puts him ahead of the other strategy thinkers.
You find your Power/moat from execution. Not from analysis.
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Ok I'll wrap up. The core ideas of 7 Powers are:
- The goal of business strategy is to resist margin compression over the long term
- There are only 7 ways to do that
- The intuition to gauge Power strength is captured using the SLM equation for that moat
- Power Progression
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The majority of summaries on the web ignore the nuance expressed in the SLM equations and don't recognise the implications of NPV = Mgsm, where Mgsm is actually a slap in the face of earlier strategy authors (which I enjoyed!) It's an amazing book. Buy it.
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Postscript: the only weakness in the book, imo, is the chapter on Process Power. And maybe I should summarise Competing Against Time, which provides a better overview of Process Power beyond the Toyota Production System. I argue as much here:
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Helmer is remarkably rigorous; I think the only weak point in this book is the chapter on Process Power.
Probably the only section where I have something to contribute:
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The end! Now here’s a cat pic, because that’s what people do on Twitter, right?
