If you’re an investor or analyst, 7 Powers is a remarkable lens you can use to analyse companies.
But if you’re an operator, the book is a little … weirder. What I mean by this: the path to Power is totally weird and unique, and it’s more important to pay attention to that.
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I’ve already mentioned one aspect of this: competitive arbitrage can happen over a longggg period of time. Data General was moatless for maybe 5 years at the time of the events in SoaNM, but they hung around for 20 more years.
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Not so hot take: The Soul of a New Machine is a story of a company with no moat.
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But here’s another weird story: Helmer asserts that margin compression happens because competitive arbitrage, right? You do something hugely profitable, those profits attracts competitors that copy you and drive your margins down. Except … sometimes they don’t appear!
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For some strange reason, Shopify managed to grow without serious competition for much of its early life. You can hear the guys ponder this (they riff on Magento at the beginning, another non-serious competitor):
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There’s another useful idea here. has this wonderful series of posts talking about the only moat a startup has in its early days: uncertainty! That’s totally true:
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And, yes, uncertainty can’t last; eventually you prove out your business model and incumbents and copycats pay attention. But it *is* a mild Barrier in the beginning.
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And I think the most bizarre thing is that, in the long term operational excellence isn’t a moat; in the short term, or in small markets, operational excellence can totally allow you to crush your competitors. Mostly because the good people don’t enter.
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(Mostly speaking from experience here: in my previous company we kicked the asses of several of our competitors because they were resellers with no technical capability; the startups with technical capability weren’t competent enough to read the shape of the market.)
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(But our market — point of sale systems in Singapore — was so small it didn’t matter lol; no serious competitor entered. There *is* a reason Helmer inserts the clause ‘significant markets’ in his definitions!)
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Follow if you’re interested in career moats or business moats or cats, I’ll probably be doing a few more threads like this in the next few weeks.
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Highlights from my 7 Powers summary (tl;dr, READ THE SURPLUS MARGIN EQUATIONS):
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I just published a 10400 word members-only summary of 7 Powers on Commonplace, probably my longest post ever. I've not seen very many summaries that do a good job of representing the nuances of Helmer's framework. So here's a thread on the highlights. commoncog.com/blog/7-powers-
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I've fleshed out most of these ideas in a blog post here:
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