September 15, 2023
If you’ve ever done an MBA you’ve probably come across ‘the 7 Powers: The Foundations of Business Strategy’ by Hamilton W. Helmer.
Whilst pretttttty dense, it does cover some good ground and is a comprehensive overview of how to ensure your venture is successful over the long term.
In short, the book argues that a business must possess at least one of these powers if they are to survive:
Whilst we would never rely on just one framework to assess businesses applying to our ventures program, the 7 powers are one lens that can come in handy, particularly when there’s disagreement or deep discussion amongst the team.
Here’s how/when we use it:
The only two Powers that can be determined at venture origination are: Counter Positioning and Cornered Resource.
Often we see early stage ventures who are planning to go head to head with big incumbents. It’s often hard to see the wood through the trees with these opportunities because it’s incredibly hard to predict how the incumbents will react.
Why aren’t they doing this themselves? Will they just copy the idea but with the benefit of deeper pockets?
Assessing for whether the new venture idea has counter positioning (ie. a product or model that would be very difficult or uncomfortable for the incumbent to replicate) or cornered resource (ie. access to a team, new technology or asset that the incumbent can not access) has been useful in these moments.
At Paloma we work very closely with our ventures. We’re in the weeds with our founders to build their product together. When we start to build we’re looking for pull from the market and evidence that our hypotheses about the customer are correct.
The powers that are relevant at this stage are Scale Economies, Network Economies and Switching Costs.
In order to survive in the long term, our ventures should be optimising for either number of customers (bloody loads) or making it super hard for customers to leave (aka product stickiness). These things don’t come overnight but there should be a clear pathway to attainment.
Helmer claims that Brand and Process Power can only be attained over a long period of time.
I’m not sure I totally agree- I think there are lots of examples of companies who have managed to land into market with fantastic branding and subsequently, the ability to charge premium prices for something which is objectively not all that valuable. I think the key thing here is that it can all be undone in an instant. Brand is a long game and requires huge levels of trust from customers. Brand should be built in layers with customer trust increasing year on year. It’s a pretty simple lens to look at our portfolio ventures through.
Ultimately, by the time our ventures are out in market and have been operating for a few years, it should be very easy to identify which of the powers they are strong at, and which could do with some work. The aim isn’t necessarily to excel at all of them (theoretically you could just have one and be smashing it). But if they aren’t nailing any of them, it’s a pretty good indication that they don’t have much of a defensible moat and could be overtaken at any moment.
If you’ve read the book and want a natter, hit us up at the links below or you can reach out to me personally on LinkedIn