Business Strategy

7 Powers: The Foundations of Business Strategy (Summary)

by Hamilton Helmer

Why couldn't Blockbuster, a multi-billion dollar giant, simply copy Netflix's 'no late fees' model and crush them? The shocking answer is that Blockbuster's greatest strength—its massive, profitable store network built on late fees—was also its fatal weakness. To compete with Netflix, Blockbuster would have had to destroy its own most profitable business. Netflix didn't just have a better idea; it had a 'Power' that made it impossible for the incumbent to fight back.

Counter-Positioning: Use Your Competitor's Strengths Against Them

A new company can adopt a superior business model that the incumbent giant cannot copy without damaging its existing, profitable business. The leader is trapped by its own success.

Vanguard's low-cost index funds were a direct attack on the actively managed, high-fee funds that were the bread and butter of firms like Fidelity. For Fidelity to aggressively push its own index funds, it would have to admit its high-fee model was inferior and cannibalize its core revenue.

Scale Economies: Bigger Isn't Just Better, It's Cheaper

This power exists when a business's cost per unit declines as its production volume increases, making it incredibly difficult for smaller competitors to match prices and remain profitable.

Intel spends billions building a single semiconductor fabrication plant. That massive upfront cost is spread across millions of chips, giving them a lower per-unit cost than any potential new competitor, who would face the same huge initial investment but with far less volume.

Network Economies: Value Is Created By Users, Not Just the Company

A product becomes more valuable as more people use it, creating a powerful feedback loop that locks in users and locks out competitors. New entrants face a 'ghost town' problem.

The reason you use LinkedIn for professional networking is because all the other professionals and recruiters are already there. A new, technically superior platform is useless if the network of people you want to connect with isn't on it.

Switching Costs: The Pain of Leaving Creates Your Profit

This power arises when customers face significant costs—in money, time, or effort—to move from your product to a competitor's. This lock-in allows for durable pricing power.

An entire corporation's operations might be built around SAP's enterprise software. Migrating decades of data, retraining thousands of employees, and re-engineering core processes to a new system is so prohibitively expensive and risky that the company is effectively locked in, even if better alternatives exist.

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