A book about business strategy by Hamilton Helmer which outlines seven ‘powers’ that are the cause of successful companies. Usually you see a few of these elements working in concert. For example Pixar exhibits process power (developing computer generated films) and a cornered resource (writers, directors, and Steve Jobs).
The seven powers are:
- Economies of scale
- Network effects
- Counter positioning
- Switching costs
- Process power
- Branding
- Cornered resource
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In business strategy you’ll often hear a competitive advantage described as a moat, but most moats are more like a long bridge. The moat is the thing that prevents others from easily replicating another business. A long bridge takes a time build and is effectively a moat if it’s impractical to catch up or simply makes it a schlep.
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Advantages Accrue to the Leader
Markets exhibit the Pareto principle in that most of the advantages accrue to a small number of players—mostly number one. These advantages include growing faster, network effects, recruiting the best people, expanding to new opportunities quickly and most of the 7 Powers.
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In a tweetstorm from Andrew Wilkinson about how their task list app Flow was out competed by Asana. To summarize, his team built an early SaaS task list web app that was growing fast until Asana arrived and quickly outpaced them. Their growth slowed and eventually decided to shut down after many years. He frames the underlying causes as bootsrapped vs venture backed and how, “Good product with great marketing beats amazing product with no marketing.”
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Like software bugs, strategy bugs are a failure of understanding of how the real world works and the value your product creates. They also have varying degrees of severity—some which should be solved right away and some which can slowly accumulate without significant harm.
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People often ask me in interviews where I see our company going in the coming years (which is more of a meta question asking about the exit strategy). I always say the same thing: the plan is to build a large durable business because if you do that, every option is available to you.
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Venture Predation Is Predatory Pricing for Startups
Predatory pricing claims are largely ignored by courts, but a version of it continues to happen with venture backed startups. A recent paper that is making waves in tech circles called Venture Predation shows how businesses like Uber, Bird, Moviepass, and more use large venture capital investments to undercut competition, build monopolies, and harm consumers.
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Commoditization Increases the Importance of Distribution
As products and services become commoditized, distribution and companies that help distribution become more important. Marketing and branding is one way to grow, but finding channel partners that already have a relationship with the target market is more effective.
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Famed animated film studio that created such popular films as Spirited Away, My Neighbor Totoro, Princess Mononoke, and much more. Their films are often characterized by a magical or surreal nature and detailed, hand-drawn scenes that are visually stunning.
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There Is No AI Strategy Without a Data Strategy
Startups typically have an advantage over incumbents when it comes to adopting new technology. With artificial intelligence however, incumbents are fast to integrate LLMs and have the data needed to make better AI-powered products. For example, an established CRM platform has the data needed to train, evaluate, and deploy AI products that a startup would not have access to.