Make your business successful. What does it take for a business to succeed in the long run? An answer can be found by exploring Hamilton Helmer’s “seven powers.” In this book, you’ll learn about each of these powers through seven case studies. If you’re a business leader, the insights to be gained from each story can help you make better decisions when it comes to stepping into the arena and challenging an incumbent competitor. And if you’re an entrepreneur, they can help you better identify a winning business idea based on its potential strategic position. But before we start, let’s briefly talk about how we use the term “power”: it’s a strategic position that gives your company the potential for extreme and durable success. If your business doesn’t have at least one of these powers, your strategy won’t be enough to overcome the barriers ahead. The components of power are the benefit and the barrier. The benefits to the position need to outweigh any costs. And the barrier, from the perspective of the power holder, needs to be as close to insurmountable as possible for the competition. In each of the following powers and their examples, you’ll see the benefit of each strategic position and the prohibitive nature of the barriers they create. The purpose here is to understand how and why certain companies succeed where others fail as well as to understand when it is and isn’t viable to challenge a power-holder. - Netflix Back in 2007, Netflix finally left Blockbuster in the dust. They had already given Blockbuster a run for its money by positioning themselves as the rent-from-home company. Even though Blockbuster tried its own version of mailing DVDs, the name Netflix had become solidly associated with the practice. However, what Netflix did even better was foresee the future. They knew that DVDs had a limited lifespan. Netflix realized that streaming capabilities would soon make it viable for people to view shows and movies via streaming rather than DVD. So, in 2007, they made their way into the streaming market. This foresight wasn’t a one-time thing for Netflix. Throughout the course of developing their streaming platform, Netflix found it difficult to manage the contracts that would allow them to use properties in various regions for various timespans. They knew that to retain power, they would need to do something different. So in 2012, they ventured into originals with Lilyhammer and House of Cards. At that time, Netflix had over 30 million users. A single episode of House of Cards cost $4.5 million to make – meaning that per episode, they would need to be making $0.15 off each user. Where it gets interesting is when you think about the economics of this. The price per episode is not a fixed thing, but is dependent on the user base. So the more users Netflix could attract, the lower the cost per user to provide content. This is called scale economy, and it is the first power. Scale economy exists when your cost of doing business decreases as your product supply increases. It is extremely difficult to unseat the company that has the power of scale economy. Imagine being a newer streaming platform with only three million users and trying to create House of Cards. Your cost per user would be ten times Netflix’s cost, so the cost of beating them at their game becomes prohibitive. Scale economy constitutes power because it represents the potential for long-term entrenchment at the top of the industry, and it’s very challenging for competitors to overcome.
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BranchOut
By 2010, LinkedIn had over 70 million users (a drop in the bucket to the 930 million reported in 2023). At that time, an ambitious serial entrepreneur sought to cash in on some of that market share by creating his own networking application called BranchOut.
Understanding that LinkedIn held the high ground, having already attained a massive number of users, BranchOut leadership was smart enough not to try to go head to head. Instead, they opted to leverage the power of Facebook’s user base (608 million at that time) by creating an app that integrated with Facebook.
They branded themselves as the bridge between your personal and professional life, offering to remove the barrier between the two. Initially, success was high. But it plateaued at about 17 million users two years later before finally being bought by Facebook and turned into a workplace chat app.
BranchOut took on LinkedIn the only way that it would have been possible to do so – but it turned out people didn’t want to remove the barrier between their work and professional lives. The lesson here, however, is in why it would have been impossible to meet LinkedIn head-on: it’s because LinkedIn enjoyed network economy, the second power.
Network economy works when the user base itself provides the value. In other words, the users aren’t buying the product – the users are the product. The larger the network, the more value there is to subscribers, advertisers, and investors. The barrier to tackling a company that holds network-economy power is obvious – the costs it would take to build up enough of a network to become a viable competitor are insurmountable.
In the end, BranchOut followed the inevitable path when you factor in user preference for keeping work and life separate, but they did follow the one path that might have succeeded. And that’s because Facebook’s network economy was nearly ten times that of LinkedIn’s.
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Kodak
One company that held scale-economy power at its height was Kodak. Kodak was built on consumers’ need to continually purchase film along with some proprietary technology. They saw the writing on the wall. Digital photography would one day make film obsolete.
We can criticize Kodak for not being more forward-thinking, but the fact is that they did spend a great deal seeking out survival options. The problem was, there was nowhere for them to shift. Change was happening on a technological level, and they simply didn’t possess any ground in the digital photography or photograph storage industries. They weren’t competitive in those fields.
Kodak lost to the power of counter-position. In this strategic position, you unseat an incumbent power by providing a new position that is both successful in finding a market and that the incumbent either can’t or won’t compete with.
The incumbent power either can’t compete, as was the case with Kodak, or they won’t because the costs are too high or would cannibalize their existing business model. While this is a challenging strategic position to take, counter-positioning can put you in a nearly undefeatable position. Just watch out for a BranchOut situation, because misreading your market can cost you big time.
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SAP
In the world of enterprise resource planning software, SAP rules in spite of having less-than-stellar reviews. In a study of customers in the US and Europe, they found that 43 percent of users were unhappy with the company’s customer service and 50 percent didn’t feel they could predict the success of SAP in the future.
However, the most surprising statistic found was that 89 percent of those same people said they would continue to pay for and use SAP.
So why would people stay with a product they don’t like? That’s the fourth power – switching costs. People stay with a product with which they’re not fully satisfied because it costs too much to switch. Maybe they’re worried about the cost in terms of time and training, or maybe they don’t want to part ways with the connections they’ve made. It could also be that they have purchased so much in add-ons and upsell components that they feel fully invested in the product.
You harness the power of switching costs when you create a sort of die-hard loyalty in your customer base, but this is only a benefit if you’re able to continue selling to those same customers. After all, with reviews revealing 43 percent dissatisfaction with customer service, you’re not getting new customers. So your advantage lies in selling optional components.
The challenge to competitors in unseating a company that holds switching cost power is in demonstrating a clear advantage to making the switch to your product instead. It isn’t an insurmountable barrier, but it requires thought and research to achieve – as well as a massively superior product.
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Tiffany
Would you spend three times more for the exact same product just because it had a particular brand name attached to it?
Before you answer that question, here’s a story from 2005 when the show Good Morning America did a little experiment. They bought a $6,600 ring from Costco and a similar ring from Tiffany for $16,600, then hired an expert to do a blind appraisal of each.
The expert ended up assessing the Costco ring at $2,000 higher than its selling price and the Tiffany ring at $4,000 less than asking.
Even so, many people will still gladly fork over the extra money in order to buy from Tiffany. They do it not necessarily for the clout, but for the trust. When making a high-stakes purchase, people don’t want to have to worry about authenticity or quality. You know, when you buy a ring from Tiffany, that you’re getting the real deal.
This is branding power. You attain branding power over a long period of time and with a dedicated focus to building your brand. The barrier to competitors who would challenge this power is that they’ll never be Tiffany or Nike or co*ke. There’s no real way to take on a brand power that’s legal, though you can challenge them in other ways.
The road to creating a brand that stands the test of time is long and difficult, but once you achieve it, you’ll be nearly invincible.
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Pixar
Toy Story premiered in 1995, to massive success. This happens sometimes – but what doesn’t often happen is repeated follow-up success in movie after movie. Pixar clearly had something magical, and it all goes back to its beginnings.
In 1983, George Lucas sold the graphics group of the computer division of Lucasfilm for $5 million. He sold it to Steve Jobs, who changed the name to Pixar and hired animation expert John Lasseter and CGI scientist Ed Catmull.
These three formed the beginnings of the brain trust that would guide Pixar to ultimate success. When Disney bought Pixar, it was careful to also buy the brain trust, because without that core group and its unique combination of talents and skills, there would be no Pixar.
The power of Pixar was the power of cornered resources. That means having something that no one else has, whether that’s a particular patent, access to a singular product or resource, or, in the case of Pixar, just a magical mix of geniuses.
The benefit of cornered resources comes when you have access to something limited that either makes your product superior or lowers your costs, or a combination of both. And the barrier is obvious – competitors can’t do what you do because they have no access to the resources that make you a success.
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Toyota
Back in the 1960s, GM ruled the day with over a 48 percent market share, while Toyota commanded 0.1 percent. In 1950, the founder of Toyota spent months in a Michigan town studying the largest car factory in the world. He’d been there once before, twenty years earlier, and was very impressed. But on his 1950 visit, he wasn’t impressed at all. Instead, he saw many opportunities for optimization in the processes he was observing. So he set about to create a better way of making cars.
When Toyota came onto the market, it didn’t have an immediately impressive product in terms of looks – but its quality was superior. Over the years, Toyota gained market share and GM lost it. By 2014, they were neck-and-neck. GM reached out to partner with Toyota to try to bring its processes into GM production.
In fact, many companies went to Toyota to study its process. There was no secret. Toyota was very open about its approach, and even helped explain it so others could use it as well. However, no one was ever able to adequately replicate what Toyota did.
What it came down to was that Toyota was built from the ground up on the principles that informed its processes. So it wasn’t just their car-making process, it was all of the inherent support systems built into the DNA of the company that made those processes successful.
Which brings us to the last power – process power. In process power, much like with cornered resources, you have specific processes embedded into your organization that allow you to operate with lowered costs and/or produce a superior product. The barrier to competitors is their inability to replicate your process power in their own organizations. Much like branding power, process power is something that builds over time and can’t be packaged and implemented – it’s about long-term preparation.
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There is value in seeing how others have achieved their success as well as why some have failed to challenge those powerful organizations. The seven powers can teach you when you should step up to a challenge and how to do it. You can also learn when your business doesn’t have a strategic position to start from; then you can either pivot or move on to greener pastures.
Here’s a quick recap of the seven powers:
Scale Economies: Large-scale operations reduce per-unit costs, giving companies a competitive edge. Network Economies: More users enhance a product's or service's value, particularly notable in tech platforms. Counter-Positioning: New entrants using innovative business models can disrupt incumbents who can't imitate them without self-harm. Switching Costs: High costs associated with changing products or services help retain customers. Branding: A powerful brand fosters customer loyalty and permits premium pricing. Cornered Resource: Exclusive access to a valuable resource confers a significant advantage. Process Power: Unique, superior methods of production can outperform competitors.
