7 Powers

This is a summary of a 🌳 tree book, arguably the best book on business strategy currently available. 7 Powers is very good, remarkably well written, but deceptively easy to read; the framework that the book develops is ‘simple without being simplistic’. To my mind, 7 Powers supplants Michael Porter, shores up several holes in Clayton Christensen’s disruption theory, outshines Bruce Greenwald’s Competition Demystified, and makes Richard Rumelt look like a child playing with strategy toys. If you must read only one book on business strategy, make it this one.

This book summary is part of a members-only series on competitive arbitrage.

The central problem that business strategy is supposed to solve is easy to state: how do you prevent your business from sucking?

Most businesses in most industries eventually suck. We’ve already covered the fundamental reason why: the short — if simplistic! — answer is ‘because competitive arbitrage’ — good businesses have high profit margins; high profit margins attract competitors and copycats who are willing to reduce prices; over time, the increased pressure from competitors drives prices and margins down to the opportunity cost of capital.

The question business strategy is supposed to answer is ‘how do you prevent that from happening?’ In the absence of strategy, the simple — if naive — answer is to run harder and innovate better and work longer hours than your competition. But then it’s only a matter of time before you (or one of your successors) trip up. A better answer is to find a ‘moat’; some … thing that helps you run less hard and work less hours, while still maintaining your profit margins.

Helmer’s book proposes there are really only seven types of moats. He calls these moats ‘powers’, because it literally gives you Power against margin compression. The book is structured in the following manner:

• Helmer spends one chapter doing definitions and setup.
• He spends the next seven chapters explaining each type of Power.
• He then describes how to find Power for your business. The most important point he makes here is that you cannot discover Power through analysis alone; you have to discover Power through trial and error.

That last bit is why I think 7 Powers is the best book on strategy available today — simply put, Helmer’s theory is pragmatic. He recognises that business operators rarely discover Power through thoughtful analysis; they nearly always discover it through action. And so the contribution of 7 Powers is that it helps you recognise sources of power when you see them; Helmer has said that the usefulness of 7 Powers lies in the fact that it turns strategy into a ‘multiple choice question, not an essay question’. His hope is that you would use his theory to make your trial and error cycles more deliberate.