7 Powers: The Foundations of Business Strategy or Chance Favors the Prepared Mind.

Last weekend, a group of friends got together to reconnect, play games, and talk strategy. We have been hanging out regularly for over 20 years. Josh Ho from Referral Rock suggested that I read 7 Powers: The Foundations of Business Strategy. Some people can suggest books or movies, but I don’t act. And with others, I act. Because it’s Josh, I downloaded 7 Powers and started reading it right away. These are the & Powers and number 6 is going to blow your mind…

7 Powers: The Foundations of Business Strategy

“7 Powers: The Foundations of Business Strategy” is a book written by Hamilton Helmer released in 2016. It is considered a seminal text in business strategy and has been influential in many industries.

The book presents a framework for understanding, analyzing, and changing a company’s position in the market, whether you’re an entrepreneur, a business veteran, or a student of business strategy. The framework is built around the concept of “7 Powers,” each of which represents a specific business condition that allows companies to sustain profits against rival forces.

The 7 Powers

  1. Scale Economies: The company’s costs decline as its volume increases.
  2. Network Economies: The value of the company’s product increases as the number of users grows.
  3. Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
  4. Switching Costs: It is hard for customers to switch to competitors because of the high costs (economic, emotional, etc.).
  5. Branding: Customers trust and therefore prefer the company’s product, allowing it to charge a premium price.
  6. Cornered Resource: The company has privileged access to a valuable resource.
  7. Process Power: The company has superior methods of production that provide it with a cost advantage.

Each of these Powers can create a barrier to entry for competitors and give the company a competitive edge, allowing it to sustain its profitability over the long term.

The Prepared Mind

There are lots of nuggets in the book, but the biggest takeaway for me was this idea of the prepared mind.

“The Prepared Mind” is a concept put forth by Louis Pasteur, a 19th-century French biologist, who said, “Chance favors the prepared mind.”

“Chance favors the prepared mind.”

Louis Pasteur

In the context of strategy and business decision-making, having a prepared mind means that you are ready to recognize and seize opportunities as they arise. This preparation typically involves having a solid understanding of your environment, including industry trends, market dynamics, and competitive forces. It also includes an understanding of your own organization’s strengths, weaknesses, and strategic position.

Being prepared means that you’ve done the work to analyze different scenarios and understand their potential impacts on your business. This allows you to make better decisions because you have thought about the possibilities in advance and are ready to act when the time is right.

Having a prepared mind means that you are proactively learning, anticipating, and strategically thinking about how to achieve success. It encourages leaders and decision-makers to invest time and resources in understanding their business context deeply, to increase the probability of recognizing valuable opportunities when they emerge.

It’s worth noting that this concept of a “Prepared Mind” is not only applicable to the field of business and strategy but also to various other fields like science, arts, sports, etc. It highlights the importance of continuous learning, foresight, and readiness to adapt and act decisively in a changing environment.

7 Powers for Community Builders

I always take what I read and try to apply it to my work. Here’s how I think of the 7 Powers looking through a community lens: Remember that the goal of the 7 Powers is to create a sustainable advantage—something that your competitors can’t easily copy or overcome, and something that’s valuable enough to your users that it keeps them engaged with your community over the long term. I believe you can’t copy your competitor’s community; it is what defines you in the marketplace.

  1. Scale Economies: As your community grows, each new member brings more value to the others, and the costs of managing the community can be spread over a larger user base. This could also relate to your capacity to create content or features: the more users you have, the more content is generated, and the cost per piece of content decreases.
  2. Network Economies: In an online community, the value of the community increases as more people join, because each new member can bring new perspectives, information, and connections. This is particularly relevant to social networks, professional networks, or any community based around information exchange.
  3. Counter-Positioning: Your community could offer a unique value proposition that other communities can’t easily imitate without losing their existing users. For example, if your community is focused on privacy, a competitor that depends on data monetization might find it hard to replicate your model.
  4. Switching Costs: If your community platform has unique features, or if users have built strong relationships and invested a lot of time in your community, it might be difficult for them to move to a new platform. This could be strengthened by exclusive content, earned reputation points, or proprietary tools that members can’t access elsewhere.
  5. Branding: A strong brand can make your community more attractive to new members and more resistant to competitors. This might be built through unique values, a distinctive visual identity, thought leadership, or a reputation for high-quality discussions and content.
  6. Cornered Resource: This might be exclusive access to certain experts, content, tools, or experiences that your community offers. For example, if your community is the only one that offers access to certain industry leaders, or if you have exclusive educational content, this could be a cornered resource.
  7. Process Power: This could be a unique way you manage or organize your community that gives you an advantage. For example, a distinctive moderation system, a unique way of categorizing content, or a proprietary algorithm for recommending connections or content might give your community a competitive edge.

Join my Discord server to keep the conversation going. Let me know what you are reading and how you apply it.

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