What’s Hamilton Helmer’s book 7 Powers about? Why do companies need to worry about their competitive advantage?
According to Hamilton Helmer’s 7 Powers, a business’s competitive edge determines its success. His book explores seven strategies that create unique competitive advantages and when to implement them at certain stages.
Read more in our brief overview of 7 Powers.
Book Overview of 7 Powers
In 7 Powers, Hamilton Helmer argues that a company’s long-term success hinges on establishing a sustainable competitive advantage. According to him, this advantage arises from implementing strategies with two key features: 1) They increase the company’s profits, and 2) they’re difficult for competitors to replicate or neutralize.
He identifies seven such strategies, each generating a distinct competitive advantage. He notes that timing is an important aspect of implementing these strategies effectively: Each of the seven advantages becomes attainable only during specific stages of a company’s evolution. Understanding this timing helps you focus your resources on the most effective strategies at each stage of your company’s development, maximizing your chances of establishing a sustainable competitive advantage and long-term success.
Hamilton Helmer is a business strategist and a faculty member at Stanford’s Graduate School of Business. As the founder of Deep Strategy and co-founder and chief investment officer at Strategy Capital, he’s played a major role in guiding corporate success, leading over 200 strategy projects for companies including Hewlett-Packard and Netflix.
Stage 1: Foundation
When you’re developing the foundations of your business model, Helmer recommends that you focus on two strategies: carving out your niche and securing exclusive assets. It’s important to implement these two strategies at this early stage because they’ll become increasingly difficult to adjust once your business begins to grow. He explains that, with growth, increased operational demands and market pressures will leave you with less flexibility to adapt and differentiate your business model or to acquire key assets, causing you to miss out on their advantages.
Strategy #1: Carve Out Your Niche
To carve out your niche, develop an innovative business model that provides more customer value than what’s already on the market. This will differentiate your business from established competitors, attract customers underserved by current market options, and allow you to charge higher prices for your products and services.
An added advantage is that established companies will struggle to compete with your business model, providing you space to thrive free of competitive pressures. Helmer explains that established competitors often struggle to challenge innovative business models for four reasons:
- They underestimate potential threats due to confidence in the ongoing success of their existing business models. For example, imagine your company introduces plant-based meat substitutes into the market. Established meat producers, believing that consumer demand for meat will remain steady, assume your offering won’t impact them.
- They resist making changes that render their existing products and services obsolete. For example, established meat producers may fear that attempts to compete with your offer will increase consumer demand for plant-based substitutes, thereby reducing demand for their existing meat products.
- They prioritize short-term profits over investing in long-term advantages. For example, despite growing consumer demand for plant-based substitutes, established meat producers may cling to methods that proved profitable in the past, opting to invest in improving their meat products instead of adapting their infrastructure for plant-based production.
- They suffer from internal dynamics that impede their ability to adapt to evolving market conditions. For example, bureaucratic production approval processes, coupled with reward systems focused on short-term sales targets, could prevent established meat producers from adapting production lines to include plant-based substitutes.
How to Carve Out Your Niche
Helmer offers four methods for effectively carving out and protecting your niche:
1) Challenge competitors’ strengths: Identify areas where your rivals excel, then develop a business model that directly confronts those capabilities. This targeted confrontation turns what was your competitor’s upper hand into a handicap or a problem they must solve. For example, meat producers excel at managing industrial-scale livestock farming. Your business model emphasizes sustainable, locally sourced plant production for your meat substitutes. To compete, meat producers would need to dismantle their supply chains or manage two fundamentally different ones.
2) Leverage existing resources: Use your current platforms, expertise, and relationships to differentiate your offering. This allows you to gain a competitive edge without additional investment. For example, if you already run a popular health and wellness blog, you could leverage this existing platform and audience, sharing content to generate interest in your plant-based meat substitutes.
3) Target underserved markets: Focus on niches that established companies consider too small to serve. This allows you to build your customer base without direct competition. For example, after identifying flexitarians as an overlooked market segment, you could specifically design marketing campaigns to appeal to this demographic and their unique food preferences.
4) Plan your defense: Prepare for competitors to eventually mimic or undermine your business model by diversifying your offerings and safeguarding your resources. This makes it difficult for competitors to replicate your full business model. For example, you could offer breakfast, lunch, and dinner foods and cement relationships with local suppliers to maintain an edge in the flexitarian market regardless of competitors’ moves.
Strategy #2: Secure Exclusive Resources
To secure exclusive resources, acquire assets or capabilities that provide unique leverage in the market before competitors recognize their full value. The unique leverage of these resources is that they allow you to offer superior products or services, operate more efficiently, or control critical aspects of production. Helmer explains that securing such resources early on insulates your business from competition, because such resources are often:
- Scarce—for example, a rare mineral used in manufacturing allows you to monopolize the market for that resource.
- Legally protected—for example, a patented technology provides a legal safeguard against replication.
- Rooted in specific expertise—for example, a unique algorithm developed by in-house experts creates a large knowledge gap that competitors can’t bridge.
- Based on exclusive relationships—for example, a contractual agreement with a single supplier for a critical component restricts competitors’ access to that component.
How to Secure Exclusive Resources
According to Helmer, the following three methods will help you secure resources with unique leverage:
1) Catalog your resources: Identify all tangible and intangible resources available to you—such as raw materials, technological equipment, specialized knowledge, company culture, and unique partnerships—that competitors may lack access to. For example, in addition to acquiring a manufacturing facility, cultivate a team of food scientists with expertise in plant-based meat formulation.
2) Maximize your resource value: Find ways to monetize and leverage your resources to extract multiple benefits. For example, leverage your proprietary technology across multiple product lines to reduce costs and enhance your ability to offer superior products.
3) Maintain and develop your resources: Make incremental improvements that enhance the effectiveness of your resources to sustain their competitive edge. For example, consistently refine your proprietary plant protein extraction process to improve operational efficiency and product quality.
Stage 2: Expansion
As your business experiences rapid growth, Helmer suggests that you scale production, grow your customer base, and lock in customers. Implementing these strategies during this stage of your business lifecycle will create numerous advantages, securing a strong position within the market. Helmer explains that business growth signals a market in flux—an ideal environment to increase market share without immediate retaliation from competitors. However, once your growth rate stabilizes and market dynamics harden, it will become more challenging to adjust your competitive standing and capture new opportunities.
Strategy #3: Scale Production
To scale production, look for ways to multiply output without multiplying costs. This allows you to produce more with less, generating higher profit margins. As a result, you’ll have more money to invest in improving your business and you’ll be able to offer competitive prices for your products and services.
Additionally, this strategy will ward off competition, especially from smaller businesses, which face resource limitations coupled with smaller customer bases that prevent them from increasing their output. This means their expenses are higher and they must charge higher prices to cover them. Faced with these economic realities, they have limited options—they can either match your prices and see profits shrink, or maintain higher prices and risk losing market share.
How to Scale Production
Helmer suggests that you can effectively scale production by following four methods:
1) Increase production volume: Output more to spread fixed costs over more units. For example, produce more plant-based product variations to distribute manufacturing costs across more product lines.
2) Expand facilities: Upsize existing operational spaces and equipment to boost output without escalating overhead costs. For example, procure a larger warehouse to store more raw materials or larger delivery vans to transport more products at once.
3) Streamline supply and distribution: Consolidate and optimize your procurement, logistics, and fulfillment processes to enhance efficiency and reduce variable costs. For example, merge delivery routes from various farms to streamline the collection of raw materials and reduce travel times and fuel costs.
4) Negotiate supplier terms: Secure favorable deals with vendors to lower costs for key supplies. For example, buy key ingredients like soy or peas in bulk to secure cheaper prices.
Strategy #4: Grow Your Customer Base
To grow your customer base, develop products or services that become more valuable as more customers use them. This strategy allows you to charge premium prices and achieve market dominance in two ways:
1) A larger customer base increases benefits for individual users. For example, as more people use your plant-based meat substitutes and contribute to your blog, customers gain access to a wider variety of recipes and tips, enhancing the overall value of your products.
2) A growing customer base attracts third-party contributors. For example, your expanding plant-based community might attract partnerships with nutritionists or kitchen appliance manufacturers, further enhancing your product ecosystem’s functionality and value.
According to Helmer, this increased value draws even more customers, creating a self-reinforcing cycle that not only drives your success but also prevents competitors from luring away your customers. He explains that competitors with smaller customer bases can’t match the value provided by extensive user communities—and customers accustomed to community benefits are unwilling to switch to competitors offering less valuable alternatives.
How to Grow Your Customer Base
Helmer says you can grow your customer base by practicing five methods:
1) Prioritize quality: Perfect your core product or service before launching new product lines. This helps you satisfy early adopters, laying the groundwork for sustainable growth. For example, ensure your first plant-based meat substitute product is of high enough quality to attract and retain early adopters before introducing additional flavors.
2) Target a single market: Focus your efforts on penetrating your primary customer group instead of wasting resources competing for customers in adjacent markets. For example, instead of dispersing resources to engage broader vegetarian or health food markets, concentrate on developing a strong following within the flexitarian market.
3) Encourage market adoption: Develop partnerships and marketing campaigns to accelerate awareness and acquire customers. For example, form alliances with popular plant-based chefs or influencers to increase your company’s visibility and appeal.
4) Foster customer participation: Encourage active participation and build a community around your offerings. Engaged customers bring their own insights and experiences to your business, adding value. For example, encouraging customers to share recipes and cooking techniques promotes product usage and fosters a supportive community that boosts customer loyalty.
5) Expand your ecosystem: Introduce complementary products, services, and third-party integrations to make your offerings more useful and convenient for your customers. For example, develop partnerships with plant-based ingredient suppliers or kitchen appliance manufacturers to offer packages and discounts that increase the appeal and accessibility of plant-based cooking methods.
Strategy #5: Lock Customers In
To lock customers in, encourage them to dedicate time, effort, and resources to your products and services. This allows you to charge premium prices and deters competitors from poaching your customer base.
Helmer explains that the more time, effort, and resources customers invest in adopting your products, learning your systems, and building familiarity with your brand, the more resistant they become to trying other options. This resistance stems from customers’ reluctance to abandon their investments, the comfort they develop with your brand, and the disruption changing providers would cause to their established routines. These combined factors make it challenging and often unprofitable for competitors to attract your customer base, even if they offer better products or services.
How to Lock Customers In
According to Helmer, you can lock customers in with three methods:
1) Offer multiple benefits: Provide incentives to discourage customers from changing providers. For example, offer loyalty programs with accumulated points, provide specialized cooking equipment optimized for your products, and foster a strong online community of plant-based cooking enthusiasts.
2) Leverage customer routines: Integrate your products and services into customers’ daily workflows and habits to make your brand indispensable. For example, offer meal planning services such as subscription plans that deliver curated selections of your products, or a meal planning app that integrates with your brand’s smart kitchen appliances.
3) Ensure ongoing satisfaction: Focus on providing excellent customer service to foster trust and loyalty—happy customers are less likely to consider offers from other providers. For example, provide a forum for customers to share their feedback, promptly address their concerns, and adapt your services to meet their evolving needs and preferences.
Stage 3: Maturation
Once you’ve established your business, Helmer advises that you cultivate your brand and create complex operational processes. You can’t effectively implement these strategies until your business starts to mature because they require a stable foundation and consistent performance over time. He explains that a strong brand develops from repeated positive customer interactions, while complex operational processes evolve from the insights you gain as you establish your business. Focusing on both strategies during the maturation stage allows you to cement your position in the market, even as industry growth slows and market demand wanes.
Strategy #6: Cultivate Your Brand
To cultivate your brand, build trust with customers through consistent quality and messaging. This allows you to charge premium prices for your products and services, as customers are more willing to pay more for the perceived value and reliability associated with strong brands.
Helmer explains that competitors struggle to replicate the trust associated with established brands, as this trust stems from years of consistent, positive experiences that foster customer loyalty. This sense of loyalty creates a bond that compels customers to stick with the brands they know and trust, even when competitors offer better or cheaper options.
How to Cultivate Your Brand
According to Helmer, the following five methods can help you cultivate your brand:
1) Align with customer values: Cultivate an identity that resonates with causes your target customers care about. This helps create an emotional connection that makes your brand both memorable and appealing. For example, if flexitarians value sustainability, emphasize how your business uses eco-friendly packaging and sources ingredients from environmentally responsible suppliers.
2) Reinforce your identity: Invest in multi-channel branding to create a strong, recognizable identity and increase recognition. For example, develop a cohesive visual identity and messaging strategy that carries through your product packaging, website, social media presence, and advertising campaigns.
3) Be consistent: Ensure your products and services always meet the quality standards you’ve promised to reinforce customer trust in your reliability: For example, ensure every batch of your plant-based meat substitutes meets the same high standards for taste, texture, and nutritional value.
4) Protect your integrity: Preserve customer trust in your brand by evaluating how potential offerings or associations might impact your reputation. For example, carefully vet potential partnerships or product extensions to ensure they align with your brand’s core values and quality standards.
5) Evolve to stay relevant: Adapt to changing consumer preferences while maintaining your core identity. This prevents your brand from becoming outdated while preserving the brand image you’ve established. For example, if health-conscious consumers become more interested in protein content, adjust your product formulations and marketing to highlight the high protein levels in your plant-based meats without compromising your eco-friendly practices.
Strategy #7: Create Complex Operational Processes
To create complex operational processes, develop interconnected systems that enhance efficiency. This enables you to enhance product quality and reduce costs—making it possible to offer better value to customers while maintaining high profit margins.
Additionally, this strategy insulates your business from competition. Helmer explains that complex operational processes are difficult for competitors to replicate because they evolve organically through years of incremental improvements, rely on intricately interconnected operational elements, and embed tacit knowledge within your company’s culture.
How to Create Complex Operational Processes
Helmer recommends four methods for creating complex operational processes:
1) Keep improving: Make continuous, incremental process improvements to enhance efficiency over time. For example, establish a dedicated R&D team to continually refine your plant-based formulations, or regularly seek ways to reduce waste and improve ingredient freshness.
2) Develop integrated processes: Design interconnected systems where improvements in one area amplify the benefits in others. This creates a web of mutually reinforcing activities that’s difficult for competitors to disentangle and emulate. For example, create a closed-loop system where waste from your plant-based meat production is used to fertilize crops for future ingredients, enhancing both sustainability and cost-efficiency.
3) Cultivate specialized expertise: Embed critical knowledge and best practices into your company’s culture to foster expertise that competitors can’t replicate. For example, implement a mentorship program where experienced staff guide newer employees in mastering the nuances of plant protein texturization techniques.
4) Encourage employee input: Harness the collective intelligence of your organization by empowering employees at all levels to contribute ideas that may lead to breakthroughs in efficiency or quality. For example, implement a reward system for production line workers who propose modifications that improve the manufacturing process.
