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References to the ‘7 Powers framework’ is something we have heard more and more over the years, whether this is from astute investors we follow or blogs/podcasts we listen to. This book has become somewhat of a staple for investors to read in order to gain insights into a solid framework for attempting to understand the competitive moat a company may have.
The author, Hamilton Helmer is a Stanford University teacher and has had a long career in business strategy. He is well credentialed discuss key principles which will differ from company to company. So, what are the 7 Powers he identifies?
1. Network effects
2. Scale economies
3. Switching costs
4. Counter positioning
5. Cornered resource
6. Branding
7. Process Power
It is unlikely any company would fit into all 7 of the above, rather may be very strong in 1-2, which is what underpins their value. This simple framework to analyse a company can act to rationalise you’re thinking but also act as a ‘sense check’ for what your thinking is. In the world of equity investing, we don’t have to invest in everything, rather only a few good businesses that have expanded and are expected to continue to expand their competitive moats over time. The 7 Powers framework wont detract from the continual search to find and identify these good companies.
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