7 Powers

“How do businesses achieve enduring success, even in the face of intense competition and changing markets?”

1. Scale Economies: Bigger Can Be Better

Scale economies occur when the cost of providing a product or service decreases as the scale of production or distribution grows. This allows bigger companies to provide products at a lower unit cost, giving them a major advantage over smaller competitors. For companies like Netflix, scale enables them to produce expensive originals like House of Cards while maintaining affordable subscription costs for their vast user base.

Netflix brilliantly leveraged scale economies by transitioning from DVDs to streaming in 2007. This business shift not only prepared them for a digital future but also allowed them to reach a wider audience. By 2012, they began producing expensive original content, like House of Cards, knowing that spreading the costs across millions of subscribers would make it feasible. With a large enough user base, Netflix has ensured that its content costs per user remain minimal compared to smaller competitors.

For competitors, catching up with Netflix’s scale is nearly impossible. A new platform with fewer users faces much higher costs per subscriber, making it harder to compete directly on content or price. Scale economies create a self-reinforcing cycle, where the leader continues to dominate by keeping costs low while offering broad value.

Examples

• Netflix attracted over 30 million users before producing House of Cards, reducing its content cost per user.
• A smaller streaming service with three million users would need funding ten times Netflix's to create a show of comparable quality.
• Walmart leverages scale economies to offer lower prices, deterring small retailers from competing.

2. Network Economies: Users are the Product

Network economies arise when a service’s value increases as more people use it. Platforms like LinkedIn thrive because users themselves create the core value of the product. The larger the network, the more appealing it becomes to new users, advertisers, and investors.

LinkedIn exemplifies network economies, boasting over 930 million users today. In 2010, BranchOut tried challenging LinkedIn by integrating with Facebook’s larger user base. Initially, BranchOut gained some traction, but it failed because users preferred to separate their personal and professional lives. Building a new network that could rival LinkedIn’s was too costly and complex, and BranchOut eventually folded into a different product.

This highlights network economies’ immense strength. Competitors don’t just need to create a comparable product - they need to grow a large, engaged user base, which becomes an insurmountable barrier. Once a platform achieves a critical user threshold, it often dominates its market.

Examples

• LinkedIn’s user growth directly increases the platform’s value for job seekers and recruiters.
• Facebook’s vast network made it appealing for advertisers, enabling it to lead over smaller social media platforms.
• Airbnb grows its value as more hosts and guests use the platform, ensuring mutual benefits.

3. Counter-Positioning: Winning by Being Bold

Counter-positioning happens when a newcomer disrupts an industry with a fresh business model. The incumbent can’t or won’t adapt because the change would damage its existing revenue streams or culture. Kodak’s downfall with the rise of digital photography is a perfect case in point.

Kodak dominated in the film era, benefiting from scale economies. But with digital photography, new players unseated the industry giant. Kodak tried to adapt but couldn’t compete because its entire business was built on selling film. The shift to digital would have cannibalized its business, making it reluctant to change course. New players focused solely on digital photography and storage, leaving Kodak behind.

This form of disruption shows why success isn’t just about innovation — it’s about targeting vulnerabilities in leaders unwilling to adapt. Counter-positioning can swing market dynamics, though it requires careful analysis of the risks to the incumbent and the adoption curve of new technology.

Examples

• Kodak lost its competitive edge to digital camera companies, which didn’t rely on film revenue.
• Netflix disrupted Blockbuster, which hesitated to focus on streaming over its DVD rental model.
• Tesla disrupted traditional automakers unprepared for a mass move toward electric vehicles.

4. Switching Costs: Why Customers Stick Around

Switching costs are the hidden price customers pay — in time, effort, or money — to change suppliers or platforms. When these costs are high, customers often stay loyal, even if they aren’t fully happy. SAP’s enterprise software is a classic example.

Though SAP users report high dissatisfaction with customer service (43 percent in one study), 89 percent of these customers stick with the service. Why? Switching would mean extensive retraining, possible disruption to operations, and loss of existing integrations. SAP locks customers in by embedding its tools deeply within their workflows, making switching feel too risky or expensive.

For competitors, overcoming switching costs means proving greater benefits than the perceived downsides of change. This makes it challenging but not impossible to compete; superior offerings are key.

Examples

• 89 percent of SAP users stick with the software despite poor satisfaction ratings.
• Apple retains customers by creating tightly integrated ecosystems across devices like iPhones and MacBooks.
• Banks and financial institutions rely on switching costs to retain long-term customers.

5. Branding: Trust Commands Premium Prices

Brand power is when customers are willing to pay more for a product because of the reputation attached to the name. This loyalty doesn’t just stem from quality — it’s driven by trust. Tiffany & Co. illustrates this well.

In a 2005 experiment by Good Morning America, an expert appraised a $6,600 Costco diamond ring higher than a $16,600 Tiffany one. Yet Tiffany retains loyal customers because its brand signals authenticity and luxury. Buyers feel assured of quality, even if they’re paying more than necessary. Over years of consistent messaging, Tiffany has built trust that competitors simply can’t replicate.

Building a strong brand isn’t quick or easy, but once achieved, it acts as a significant shield against competition. When customers associate your name with value or prestige, it’s nearly impossible for rivals to persuade them otherwise.

Examples

• Nike’s brand makes it more appealing than lesser-known sportswear brands, even at higher prices.
• Apple charges premium prices due to customer trust in its innovation and service.
• Tiffany dominates in luxury jewelry, despite lower appraisals of some products.

6. Cornered Resources: Owning What Others Can’t

Cornered resources are exclusive assets a company controls that rivals cannot easily access or replicate. For Pixar, this wasn’t just proprietary technology; it was the unique blend of talent and leadership known as the “brain trust.”

Pixar soared to success with cultural phenomena like Toy Story. Disney noticed not just the films’ quality but also the core team responsible for them — Steve Jobs, John Lasseter, and Ed Catmull. When Disney bought Pixar in 2006, it ensured this team stayed on board. The creative synergy within this group was an irreplaceable cornerstone of Pixar’s success.

Cornered resources confer significant advantages, enabling unique offerings at unmatched quality or cost.

Examples

• Pixar’s brain trust of Jobs, Lasseter, and Catmull drove repeated successes.
• De Beers controls most of the world’s diamond supply, ensuring it dominates pricing.
• Tesla develops specialized batteries that give it an edge over other electric vehicle makers.

7. Process Power: Doing Things Better

Process power comes from unique methods and workflows that lower costs or improve quality. The key here is that these processes aren’t easily imitated, as seen with Toyota.

Toyota revolutionized car manufacturing with its lean production system. GM, a global leader in the 1960s, tried to adopt Toyota’s methods decades later but failed because it lacked the underlying company-wide discipline and cultural alignment. Toyota thrives because its superior processes are embedded into every part of the organization, from assembly to management.

Even when competitors try to copy exceptional processes, they often can’t replicate them effectively. Success depends on organizational DNA and long-term investment.

Examples

• Toyota’s lean approach propelled it to overtake GM in market share.
• McDonald’s standardized processes allow consistent food quality worldwide.
• Amazon’s unique logistics systems cut delivery times significantly.

Takeaways

1. Assess your business strategy to see which of the seven powers you can leverage. Create a plan to strengthen it.
2. When facing an entrenched competitor, evaluate whether counter-positioning or a unique advantage can help you stand out.
3. Build long-term strategies that focus on branding, processes, or exclusive resources for sustainable growth.