7 Powers with Hamilton Helmer
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Yeah, I would say we're sorry to blow your cover, but it's sounding like that pretty well blown as no longer the best kep secret and silicon valley.

I was going to say that the fact that is the best key secret says something about my acuity is a good marketer. Who got? true. Easy you with you, with you see me down, say state welcome to this special episode of acquired .

the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and i'm the cofounder and managing director of seattle based pioneer square labs and our venture fund, psl ventures.

And i'm David rose and tall and I am an Angel investor based and said .

it's go and we are your hosts David and I had a realization. We talk about seven powers on every single episode.

literally every single episode.

And in march of twenty twenty, we actually interviewed hamilton helmer to talk about the framework, but we estimate that only about two percent ever actually heard that since IT was an L P. Episode at the time. So today, to celebrate the lp feed going public, we are releasing the remasters version of that interview. It's a little like getting in a time machine, since that was the last recording we did before the pandemic hit. But every single lesson holds up, and IT is a treat to hear about the seven powers framework in hamilton s own voice and to hear his story behind the book.

When we recorded this, well, a you're totally like all of hamilton's markets, just timeless. But you were going to fly down and we were going to do IT at the strategy capital office. Hamilton n managers in s and I drove down and was there then last minute you said, hey, this copy thing i'm a little worried about.

I don't feel comfortable get on a plane right .

now and so you, yeah.

I ve never met hamilton and person and you have twice.

three times, at least more than that. I think.

yeah, we should do something with .

them early next year. Maybe another reason to get this out, everybody now to get prepared for more coming in the new year for .

sure is if you like this episode and you want more, we also released a book club that we did with hamilton from september twenty 20 as a follow up。 And just like every other previous L P epo de, those are now free, inaccessible in any podcast player just by searching acquired lp show. Okay, listeners, now is a great time to tell you about long time. A friend of the show .

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Yeah, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service now document slash A I dash agents. Our listeners now on to the interview with hamilton helmer .

before an in addition to reading seven powers, you're an active strategy consultation and a public equity investor at strategy capital, which is a firm you found IT before that you are your P. H. D.

And economics at yl. And after that you worked for bill bain at dining company. Yes, rect, before going out on your own will get into all this. But h, thank you so much for being here joining us.

yeah. No, my pleasure. My son, Andrew, who is a software guy, google, or her habit till recently, told me what had an amazing group you are and how everybody you google listen to your show and that do I know these guys? And sure. And of David had reached out to me, so I deleted.

thank you. Appreciate IT.

Before we get into some powers and all of your work and strategy and technology, can you tell people how did you get in this strategy and develop a passion forward and go from economics, P H D students to working for .

bill bain is a funny journey. I or too many details, but I also had sort of an interest in business. This is audio and not video, but David can look on the florida and see a rug. And that rug was my first business. So my brother and I started a rug business while still in graduate school, designed in new york, can open an equal in the long stories behind the, my wife looks back in that period, he said today, that would be called the social enterprise. Back then, I was just called the failure.

It's good to have your best, be your best critic.

So I was very interested. But then when I finished my PHD in those days, IT was really odd for somebody with A P H D to go into business. A P H D N E on.

I mean, you think econ is about the business of what is not highly mostly math at the time? I love economics. I still love economics.

Fascinating discipline, but unusual. So I do kind to scout around. And finally, I ended up rating strategy console is the thing that interested me the most as long story about how that happened.

But I won't into that. But any I ended up interview in main in company. I think I was the only person at that time to ever called called the company because there is all harvard and stanford NBA. Basically, they have never seen anybody like me.

How big was being at that point?

A couple of hundred maybe. wow. And my partner, john, I in strategy capital, I think he was the second higher employee. So he goes back even much further than me.

wow. And this was in boston.

Yeah, that was their only office at the time. And they are growing like stink. And I had this one experience where I nine interviews of an hour each, and there is a quite a lot of skepticism, kind of an egg head doesn't have a NBA.

So finally, my last interviewers will build bank, and I SAT down in his office. I thought, you know, i'm really interested in what he's doing. So I just, I spent the entire interview asking him about how we got IT started. What was this entrepreneurship ence, which all was this fascinated me.

I forget the name, the folks macy, they created a whole market .

ah ah ah trefethen urs macy goes back rather b came in sort rag focus and then and then being spent out of bcg and then bill looks at us watching, says, oh our hours up i've got to go and I realized, oh my god, I haven't said anything about myself. You eat hamilton so we're literally walking through, shaking my hand I said, oh, mr. Bang, i'm sure I can do the work here.

I'm really interested is fine but everybody else worried about me not having an MBA, but that's just not a problem. I'm sure I can do that, he said. I don't have .

a NBA either. great. And that's .

how I got the job.

So that was in boston, one bite out to california, starting to swimming these silicon .

valley waters. And ninety four, I came out here and I was attracted by the economic vitality, but is also a family decision. My wife just absolutely adored california from a prior experience. And then i've got more and more involved and more techy companies, as he saw from my stuff, for doby was a client, and right him was a big client, and so on.

IT really is amazing how much timing plays into these things when people talk a lot about jobs and gates being born within those sort of same few years. And IT really teeth them up for the exact moment to start, apple, loyd, microsoft, make them be powerhouses. You moving to the bay area in ninety four, that is a equivalently perfect time to dive head first into that community.

Yeah yeah. Still, at the time, I was an actively involved equity investor too. So in a lot of intel and microsoft and dEllen is go all the propriety accounts. And so that made me think a lot about IT, but those were very formative years, certainly.

Yeah, I mean, I was netscape that that won't be longer. L netlik was founded.

yeah. I still remember vivitar the first time that I saw the internet, one of my clients back east to, sort of a technical head, like, pulled me into his office and fired up mosaic and said this before netscape and said, hey, you've gotta see this samlets. I went, wu, this is amazing.

Okay, let's get into the fund stuff. Seven powers, to me, at least the thing that was so in lightning about IT was I see this mistake all the time in silicon ley and adventure investing. I've like everyone is like tell me about the time got to target their big market.

But that's kind of only half of the equation of what makes for, uh, great, enduring company is targeting a big market. Of course, you have to have a big market, but you also have to have what you call power in the book within that market. You have to have defensively, you have to have something that makes your company and your business stand out. Can you tell us a little bit about how you define power and how you came up with that?

Yeah, sure. So as I consulted with more and more companies because I ran my consulting firm for decades, three things started become evidence to me. One was that really strong performance is persistent. If you look at intel's results this year and intel's results next year, the fact that they have high profit margins will probably be true next year. And IT turns out there's a lot of empirical work that verifies that, that there is persistence like .

the exact opposite of hedged fund managers here the year ah our .

mutual fund managers, there is no persistence of mutual fund managers. Now interestingly, you probably know there is persistence and ventures capital. And then the next thing, if you've done a lot of valuation work, i'm sure you've done a time and i've done a time and i've even taught IT what you learn.

This is all in the future. So if you take a companies growing about ten percent, do a standard valuation model, what you find is eighty five percent of the values after year three. So persistence.

And in the futures that says that if you can understand the issues that drive persistence, you're gone to understand what drive value. But then as I did more, more consulting work, another thing came into focus, which was that the path to establishing that kind of persistence. Is not linear.

There's a step change. So there's a period when a company can establish that and that window often closes, if you will. And it's the kind of business that you are so familiar with. It's in the earlier stage.

I think all the take off .

the market face. So if you think of a founder, there's this period or there's tremendous flux going on, they don't know the customers are technologies can change you like crazy. They're all wide variety, different types of competitors.

And in that, there are all kinds of degrees of freedom about how you move. The fact that people even talk about pivoting is just suggested that IT is possible, in fact, to pivot, ask until the pivot and IT won't happen very easily. Certainly been trying for a long time.

So what access is? There's this moment. But and the problem is, from a strategist point of view is that all the information is changing.

So radially, that the person or the group that has to process that is the founder and his team. And it's not hiring somebody like me and making a recommendation or a strategic planning or something like that. It's actually processing all this time.

And as you move through space and time understanding, okay, this direction looks so little Better than that direction. And so what that said to me was that what people needed was not advice from an expert, but rather are teaching to fish, trying to assemble a way of looking at strategy. So the people on the ground were really making these decisions, have a way of thinking about IT that will is not never perfect, but guide them in the right direction.

But the problem in doing that for me was that providing a metal model like that, as I say in the book, IT has to be simple but not simplistic because simple so that you can retain IT, not simply list s. So that is relatively completely and missile that that's a really high bar strategy. And that's what took me so long. I mean, I wrote the boat, took me twenty years right .

in hamilton will tell you having read a bunch of business books and having an even larger pile of business books, i've bt, but haven't read, there are so many different mental models. Thank you for taking the twenty years to do IT. Because the fact that there is a one page reference card that sort of assemblies, this whole thing agreed IT actually does make IT.

So you can reference the seven powers and sort of make decisions in real time. It's certainly much more accessible than trying to weave your own fabric of lots of different theories. What prompted you to decide .

to write the book? And you've been doing this first so long, you coulda just kept this to yourself.

My ideas are my babies, and the greatest compliment for me is other people using them and finding them useful. So I wanted to get IT out there, but i'm not a natural writer, and i'd really hadn't published before anything. IT was a very hard journey because originally I sort of want to people said, okay, business book.

Well, the advice was, don't do anything very conceptual. It's got to be a lot of stories and stuff. And so my first efforts, I think I wrote a full book this way, were kind of fund stories.

And then occasionally I kind of slip in a concept. And I want to publishers and agent side of very, very famous literary agent, for example. And I could get no traction at all.

I felt like I was hitting a breakfast wall. And finally I said, to help with IT, i'm going to write the book that I think needs to be written. The two of you face is all the time in the issue of want versus need, so which I think I was admired, Steve jobs, for talking about.

You don't do break through stuff with market services. You have to understand what the need is and then invent. And if you really meet the need and is useful, often times you fell flat. And for me, the need here was this metal model that was simple, but not simplistic.

So of course, now you're alluding to charly monger isms. Here, my biggest question of dying to ask you reading the book and learning about power and this model that you have come up with, how does IT reate to motes? Is power needs by which you create a mote for a business? Or is there something different?

There are two necessary and sufficient conditions for power. There is a benefit. So you've gotten come up with something that's Better than what other competitors do but Better for you as a business models, a Better business models somehow.

So that's something good. But that happens every day, every little improvement you see in starbucks getting a different kind of coffee cup or something. So that happens often. But the thing is rare is when you do that and its material.

So IT is enough to tell the needle, but also IT satisfies a second condition, which is that not just there's a benefit but there's a Better or which is a barrier means there are lots of smart people out there. There will be aware of what you're doing and they're going to try and take you away from you. And that's how competitive dynamics works.

And so you have to have something that will prevent that from happening even if they're motivated and capable. I am a huge fan of warm buffs, as you might imagine. You know, his genius, I think, but the word mote to me, although he means more with the word than that, makes you think about the barrier piece.

So I think IT is fair to say that the seven powers are, for me, a very careful and I hope, exhaustive articulation of the nature of motes. But I think when you're thinking about competitive analysis, ticula ly, everything about starting businesses, I always tell people don't focus so much on the competition. You have something unique.

And yes, you have to pay attention to me. You don't be stupid, but you don't create a great business by just saying i'm going to beat the other guy. So the benefit side is also very important. So it's tightly tight. And of course, the whole idea of motes is just was a brilliant concept in their part.

So there are seven powers in your book. I need to. The seven powers is a way to create this power.

How did you distill these seven? How you come up with you? Are they need out there that you .

haven't found yet? Yeah yeah. Great pain and time. It's completely emirate le. I've probably LED two hundred strategy cases. I probably at my students like to sell in ch any year or sitting here do another two hundred. And so far those seven have covered everything that i've seen. I'm always looking for an eight because also as an investor, if there isn't, eight is probably really obscure and IT probably means it's not in the Price, which probably means .

it's a good investment .

of a good story of alpha.

We want some time to go through all seven, but maybe a good one to start with since most of our audiences in technology and most of those focus are spiring entrepreneurs, counter positioning. This is such a fun one. I know it's your favorite power and particularly such A N one because it's in many ways the most relevant for startups, trefor neural in a lot of markets. Can you talk to us a bit about .

yeah yeah I do have a special place in my heart for counter position. And I have to say because it's so contrary and i'm sort of a contrary in persons, I guess a counter positioning occurs if a company comes up with a new business model and chAllenges, often a powerful incumbent with IT. But for the incoming to mimic this model, they would incur or at least think they would incur so much immediate financial damage.

They just say I can go there even though maybe long term that would be good. They just can't do IT. And that provides a powerful disincentive for them to respond quickly.

And if someone is happening in the kind of flux that you guys deal with, the very fast a responding late may, you don't do so. Give you some example. So in netflix c versus black busters, late fees, yeah yeah late fees.

So late fees accounted for half of black busters income that fooks that were not doing IT and black poster eventually mimic netflix. And who knows, but my suspicion is if they done in a year earlier, i'm not sure in netflix s what exists. And the place I got to kind of cut my teeth in this was I was a big investor, big for me.

I big for them, a big investor in dell and nineties. And my investment I post this was the compact couldn't respond quickly to them because dell was going direct and compact had these lucrative arrangements growing through stores. But looking at his investor, I could see that was true.

But why? And so that got me thinking about IT from sort of a ground up. And eventually I was able to formalize .

IT have to one thing to push on 那儿。 So IT seems like, and i'm remembering from your book, the criterion are basically this new thing is both a good business but net negative for the big in comment because of the cannibalization that would occur. Are there any other things you'd sort of .

add to define that? yes. So there are few flavors of counter positioning. One is that it's a net negative and therefore, because their current model is so lucrative that actually even if they did a net present value, they would end up decided not to do IT even though they'll eventually the business will go to the chAllenger. And these are not mutually exclusive.

It's very often true, I say almost always true that there is costing of bias involve, which is that the incumbent, they've done just great. Their model is work for years. I mean, black bus ter saying, oh, you know, we get all these stores you know people love in, they come in, they can browse.

What's wrong with that? And the idea of somebody doing this rough and ready group sending out read envelopes in the mail, let's say, what the hell, you know, this is just not going anywhere. So they're very cognitive ly biased towards thinking that their model works.

And then there are also agency issues, or economists call agency issues, which means that the person who controls the business may not have interest to lined with the long term interest of the business. So for example, CEO comp is often about this year's performance, are the next few years performance. So to upset the apple cart for a again, that will happen four years out. You may say, you know, I just don't want to go there.

Obviously, for startups, counter positioning can be great and deflection is a fantastic example. But even remembering a lib post bill gurley wrote a number of years ago, in the beginning of one, android was starting to take off and in the title of IT was less than free, the most disruptive business model ever. You know, you had android, which cost less than free. They would pay you to use IT if your hands at manufactured put on your phones versus nokia is trying to make money yourself there self, even as google, because they had the business model of search there, will enter this adjacent market with a completely counter positioned business model.

Hamilton listener's, who have read the innovators to emma, this is going to sound vegan familiar. This would be the power that's most similar to that concept in the same way that we asked earlier. What's the difference between power and mode? How do you think about counter positioning relative to that sort of grand theory?

I recommend everybody to read that book in matter, lama. It's a brilliant book. Christianson was just a scholar of innovation and deeply research. But it's pretty different.

So if you want to get sort of mathematical about IT, there's a many to many mapping between the two concepts, which is to say that counter position and doesn't imply disruptive technology and disruptive technology doesn't imply counter position. Give you some examples. So I would argue that in an out progress counter position against mcDonald's, there's no technology involved particular .

at all and it's not disruptive interval s of Christian since filter is low and this is like a objectively worse yeah.

So you're going back to Christians original book, which I think is the more interesting one where there's a product that kind of doesn't satisfy everybody. I mean, you could argue that testers for scars were like that. The other direction is that if something is a disruptive technology, IT may not be counter position.

So that's for and the fact that they don't map to each other and the fact that power maps directly to value, there's a one to one mapping between power and value. IT means that disruptive technology does not map to value. And the simple thing about that is you can disrupt and IT can be a really lousy business, happens all the time you poison in the well, but there's no good in point for IT.

We may be overly cooling girly here, but I think I saw a recent tweet, something along the lines of there is an infinite amount of product market fit for selling dollars for ninety sense.

Yeah, yeah, yeah. So just pricing something so that people are attracted to IT and losing money.

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okay. Next one I want to talk about is many ways classic. And I think many of listeners already have thought a lot about this.

And nobody we want to ask your perspective. New ones says, have a network effects hugely discuss until I can valley everywhere. Everybody knows what network effects are.

But one of the things you talk about in the book that I think is so actor and I observed as an investor, you can talk about network effects to the cause come home, but is the intensity of the network effect that really matters? And that is so hard to know that anxiety in a market. What is the actual degree to which I care as a participant in the network about other participants in the network and how much care about .

which other participants? The key thing about IT is that they are completely and hard to figure out. So just asserting them gets you point O O one percent of the way of understanding what's really going on.

And we've seen that when we look at investment opportunities, first place to start a courses to try and create a map because remember that they're not homogeneous, they're not necessarily linear, they're not symmetrical. So just give you some example. So if you think of uber, this a platform that connects drivers with passengers with powerful utility, much Better than taxes, and IT changes my life for the Better.

I put on a board of a start up, up in vancouver. And vancouver taxi lobbies are strong or what or how we work. They don't have IT.

And so I finished my board meeting. I go down to the curb. They've called a taxi. I have no idea whether it's coming. I have no idea where IT is.

And eventually I usually just give up and just go to find some corner to hail a cab. And so very powerful benefits. But does uber have power from network effects in a way that will translate into meaningful profitability? I would say first order no would be my guess. I'm no expert in this, but first order, i'd say no.

And the reason is, is if you think about what's going on, is that if there is a similarly sized or reasonably sized ed competitor lift, for example, in this market or others and other markets, that they can achieve a similar network effect. And if you look at the density economics of as you scale in a region, what were saying is it's done in here at some point of flats out. And so if the markets large enough for more than one company to exist in that flat spot, then IT doesn't help you.

So you have to look at all those new one is born. The unusual things about my book is i've always try to be very careful to make sure that everything maps back to value. So he said, what is the fundamental assumption of this book? Is that strategy and value are mathematically their doos. And so the mapping function from that desire to join the site versus actually being able to monetize IT, which is based on on how much time you spend on IT to all that kind of stuff, is you have to understand that, to understand whether is power or not.

The last time I talk about this is can be my favorite, but switching cost, I thought this was super interesting. As people think about switching costs as I think I tend to be like ultima dusters one, but I there's a huge amount of switching cost power in a lot of technology companies to take slack, for instance, slack as network effects, but also switching costs. We run on black.

If we were a switch, that would be a huge cost to our organization. How do you start thinking about that and have other people in text since you publish this realized like, oh, this might be a more as such power? I am not thinking about.

I don't know. I think people had thought about that. There are a lot of some is around switching costs that you have to think through. I mean, one is that in general, IT creates a one lose situation with your customer. And so there is sort of a management problem in that.

And another is that there's a competitive dynamic, which is if you have something that attractive in a high switching cost, the competition will try like crazy to create something that mitigates the switching costs. So you will see a lesser APP have a translator device, but often the imperfection of those. So if you look at E D A tron design automation tools, there are libraries that associated with those. But if you move from one tool company to another, the translation never works .

very well for every C R M system is like go export you out of sales for.

or yes, exactly.

or exporting a powerpoint to google slides, a problem that I think a office deal, a weekly basis. The translation is never perfect. And thus if it's a very important presentation or whatever the thing is, you're not willing to switch.

right? But then another subtle ty is that, remember, you can only monetize that if there's a repeated economic interaction so you have to buy more stuff. There's going to be some kind of razor or blade aspect to IT, right?

If they're just watching costs and you never buy anything more doesn't matter because it's in those additional transactions. And so that's when you look at the erp companies, why they acquire so many different things because these are different tools they can interact with. They are real, a place where they can be especially strong is what they become embedded in a company process.

So we are talking before about there's a company that sells lab equipments who are talking about ten extra omics before, for example, or a piece of equipment gets embedded in how people do things. They not only get used to IT, but there's a whole process designed around IT and switching IT out is really here. I am just curious because you've been thinking about this, what do you think about or what big example in slack, an example. And there is a question of what the still sufficiently .

model zable. Yeah, what I was wondering in particular with this for SaaS companies is such a business model innovation that if you have a switching cost source of power, can work really well together because the moon is like old on prem software, you sell a big civil installation boom. That's a lot of money on front day. You got a some more stuff the future with us, you're just constantly selling all the time.

yeah. So if access model has really good switching cost, boy, does that help I made that really helps.

I actually think the way that these companies are financed are predicated on switching costs as a primary resource of power. I mean, you think about people are willing to sell these things at such a low proceed per month Price. Even, lets say, annual Price, I mean, people are not necessarily hiring field sales reps, but they're hiring people to do inside sales because once you get one of these ash systems and there's just an expectation of repeat and when you go and you capitalize these business in the way that venture capitalists value them is kind of a predicated on that the expected turn rates are fairly low.

yeah. The thing you have to be careful about in these kinds of businesses is customer acquisition cost. So as IT becomes more known that there are these switching costs, people understand that there's essentially a cash flow future associated with each customer and you'll start to say, oh yeah, we should sign them up for free or actually with a beauty or so what happens over time is that actually the value of switching costs becomes arbitrated by the acquisition.

That's why if you go back to my power progression, that's why the switching cost is in the takeoff face because that's the period in which the true economics are not yet reflected in the acquisition Price. And so you have to combine that with something that gets you the customers in the first place. So you don't know the customers in the first place.

And either you do that through something this superior or you do IT when the pricing of IT doesn't fully arbitrage out the value. There are lots and lots of businesses for people just pay too much for customers. And IT turns out to be a really lousy business.

even though IT has a really makes more of slack. Slack came on the scene. They were the first real innovator in this phase of consumer grade. Mobile messaging is also used follow in businesses. Let's do this. They acquire tons and tons of customers in their face, built a big company that's gonna enduring now public company, but now they're competing to the death with microsoft ams. And the ability to economically acquire customers is at least not what I used to be.

Yeah so the two you so much experienced, let me ask you this question. So on counter positioning, one of the things that is really interesting as this whole software eat the world thing, do you think that in general, companies that are a highly software centric and how they approach a business that for an incumbent that isn't that way, that for them to adopt has to blow up their model so much, that is counter positioned.

It's not only that software, each the world on the benefit side, but the barrier side is that if you develop a company from the ground up the software centric, is that just a really tough pill as far? So a great examples is current auto companies. So versus tesla is the fact that they've thought about soft square built things up from that level.

And now if you look at the engineering models of the bmw boy, it's a tough. Is that is that generally true? You think I ve been .

thinking a lot about this recently actually, as IT pretends to, a couple of different investment opportunities i'm looking at. And a distinction that I draw is if the value of the incoming can actually be replaced by a technology product rather than a technology enabled product.

And to illustrate this, let's say, a technology enabled product to something like redfin, where there's lots of ways they can apply technology to make the process Better. But at the end of the day is a traditional broken age with a person who's showing you the house and the same business model with pretty similar fees on the transaction, the house. And you look at other businesses like a pure technology business like netflix, where is a digital service that's distributed digitally, a software all the way through.

And if you're thinking about due the existing income and stand a fighting chance, my answer would be yes. Against technology, enable businesses because they can enable just as easy as these new entrance can start text able, not easily, but it's possible to compete on that vector. But when it's a pure technology product that's being sold, that is the actual value proposition to the consumer is this unique piece of technology. That's when I think this unavoidable fate starts to happen. Yeah very.

very interesting distinction. Oh, one thing I should have mentioned before about counter positioning that your listeners should always keep in mind, which is really critical. It's the only one that's a partial source of power, which is to say that remember power, when you think about IT and try and figure out if a company has power, you have to look at power versus every type of competitor.

So existing and potential, but also direct and functional so people that satisfy the same need. But I don't why? And in the case of counter positioning, IT doesn't answer the power question for potential competitors because other people can mimic the same. So I gave the example of dell before dells power one away, of course, because ultimately everybody could do the same.

And so if you look at counter positioning and you want real durability, in addition to that, you want to have another source of power when we're looking in the companies is very common that one of the either potential or existing competitors are, you know, amazon's is trying IT out or microsoft, google or somebody and often in a vertical integration play. And so then you have to think through, can they do IT? And also there can be kind position in issues involved, something like that, of course, slack is the state against that kind of stuff, you know.

So there is something else that i've been thinking about. I'm curious to get your take on if you've seen good research on IT or that come up in your career at all. In general, when i'm looking at the competitive landscape for a company that were starting at pioneer square labs in the studio, i'm trying to figure out who were going up against.

The ideal situation is there's in company big companies that are twenty plus years, other mature companies and there's maybe one or two others startups that are in our vintage, but there's not somebody that's like three or four years old. And my logic on that is always were competing on a completely different playing field. However, to put IT in your language, however, that incoming got power and whenever that opportunity was for them to create something new and novel, and i'm perfectly fine competing maybe either with a different strategy or to try and out execute someone that has the same resources. I do, but I don't want to compete against someone that's three, four years ahead of me and approximately in the same technology vintage with the same sort of world available to them who just has a lead and may actually be started something at the beginning of the window that is now closing. Does that square with how you would think about .

that completely resonate, completely resonate. So what happens in the take phase of a business? Think about what's going on.

There is more customers than product. Nobody knows exactly what the right model is. And in certain markets, that means that there can be quite a few competitors that are kind of viable.

And in some markets, actually, if they're really incredibly robust, there can be wildly profitable companies. So I were there three hundred automobiles companies, and there were probably, I don't know, one hundred PC companies or something I remember. Hi, and great experience.

This was back. And let's see, most of the nineteen by this really date me. I think that was nineteen eighty four, five.

I was out visiting silicon valley because at that point is back in boston. And let's already started my own business, and I was visiting a company called chrome m code. And they were on this incredible trajectory as a PC company, cash positive, growing triple digits, I think, and doing really well.

They just cut a big deal with series for distribution. And so one of their fault ers told me through their facility out here and we finished. And I ve said, all writer, thanks very much.

I was really enjoyable. I appreciate that. But what are you going to do when there's a shakeout and this cloud came over his face? He almost threw me out of his office.

I mean, he was that bad, he said. They'll never be a shakeout is not going to happen because they were in this period when the rising tide was raising all boats. And you have the dramatics, feeling. And yet they are claim to fame as they are the largest s one hundred bus computer and it's a who cares more .

PC islah than an every grade.

exactly. And so what you could see in that situation or describing that is that their companies are doing just fine. They're getting customers, but competitive arbitrage hasn't really taken place.

And what you're worried about, which makes sense, is that if somebody is several years ahead of you and it's one of the middle phase types of power, which is most common tech network, conomo scale economy switching costs are the three most common ones. If it's one of those, then your size matters. And so if there are head to you when push comes to shove, when the market settles down, you will not be in good position. And so let's say an exception to that is that if you have a company like that and you see that they're just gaining enormous relative market share, there might be some other company this earlier, but there's something about their business ball that .

just doesn't work as google versus exit.

right? And so if that's the case, then there's the second order question, which is why is that happening and continue? But that's more of an edge case. And so I agree with the basic idea that, that's kind of a watch out. I'll go one step further, which is that an even more and interesting investment opportunity.

They don't come alonger very often, but is one or it's almost a categorical one or a competitor, somehow there's something about the way they are that there's nobody really quite like them. That's reassuring. And a lot of ways, if it's working, if it's schedule positive.

this is the perfect transition to my favorite party of book. In cases like that, often a power is a corner resource. And as I think this is actually quite rare and tech yet, I think people in tech think it's not rare.

Oh, classic examples, a pattern. Know your biotech give a patent. You have a corner resource. You have that nobody else can have IT. I'm curious.

Well, eight year thousand corner resources in general, but in particularly something that just really fun around. In my mind, reading this is lots of people in tech, especially lots of VS, think that executive talent and founders are a cornered resource. And you make the point, the book that executives are not ordinary resources because their value can be abattis by the market. I think that actually the value of founders gets arbitrage to and silicon value because if you have a superstar founder, they're gona raise money is such a high Price.

Just a sort of a comment on leadership. So leadership is unbelievably important, and it's unbelievably important strategy because I said in the book, all strategy starts with invention and building up something around that. And there really is a difference between companies with truly great leaders and ones that aren't.

great. And so IT matters. But the question you're dealing with is sufficiency is IT enough.

And the example I started my book with is a perfect example for this is little old for you as but it's intel. So they had two businesses. They started as a memory company. They started with the best to the best. I mean.

they are got .

more brought, grow. And so on the invention side, bob noise. On the execution side, andy grove, and on the process to a manufacturing side, gord moran.

This was the all stars. And yet their memory business was not working because they had no source as a power and other people could come after them. And despite their great leadership and probably being first in and all kinds of financial resources, IT just wasn't enough.

And that ended up having basically a massive race to the bottom with tons of new entrants who are able to spin up, you know, everything that that intel had complete.

And but then if you go to what they did, eventually, a power in which A C P U, again, leadership really mattered. So they have come up with this idea for central processor. And the question is, is this a big deal? Do we back this? You know, and most of the board was against IT.

The head of sales was admitted that this would never turn into anything that was and he was a sharp guy. Don't mean adamant that this would never turn into anything. Andy grove was dead set against that, I believe, is correct.

And bob noise went out and kind of talk to people. And this is the nature of invention. High uncertainty bars, very large band with deep insights.

And if I said no, I really think this eventually is gonna somewhere and then the chairman of the board is name is or anybody heat back, bob noise. And they committed to IT even though they really didn't have the cash and was a very hard thing for them. And so there's a case where leadership really mattered, but IT wasn't enough. And so the question here is sufficiency. If you take a great leader and put him in a different business that doesn't massively reduce the uncertainty ars, that the business is going .

to be success yeah, that makes a lot of sense.

How do you square that with pixar, which is another example in your book in the corner resources segment, where the combination of john laster, ed cat mall and Steve jobs being sort of the best visionaries and source of capital with Steve, the best animator and storyteller with john, and then the best technologies with ad, the pigs are our brain trust. And you look at all the directors on down that they did recruit, really was their main or a big source of power for them cornering those people resources. Am I missing that there is another big course of power for pixar?

No, no, no. I think there are some subtle ties to that story. I just had my own view about this, and I talked about this a little bit in the book.

You have to come up with great stories for good animated films. The brain trust itself was insufficient to guarantee that. And the marker for that is how many directors had to be replaced that were into their projects.

And so then you go back and then ask what was in common with the directors that weren't replaced? And with the exception of brad bird, who's a whole story by himself, brilliant guy, the answer is that IT was this core group of people that work together, that came up with the original toy story movie. And they were sort of a band of brothers.

And together they had an experience of what I meant to create really compelling animated films. And that was there a stranger successes that followed from that, and that the fact that there is a brain trust at that time, they weren't able to transfer that into other directors. But then later on, what happened was you saw when disney acquired pigs are some of that sensibility.

They did revise disney animation and more recently with pixar. I'd say that the prospects for a new pool of directors is very good. But I think the regal corner resource, and I wasn't arbitrage ed out because those people want to stay together. So certainly, those directors offered jobs and other animated studio, i'm sure they all were but they said, no, i'm staying with pigs .

are so biker could have just hired in john ah he wouldn't about .

pigs are yeah exactly and i'm A A huge fan of bikers. I mean, I think as a strategist, and you know, you made three disney decisions, all of a trout were brilliant. And I think his pixar decision was he realized that at the heart of disney was animated films and that even though the Price investment banker would say this is really expensive, he realized that actually they had to revive that, or the whole disney franchise was at risk, and so was worth a much bigger Price.

We are huge ager fans on this show is all in his book is incredible.

And we try to build a little less partial. But both of us, whatever we get got on anything does not related, will be here for a few hours. We want to think our long time friend of the show, venter, the leading trust management platform, venta, of course, automates your security reviews and compliance efforts. So frameworks like soc two, I saw twenty seven o one gdpr and hypo complaints in modeling ing vent to takes care of these otherwise incredibly time and resort training efforts for your organization and makes them fast and simple.

Yeah, fanta is the perfect example of the court that we talk about all the time here and acquired. Jeff bases his idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually GTA, move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance interests with their vendors and customers. IT plays a major role in enabling revenue because customers and partners demand IT, but yet IT add zero flavor to your actual product that IT .

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potential for power, you know, often comes in the sort of flux and change and take off state in the market. I'm curious, as we you can move, move towards the end here, have you come up with any good mechanisms for identifying when opportunities for power exists? Like given markets, you just kind of keep a rare screen Operating a building.

okay. Well, these are interesting areas of flex. They're happening and new companies can be built.

Or i'd say there's a little bit of secret sauce in that from our my investment inspector .

that will .

be the next right. So you have to scribers have to pay more. yes. So it's kind of what you would imagine. I mean, you're in the throw of IT.

It's a rapidly advancing in technical front that seeming to change the part abilities in all space. So I was spent idea before I started. Genetics is very interesting to us.

Of course, we have no insight into therapeutics, but that whole field, you can tell the the incredible cost decline of sequencing and other aspects of IT creates the possibility of doing things that were never cost justified before or time justified. You look for things like that, that are step changes. And then I think there's an awareness of how technology flows through an economy west.

Friday, I had lunch with one of my old professors to yield dig melton's. Genius level person on technical change is one of the deep thinkers on IT. And and I think what you see is that you start with the technology was sort of its most growth or micro application and then IT works at way through.

So if you think about more law, soichi has been one of drivers of everything. So first you go straight to her. Its chips is the chips themselves and then the chips work away.

And to devices, then devices work that are way into applications. And so if a technology is fundamental that moves through different phases where IT actually becomes or businesses around IT become economically viable, so think of that flix, for example, again. So if they try to do streaming when they had started their red available business, the storage, you had to have, the internet, all that stuff.

And so there's a time as technology moves through, IT becomes commercially viable. And then there's a course of precursors to this, which are scientific stuff. So think iconic computing. So first, of course, you got to figure out quantum mechanics. Then you got to deal the tangle.

We're probably not ready for applications.

but hopefully there will be a time or people are now reviving hopes. Again, a about fusion based on different models like that.

That's a good transition into last question. What are you working on now? What's next for the seven? Maybe more powers come first.

So I would love to find another power. So far, I haven. So every company that we deal with faces this question eventually. Is that okay? If i'm successful, i've establish a company with power.

What's next? So act to and what i'm trying to figure out is do we have anything that's interesting and valuable to say about that? And I think from the first step of that, I think we do have something which is to be a little more forthcoming about some of the subtleties about what really comes under a power umbrella, giving examples, a natural place to go with.

B 9， graphic expansion. Let's go into another market. Well, IT, turns out, if you think of that and power terms, you get very different answers. So if you think about uber going into a different geology, IT doesn't matter because the economics are a physical density scale economies. And if IT turns out there is high branding and there a lot of foreign visitors is Better.

but IT doesn't matter or like impossible to build that fixed cost s right?

And so it's all about market by market. So to be honest, their mission statement of transportation, everybody around the world doesn't really map to power. And I think they probably know that now they're smart. Now if you look at netflix is a different matter. And so if you think of netflix going into a different geography, the question there is member of the key competitive and of their scale economies that there's fixed content that they can drive across more subscribers. And so the cost per submission ers less and contains a big part of costs is a big, big advantage.

So if you go into different geography for them, the question then and is, does a reasonable percentage of our content from geography a apply to geography b? And even if it's only twenty percent, so let's say you're going into england and twenty percent of your us content applies if your verses a english only competitor, twenty percent is times that large amount is a gigi deal. And then the dynamics of IT become even more interesting because if they're unbelievably granular data, they can then actually tilt their content development to have more cross over.

So thinking that through of how to extend power, where the power umbrella fits is something is this really interesting? And it's important economically, of course, because getting power is really hard. And if there are any place that you can take advantage of euro and and sometimes it's unusual. Think of disney going into theme parks back to disney. And here we are.

as you are mentioning, made me think of disney. We talked about this a little bit on our disney plus episode. Fox, actually, I think, did this really well where you are describing with geography and power over the last ten years or so.

What's only about ten years? I believe fox slacked up all the streaming rates to indian, primarily cricket. And you would think like, oh, well, that's relevant in india. Well, no, that's actually releve all around the world. And so that was a big part of the disney acquisition of right.

So the fact that if you get high probability of power, it's a step change in the certainty about the value of the company. And so any time you can extend that to more customers or more situations than the question after that is, okay, what's beyond that? And that's a deeply research area. There's lot in that. I'm not convinced yet that we have a lot to add to that.

It's book three.

We'll think about, we will.

hamilton. Where can listeners find you if they're interested in seven powers? Where should they go?

Seven powers is for sale on amazon. So I suggest you go there that .

you preferred the method of acquisition of the book. Yeah, yeah.

yeah. Just that that's the right place to go. And and what we started the interview of saying that was the best kep secret. That means I just terrible on marketing questions. So maybe that's the .

wrong question to ask you. Well, great. Well, listen is everybody should check out and read seven powers. IT is well worth your time.

Or listen, I listen to the book. And the thing that makes that doable because IT is an economics book, a very nicely to still economics book. But boy, there's some formulas in there.

I love the insert. There's this great PDF that comes with that gives you the sort of handy dandy filled in seven powers card along the way and sort of right out the formula. So IT makes IT very digestible.

I'll just end of the funny animal, which is there is a question of whether I put any math in the book at all to speak up and then the end I put IT in the appendix so that you don't have to read IT. But IT is there. And the reason I use IT is just a sort of precision of logic.

IT makes very clear exactly what you're talking about, but the greater response has been ugly by model. There are some people that say, god, that's great. I want well, definite. For example, you mentioned definitely color SHE said that was the the best thing SHE read was the mathematical appendix took out her positioning, SHE said SHE didn't really understand until and then other readers say the complete waste. I don't know why he did .

he tell me more stories, right?

So I guess you I know where you stand now been well.

thank you all the best readers .

like both well listeners as mentioned, if you liked this interview with hamilton and you're like, I need more hamilton hammer in my life. Good news. In the now public L P feed, you can find a recording that we did have a book club with bunch of people on zoo m.

All of our L P S at the time on asking questions. We like most of the discussion and then opening up to the group, pretty fun to get to have that discussion with hamilton. So you can just search acquired show in any podcast player and find that other than that, i'd say ah if you want to come talk hanging out with the rest of group, join that acquired that FM slash slack.

And if you're looking for that next great thing that you want to go do, we have personally created some great jobs that we think you're interesting at acquired dot F M. Slash jobs. And you can go there too if you aren't looking for something, but you think you might be in the future with a place to raise your hand and say, hey, look for something cool for me so you can drop IT in there too. Oh.

and last thing though, before we go, we have to say everybody is not listened at this point. If you haven't already, go buy the book by seven powers. I literally have about a hundred copies of IT sitting in my garage, and I read every single one. I quite the super fan. I have a huge super fan the book and also leave a view on, I think .

you're the first review, top review.

I think the top review at least was serious. Ly hamilton s work is just incredible. We can't wait to and huge. Thank you to him for joining us here for sure.

Well, listeners will catch you next time.

next time.