Economies of Scale and Switching Costs According to 7 Powers (64)

This week’s podcast is more on the well-known 7 Powers framework by Hamilton Helmer. I go through three of his 7 powers.

You can listen to this podcast here or at iTunes, Google Podcasts and Himalaya.

His fundamental equation of value is:

Value = M0*g*s*m = market scale * power

• M0 is Market at time zero. g is growth. This is about targeting big and growing market opportunities.
• S is long-term persistent market share. How much of it you have
• M is long term persistent margins. (operational margins after cost of capital)
• You can also do potential value = market scale * power.

His break-down of economies of scale is:

• Fixed costs
• Distribution network density
• Learning Economies (don't agree)
• Purchasing Economies
• Volume / area relationships (cool but I never use this)

His break-down of switching costs is:

1. Financial switching costs
2. Procedural switching costs
3. Relational switching costs

I also cited the 4 terrains from BCG: See here

Related podcasts and articles are:

• 4 Problems with Hamilton Helmer’s 7 Powers (Jeff’s Asia Tech Class – Podcast 62)

From the Concept Library, concepts for this article are:

• Competitive Advantage: Economies of Scale
• Surplus Margin Leader
• Competitive Advantage: Switching Costs
• Counter-Positioning

From the Company Library, companies for this article are:

• None

This is part of Learning Goals: Level 4, with a focus on:

• 15: Didi and Switching Costs

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I write and speak about digital China and Asia’s latest tech trends.

I also run Tech Strategy, a podcast and subscription newsletter on the strategies of China / Asia tech companies.

This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

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