War Buffett famously said in business I look for economic castles protected by unbreachable Moes power requires a benefit and a barrier so he's taking care of the benefit part by saying a castle you have to have a pretty good understanding of why it's a castle and not a shack so in a lot of decks it's like oh we have the most amazing team we move the fastest you mention how rarely is that actually a power you're on a treadmill and if you stop running that treadmill you get cream but it's not power the things that drive operational excellence can be mimicked let's actually talk about achieving these Powers there's a thing called Power progression there are times when certain types of power are available the path to power is where the rubber meets the rad today my guest is Hamilton Helmer Hamilton is a legend in the world of strategy he's the author of seven Powers which outlines a framework for identifying and developing sustainable competitive Advantage it is widely considered to be the best book on strategy and people like Patrick hson Peter teal Reed Hastings Daniel e and so many more Leaders Credit the book and Hamilton's teachings for helping them build durable lasting companies in our conversation Hamilton shares what sources of power startups can start developing early which types of power companies often think they have but they don't how power relates to strategy and Moes when to start thinking about power as a startup and also what individual product managers and non-leaders can do about these insights about power also how Hamilton sees AI impacting various entry and the sources of power he also gives a preview of his new book that he is working on currently and so much more with that I bring you Hamilton Helmer after a short word from our sponsors and if you enjoy this podcast don't forget to subscribe and follow it in your favorite podcasting app or YouTube it's the best way to avoid missing future episodes and it helps the podcast tremendously this 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or user management you should consider work OS it's a drop-in replacement for ozero and supports up to 1 million monthly active users for free check it out at work os.com to learn more that's work.com this episode is brought to you by vanta when it comes to ensuring your company has top-notch security practices things get complicated fast now you can assess risk secure the trust of your customers and automate compliance for sock 2 ISO 27 ,01 Hippa and more with a single platform vanta V's Market leading trust management platform helps you continuously monitor compliance alongside reporting and tracking risks plus you can save hours by completing security questionnaires with v AI join thousands of global companies that use V to automate evidence collection unify risk management and streamline Security reviews get $1,000 off vanta when you go to v.com / Lenny that's v.com Lenny Hamilton Helmer thank you so much for being here welcome to the podcast hi Lonny a pleasure to be here it's even more my pleasure I want to start by talking about when power becomes important when do you recommend Founders start thinking about power in terms of pre-product Market fit post- product Market fit is it worth spending time thinking about power early obviously it's good to think about a little bit but how much and how seriously should Founders be thinking about it before they found something that people actually want one of the things that has really surprised me in the last five years has been that my understanding of the answer to that question has changed and before I thought it was you do product Market fit and then and then and then you do strategy and and if you try and put strategy before product Market fit it uh it doesn't there there's not much you can do with it that's wrong uh actually one of the I mentioned before one of the great Pleasures for me in my work is being able to talk to company Founders um and and one of the things that has surprise me is that conversations with them even at an early stage about strategic matters have a a richness and relevance to me that was unexpected and and and Founders are practical people right I mean they they're it's very hard to do what they're doing and they have to be extremely focused and choose what what's worthwhile spending time on and so in observing their reactions and that dialogue I I could see that there was something going on that was meaningful to them and this second book we're working on we'll tease out why that's so more but but but the answer to your question is when should you thinking about I was thinking about this uh the answer is always and that's an that's an that's an odd answer right and so even before you have product Market fit it's worth thinking about strategy now it's not strategy in the sense of sort of this fully articulated strategic planning we're going to do this these are going to be the competitors this is going to how we're going to answer them this is how we'll price not like that at all at the earlier stage you can imagine you have wildly more degrees of freedom and the questions are of the business propositions that you're thinking of in trying to get to Market fit what are the underlying characteristics that might tilt them towards the availability of power or not and and uh um and those actually are meaningful conversations uh and certainly by no means certain right you're you're tilting probabilities you're not you're not creating uh determinative things and then later on once you've already have Market fit then there's then you have to understand your source of power if you're if to understand what competitive position is because then you have to establish that and then later on in a a more stable phase when you're in a stability phase of business you have to know what your what your uh source of power is if you have one because you have to know how to defend it and then also it is also the foundational knowledge that you need for if there's another step because another thing that's quite surprising about iconic businesses is they often have a second act or third act or fourth act I mean think of AWS or Intel going into CPUs or Apple going into iPhones all all not the origin of business right and that's and that's actually common Not Unusual and that's starting the process all over again awesome you mentioned this word strategy I want to set a little Foundation here how does strategy relate to power when people are thinking about these two concepts and then do you have just like a a nice definition of what strategy is everyone's always just like what the heck do you mean when you're talking about the strategy you know as I said I'm I'm sort of a concept person right and so when you develop Concepts you have to be uh very highly constrained by their usefulness you know I'm a great fan of the great mathematician John Von noyman and and he he had a view which really irritated a lot of mathematicians which is that if um if mathematics wasn't Guided by what was useful it would become I think I think the word he used was aesthetic to aesthetic um and and this and so any concept developments like that it needs to be guided by usefulness and so in in dealing with strategy the question is what domain of things do you want to include in that conversation because the term is ubiquitous in business I mean I do a Google search sometime I've done one recently on Google Scholar for the word strategy and you'll get you know a million I'm not not exaggerating A million hits right and and so strategy for some people might mean everything that gets to the pile uh it gets to the top of a pile in terms of what you have to do that year everything and that's a perfectly legitimate uh definition you know uh but but what what I have found is that there is a very important narrowing that makes it much more useful so that's coming back to what I was saying about joh makes it much more useful to business so uh my view is that you you want to focus uh it's very useful for a business to focus on the fundamental determination of Val of business value and it and that's a that's an arbitrary Choice it could be something else but but I can tell you from Decades of business experience that that narrowing is very useful and then so so once you make that that once you reach that understanding it tells you some important things so if you understand what drives business value I mean if you do the math of it right it's npv of cash flow right expect cash flow and and what that that tells you is that strategy is a long longtime concept you you're looking far out in the future so think of Pearl Harbor Pearl Harbor for the Japanese was this enormous tactical cons uh success they just destroyed the US uh ability Naval ability in in the Pacific Ocean a and the worst possible strategic move because it completely solved Franklin Delano Roosevelt's problem of how he could get the US citizens on board to uh attacking Hitler the strategy of it was was Us's industrial might would eventually win the war and and population and the difference there is time constant tactical short strategy long and so so if you focus on value uh that that narrows what you think about and allows you to get rather concise and offer up advice to Founders about what they need to pay attention to so then how specifically is power informing strategies like the way you think about it focus on your power and that will inform your strategy earlier I talked about these economic structures that provide durability of return uh in terms of uh Refuge from withering our Rage of everybody who wants to eat you to lunch right and so that's what power is so you have to understand what is an economics I'm you're asking me questions to get pretty deep into Theory here I hope you don't this is too conceptual but you have to say you have to understand how competition takes place and say what is it that creates uh some kind of refuge and what it is is there's something in what you do that uh gives you either a cost or Price advantage over uh others so let's say you're lower cost and that's that's that's the benefit and the barrier side is that there's something that is durable about that that makes it overtime that you can't um the competitors can't take away from you so benefit and a barrier we call it the to be or not to be test right and if you have that you can think of that immediately translating into value because that will give you good margins out into the foreseeable future uh which is what you're after um and so I don't know if that that that's we're getting into the weeds here but that's that's what it's about and so power is those structures let me give you a quick example so one I use in the book so so uh Netflix with scale economies right they have more subscribers uh the cost of their content is a very large fixed cost about 50% of their cost structure every year uh they can take that fixed cost and spread it over more subscribers so their cost per subscriber is less so versus somebody with fewer subscribers so if they were if if uh um if they face the same prices as their uh for subscriptions as their competitors they will be more profitable so that that's that and and that's a scale economy and that that's an example of a type of power um and uh a common one I'd say but these things are hard to achieve right because there's kind of the Holy Grail let's actually talk about achieving these Powers essentially the argument here is your power informs everything you do because this is the thing that'll allow you to stay durable and competitive and last there's seven Powers we're not going to talk about all of them if you want to go understand each them go read the book not conversation all goes too long yeah exactly so what I'm wondering is okay so say you're looking at this list of seven powers and you're a specific type of startup do you have kind of a heris that tells you here's most likely the power and set of subset that will most likely be of be an option for you like B2B SAS companies is there like a smaller subset like probably one of these has to be one of your options versus B to C that's a a great question Lenny um uh and because I think the the path to power is is you know is where the rubber meets the road and it's and it's very complicated and Nuance but but I'll give you a few few thoughts along it and and frankly that the our next book this second can invention that's what it's about it's about about power the entire so in in in a book there's a thing called Power progression which which says there are it it tells over the cycle of a business there are times when certain types of power are available um and and and the uh Converse of that is times when they're not available and so there are some that only are really available in the in the when you reach a stability phase of a business pretty far out there and so if you're if you're starting a company take those off the table so that those two were branding and process power so so so often you know I find that there's a confusion about this because brand recognition for a startup may be incredibly important but you can get brand recognition by buying an ad in the Super Bowl that's not power that you paid for it and so so take take branding and and uh um and process power and process power is really sort of operational excellence on steroids kind of um and usually is imitable so it's you so it's it's usually not so take those off the table and then a COR cornered resource uh type of power which is you have something that is of value that if you transfer it to somebody else it would be a value to them but you own the rights so the the barrier is law for example um or or or lack of knowledge from others so and there classes of businesses that are like that so prescription Pharmaceuticals right if you have if if you're the first person to come up with Viagra that's worth a lot of money if you took that license and gave it to somebody else it'd be worth a lot of money to them but that's a different class and it's usually not the types of things that um that that I'm I'm dealing with and it's and and it's and it's kind of obvious to everybody so the key challenge there is can you invent a pharmaceutical that that's that's effective for for a large market and so so um so you can take those three off the table and that then leaves counter positioning scale economies uh uh switching costs and network economies and the important thing to keep about in mind there is that they're sequenced so almost every startup that you want to deal with starts with uh counter positioning because remember what mark product Market fit is primarily is uh substitution it's you are coming up with a way to satisfy a more or less existing need in a novel way that creates more value now there sometimes you in you tap into entirely new needs but it's not so often I mean you know Amazon was up against brick and mortar stores you know uh Google was was was up against uh um Yahoo um uh you know and so on and so you're usually substituting and that and that substitution uh so you so your competition at that point is functional competition and and if you don't have counterposing at that point you're at pretty high risk from an incumbent who already has the capabilities necessary to do that they just have to extend their product or you know do this or that and and so so but counter positioning is the Refuge from that and then you go into the other three types of power uh scale economies which cost and account and network economies and those depend on on your your scale relative to competitors um this is pretty cursory uh you know but but that but that's what I'd say focus on those four and and I would I would recommend that you think pretty hard about whether you think there's youf counter positioning to start awesome I actually want to double down on that thread but just to summarize I have the list here basically you're saying if you're an early stage startup the four to really that are actually potential powers for you at least early on or counter positioning which your point is you could just start with that that's essentially positioning and business model design which happens at the beginning and then you can start to think about Network economy scale economy switching costs as Powers right and and and I you've done the right thing by not having me go through and Define each of those but but we'll but your listeners will will need to sort of go back to my book and see what those things are to get you know we're we're going through the shorthand as we should but but uh but all of what we said won't be completely obvious to them yeah I think a simple Google search I find just gives you a very simple definition all these yeah that's right there there's some people have done some really good summaries of this Stu or chat GPT even better in a lot of cases right chat GPT if they if they get it right sometimes I find they they hallucinate hallucinate eighth power you mentioned how some companies think they have a certain power or they or it's common to think you have a certain power if you look at every startup deck there's always like here's our moat here's the way we're going to have barriers to entry I'm guessing in almost every case they're d about the power that they actually have and the power they think they'll have do you also find that to be true that often Founders are like wrong about how much barrier they've actually created and is there power you often find most wrong and mistaken yeah so I I agree with your observation but I don't want to be unkind so I mean there there are two things to keep in mind here in terms of making people feel better about that that uh that incorrect slide in the deck one is that Founders have to be optimistic right I think it's an important quality that they they maybe understate the risk a little bit you know but but they're so committed to I'm going to do this thing that they they they go through that and that may give them an advantage over a large corporation trying to do the same thing the other is that um despite the name seven Powers which makes it sound like oh you can kind of sort this out actually understanding whether or not there is a type of power in place is hard um uh I mean if if I did it with my colleagues here at strategy capital and we're looking at a well-known company it might take us weeks to answer that question for a single company uh and it it comes down to the hard part is industry economics is what really are the economic relationships and it's very hard so so with with those caveats that sort of uh give them some courtesy I'll say some some of the obvious ones are I mentioned before people sometimes think they have branding power which that but but another one that I think I've heard you mention is is uh people often think that they get uh scale economies through data and I'd say that that's possible but it's rare and and the reason it's rare is not because there aren't scale economies in data but rather that the range of uh scale that the existing competitors have are often large enough to be able to put them in in in uh shouting distance of each other so that the the differences in their cost per unit is not that great the curve flattens in other words which is typical of any because the most common scale economy is You' got a big fixed cost and then you and you PR that and and as you get more and more scale the uh the percentage cost advantage of a fixed cost Advantage like that goes down and that that often so that's that's that's a pretty frequent one that we see we sort of laugh whenever we say we hear somebody say they have a flywheel which kind of gives you the idea of network economies there are often flywheels the ones that really are material are rare the key thing here is materiality not whether the fly whe exist but whether the effect is strong enough to really tilt returns I was actually going to ask about that one because in software and social consumer products Network effects is always the pitch once we get big enough we create this huge barrier you mentioned just now you often find that's not actually true it's rarely something that'll be a become a bearer is there anything else you find with network and I know uh your power is called Network economies not Network effects I guess just to be clear do you are these kind of the same thing in your mind with different words yeah kind of I mean I I mean I I have called it a type of power so I so so for me it's only those things which clear the significance barrier uh hurdle rather um that they're a large material right and so there there are lots of things that I would say have Network effects but not Network economies oh interesting wait can you speak to that so there's a difference between these terms Network economies yeah so for me the difference is materiality you know is that that uh whether whether the uh the the value benefit is large enough to engender a a price Delta significant enough to to give you materially different margins into the future basically like does that Network effect having an actual impact on your business and your ability to price yeah it's not an impact it's a material so it could have if it's a penny to your bottom line that's one thing if it's if it's a billion dollars or something else wow that's actually really interesting is there an example of a company that comes to mind like they had Network effects but not Network economies as a power oh I I think you could turn almost anywhere and get some some modest Network effects and you know any any platform business would probably likely have some modest Network effects uh you you asked me ear or and material you sent me about Uber and Lyft I'd say that you know they probably have uh Network effects involv but but uh not Network economies wow that's interesting and the reason you're saying they don't have Network economies is because they're still so competitive they're still have to spend so much money to stay ahead and so the effect is not yeah the um right the the advantage that they get is not not material right wow that's so interesting kind of along those lines it's so interesting to see Uber and Lyft these days in theory they both had some sort of strong Network effect I was just looking so lift is uh 5% the market cap of uber is there a lesson from just what it is that allowed Uber to just win and kind of run away with the market essentially I'm not entirely sure I'll take a guess but I I'll cons but take it as sort of a uninformed guess I haven't really studied it carefully um uh I think that over time they're they're if I had to guess I'd say they're probably modest scale economies in the business and over time Uber has just uh very successfully played a war of attrition and that's both been in how they run their business they they they made one sort of initial misstep which is they misdefined their business they said it was International transportation and it's not that business is extremely geographically specific you know if you're if you have a a you know a great position in the Bay Area it doesn't help you in London right and so so their foray into China and everything really didn't make but but I but they pulled back in that Focus down on on understand understanding their source of power which was a geographically specific scale economy and then they've done interesting things like Uber Eats where they've tried to you know utilize the platform that they have to uh get other opportunities for the the one side of their platform the drivers and so so I I I you know if I had to if I had to guess I'd say it was a well played War of Attrition with modest scale economies and is that attrition coming from a source of power or is that just like a broader more yeah it only works because they there are modest scale economies if there weren't any then they if they did all this stuff they still have equ equivalency got it let me go in a slightly different direction uh we've talked about power we've talked about strategy there's also there this word moat that comes up a lot everyone's always trying to build a moat in your mind is a moat equivalent to a power as difference when people talk about these two power requires a benefit and a barrier right you have to you have to have something that you do that that uh that that gives you a better outcome than your competitors lower cost or higher price and then something that makes it impossible for somebody else to mimic that so mode is the second so it's it's not uh it's not synonymous with power because you can have a you you could have a mod around a very undesirable piece of property and uh wouldn't get you far so so but uh and and but I think it is pretty synonymous with barrier I you know I think uh Warren Buffett sort of Charlie Monger get who I admire enormously I think get credit for sort of popularizing those Concepts and and and I think the way they think about it is is is good I'd say that that um seven Powers is uh probably more systematic and comprehensive and saying that I don't think there's this wonderful I don't know if you read any of the Microsoft any trust literature that came out of the the their their lawsuit but but there was a communication between Bill Gates and and Warren Buffett where Warren Buffett was saying why he couldn't invest in micros service he just didn't understand it right and so that meant he didn't you know the idea of Network economies and what the mo was there he didn't understand so I I think but but I but but I think the concept of mode is a good one the idea that you have something that gives you a refuge from from uh competing forces in terms of Warren Buffett I found the quote about Moes Warren Buffett famously said in business I look for economic castles protected by unbreachable Moes right and so he's he's so he's taking care of the benefit part by saying a castle right got to cover and but but but one of the tricks to understanding power is you have to have a pretty good understanding of why it's a castle and not a shack so give I'll give you a Netflix example so so a company I admire a lot you know and I I think if some of the things that they had to do to develop their business were so important for their business uh that aren't uh that don't guarantee Castle so so for example UI development there that they spent an enormous amount of resources on trying to get just the very best UI I mean a zillion AB tests all kinds of things their recommendation engine everybody's kind of knows the story about how that that went on you know their interface with the content world and all this so those things uh those things are important there are things they have to spend a lot of time and resources on but they can largely be mimicked so when when Netflix in an earlier phase was fighting Blockbuster when Blockbuster finally threw in the towel and said well we darn well better do a mail order DVD business if you looked at the Blockbuster site their UI site you couldn't tell it different from Netflix they just copied it and so all that thoughtfulness about which things you put first and how you structure it and all that to make this suitable was mimical so that's an understanding of looking at the properties you have and trying to figure out if they're a castle or a shack I love that this episode is brought to you by Paragon the embedded integration platform for B2B SAS product development teams are your users constantly requesting new Integrations with other SAS platforms that they use unfortunately native product Integrations take months of engineering to build and the maintenance never ends paragon enables your engineering team to ship Integrations seven times faster than building a house by removing the complexities around authentication messy third-party apis and debugging integration errors engineering teams at companies like copy AI cinch TLD DV and over 100 other SAS companies are using Paragon so they can focus their efforts on core product features not Integrations the result they're shipping Integrations on demand which has led to higher product usage better retention and more customer upsells visit use paragon.com Lenny to see how Paragon can help you go to market faster with Integrations today that's use p r a.com Lenny so let's take this concept of seven Powers a lot of people listening to this are just like individual contributor product managers on teams building you product or iterating on products they already have what do you suggest they do with this knowledge of there exist these ways to build benefits and barriers I'm working on saying new product what do you recommend they do what's like something they could do this week next month to infuse these lessons into the products they're building I'd say there are a few and it's a little bit different you know I I I I'm not a great fan of the strategically driven organization because it it that idea uh because it fuzzes over how this knowledge is useful at different stages in the business and so for somebody in that position say a product manager in an existing successful business so it's important in terms of just understanding their business to know what their source of power is because they and and that can inform them about you know what it is that they're working for and also they may see things since they're down in the weeds they may see things that that are important to that that they need to bring to other people's attentions because they're the ones that really have the knowledge of what the heck's going on there's another aspect I mentioned before this idea of transforming of starting up entirely new things and usually uh not I wouldn't say usually I say uh it's not uncommon for ideas about that to Bubble Up from from uh down below you know and so so that's that's that's another source if you're so let let's separate a business into three phases uh you know origination takeoff and stability so the answers I've given are more in the stability phase in the uh in the takeoff phase let's say you've launched a product you've gotten customer traction now you're in a phase where there's just very rapid growth probably other entrance like you what are you facing what your facing is remember that underneath all of this is uh change in technology that's what that's what made the product Market fit possible in the first place but that doesn't just stop that keep if you're if you're in a technology wave often there are all kinds of offshoots both for you and the compliments to your business everything else going on at the same time and and uh to to win at that stability phase which is really a market share win you you have to be aware of those and understand okay we have to incorporate this new new feature or maybe now things have gotten to the point where this new market segment is our product is attractive for or before it wasn't this is meat and potato stuff for somebody at that level and and it may well be the decisive element in terms of whether you win that market share battle with the other contenders um and so you're you're you have a very very important role at that point and so so I'd say I'd say the first thing to do with your question is to make sure you think about the different phases of this and then and then ask what those responsibilities are what about for people that are just trying to get better at being strategic thinking strategically something every product leader is always encouraged to do become a better strategic thinker get build his muscle of strategy what do you often advice to people just get better at the stuff obviously read your book read read the book and then have conversations with your colleagues about the topic because it as you sort of you know internalize what that means and how you know have conversations with them about do we really have this kind of power what's going on here what's important what isn't you know it those conversations tend to to allow you to sort of get a better grip on things I mean at in in the case of Netflix uh Reed actually had me come in and train the top hundred people in Netflix and strategy we actually I actually ran classes in the company but that's unusual I'd say um and I didn't and I didn't have the book yet and so so I think the book gets people you know pretty far down that path already and you don't do that anymore I imagine if someone wanted to do that today not an option I sadly don't have the time I I do I mean I do often do you know Fireside Chats at company meetings and that kind of thing but not a full full-blown course and I'm not teaching at Stanford anymore either um and so so uh I I don't I I'm I enjoyed that immensely wonderful people to work with but but uh but sadly I don't have the time you're about to get a lot of requests for fires side chats I hope you're ready you mentioned AI at some point in our chat I'm curious how you think AI is going to change your seven Powers framework you think defensibility goes down in general will certain forms of power become more important or harder to achieve how do you think about yeah yeah it's a great question I mean we're all in this phase of wondering exactly how gener of AI is going to play out um my own view currently I I don't see any change in seven powers from it um in terms of un E power or something but but the issues that it brings up like scale economies I mean think of scale economies you know if if you have to if you have a fixed cost of of of uh trying to develop a model of a billion dollars or something you know or you know or network effects you know will will AI models develop so that they learn uh in a way that for one users inter interaction helps in other users interaction that would be a powerful Network economy or if it learns if you think of um uh you know if it learns about you and and becomes a better psychiatrist or something then that's that's a switching cost right so all these things are relevant to which business models will work and and I find that useful but I think in general the way I think about it is it's a it's sort of a standard form of of potentially very powerful technology that is being introduced into the business world and just asking how that plays out and I you know I currently tend to think of that there's sort of three three types of plays there's the there's the company that's the technology play itself so if you think of microprocessors it would be intel if there's the compy companies that wouldn't exist without the technology so for mic for for semiconductors it would be Microsoft and then there are the companies that that uh utilize the technology but have existed before and after so for semiconductors of the automobiles they use a ton of chips but there were still cars before after and so so I'm I'm kind of of the view I'm very much uncertain at this point that that generative AI will its biggest impact will be that tertiary class it will be used in a lot of things that um uh that existed before and exist after but are made better by it like semiconductors and Automobiles and so it reminds me sort of if you think of really big technology shifts like like this it reminds me sort of of electricity when electricity came you could completely reconfigure a factory floor right you no longer uh had to have you could have the power source at essentially at the operating unit of an operator but but that took a lot of redesign incorporation investment learning uh complements all kinds of stuff um I I I tend to think this will be more like that there will be some pure cases people will want to have them write their term paper with jet GPT or something but but but if you think of uh businesses um it's hard for me to think of a single functional area in a business that with redesign couldn't benefit so you know accounting HR R&D you know all have use uses of this but requires incorporation which is always was you know uh Troublesome um and so so that that's kind of my view and and so I but but there may be there certainly will be businesses that couldn't exist without it and there are some that are coming up but but uh and and some of those are in fact the businesses that empower the tertiary need they're the ones that bring bring in but if you go back this will date me but if you go back into uh business history back in I guess it was the '90s there's this thing called business process re-engineering you know the idea that you would you could take a computer sensibility into business processes redesign them and get these monstrous cost savings and and and it was a gigantic Consulting opportunity right for people uh whole companies got developed based on that um and uh it it sort of feels kind of more like that to me but but but uh but it's is very interesting it I I could be wrong but it feels different than crypto you know it feels like there's more of a real uh ultimate use case I mean if if if it really is true what they say that it's a a 50% Improvement and programming efficacy is not uncommon just that proposition alone is worth an awful lot of money if you think how many programmers there are in the world no question you mentioned uh eighth power I just want to check is there an emerging eighth power you wish you maybe would have included or may be added in the future that's like oh maybe this is on the edge or it's like nope we got these seven uh you know it's a great question I'm always looking for it because if you find it it probably means it's so obscure there would also be a great investment opportunity we're looking all the time but so far no so far I'm pretty satisfied that seven is an exhaustive set but never say never you know you know it's an empirical uh seven not not a theoretical seven yeah if we start seeing you making incredible returns you've clearly found the new power right that's right I want to close one thread on a power that you mentioned that is often a kind of a pitfall uh which is around uh process power and basically execution a lot of people think so in a lot of decks it's like oh we have the most amazing team we move the fastest we're earliest you mentioned how rarely is that actually a power actually being able to execute and create a process that is an actual barrier you talk a bit more about that to help people understand okay it's probably not our power one of the the great thinkers in strategy was this Harvard Professor Michael Porter and he and probably 40 years ago made the very controversial statement that operational excellence is not strategy you got a lot of people of the Harvard Business School faculty really mad at him because that's what they're careers were about and it s sound like he was dissing them but the point he was making was when you get to kind of this end state if you already have power um that that the things that drive operational excellence can be mimicked because you can hire a consulting firm with who has best practices knowledges that come in and get you up to Snuff you can hire people from your competitors who know how to do it better and that and that and and that's that's kind of true but it's also true in in the this takeoff phase in a business when that we talked about before when you're trying to attain competitive position operational excellence is everything and so so in if you think of not strategy not statically endpoints like Professor Bor was but if you look at dynamically how you get there operational excellence is essential for a strategy um and so think of those things I mentioned before about Netflix about their UI and recommendation engines on or International roll out all those things they were in a battle to get subs more subscribers and other people um and and those were critical for that right but in themselves uh they're critical and attaining competitive position but in themselves are not sources of power to typically unless uh there's some very uh tight considerations here or very demanding considerations for the unless uh if they're really uh they they have to be material uh but they also have to be o opaque or some way people can't easily imitate them either that they don't understand what's going on or it might be opaque so so for example think of tsmc so when they put up uh when they put up the latest Fab there's uh uh and and get that operational are there are there a lot of steps in doing that that they kind of know how to do with their staff is trained to do but it's not documented necessarily and not and you can't imitate it you know then maybe maybe they have it I don't know if they have process power or not but it's but it takes that level of complexity in my book I use the example of Toyota and a car manufacturing is complex enough that you can have this opacity uh in terms of of material steps but it's but it's not common and so so you're so so if you're in a stability phase of business you're you're you're stuck with this this funny thing which is most of your day is on those issues and it should be because if you if you if you don't do it uh a competitor can and they can end up better than you and so you're always you're on you're on you're on a treadmill and that's the way business is that's fine and and if you stop running that treadmill you get creamed and uh so you got to do it it's most of your day but it's not power and and and there are those rare cases where it's so material and so inimitable that it can be power but but they're rare I like the uh heris that if you haven't written it down or you can't describe it that might be a sign that maybe process power is a is a power of yours yeah yeah you know um and there isn't a consulting firm that offers to to bring you up to speed and you know make you more like Amazon as a service right kind of along these same lines you talk about how the only three things that create value in a company are power Market size and operational excellence and I think hearing that will blow a lot of people's minds because they think there's so many things that contribute to the value of a company and you Whittle it down to these three things what can you say about about that Insight so I'd say they're right and I'm right um they're right because there are this incredible I mean businesses really hard right and there are just a multitude of things you have to pay attention for I'm right because all those things fall into those three categories so it's an exhaustive set and it's just it simply comes out of the math you know um you know it's uh it so so we're both right um I'd say final question the intent of a lot of your work is to empower Founders I'm curious if you've noticed any broad economic Trends or shifts that you think will make life easier or harder for Founders in the coming years personally I am very very concerned about the uh debt trajectory of the United States uh and many countries around the world but I'll pick on the United States but it's a trend going on everywhere we're on a trajectory for this extremely high indebtedness and so if you you think about the last 30 years right there's been a crisis about once every 10 years so there's the dotcom bust there's the financial crisis There Was covid You know I nothing makes me think that the frequency will be a lot less I don't know what it who knows these are all uncertain events but but imagine if we got to one of those and we had no dry powder and dry powder for us is the ability uh to uh heavily deficit spend take on debt and fortunately our government did that in both the financial crisis and covid and and because that people had jobs if I my own view about the financial crisis is that uh if we hadn't done that plus having Ben beraki as as as the head of the the FED we would have gone into another Great Depression it was that ugly so uh this current debt trajectory you don't know how long it will take exactly when but eventually that will mean we will not have dry powder people will not respect the credit worthiness of this country and so so I'm that worries me a lot and and uh and it utterly will affect you know the idea of company founding because if you get into a crisis like that it just you know the capital markets lock up and it gets very difficult to do anything and uh to really stretch my credibility here I'll I'll opine on just how hard a problem this is to solve the reason this is so difficult for this country to solve in other countries is that it is right at the Crux of the um delicate dance between capitalism and democracy so if you think about these the the problem of course that's driving all this is entitlements um there's there's there's sort of discretionary spending you know the you know certain recovery programs and stuff but those can go away the thing the underlying Trend that people just can't get their arms around as entitlements and and uh and anybody who looks at the the numbers can see that every Economist knows that um and but that's a that's not an easy fix and the reason it's not an easy fix is there are two opposing views of of kind of what's going on and and there's no way to resolve those two views one is that um that capitalism is rapacious and results in more and more inequality and the government has to do something about it and the other is that the government is on a path that is creeping socialism that will undermine our freedom and economic sufficiency and and the the poster child for the the rapacious capitalism one is that I don't know if you seen the recent analysis of inequality in the United States just came out much more robust analysis and has said that basically inequality in the last 60 years in the United States is unchanged but that's post transfer post tax inequality which basically says the amount of taxing and transferring going on was about right so it says the amount we're spending is about right from that perspective that it compensates for other in inequities um and we should be spending that much so we should tax more and the and the other the the poster child for the other point of view of the uh dangers of government is the steadily increasing uh without interruption percentage of the economy that is government and to levels that 75 years ago people would have thought absolutely impossible so there are these two views about what's going on one is that we're compensating for the normal inequities of capitalism and the other is that we're headed down a path to socialism and ruin and and that leads to a deadlock which is you don't tax anymore and you don't cut spending and that leads to deficits and so so anyway a long long uh rant sorry but but but that that trend is extremely politically difficult to deal with and and extremely threatening and uh and that concerns me uh immensely not to leave listeners with uh very sad State of Affairs no no I think this is important I think it's important people think about this and know these things is there anything that gives you hope is there anything that gets you excited about either for Founders or anyone in general just to kind of leave few folks with maybe on a a happy yeah I mean I I I am an optimist really in a way you know and and I I I I do there there's a a a famous uh Austrian and eventually American Economist and named Joseph shumpeter who wrote this wonderful book theory of Economic Development way back when over 100 years ago where he took the unusual view of saying that that the Vitality of an economy depended on entrepreneurs and uh you I ascribe to that I I think that that uh creative AC ity and action are the ways society and people advance and and I'm and I think the the US is uh and and a free Society has has huge advantages in in that and and I think that uh I'm I I'm feel very lucky to be in a place I'm in Silicon Valley but but be in a place in a country where where that is vital and active and that and I think that's that's uh that's sort of Ground Zero for me and so so I I think you see that alive and well I think and and there there are people that are very uh enthusiastic about that and as I am beautiful way to close out our chat is there anything else you want to share before we get to our very exciting Ling round is there anything you want to leave listeners with or any last tid bit of advice I I sort of alluded to it before but just that remember action is the first principle of business you do stuff and and my book is very oriented towards that the idea was not to tell you what to do but to give you sort of guidepost while you're on that journey and so I I just to people that are enthusi about it I I encourage you to do stuff you know that that's where it all starts um and and and I can think about it and maybe help help a little bit but it's mostly doing stuff I love that point so much it was something I was going to touch on but I didn't get to it's just there's so many people that just sit around and theorize about a strategy of their business especially in early stage here's our grandmas plan here's an amazing strategy or just read about startup ideas and don't actually try it I love this final note of just like just try it just do it don't just sit there and yeah yeah just do it you know and and life life is full of surprises you'll end up in a place you didn't expect amazing speaking of ending up in a place you didn't expect it's time for a very exciting lightning round are you ready oh sure I I'll I'll do my best here I'm not very good on Lightning but first question what are two or three books that you recommended most to other people one book that is extremely wonky but but and I know I can only take it in very small doses but as magnificent as one called the road Reality by Roger Penrose who's This brilliant mathematician and it it it will be very daunting for anybody unless you're a deep math person but but his uh Brilliance in a Edition just shine through in this thing and it's just it's an amazing book um I would say uh there's another book boy I wish I could remember the the name maybe you can get the name of the author a book called Jean by this um geneticist and I think it's a Harvard Med School Professor that's that's about the history of genetics um and he is an absolutely luminous writer I mean I it it puts me to shame I I'm embarrassed when I read it because I think how pedestrian my writing is he he's uh he uh and and Incredibly knowledge about the history of genetics and I think that's such an important topic that so those are two that I would I would recommend highly fairly fairly wonky but but I like them both I love them uh the author I just looked him up said hetha mukiri yes just a amazing you you just you'll read it and you'll go how did he think of that phrasing I mean it's just he's amazing do you have a favorite recent movie or TV show you really enjoyed I I'm a huge movie fan um and have been all my life uh and I'm particularly keen on animated films but the movie that I've recently seen that I liked particular particularly was American fiction I thought that was it it uh didn't make any of sort of the easy choices in a movie and and as a result was just incredibly interesting and thoughtful I thought do you have a favorite product you recently discovered that you really love in my office just this last week we actually put a uh Persian rug in our entry room and uh this is what's called a farahan suo rug and it's 150 years old and uh it had an effect on me that I didn't expect which is it is it is h a work of great Beauty and it was before it was all hand done before machines you get all this wonderful variation of the actual icons in the rug and the different die colors and and I find that every morning when I walk in I go that's really beautiful and it's uplifting and it it shows you the importance of or the value of so the quality of art I mean it's just it just it kind of uh kind of blows my mind actually so that's probably not the usual product discussion that you get but no I love that answer recently we've had some really unique choices one is a a very nice Mercedes and a rivan and and a minivan recently we've got a lot of very uh very nice things that's I'm I'm a car guy too so I didn't answer man I love that I'm we have Rory Southerland coming on the podcast soon he's one of the leaders of ogal and he has a whole thing about how buying a home is like the best value of art to buy art if you live in a home that makes you feel inspired and and is beautiful yeah I I'm a big believer in that you know I mean I I think that you know sort of your your place and and how you connect to it has an important grounding effect and then before I talked earlier about creativity and I think surrounding yourself with in an environment that stimulates that is um is really important um and so I I couldn't agree with it more two more questions do you have a favorite life motto that you often think about come back to share with friends or family one is what Clint Eastwood uh advice to actors uh which is don't just do something stand there um and uh so there there are a lot of things that are long terish with uh kind of low signal to noise and and you can often just do a lot of stuff that you think makes a difference but it really doesn't and so that that's that's that's one the other one which is somewhat more profound I think was one that I I had a a a famous um Sri Lankan journalist was a mentor of mine and very dear friend and he had a favorite expression that that I adhere to all the time which is everything is always about something else wow I'm deep and that's so true if you're dealing with this power stuff when if you really dig down everything is always about something else speaking of power final question people that have a lot of power are leaders in the world I'm curious do you have a favorite historical leader so yeah so I have some that I'm I admire a great deal I'm a tremendous fan of Winston Churchill's you know quirky most leader most really great people are quirky you know and he and he qualified there are things you could say about him that you know you might not have liked that so much but but he was a a genius and uh had great fortitude human sense he understood things long before other people I'd give him high marks um some of the great artists I admire enormously I'm just I'm reading a book right now on sort of the last 20 years of Michelangelo which is a wonderful book actually um and which is a very interesting period because in his first 70 years he sort of finished you know he finished up all the he wasn't going to do sculpture anymore he just finished the the last judgment which was the wall of the cinee chapel and I think the last major Fresco he did and a lot of his friends in his he at that time he was exiled from Florence and living in Rome and and uh and he haded this Roman community and a lot of his close friends that had recently died or had difficulties so he's at this inflection point in his life uh at 70 which in those days was very old and yet he went on to do some of the most remarkable architecture in the history of the world and so that you know you you've got to admire that you know I mean just s of doing that which is that rare second act um so but but I think for world leaders Winston Churchill is very high I I'm a fan of Teddy Roosevelt I must say too in this country um so I love that Hamilton you are wonderful I feel like we have helped a lot of people up level their ability to think about strategy and Moes and power thank you so much for being here two final questions where can folks find more online if they want to dig in further and how can listeners be useful to you yeah so I as I say I'm I'm I'm an idea person and I'm about trying to empower company Founders and so so uh only thing I can say is um you know read the book spread the ideas start start your own company those are the things that would make me happy amazing Hamilton thank you so much for being here great my pleasure to Lenny bye everyone thank you so much for listening if you found this valuable you can subscribe to the show on Apple podcast Spotify or your favorite podcast app also please consider giving us a rating or leaving a review as that really helps other listeners find the podcast you can find all past episodes or learn more about the show at Lenny podcast.com see you in the next episode