7 Powers
We optimize our growth engine around the 7 Powers framework. The framework is basically the following:
- Scale economies: A business in which per unit cost declines as production volume increases.
- Network economies. The value of a service to each user increases as new users join the network.
- Counter-positioning. A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
- Switching costs. The value loss expected by a customer that would be incurred from switching to an alternative supplier for additional purchases.
- Branding. The durable attribution of higher value to an objectively identical offering that arises from historic info about the seller.
- Cornered resource. Preferential access at attractive terms to a coveted asset that can independently enhance value.
- Process power. Embedded company organisation and activity sets which enable lower costs and/or superior product.
We build experiments that help us optimize each of these powers leading to competitive moat.
Competitors & Fast Follower
Fools learn from experience. I prefer to learn from the experience of others. -Otto von Bismarck
Competitors are wonderful as they let us identify what we need to build to remain competitive. We do this in a few ways:
- Track products and services.
- Track distribution channels
- Track content.
Deming
| Metric | Goal | Formula |
|---|---|---|
| Revenue Growth | 30% per year | |
| Asset Growth | 30% per year | |
| Free Cash Flow Growth | 100% per year | Free Cash Flow = Net Income + Depreciation and Amortization – Changes in Working Capital – Capital Expenditures |
| ROIC | 30% | ROIC = (Net income – Dividends) / (Debt + Equity) |
| Debt-to-Free Cash Flow | 400% | |
| Debt-to-Asset | 50% | |
| Effective Tax Rate | 12% | |
| Negative Cash Conversion Cycle | -30 days | Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding |
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