Twsbi Follow-up

As there seems to have been some misunderstanding about my last post, I thought it would be useful to do a follow-up that explicitly considers the nature of strategic analysis, in the context of Twsbi. Some of this has been implied in past posts but may be useful to unpack. The post that was scheduled for today has been moved back to Friday morning (AEDST), and that will probably generate some discussion too.

The first of the three broad points I’ll make is that, with these kinds of analyses, the post reflects a possible future scenario and not a certain one. The post suggested that the Eco would be a huge success for Twsbi but it is also possible that the pen will flop, or that it is only a moderate success, and doesn’t change the market at all. This outcome is certainly possible, and I wouldn’t rule it out. The discussion focussed on the success scenario for a few reasons: first, in my opinion, this is Twsbi’s actual goals and it’s worth considering what success could mean for them (and for Lamy). Second, this scenario is a great example of how a disruptive startup can knock out a dominant competitor. Finally, it’s interesting! I’m not sure what you would rather read about, but I’d much rather write about the possibilities of dramatic change in the market than saying everything will stay the same.

Second, when considering these scenarios, the most important thing is not whether the assumptions are realistic (what you might call the external validity) but whether there is a logical consistency between causes and effects (the internal validity), and whether all of the relevant factors are included in the analysis.

Challenging the assumptions of a scenario is a way of determining how realistic it is, and therefore the probability of it occurring. I see this a lot – it’s a natural instinct – but it ought not be the priority. External validity is a much lesser concern than internal, for two reasons: first, if I was Lamy and facing an existential threat to my biggest-selling product (and, potentially, the entire FP business), I would not care if the probability of that scenario was 5% or 50%. It would become my focus either way and bar nothing. Second, most assumptions relate to things that can either be confirmed by research (and yes, the Safari/Vista/AL-Star are the majority of Lamy’s FP business) or can be influenced, even changed, by human agency. Some people use the phrase ‘construct your own reality’ to mean some psychological rejection of what they perceive; I use it to mean that we have the power to cause change in the world, to make it more conducive to our goals and strategies.

Its something similar to playing chess: you need to think through the different scenarios, all of the future moves in each, taking into account what is possible and how your opponent might react. The scenarios that you focus on are the ones that lead you to victory or defeat. And while you can’t force your opponent to choose a particular strategy, you can influence whether he plays aggressively or defensively, you can change the basic assumptions of the game.

Third, some people engage in two-stage thinking: they look at the initial cause (the Eco’s release) and the ultimate effect (a much-diminished Lamy), and dismiss the strategy as unrealistic. It’s not an approach I like because it misses a lot of the nuance and subtlety that is needed for a successful strategy.

I used to encourage people to look at things salami-style, but recently that’s been supplanted by a great quote from House of Cards*: ‘How do you devour a whale? One bite at a time.’ Whatever metaphor works for you, the focus is on looking at a strategy as a series of distinct stages, with each one offering you a chance to gain something for yourself and deny it to your opponent. Twsbi can’t defeat Lamy in a single day, like two armies on a battlefield, but it’s certainly possible that they can devour the whale over a course of several years.

In the first week, the Eco will massively outsell any of Lamy’s products, that’s to be expected. After a few months, when the pent-up demand has been satisfied, we’ll start to get a sense of how the Eco is performing against the Safari. If the Eco can gain popularity within the online community, it’s certainly possible that it could start to displace the Safari as one of the main pens recommended for newbies. With enough cash from the initial run, Twsbi has the ability to invest in its infrastructure for the war ahead: product refinements, production capacity, distribution networks, and marketing. That enhances its ability to place its product in stores (both online and brick-and mortar) and in markets where it hasn’t previously had a presence (eg Australia). As the business and sales grow, the company starts to benefit from economies of scale and can lower its price or invest in further refinements to its infrastructure.

At the same time, Lamy is facing the opposite situation: its sales are falling and its costs are rising. Cash is being drained out of the company. At first, this might be a minor problem – Lamy’s products are sold in big-box stores, in department stores, in newsagents and stationery shops around the world, which are safe from the initial Twsbi onslaught – but this activity goes through distributors and central buying teams. Once Twsbi has a decent market share, production capacity, and a respected product, it can start to attack these pinch points: it can go to major chains and pitch them on the benefits of carrying Twsbi’s lower-cost, higher-quality product (you might argue whether this is true but that’s certainly the argument they would make). Once one chain agrees, and the others see that Twsbi can handle that level of volume, it becomes much easier to convince the others: particularly if the Eco outsells the Safari in that kind of environment.

And let’s not forget that this isn’t a contest between Twsbi and Lamy alone. Once Lamy is under threat, the sharks will begin to circle – other brands, aware that Lamy’s business is collapsing and an opportunity exists for them to capture market share. Pilot might make a push to have the Metro replace the Safari at some US retailers, Pelikan at German retailers, and Faber-Castell in the UK. Devouring a whale doesn’t necessarily mean you’re eating alone.

So those are the three key points I really wanted to emphasise: that strategy is about possible scenarios, not certain ones; that our focus ought to be on internal validity; and that there are a lot of discrete stages within strategic execution. I realise that there will still be people who dismiss this entire scenario out of hand; I think it’s probably just human nature. If I were Twsbi, I would be assuming that the folks at Lamy are just as strategically competent as I am; but I’d be hoping – hoping like crazy – that they dismiss this scenario as easily as others have.


*Which you should definitely consider watching, if you enjoy strategy.