Published in the San Diego Union-Tribune, October 9, 2017
Can I borrow a pencil?
No, don’t have a pencil. Will a pen work?
No. Need a pencil.
“Even today in the digital age, the No. 2 pencil remains the required writing implement for students taking standardized tests in the U.S.,” said Ryan Raffaelli, professor at Harvard Business School.
Meet Faber-Castell, one of the biggest pencil companies in the world. While Apple is coming out with the new iPhone X, Faber-Castell is still making pencils — and making lots of money doing it.
The company started in 1761 when Kaspar Faber, a German cabinetmaker by trade, decided to get into making slide rules. His business booms. (When I was in high school, I used a Castell Novo Duplex slide rule). When pocket calculators were developed in the early 1970s, their slide rule business got crushed by Texas Instruments and Hewlett Packard. (I still use the reverse logic HP 12C.)
In the 1850s, a Faber married into the Castell clan and they began to make pencils. You do not normally think of the two words, pencil and innovation, in the same sentence, but you would be wrong. It has been a family business for eight generations and up until his death in 2016, the CEO was Count Anton Wolfgang von Faber-Castell. In the early days, to test the pencils, they would drop them off the 75-foot-high parapet at the top of their family castle. Kind of quaint, but today the company operates 14 factories around the globe and employs 8,000 people. The basic technology underlying a pencil has not changed much, but one barrier to entry is that it takes a lot of money to make pencils. The equipment is complex and expensive.
In the 1980s, the leadership of the company made a key decision. Instead of chasing the calculator business or the CAD drafting and design business, they added a new product — a cosmetic pencil. And in the last decade they started to buy forest land in Brazil, so they can own their wood. (Manage the supply chain).
Nota bene to all men: Women use cosmetic pencils and they need lots of different colors, so they buy lots of pencils.
In addition, there was a barrier to entry in that cosmetic pencils require regulatory approval. And Faber was early to that game, so they got some first mover advantage. Then they decided to make pencils with colored graphite, the kind that artists (like Picasso) used in their drawings.
Most importantly, they stayed with their core mission statement. Whether it was from memories in the classroom (in the little red schoolhouse) or a letter written home to a loved one, they wanted the time you spent with their product to be “time well spent.”
Come on, I know this is corny, but I will bet when you think of the word pencil, you see the six-sided yellow Faber. And as for authors who wrote only with a pencil: try Vladimir Nabokov, Truman Capote, Joyce Carol Oates, John Steinbeck (used up to 60 cedar pencils per day), and Ernest Hemingway.
What interests me in this story is how companies and people react to massive technology shifts. In 2014, our city removed the cap on taxi medallions. The thinking was that lifting the cap would allow drivers to be their own bosses and make more money. That is not how it worked out. Medallions, which used to cost $140,000, are now being given back. The taxi industry (owners and drivers) was so busy fighting among themselves that they did not see Uber and Lyft coming — and essentially eating their lunch.
It is true that some of the regulations imposed on the taxi industry (insurance, location pick-ups, business licenses, etc.) are not equally imposed on the Uber/Lyft companies. But in retrospect, the taxi companies did not identify the real threat — the gig economy — and the use of new technology to improve the customer experience. Only now are they beginning to create a taxi app to compete. (Sure, after Uber and Lyft have raised more than $2 billion).
I love the Faber-Castell story because they created a brand (no real patent protection, it is just a pencil) and they knew what they stood for — (a pencil that worked really well and engendered good feelings).
Rule No. 532: If I were a pencil, what would I write?
Correction from Harvard Business School:
From: Kenny, Brian [mailto:[email protected]]
Sent: Tuesday, October 10, 2017 11:32 AM
To: Neil Senturia
Subject: Faber-Castell article
Hi Neil. I enjoyed your recent article about Faber Castell. I’m glad our podcast caught your attention. In the interest of accuracy/attribution I wanted to ask if you could make a couple of minor changes. The quote that you mention in the opening was actually spoken by me in the introduction to the podcast. Would you consider removing the quotation marks so it would read . . . Even today in the digital age, the No. 2 pencil remains the required writing implement for students taking standardized tests in the U.S..
Then add a line to the end of the second graph as follows . . . Faber-Castell is the subject of a business case and podcast (link to podcast:http://coldcall.libsyn.com/faber-castell-doubles-down-on-the-pencil#DciEbKVTY9HDt7TG.03) by Harvard Business School professor Ryan Raffaelli.