dinosh

It’s 2003, and LEGO is virtually out of cash. Sales are down 30%. The company is losing $300 million a year, and sitting on a massive $800 million of debt. Filing for bankruptcy is a matter of when, not if. That was until this man entered the fray. Without him I probably wouldn’t be building a mancave of lego sets ranging from the Taj Mahal to a functional typewriter. And LEGO as we know it, would not exist. This is the story of Lego’s revival (& 3 lessons every entrepreneur can learn). Considered by many to be the greatest turnaround in corporate history. PRESENT DOMINANCE This chart says it all. Lego is the top-ranking toy brand in the world by a mile. It’s bigger than Barbie, Nerf, Hotwheels, Hasbro and the creator of PacMan combined. But it wasn’t always that way. HUMBLE BEGINNINGS Lego’s founding story was incredible foreshadowing for a 90-year bumpy journey. Time for a quick trip to Billund, a quaint town smack dab in the middle of Denmark. This is Ole Kirk Kristiansen, a Danish carpenter and the founder of Lego. When the US stock market crashed in 1929, it put the entire world into a depression. Kristiansen’s carpentry business was absolutely crushed. His primary customers were farmers and had been hit especially hard due to US & UK import restrictions. During the downturn, Kristiansen was forced to lay off most of his staff. And by 1931, he let his last employee go. THE PIVOT Inspired by an advice column in a Danish magazine, Kristiansen pivoted and started making wooden toys. His friends & family weren’t buying it. They point blank asked him: “Can’t you find something more useful to do?” If losing your business isn’t bad enough, Ole Kirk then had to mourn the loss of his wife Kirstine. At this point he’s not only a struggling, solo entrepreneur — but also, a single parent to four children. Somehow, in the face of relentless setbacks, LEGO as we know it started to take form. In 1942 a factory fire nearly killed his business - but Kristiansen rebuilt the factory bigger and better than ever. THE ASCENT On January 28, 1958, LEGO filed the first patent for this: a now iconic 2x4 brick. This little block laid the foundation for 3 decades of incredible growth. Why? FOCUS. LEGO acknowledged it caught lightning in a bottle & focused all of its energy on expanding its distribution instead of expanding its products. Besides launching the OG Legoland in 1968, LEGO focused on getting its simple interlocking bricks in the hands of every child around the world. THE FALL FROM GREATNESS Despite having success during the 60s and much of the 70s, LEGO lost its precious patent in 1978. All of a sudden anyone could start manufacturing the brick and that’s exactly what companies did. By 1984, Tyco Toys began producing very similar bricks to Lego at a fraction of the price, eating away at the US market. So put yourself in LEGO's shoes. Sales are slowing. Competitors are eating your lunch. You’re fighting video games for kids’ attention. And there’s no end in sight. What do you do? If your answer is to try expanding your products, well that’s exactly what LEGO did. And it completely screwed them. The company opened 3 new Legoland parks in the UK, San Diego, Germany. The company stopped focusing on the brick and started focusing on digital entertainment, including video games and its own production company. Lego sets with electronic components were launched. Action figures launched – fashion lines, jewelry, baby products – the brand was diluted, and the result was a shitshow. By 2003, the company was virtually out of cash. Sales were down around 30%, the company was losing $300 million a year, and it was sitting on $800 million of debt. LEGO was desperate for a new plan. THE SAVIOR In 2001, Jørgen Vig Knudstorp, a 36-year-old former McKinsey consultant, came to the rescue. His strategy was simple. Cut LEGO to its core & rebuild, brick by brick. He cut thousands of jobs, stopped making unprofitable sets, got rid of video games and sold off Legoland parks. And thanks to Jorgen’s leadership, which has been called... “In some ways [..] a better model for innovation than Steve Jobs,” LEGO has never been in a stronger position. Sales hit $64.6bn Danish Krone or $9.3bn USD in 2022, which is 10x 2004 revenue when the company hit rock bottom. And LEGO was named the most powerful brand in 2015, moving ahead of Ferrari. But Knudstorp didn't just cut the fat. He had a vision and the success that followed can be attributed to these three strategies. THREE BUSINESS LESSONS First, LEGO has done an amazing job of building alongside its customers. In 2014, the company launched LEGO Ideas. The community platform allows anyone to submit a Lego set idea and if it attracts 10,000 supporters & gets approved for production, it becomes an actual set sold to customers. LEGO gets to source free ideas from its customers & you get social cred as well as 1% of the product's net sales. So far LEGO Ideas has attracted 3 million members & over forty thousand ideas with 50 fan sets being produced. Second LEGO has grown its business via product penetration vs. portfolio diversification. The 2x4 block remains at the center of its universe, and every new offering doubles down on the core product. It reminds me of the famous 1957 Walt Disney drawing showing that every part of Disney centers around its core characters. Every spinoff, from movies to shows to games is centered around this tiny block and its capacity for inspiring creativity. The 2014 LEGO movie made $470 million at the box office and earned a 96% on Rotten Tomatoes. LEGO Masters, the FOX competition show now in Season 3. There are now 904 branded LEGO stores around the world. It also boosted sales by expanding its audience, with the adult market quadrupling over the last decade and introducing 162 sets focused on the 18+ market. I think i’m personally responsible for 50% of that sales growth. TLDR: find ways to go deeper with products that work versus trying to prove that you’re more than a one-trick pony. Being a one-trick pony is totally fine. Look at Google! And the third & final lesson… LEGO crushed licensing partnerships. One of LEGO's best marketing strategies is latching onto passionate audiences through licensing deals with proven movie and game franchises. Just go to Lego’s best sellers on its site, and you’ll see sets ranging from Bowser to Hogwarts to Optimus Prime to The Office. Now imagine that you’re a Harry Potter nerd but have never built a LEGO set & you walk into Target only to see that you can build Hogwarts. There’s no better way to convert you to trying LEGO than doing so in a way that respects an existing passion. TLDR: a proven marketing strategy is something I call the hub-and-spoke model, where you latch onto hubs, which are channels that give you access to lots of the right customers. IN CONCLUSION From the factory fires during Ole Kirk’s tenure to the massive debt burden and near-bank bankruptcy almost two decades ago, LEGO’s back has been up against the wall several times in its 90-year history. But thanks to great leaders like Vig Knudstorp & a maniacal focus on customers & the core product that made LEGO LEGO, the brand is flying higher than ever before.