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Friday, July 6, 2018

Brick by Brick: How Lego Became the Largest Toy Company in a Digital Era

“Only the best is good enough.”

Behind every great idea is an even greater backstory. As an admirer of the craft of entrepreneurship, it has become a hobby of mine to learn as much as I can about the products and ideas that beat out the competition to secure their place in history. But it isn’t enough to simply learn the names and dates associated with these ideas; I want to know what it is that sets a select few companies apart from the rest.

Whether I am digging into the histories of companies like Halo Top Creamery or Airbnb, I have observed that each successful idea has three common elements woven throughout its story: specialization, innovation, and an emphasis on storytelling. It came as no surprise to me, then, that the Lego Group is no exception to this rule.

The fact that a product as simple as the Lego Brick has managed to stay relevant in an increasingly digital world is truly spectacular. But this success did not come without its fair share of struggles. In fact, at several points over the last two decades, Lego has found itself facing financial ruin. But in spite of its struggles, the Lego Group has managed to become the largest toy company in the entire world.

The Story of Lego

The little town of Billund, Denmark is known for beer, pigs, and Lego. For it was in this tiny, rural town that the Lego company first came into being. Ole Kirk Christiansen was a carpenter who supplied Billund with all its woodworking needs. Prior to the 1930s, Christiansen was known for building houses and other large projects. But when the Great Depression caused the global economy to tank, demand for large-scale projects diminished.

The fact that a product as simple as the Lego Brick has managed to stay relevant in an increasingly digital world is truly spectacular.

Christiansen knew he needed to adapt in order to continue earning a living and supporting his family. So to save on costs and create products that consumers could actually afford, he began making smaller wooden products. From ironing boards to chairs, he experimented with different types of woodworks until he eventually decided to focus on the creation of children’s toys.

There was something about making toys that brought Christiansen great joy. His wife had recently passed away and being able to craft toys for his four boys was a great coping mechanism. He also happened to be very good at it. After recognizing what his strengths were, he abandoned all other projects and focuses solely on the manufacturing of toys, a perfect example of specialization.

But skills aside, he still needed a good brand name if he was going to appeal to children.

In Danish, Leg Godt means “play well.” And by taking the first two letters of each word, “Lego” was born. And even though the Great Depression had put a damper on the purchase of many consumer goods, the European toy market was thriving. Or at least it was, until World War II began.

Since toys were commonly made of metal in those days, and metal was now needed to create tools of war, many traditional European toy companies took a hit. But since Lego toys were made of wood, and not metal, it was still able to make children smile even during such a tumultuous time. Over time, as plastic became more widely adopted, the company moved away from wooden toys and instead invented the Lego Brick that we are so familiar with today.

Perfection and Specialization

Hanging in Ole Christiansen’s original woodshop was a sign that read, “Only the best is good enough.” And this was entirely appropriate given Lego’s dedication to excellence. Even the invention of the famous Lego Brick took years of trial and error before eventually taking on the shape they still bear today.

The introduction of the perfected Lego Brick was so successful, the company finally abandoned its production of wooden toys altogether.

The first plastic Lego bricks did not have any mechanism by which to secure each brick to each other. This meant that many children were building grand designs only to have them fall over and collapse before completion. It wasn’t until 1958 that Lego added the tubing, allowing for more stable construction. And while there were other building bricks on the market at the time, Lego was the first to create a solution to the problem of “hollow” bricks not sticking to each other, a feat that took several years and many different models before finally finding something that met its perfectionist standards. In fact, this Lego Brick was so perfectly designed, there has been no need to alter it since its inception.

The introduction of the perfected Lego Brick was so successful, the company finally abandoned its production of wooden toys altogether. Focusing on sets that let children build their own cities, the Lego Group succeeded in helping children create worlds that allowed them to be the storytellers. And it was this decision to focus on what it was good at that ultimately led Lego to global success. In fact, time and again Lego found that when it tried to branch out too far into other areas it lost money. And while risk-taking is an essential element of good entrepreneurship, Lego also learned that specialization was the key to its success.

A Changing World

But the world was starting to change. In the late 90s, video games were dominating the toy market, and Lego began to panic that it could not compete in this new tech-savvy world. This led to a series of disastrous new product ideas that cost the company money and reputation and ultimately led Lego to realize that the company performs best when it sticks to its strengths.

Veering from the bricks that helped the company make a name for itself, they decided to launch a cartoon named Jack Stone, which, unfortunately, nobody watched. Then, Lego released a live action, futuristic series called Galidor: Defenders of the Outer Dimension. This show also tanked and cost the company millions. In hindsight, Lego has conceded that these projects failed because the storytelling fell short. Not only were these shows trying too hard to be modern, they also lacked a plot that was relatable to kids, especially those who had watched the show hoping to see elements of the Lego brand.

Desperate for something new, it tried to make Legos that catered to girls. But instead of using the Lego Bricks as the foundation for this new line, it created an entirely new system that did not appeal to Lego fans. Girls didn’t want a whole new product, they wanted regular Legos that could be adapted to their interests, and thus, allowed them to tell stories in their own way.

This unfortunate trend of missing the mark continued for a long period of time as Lego couldn’t seem to land an idea. Eventually, the company found itself facing utter ruin.

Understanding Demand

While many people assume that Lego made bank from partnerships with the Harry Potter and Star Wars franchises, there is more to the story. Lego had not properly understood the consumer demand. The first year it produced Star Wars-themed Lego sets coincided with the release of a new film. Demand for the new Star Wars sets was off the charts, but Lego had underestimated the market and had not produced enough toys to keep up with consumers. Within weeks, the products completely sold out.  

The next year, Lego got it wrong again by producing too many Lego-themed toys during a year that no new film was to be released. They had relied on the branding alone not realizing that children are inspired by the media they consume. They were engulfed in the storytelling which made them want the toys even more. But without a new Star Wars film to excite kids, the company ended up with too many toys, which in turn resulted in huge losses.

The same thing happened with Harry Potter. Lego, excited over its initial Harry Potter set success, had chosen to produce more in a year that no new movie was being released. In fact, Lego almost went bankrupt as a result. So desperate was the company’s financial state, representatives actually approached the competing Mattel toy company and asked if they would be interested in purchasing Lego. When it declined, Lego was forced to sell Legoland.

Since its inception, Lego has always been run by a member of the Christiansen family. But after several years of disappointing returns, it had to give control of the company to someone outside of the bloodline. And it was this difficult decision that helped save the company.

With a new boss at the helm of the Lego ship, drastic cuts were made and Lego was forced to go back to the basic building bricks that had originally made it successful.

Awesome Storytelling

In the early 2000s, Lego’s future was still uncertain. At this point, it had been struggling for almost ten years and was hemorrhaging money.

Looking for an edge, the company sought help from a man with an inoperable brain tumor and limited time left on earth. Utilizing his own fight with cancer, Christian Fabor used the disease for inspiration. Lego Bionicles told the story of robots fighting off a dark presence called the Makuta, an entity modeled after his cancer. Faber used this premise to create an entire world that children could get lost in. Lego Bionicles then became the basis for a profitable children’s series. And because of this ability to use storytelling to resonate with children, the company began to see positive changes in 2004. This was one of the few exceptions when branching away from the brick paid off for Lego.

Building on this success, Lego then released “Ninjago” a show that mixed classic Lego Brick characters with a ninja theme. The kids went crazy for it, which laid the groundwork for something even bigger in 2014.

In the years after Lego Bionicles had saved the company, Lego again returned to what it does best. Realizing how much consumers loved the classic Lego look, the company created The Lego Movie. Today’s readers do not need to be reminded of this movie’s success, as many of us recall being subjected to the “Everything is Awesome” theme song repeatedly for an entire year.

While it took a long time to get there, Lego Group is now officially the largest toy company in the entire world

After the Lego Movie’s success, the company was feeling confident and once again took a shot at marketing its products to girls. This time, instead of trying to reinvent the wheel, Lego utilized its existing models to create a product for young girls, “Lego Friends,” that was as exciting as its original products.

From there, it ventured back to the ideas that had originally led to its success by producing sets that let children create and build their own cities. It would seem that even in a digital world, putting children in the driver’s seat of their own creativity was still the recipe for success.

While it took a long time to get there, Lego Group is now officially the largest toy company in the entire world. According to Fast Company, “In the last 10 years, Lego has grown into nothing less than the Apple of toys: a profit-generating, design-driven miracle built around premium, intuitive, highly covetable hardware that fans can’t get enough of.”

So next time you find yourself stepping on a stray Lego left on the floor, pause before getting angry, and think about the journey that little brick has gone through to get from Billund, Denmark to the floor of our American homes. By constantly striving for excellence, utilizing specialization, and becoming creative storytellers, Lego has proven itself relevant in the digital era.  

  • Brittany is a writer for the Pacific Legal Foundation. She is a co-host of “The Way The World Works,” a Tuttle Twins podcast for families.