How LEGO Became The Number One Toy Manufacturer Brick By Brick

How LEGO Became The Number One Toy Manufacturer Brick By Brick

When considering the world of toys and entertainment, it is difficult to even construct a sentence without acknowledging one of the world's best toy companies, LEGO.

Featuring the same, iconic brick design that hasn’t changed in 50 years, LEGO is not a toy brand; it depicts the childhood of a major proportion of the world’s children – being constructed, brick by brick.

In fact, it is difficult to find any construction-related toy which is not, or does not relate to, LEGO. The toy has been considered the Toy of the Century, not once, but twice!

Appealing to kids and adults alike, LEGO is one-of-a-kind, and this has paved the way to its tremendous success.

  • DKk43.7 Billion (roughly $9.04 AU Billion) revenue in 2020
  • 678 stores worldwide at the end of 2020, with plans to open an additional 120 stores in 2021
  • 17,534 employees
  • Headquartered in Billund, Denmark
  • 92nd on Forbes list of World's Most Valuable Brands in 2020

Some LEGO fun facts courtesy of National Geographic

  • The world’s tallest LEGO tower is 28.7m high, made from 465,000 bricks!
  • LEGO Minifigures are the world’s largest population, with over 4 billion of them around the world!
  • During the Christmas season, almost 28 LEGO sets are sold each second!
  • Laid end to end, the number of LEGO bricks sold in a year would reach more than five times around the world.
  • On average there are 80 LEGO bricks for every person on earth.

Now, let’s go back 89 years, all the way to 1932, and track the inspiring journey of the #1 Toy Manufacturer in the World.

From Carpentry To The First Wooden Duck

The story begins in the small town of Billund, in Denmark, where a not-so-successful carpenter Ole Kirk Kristiansen was dismissing his last worker and closing down shop due to heavy losses and menial sales.

Having recently lost his wife, the thought of caring for his four sons kept occurring to him, and soon, he developed a new plan for his bread and butter.

Ole makes toys

The carpenter realized that while his workshop had closed down, he still had a great stock of wood leftover.

He immediately set to work, and after a few wooden planks, 3 coats of lacquer, and a creative idea later, Ole had created his first wooden toy in 1932:

A duck.

lego-wooden-duckSource

 The sales begin

While Ole was talented in carpentry and created toys with ease, he soon realized being a salesperson was not his cup of tea. In such times, his son, Godtfred, stepped up to the challenge and began helping his father in the endeavor.

A big break for the Kristiansens came when a wholesaler from Fredericia, a nearby town, ventured into Ole’s shop and placed a big order for toys.

While the father and son rejoiced in happiness and set to work, their grins turned upside down when the same wholesaler filed for bankruptcy a while later. This meant the Kristiansens were left with a major stock of toys, and no one to sell them to.

The family took it upon themselves to make a sale and wandered shop to shop, home to home in Billund.

Sometimes they received money; on other days, they agreed to barter the toys for food and other necessary perishables.

Play Well

Ole saw potential in the business idea. Be it Christmas or otherwise, it seemed parents were willing to do all it takes to see their children happy, and this meant the purchase of toys was nearly guaranteed.

He thought it was finally time to give the toys a name. After a little thought, in 1934, he figured something as simple as “Play Well” would suffice.

In Danish, “Leg Godt”. Or what we hear today – LEGO.

What Ole did not know, however, was that Leg Godt in Latin meant “I put together”, which would become the unique selling point of this range of toys in the not-very-near future.

Key takeaway 1: acknowledge what you have

Ole did not have much money to start a business. 

But he did have two things:

  1. Carpentry Skills
  2. Leftover Wood

Utilizing the available resources proved key in launching a business even he could not have foreseen to become a behemoth in the worldwide toy industry. This makes us realize that no matter how grim the circumstances get, if we have the desire to succeed, and if we remain open to potential opportunities, there’s no stopping us.

Fire & Ideas

Wooden toys gained momentum for Leg Godt, but the sales weren’t nearly enough to cover costs. Godtfred suggested 2 layers of lacquer instead of 3 for toys, but Ole remained steadfast on his belief:

Only the best is good enough.

This eventually became the slogan of LEGO and continues to be the core foundation for every toy created.

The end of 1930s & beginning of 1942

As LEGO continued its streak of producing high-quality toys, the turnover finally became sufficient to generate profits for the Kristiansen family.

Unfortunately, while wood, toys, and the children of Billund were on their side, luck wasn’t.

The workshop caught fire on 20th March 1942, and everything – every single toy, model, and drawing – burned to a crisp.

One would assume that after enduring such heavy losses, Ole would begin smaller or perhaps switch industries. But that was not the case.

Persistence proved to be the key in the LEGO story. Ole received many offers to build the factory elsewhere, but he could not bear to leave Billund, and his 26 local employees hanging.

While the fire was a setback, Ole knew in his heart that this wasn’t the end for LEGO, and so he began to rebuild his dynasty from scratch.

New beginnings

Proving the perfect example of Go Big or Go Home, a new, modern plan for a bigger factory was laid, and the factory opened its doors in 1943.

lego-factory-1943

Unfortunately, with World War II raging across the globe, it was becoming increasingly difficult to source high-quality beechwood to continue the manufacture of wooden toys.

Whether this was a sign that LEGO’s main interests lay elsewhere or mere coincidence, it seemed fate was on their side now.

In 1946, Ole attended a demonstration of a plastic injection-molding machine in Copenhagen and was immediately intrigued by the idea. He placed an order, and the machine reached LEGO headquarters in late 1947.

Little did Ole know, this machine was to be the turning point for LEGO.

The forerunner to the LEGO Bricks arrives

Plastic toy creation, alongside wooden operations, began to pick up pace. However, Ole’s mind continued to drift to the little plastic cubes presented to him by a British manufacturer.

Seeing great potential in them, he consulted with his sons, who remained stringent on strictly wooden toys. According to them, plastic toys may be cute, but the wood was stronger and durable.

Ole stuck to his instinct, and decided to take a leap of faith, creating the Automatic Binding Bricks in 1949. While the bricks were successful, it was the Ferguson Tractor of 1951 that put LEGO at the top.

lego-ferguson-tractor

Seeing the success of plastic, Godtfred joined the initiative and decided to take it to the next level. In 1953, the name Automatic Building Bricks was taken away and replaced with what we see today – LEGO bricks.

The climb of the LEGO business to the top had begun.

Key takeaway 2: do not give up

When hardship befalls, giving up seems an easy choice, but it is not always the right one.

Whether it was a fire that brought Ole’s factory to the ground or the fact that his sons were not on board with his ideas to venture into plastic toys, Ole’s passion continues to run ablaze. 

His journey of rebuilding the factory from scratch and investing in plastics may have seemed a distinct choice at the time (foolish, some would say), but his dedication, faith, and drive to succeed took him to the top.

We Need A System

LEGO’s business was thriving by the 1950s. But they hadn’t quite reached the level where they would be recognized simply by their products.

At this point, LEGO needed to do something different; something that would not only appeal to children but also invoke their creativity which Godfred termed as the “driving force in every human being.”

In this bid, LEGO and Godtfred managed to transform their products, but in the process, they revolutionized the world of children’s toys.

How? They introduced a system to the play!

When the idea clicked

When we talk about kid's toys, do we talk about systems? Well, maybe we do see a system in digital or board games where there’s a motive, goal, or reward to achieve at the end.

But LEGO has nothing to do with that. In the 1940s and 1950s, they’re only producing wooden and plastic toys that seemingly served no superior purpose than mere children’s enjoyment.

Godtfred realized this when he met Troels Peterson in a toy exhibition in Britain in 1954. Peterson was Magasin du Nord’s newly appointed manager of the toy department, and he had some very powerful words to say, but even he wouldn’t have known the impact they would have:

“What an industry this is – no system of any kind whatsoever!”

After hearing this, only one thought was racing through Godtfred’s mind - we need a system!

lego-systemSource

Developing the LEGO System in play

Ole and Godtfred had innovated and adapted from the very start of their business, taking up sales themselves or venturing into plastic products.

However, what Godtfred now planned to do wasn’t the usual marketing mix sort of decision. They were talking about laying out a completely new path for the industry.

No one had done this before.

So, the question was: where to start?

As soon as Godtfred came back from the exhibition he set out on analyzing and assessing each and every one of the company’s 200+ plastic and wood products.

What stood out were the apparently ordinary LEGO bricks. So, it wasn’t their appearance the drew Godtfred. Instead, it was the countless ways children could use those bricks by tapping into their imaginations and creating a unique and extraordinary structure.

This was the very foundation of the LEGO System in Play. Here it is explained in Godtfred’s words:

“The LEGO System means that: all elements fit together, can be used in multiple ways, can be built together. This means that bricks bought years ago will fit perfectly with bricks bought in the future… It means that a LEGO element not only has instant value, but will keep its value always… We will always make sure that all bricks – from yesterday, today and tomorrow – fit together.”

To implement this system, LEGO laid out six simple principles for retailers to stick to. Summarized, they are the following:

  1. The toy has to have compact dimensions but most not limit creativity
  2. It should be reasonably priced
  3. Simple, durable, but available in variety
  4. For boys and girls of all ages
  5. Classic presentation
  6. Easily distributed

The system becomes the core of operations

The first introduction of the “LEGO System in Play” to the public came in 1955 with Town Plan no. 1 - designed to allow children to create their own urban environment.

Although the system was fairly simple, it was way ahead of its time. Therefore, the sales and promotional strategy that LEGO employed was also one-of-a-kind at the time.

It included the town plan as a promotional tool, sales arguments, and even a prize competition to attract children.

The marketing strategy and the immense potential in the system itself meant it did not take long for it to take off. Soon it was driving LEGO’s sales and became the central product of the company.

Making the system “Stick”

The opportunity to explore their creative skills and make structures by themselves made LEGO bricks an instant hit. But everything still wasn’t quite perfect.

Whatever the children constructed was fragile and unstable as the bricks were hollow from the inside. This meant that the structure would fall apart with the slightest touch or movement.

Now, Godtfred and the design team were back to their drawing boards trying to figure out a way to make the bricks stick together.

It took the team intensive two-year research to come up with the best way to form a clutching mechanism for the bricks.

Hence, in 1958, they introduced the stud and tube and principle of interlocking - a system so sophisticated that six 2x4 bricks could be combined in 915,103,765 different ways.

lego-brick-diagramSource

LEGO knew this was a breakthrough that would prove useful for numerous products, and it had to be protected. Therefore, it was submitted for a patent under the guise of “a toy building element.”

This stud and tube brick is the very same LEGO brick that millions of children around the world play with and are inspired by to this day.

Key takeaway 3: systems inspires creativity

Before the LEGO System In Play was launched, the company had no purposeful direction in its production. Resultantly, they were just like any other toy manufacturer.

The change in approach not only inspired the company to focus on innovation, but it also provided children - its target audience - with more fun, learning, and expression opportunities.

Godtfred & The System Move Forward

LEGO bricks meant a new age for the toy company - one that would lead them to near-impossible heights. This also meant a change in the leadership of the firm.

Of course, Godtfred had been at the helm of affairs driving the success of the LEGO System in Play, but with Ole’s passing in 1958, he assumed full control.

From here on, LEGO set out on a path of expansion all over the world, along with rolling out enhanced upgrades of its products and targeting a much wider audience.

But before all that, another fire tragedy struck, which proved to be a blessing in disguise.

The end of wooden toys

Godtfred’s main efforts after becoming the Managing Director of LEGO were to expand the System In Play and explore the possibilities with their stud and tube bricks.

In the background, LEGO’s production of wooden toys was already facing several challenges. Lifting of European trade barriers and improving global ties meant more and more manufacturers were stepping into this industry. This even included competition from American and Japanese companies.

Although LEGO was a well-established brand in Denmark it’s labor-intensive production costs simply could not compete with the influx of foreign and local firms.

Then, an unfortunate incident took place on 4 February 1960. A devastating fire broke out in their Billund warehouse and burned down the company’s entire stock of wooden toys. This was the second major fire in LEGO’s history and the fourth that the family had.

Now, Godtfred was left with a huge decision to make. Either to recoup the losses and start wooden toys production from scratch. Or grab the opportunity and divert all his resources in his vision of System in Play.

Unsurprisingly, he went with the latter and decided the company would now put all eggs-in-one basket, and excel in plastic brick production.

The company that had started from the wooden duck and had reluctantly embraced plastic toys, was giving up wooden production altogether. Of course, there was going to be resistance - and it was strong.

In 1961, Godtfred’s brothers, Karl and Gerhandt, who were technical directors of plastic and wooden production, respectively, both resigned.

However, after buying out their interests in the company, Godtfred only cemented his stronghold of the company further.

LEGOLAND Family Park: model building takes off

The stud and tube brick made it possible to construct almost any model structure and Godtfred’s cousin, Dagny Holm took it to the next level.

His developed models became so popular that by the 1960s, the LEGO factory in Billund was entertaining flocks of retailers, schoolchildren, and associations – a number estimated to be around 20,000.

LEGO-Showroom

This prompted Godtfred to push chief designer Arnold Boutrup into establishing a whole amusement park entirely based on LEGO products - LEGOLAND - in 1968.

It proved to be a major success, attracting around 625,000 visitors in its first season.

Enhancing the System In Play

Following the popularity of System In Play, sales were soaring for LEGO around the world.

By 1967, it was selling 18 to 19 million sets and was operating in over 42 countries, with production plants in the US and Norway too.

From there on, LEGO continued to dole out more enhancements in its system, such as the Duplo for little children and the wheel.

In the 1970s, it brought Technic, a challenging version of the system to target older children.

In 1973, the LEGO logo was given a facelift to further enhance the brand’s appeal.

lego-logo-old

In 1978, Kjeld Kirk Kristiansen, Godtfret’s son, launched the “System within the System” that aimed at offering children the right products for the right ages.

Not long after, he also took charge of the company and brought in renewed sense to inspire children.

Uptil the 1990s, the system was booming, and so was LEGO - becoming one of the top 10 toy manufacturers in the world.

Key takeaway 4: strong leadership drives growth

Reluctance is the natural reaction to change, but it is leaders that take organizations successfully through this phase. Godfredt didn’t let his brothers’ opposition hinder him from shutting down wood production, and it proved to be a master-stroke.

Moreover, when Godfredt’s son took over, his ideas and energy allowed the company to continue on the trajectory set by Godfredt and grow consistently.

The 2003 Bankruptcy

Given LEGO’s history, the company had been under fire for many decades (quite literally).

But it wasn’t until the initial 2000s that it actually came close to going under. From being a company that hadn’t made a loss since its initiation to 1998, by 2003, LEGO was $800 million in debt.

Sales were down by a whopping 40%, and it seemed that perhaps, the might of LEGO had neared saturation point.

Competition threatens

LEGO was known for its DIY nature of toys. The bricks were simple, real, and had to be played with by hand.

Yet, as the digital age took over, it seemed children’s likes changed, and instead of LEGO finding a way to remain on top, toy companies like Hasbro and Mattel took over.

This was when it all went wrong.

Rather than staying at what LEGO does best, it began to expand into unexplored waters, and it wouldn’t be wrong to say that it got lost on the way.

Wrong decisions under pressure

The LEGO consultants stressed upon following suit of Mattel and diversifying their portfolio. They stated that the signature LEGO brick had become obsolete, and it was time to step up the game with unique products.

What followed included:

  • LEGO clothes
  • Jewelry for girls
  • Theme parks
  • New toy lines

Unfortunately, the decisions were not aligned with the demands of the time; and as any businessman would know, what does not fulfill customer demands does not sell.

As a result, the theme parks that cost £125 million to build incurred a 20% loss in the first year – amounting to £25 million

LEGO clothes and jewelry simply did not have the same charm, and the new toy lines especially were a massive failure.

Fiber Optic Multi Set: A technical toy with as many as 404 parts, the Fiber Optic Multi Set did sell, but did not generate profits.

How, you might wonder? This was because the specialized parts in this set cost more to produce than the retail price they were being sold at. Thereafter, a loss should not come as a surprise - should it?

lego-technicSource

Scala: A doll line from the ‘80s that had been discontinued due to its very minute relation to the LEGO brick, the Scala set made a comeback in the late ‘90s. But, as it was soon realized, the decision proved wrong, and the line was again discontinued in 2001.

Galidor: As if LEGO required another product line to take it further under, Galidor might have seemed like an invention for prevalent demands, but it simply did not make the cut.

Based on a popular children’s show of the time, the characters had interchangeable arms, which did nothing more than confuse kids with a product that did not establish even a remote connection with LEGO. Unsurprisingly, the product line began and ended in 2002.

Inefficient human resources

As Jack Welch, former CEO and Chairman of General Electric, once said,

“No company, small or large, can win over the long run without energized employees who believe in the mission and understand how to achieve it”.  

Unfortunately, the array of bad decisions for LEGO in the 2000s also reached its workforce.

The designers who had created some of the most successful toys of the late ‘80s were dismissed and replaced with supposed 30 creative thinkers who were to change the strides of LEGO and take it to the top. These individuals were some of the top graduates from Europe’s best design colleges.

Unfortunately, however, they knew very little about toys.

Their lack of knowledge about LEGO and its building blocks meant that the number of parts doubled from 6000 to over 12,000, becoming a nightmare for current storage, infrastructure, and logistical facilities to handle.

As the need arose to expand facilities, it came with a multitude of fixed expenses and less-to-no increase in turnover - all in all, becoming a loss-making decision for LEGO.

Consequently, 2003 was the year when a myriad of recent bad decisions combined together to produce devastating results for LEGO.

Sales were down by 26% and the company went into a pre-tax loss of 1,432 million Danish kroner, as compared to a pre-tax profit the previous year of 626 million.

lego-net-sales-2003-graph-1Source

Fortunately, there was one man who would change the tide for LEGO and become its savior - Vig Knudstorp.

Key takeaway 5: don't lose sight of what makes you special

Nothing is ever constant. Time will change, trends will evolve, and newer things will continue to enter life. Such as the competitors of LEGO, with a fairly ‘modern’ take on toys. However, it is important to know your business and its unique selling proposition and stay true to it even when faced with difficult circumstances.

LEGO’s near-failure was the inability to remain steadfast on what makes them special - the LEGO brick - and this cost them a few years and millions in losses. As soon as they gripped their expertise in the future, things began to look up.

Vig Knudstorp’s Brick By Brick Rescue 

In the state LEGO was in after the bankruptcy, many businesses would have closed their doors for good.

However, from the very beginning of LEGO, one thing was clear: this company never gave up when the going got tough.

So, whether by fate or by the sheer resilience ingrained in the firm’s values, it was able to rise from the ashes with such prowess that it reclaimed its throne as the world’s leading toy company in a matter of few years.

The man behind the turnover, Vig Knudstorp, did not belong to the Kristiansen family, but in more ways than one, he was able to reconnect LEGO to its roots – the very connection the company had lost in their bid to expand, and resultantly, caused their downfall.

An unlikely hero

Heroes emerging in crisis seem to be a constant recurrence in LEGO’s journey.

During the bankruptcy, the hero who put out the fire was one who had only been associated with the company for three years.

Formerly, a management consultant at McKinsey & Company, Vig Knudstorp, became LEGO CEO at only 36 years of age. Immediately, he diagnosed that LEGO had strayed too far from the brick and had to return to its core strengths.

Thereafter, he pursued a rigorous restructuring strategy wherein the number of different pieces that LEGO manufactured was brought down from around 13000 to 6500.

Another significant move was the acquisition of the company’s LEGOLAND parks by British company Merlin Entertainments.

Now, LEGO was back to the brick.

Connecting with the target audience

Innovation and diversification are vital to the success of any business. However, they should always keep the target market’s best interest in mind when developing their strategies.

Unfortunately, LEGO failed to cater to its true audience and forayed into markets unknown. Knudstorp knew if the company was to innovate, it had to begin by understanding its customers.

For this purpose, LEGO launched various campaigns, such as the largest ethnographic study to assess what the children of today were actually interested in.

It was extensive interaction with children where employees even referred to it as “camping with consumers.” It didn’t just involve asking questions to kids.

The LEGO staff observed kids in action with their toys and how they interacted with other children.

As a result, LEGO understood that kids still enjoyed constructing their own structures and that this physical experience would survive screens. Simultaneously, if they were to explore the digital arena, LEGO bricks had to be a part of it.

Embracing the digital world - with a LEGO twist

Thereon, LEGO’s products refocused on classic themes, such as Harry Potter, Star Wars, Legos, and Duplos. Moreover, the company entered into the digital market with video games and action-figure movies that were engaging to its audience.

That wasn’t all, though. Entire generations had grown up playing with LEGO bricks that had stimulated their interests. They could still be roped back in.

From fan conventions such as Brickworld to crowdsourcing competitions, encouraged the adult LEGO lover to share their enthusiasm and ideas.

Building an efficient supply & retail system

During its expansion and diversification age, LEGO didn’t pay much attention to cutting down production costs, stabilizing prices, or improving inventory and distribution.

Now, it applied a more systemic strategy: stick to a small number of suppliers and focus on large retailers. This way, they reduced wastage in production, and costly distribution was avoided.

The world of LEGO

Every day, 125 million pieces of LEGO are manufactured. This brings the total mini LEGO figurine count to more than 4 billion – that’s almost half the world!

Ever since LEGO adopted the brick by brick motto, they haven’t looked back. In fact, they’ve created an entire world that revolves around brick.

To give you an idea, LEGO movies where all characters and settings are based on its brick figurines and constructions rate among the top movies.

The LEGO Movie released in 2014 received a 96% approval rating on Rotten Tomatoes. It’s sequel, The LEGO Batman Movie, performed so well, many people actually prefer it over the live action Batman movies.

Furthermore, LEGO has even made its way to workplaces, such as Google, where LEGO bricks help bolster creativity in employees

More recently, the company is also trying to extend its image of inclusiveness and progressiveness.

A significant step in doing so is the introduction of Braille Bricks that help visually impaired children learn Braille in a fun way.

Braille-legoSource

After, LEGO, learning and creativity are for everyone.

Key takeaway 6: customers are the key

For any business, its greatest asset is its customers base and that is where its research and innovations should focus on.

LEGO customers were still fans of the brick and that’s also where the company’s strengths lie. Hence, innovating in their own domain gave them a superior edge that allowed them to turn their fortunes around.

From Rags to Riches - The Toy Of The Century

Fires, bankruptcies, and countless setbacks; despite everything LEGO faced, it persevered and pulled through.

Especially its comeback in 2003, where almost everyone had written them off, is truly the “greatest turnaround in corporate history.”

Not only is it an exemplary model for toy companies around the world, but global giants, such as Sony, Adidas, and Boeing, consider the book Brick by Brick: How LEGO Rewrote the Rules of Innovation a vital part of their training.

The journey up

As a company that dates back as far as 1949, the journey of LEGO has been nothing short of a rollercoaster.

Beginning in Billund, Denmark, no one could have foreseen that the dreams of a small carpenter who barely made ends meet would grow to become a frontrunner in the toy industry of the world, garnering yearly revenues as high as €5.87 billion – that too, amid a pandemic.

lego-revenue-graphSource

How LEGO became the toy of the century – key strategic takeaways

  • A Setback Is Just Another Opportunity To Improve

Had Ole Kirk Christiansen given up when he had to shut down his shop or when the fire burned down his inventory for the first time, we never would have heard of LEGO.

Instead, Ole chose to leverage his carpentry skills, brought on his sons, and decided to start afresh. This was the mindset LEGO was to follow whenever they were in a spot of bother or when even survival looked bleak. As a result, they’ve not only sustained for almost a century but have come out on top - always.

  • Realize Your Strengths

When the idea of introducing a system was running through Gotdfred’s mind, his initial instinct was to review all his products and determine what stood out.

After he realized that LEGO bricks had the most potential, he focused maximum resources in developing the System In Play and transforming his company through it.

Returning back to their strengths was also the main reason LEGO came out of bankruptcy and emerged as an even more powerful company.

  • Innovate & Adapt But Keep Target Market In Mind

As LEGO broadened its horizons, it ventured into clothing and parks - it was innovating but it wasn’t focusing on what its customers wanted. Hence, many of its ambitious products had to be shut down.

To recover from this position, it boosted its customer engagement and curated products that its target market - be it boys or girls, children or adults - actually wanted.

The LEGO story is one of dedication, passion, the desire for quality, and the idea that toys are much more than mere items to play with.

They are a source of creativity, learning, puzzle-solving, and growth.

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