How LEGO Survived Almost Certain Destruction

Summary

In 2003, Lego faced bankruptcy with a 30% drop in sales and an $800 million debt. Enter Jørgen Vig Knudstorp, who led a remarkable turnaround by cutting costs, focusing on core products, and innovating with customer engagement. Lego's resurgence included strategies like Lego Ideas, product penetration, and strategic licensing partnerships. Today, Lego stands as a top toy brand, with sales ten times higher than its lowest point, showcasing a successful corporate revival.

Takeaways

• 📉 In 2003, Lego was on the brink of bankruptcy with sales down 30% and a loss of $300 million a year.
• 🏭 Lego was founded by Ole Kirk Christiansen in 1932 as a carpentry business, pivoting to wooden toys during the Great Depression.
• 🔥 A factory fire in 1942 nearly destroyed Lego, but it was rebuilt with community support.
• 💡 Lego's iconic two by four brick was patented on January 28th, 1958, marking the start of its growth.
• 🌟 Lego's success in the 1960s and 1970s was due to its focus on expanding distribution rather than diversifying its product line.
• 🚀 The loss of Lego's patent in 1978 led to an influx of competitors, challenging Lego's dominance in the market.
• 💸 In response to declining sales, Lego diversified into areas like theme parks, video games, and various product lines, which diluted the brand.
• 🛠️ Jørgen Vig Knudstorp's strategy to save Lego involved cutting costs, focusing on core products, and divesting non-core assets.
• 🌐 Lego's turnaround included engaging with customers through initiatives like Lego Ideas, which allows fans to submit ideas for sets.
• 📈 Lego's growth strategy focused on product penetration and licensing partnerships with popular franchises to expand its audience.
• 🎯 Lego's success was also attributed to targeting the adult market with specialized sets, which helped to quadruple sales in that demographic.

Q & A

What was the financial situation of Lego in 2003?

In 2003, Lego was virtually out of cash, with sales down by 30%, losing $300 million a year, and sitting on an $800 million debt.

Who is credited with saving Lego from bankruptcy?

Jørgen Vig Knudstorp, a 36-year-old former McKinsey consultant, is credited with saving Lego from bankruptcy.

What was the main strategy Jørgen Vig Knudstorp used to revive Lego?

Jørgen Vig Knudstorp's strategy was to cut Lego to its core and rebuild brick by brick, which included cutting thousands of jobs, stopping unprofitable sets, getting rid of video games, and selling off Legoland parks.

What was the impact of losing Lego's patent in 1978?

After losing its patent in 1978, competitors like Tyco Toys began producing similar bricks at a fraction of the price, which ate away at Lego's US market.

What was the result of Lego's diversification strategy in the 1990s?

Lego's diversification strategy led to a brand dilution and financial troubles, as the company ventured into areas like theme parks, digital entertainment, and launching a production company.

How did Lego expand its audience and boost sales?

Lego expanded its audience by focusing on the adult market and introducing 162 sets aimed at the 18-plus market.

What was the financial outcome for Lego after implementing Jørgen Vig Knudstorp's strategy?

Sales hit 64.6 billion Danish crowns or 9.3 billion USD in 2022, which is ten times the revenue when Lego was at its lowest point.

What is Lego's approach to product development as described in the script?

Lego focuses on product penetration over portfolio diversification, keeping the two by four block at the center of its universe and ensuring every new offering revolves around the core product.

How has Lego leveraged licensing partnerships to grow its business?

Lego has leveraged licensing partnerships by creating sets based on popular franchises, such as Harry Potter, Transformers, and The Office, to tap into passionate audiences.

What is the Lego Ideas platform and how does it contribute to Lego's product line?

Lego Ideas is a community platform launched in 2014 that allows customers to submit ideas for Lego sets. If an idea gets supported by 10,000 people, Lego will produce it, thus sourcing free ideas from its customers.

What is the significance of the iconic two by four Lego brick?

The two by four Lego brick, patented on January 28th, 1958, laid the foundation for three decades of growth and remains at the center of Lego's product offerings.