How LEGO Survived Almost Certain Destruction

Morning Brew

21 Dec 202308:48

Summary

TLDRIn 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.

Outlines

00:00

📈 The Rise and Near Fall of Lego

In 2003, Lego faced a severe financial crisis, with sales down by 30% and annual losses of $300 million, accompanied by an $800 million debt. The company was on the brink of bankruptcy. However, a pivotal figure emerged who played a crucial role in Lego's revival, which is considered one of the greatest corporate turnarounds in history. The video is sponsored by Finley. Lego's success is highlighted by its position as the top-ranking toy brand globally, surpassing competitors like Barbie, Nerf, Hot Wheels, and Hasbro. The story begins with the company's origins, established by a Danish carpenter, Ole Kirk Christiansen, in Billund, Denmark, in response to the Great Depression. Despite facing numerous challenges, including a factory fire and personal loss, Christiansen rebuilt his business and eventually patented the iconic two-by-four Lego brick in 1958. This innovation led to three decades of growth. However, by the late 1970s, Lego lost its patent protection, leading to increased competition. In response, Lego expanded into various ventures, including theme parks and digital entertainment, which diluted the brand and contributed to the financial crisis of 2003. The company was in desperate need of a new strategy.

05:00

🔨 Strategies Behind Lego's Revival

Jørgen Vig Knudstorp, a former McKinsey consultant, joined Lego in 2001 and implemented a strategy to return the company to its core business. He cut thousands of jobs, discontinued unprofitable product lines, and sold off assets like Legoland parks. His approach focused on innovation and rebuilding the brand brick by brick. Lego's sales reached 64.6 billion Danish crowns ($9.3 billion USD) in 2022, a significant increase from its low point. The company was also recognized as the most powerful brand in 2015. Knudstorp's strategies included engaging with customers through platforms like Lego Ideas, which allowed fans to submit ideas for Lego sets. Lego also focused on product penetration rather than portfolio diversification, ensuring that every new product revolved around the core two-by-four block. The company expanded its audience to adults, launching sets targeted at the 18-plus market. Additionally, Lego excelled in licensing partnerships, creating sets based on popular franchises like Harry Potter, Transformers, and The Office. These strategies, along with a focus on the core product and customer engagement, have helped Lego overcome past challenges and achieve new heights.

Mindmap

Keywords

💡Bankruptcy

Bankruptcy is a legal process that allows a person or business to eliminate some debts or repay them under the protection of the court. In the context of the video, Lego was on the brink of bankruptcy due to massive debt and financial losses, which signifies a critical turning point in the company's history where drastic measures were needed to avoid financial collapse.

💡Turnaround

A corporate turnaround refers to the process of revitalizing a struggling business to restore it to profitability and stability. The video highlights Lego's revival as one of the greatest corporate turnarounds in history, emphasizing the significant changes made under the leadership of Jørgen Vig Knudstorp that led to the company's recovery and success.

💡Debt

Debt is an obligation that an individual or business has to pay back, usually borrowed money. In the video, Lego is described as sitting on a massive $800 million pile of debt, which was a major factor contributing to its financial crisis and the urgency for a turnaround strategy.

💡Focus

In business, focus refers to concentrating resources and efforts on core activities or products that are most profitable and aligned with the company's mission. The video mentions that Lego's initial success was due to its focus on expanding distribution of its iconic interlocking bricks, and later, its revival hinged on refocusing on this core product.

💡Innovation

Innovation is the process of introducing new ideas, products, or methods. The video credits Jørgen Vig Knudstorp's leadership with a model for innovation that helped Lego regain its market position, suggesting that innovative strategies were key to the company's resurgence.

💡Diversification

Diversification in business means expanding into different markets or product lines. The video describes how Lego's initial attempt at diversification, including launching theme parks and digital entertainment, led to brand dilution and financial troubles, highlighting the risks associated with unfocused diversification.

💡Licensing Partnerships

Licensing partnerships involve agreements where one party licenses its brand or intellectual property to another for a fee. The video mentions Lego's successful use of licensing partnerships with popular game and movie franchises to expand its market reach and appeal to passionate fan bases.

💡Core Product

A core product is the main or central product that a company is known for and that drives its brand identity. The video emphasizes the importance of the two by four Lego brick as the core product around which all other offerings revolve, highlighting the strategy of building on a strong foundation.

💡Market Penetration

Market penetration refers to the extent to which a product is used by a customer base within its total addressable market. The video discusses Lego's strategy of growing the business through product penetration, focusing on expanding its audience and offerings centered around the core product.

💡Customer Engagement

Customer engagement is the process of interacting with customers to build a relationship and increase their involvement with a brand. The video cites Lego's launch of Lego Ideas as an example of customer engagement, where the community can submit ideas for Lego sets, fostering a sense of community and co-creation.

💡Financial Crisis

A financial crisis is a situation where a business or economy faces a sudden shortage of funds, leading to a sharp decline in economic activity. The video describes Lego's financial crisis in 2003, with sales down and significant debt, illustrating the severity of the situation that required a drastic turnaround strategy.

Highlights

Lego faced a severe financial crisis in 2003 with sales down 30% and a debt of $800 million.

Jørgen Vig Knudstorp's leadership turned Lego's fortunes around with a strategy to rebuild the brand brick by brick.

Lego's initial success was built on the iconic two by four brick, patented on January 28th, 1958.

Lego's focus on expanding distribution rather than diversifying its product line led to three decades of growth.

Lego lost its patent in 1978, leading to competition from companies like Tyco Toys that produced similar bricks at lower prices.

In the 1990s, Lego's diversification into areas like theme parks and digital entertainment led to financial difficulties.

Lego's revival included cutting thousands of jobs, discontinuing unprofitable sets, and selling off Legoland parks.

Lego's strategy emphasized community engagement, exemplified by the launch of Lego Ideas in 2014.

Lego's core product, the two by four block, remains central to all new offerings, ensuring brand consistency.

The Lego Movie in 2014 was a significant success, grossing $470 million and receiving high critical acclaim.

Lego expanded its audience by targeting the adult market, which has quadrupled in the last decade.

Lego's licensing partnerships with popular franchises have been a key marketing strategy, enhancing brand reach.

Lego's financial turnaround saw sales reach 9.3 billion USD in 2022, a significant increase from its low point.

Lego was named the most powerful brand in 2015, surpassing even Ferrari.

The story of Lego's revival is considered one of the greatest corporate turnarounds in business history.

Lego's history includes overcoming challenges such as the Great Depression and factory fires.

Finley, a digital back office platform, is presented as a solution for businesses to manage operations efficiently.