Hi, I’m Jaryd. 👋 I write in-depth analyses on the growth of popular companies, including their early strategies, current tactics, and actionable business-building lessons we can learn from them.

Plus, every Friday I bring you summarized insights, frameworks, and ideas from best-in-class experts to help us become better builders.

Subscribe now

Hi friends, 👋

Up until now, we’ve only ever looked at tech companies in this newsletter. Which makes sense, because for most of us, that’s our arena. But, today we’re doing something very different. We’ll be looking at a type of company that likely nobody reading this is ever going to try building — which I think makes it all the more exciting and fascinating to study.

When I was a kid, hands down my favorite thing to do was build LEGO. I couldn’t get enough of it and I amassed box-loads of LEGO sets which eventually broke down into box-loads of bricks. Or said better, a messy pile of opportunity to make anything. I’d spend days creating things like my own civilizations, spaceships, space rovers, and come up with these sci-fi stories around them. I’d proudly display them on top of this chest of draws in my room, until a few weeks later, where I’d tear it all down and start again.

LEGO was more than a toy. It was this sandbox that could become anything, brick by brick — and I think it played a huge part in forming my imagination, creativity, and my dream to be an architect. Quite perfectly, there mission is to “Inspire and develop the builders of tomorrow”.

Well, I never went on to build houses, but I’ve clearly chosen a career path where I’m still building, just Jira ticket by ticket instead. Is LEGO to thank for that? Who knows what seeds planted in childhood lead to things later on. But what I do know, is that the story of the small wooden toy manufacturer, which has become one of the most widely recognized companies in the world, brings us some fascinating lessons on growth, innovation, and the timeless way of building.

LEGO has always been a towering giant in the toy industry. But, in the last couple of years, they’ve had to radically rethink their brand and growth strategy to stay relevant and compete with all the new direct and indirect challengers to children's (and adults’) attention.

The 90-year-old Danish company’s journey from market leader to the brink of bankruptcy and back gives us valuable insights for anyone looking to innovate on existing products — and there are great takeaways on product development to be learned from how they survived and reinvented themselves.

In short, their strategy has been a multi-level transformation from a physical toy manufacturer to a digital media company. And, (this isn’t paradoxical to what I just said) LEGO’s history shows us that innovation isn’t always about thinking “outside the box”, but that incremental, planned and disciplined innovation can be just as effective as radical, paradigm-shifting ideas.

And with that…

Here’s what to expect today:

How LEGO started: From wood to brick to brink of collapse
How LEGO grows: Rebuilding, brick by brick and beyond
- The lean supply chain
- LEGO’s licensing empire
- Going beyond the brick: LEGO’s digital and content strategy
Takeaways: Key lessons on business-building

A quick aside: If you enjoy this deep dive and learn anything new today, subscribe if you haven’t yet, and please consider sharing this newsletter with a friend or two. Hmm, on that note… 💡

Let’s get you some LEGO!

Because LEGO is awesome, let’s do something fun and special today. 😬 If you’re a subscriber and you (1) like this post (just tap the heart button), and you also (2) share this post/newsletter — you’ll enter a draw to win this LEGO set or one you choose of equivalent value ($270). I did this 4k+ piece Batmobile recently (not for research) — it was epic and is now a really cool display piece. But different strokes for different folks…so if you’re not a fan of Batman, you can pick another set!

I’ll announce the winner in the next deep dive (March 8th).

Subscribe now

Share

Awesome, let’s get today today’s piece. I feel myself getting all nostalgic already.

Oh, and if you’re reading this in your email, click the button below to read the full thing.

Read in browser

How LEGO started: From wood to brick to brink of collapse.

Everyone has encountered LEGO, whether you’ve played with it, bought it, experienced the pain of stepping on a brick, or even just seen the logo. It’s one of the most recognized brands on the planet. But do you know much about the company behind it?

Neither do I, so let’s start there.

Ducks and values 🪵

The story of LEGO goes all the way back to 1932, to a small rural village amidst the farmlands in Denmark. In Billund, which back then was quite literally just a few cottages scattered along a railway line — Ole Kirk Christensen had a small workshop where he made wooden stepladders and ironing boards. Due to the hardships of the great depression, he’d recently had to close most of it up and let go of all his workers.

But, when his wife passed that same year and he was left to look after his four sons, he knew he had to think of something to support his family. At the same time, he wanted to do whatever he could to bring his kids joy, so he leaned into his carpentry skills and made them a toy. A wooden duck, that today is regarded as the beginning of LEGO’s history. 🦆

He saw how much fun this duck bought them as they played together, and he had the idea of focusing just on making wooden toys for kids, which he believed would be something parents would buy even in difficult times (decades later, we can see this was a correct hunch).

Ole was an excellent carpenter and had a great eye for detail and an obsession with quality (a core value that is still part of LEGO). And while word spread that the toys he was making out of this little workshop in Billund were of the highest quality — sales for the next 2 years were still slow. His eldest son, Godtfred, was helping out after school, and together the duo worked on production and door to door sales, often settling for groceries as payment.

In 1934, Ole thought the company needed a better name. He wanted it to be short and memorable and convey “playing well”, which in Danish is “leg godt”.

Well, you can see how LEGO was what he landed on. What he didn’t know though, which I think is some beautiful foreshadowing, is that in Latin lego means “I put together”. We’re a few years from the iconic colorful brick still, but how perfect a name.

It was well received, and over the next few years sales grew and Ole and Godtfred built up the workshop. Before we get to the origin of the LEGO brick, it’s worth mentioning something small, but deeply significant, that happened in 1936.

Godtfred was working overnight to finish up an order of wooden ducks and he thought he’d do something clever and save the business some money. Instead of using 3 layers of varnish, he used just 2. The future CEO of LEGO thought his dad would be proud, but instead he learned a very important lesson that has become an operating principle of LEGO. “Det bedste er ikke for godt” — “Only the best is good enough”. He was sent back to get all the ducks and add that third coat of varnish, being taught to never to cheat the customer and always deliver to the highest quality. An important lesson on brand building.

Bricks, and the power of a system over a product 🧱

In 1946, Ole came across a plastic moulding machine while visiting Copenhagen. Curious and excited for a new manufacturing challenge, he invested and brought the machine back to Billund. But before the brick came plastic teddy bears, tractors, and all sorts of other pre-made toys.

It was only on a ferry from England back to Denmark in 1954, almost 20 years after the the birth of LEGO, where the kernel for the idea of LEGO as we know it was born. Godtfred was returning from a business trip, and while discussing the future of the toy industry with another traveler, the idea of toys missing “a system” came up. 🤔 Instead of delivering the one-off products that dominated the market, they discussed how toy makers should focus on creating a cohesive system where sets of toys were interrelated. This would unlock repeat sales.

The idea stuck with Godtfred, and it set in motion the concept of putting a system and idea into play. Instead of shipping ready-made toys, they’d give kids something totally unique that would strengthen their imagination and creativity.

Their first product was a plastic town set, take a look.

This novel idea of a system of play was a breakthrough success, and they managed to sell to several countries across Europe. At this point, LEGO was used for building houses…but, while watching his kids play and start making other things, Ole observed a major problem — it fell apart when lifted or moved.

And, how they solved it is what made LEGO what it is today.

Making the bricks click 💡

He wanted to get the bricks to stick together, making the creations more sturdy and defensible to a poke or bump. He got to work trying out different ideas.

And just so you can visualize, this is what the original brick looked like.

You can see how the design isn’t very stable. Not much is interlocking there besides along the corners.

And it took years of failed experiments before Godtfred hit the jackpot. He finally found that the bricks got a much better clutch when they had tubes inside of them. The studs had more to lock into, and could withstand friction and lots of movement.

If you’ve ever tried to wedge apart two bricks, you know how much of a Eureka! moment this must have been.

This invention clicked, literally and figuratively. It was no longer just bricks that could be stacked together to make little houses, but an entire construction system with endless possibilities.

If you have just 6 of those bricks shown above — you have ~915 million possible combinations in front of you. And every brick made is backwards compatible, which as David Robertson writes, was huge.

Long before the first computer software programs were patented, LEGO made the brick backwards compatible, so that a newly manufactured brick could connect with an original 1958 brick. Thanks to backward compatibility, kids could integrate LEGO model buildings from one kit with LEGO model cars, light pylons, traffic signs, train tracks, and more from other kits. No matter what the toy, every brick clicked with every other brick, which meant every LEGO kit was expandable. Thus, the LEGO universe grew with the launch of each new toy.
— Brick by Brick, by David C. Robertson

This is the expansiveness of play LEGO brought to the world, and the iconic catalyst for creativity that has had an immeasurable, but likely massive, impact on generations of people. And this is the power of relentless experimentation in finding breakaway innovations.

The interlocking brick became their biggest selling product, and after a fire brought down LEGO’s factory in 1960, Godtfred decided to drop all their other toy lines and just orient LEGO’s future around the potential of the plastic brick.

Simply put, LEGO’s success came after shifting their focus from creating individual products, to developing a system of play and then betting big on it.

New models came out, demand grew, and LEGO was becoming a major player in the toy industry. And to get LEGO into the hands of more people, in 1961 Godtfred did something fairly bold, to say the least.

He built an airport.

This opened Billund up to better distribute LEGO across the world as they wouldn’t have to worry about fitting into the scheduled flights of commercial planes. And, significantly to the next big thing they did, the airport also brought in more visitors and business partners who often wanted to visit the LEGO HQ. Sometimes people just want to see how the sausage is made.

This inspired Godtfred to think about a better way to showcase their products, and as is evident in building an airport, he was clearly a big picture thinker.

💡As a quick aside: If you want to know how to think bigger like Godtfred — checkout this summary I wrote in a previous edition of this newsletter: “10x Not 10% — how to think in orders of magnitude”. The key takeaway: Practice adding a 0 to the impact you want to have.

Becoming a toy giant 🏰

So, instead of building an exhibition room, they built an entire amusement park.

Which, you guessed it, was featured LEGO everywhere. It had detailed city scenes and brought in over 600K guests in the first year.

The park in Billund remained the only LEGOLAND until 1996 when they started opening up around Europe. Besides the direct revenue the park bought it, it became a destination and the parks played an important role in making LEGO a household name. You don’t have to imagine too hard how “I want to go to LEGOLAND!” became “I want that LEGO set!”.

Thinking about growth, LEGO expanded around their core product by later introducing two new lines:

(’69) DUPLO: Bigger bricks for younger kids
(’77) Technic: More complicated systems for advanced/older kids (and adults).

Together, this widened their total addressable market and (1) got into kids lives sooner, and (2) stayed in it for longer.

Another iconic release was their minifigures in 1975 — the classic LEGO faces. This not only propelled the role-playing and storytelling nature of LEGO (making the toy more sticky), but would set them up nicely for future licensing with the likes of Star Wars, DC, etc.

LEGO was aligned and had a cohesive strategy of “innovating inside the brick”. And with more customers across ages and better lifetime value, they rocketed on towards an impressive 75% household-with-child penetration in Western countries. As David Robertson says:

By strictly defining the boundaries of the company's core business, Godtfred gave his designers the chance to develop a set of world-beating competencies in brick-based creativity, which LEGO leveraged for years to come. "Less is more" is a principle that many companies forget — and which LEGO itself would forget at the end of the century.
Rejecting many more ideas than he accepted, Godtfred kept the number of different LEGO shapes and colors in check during the first twenty years of the brick's existence. His laserlike focus on doing just a few things extraordinarily well — such as designing solely for the brick — foreshadowed a key leadership lesson from another serial innovator, Steve Jobs, who famously quipped, "Innovation is saying no to a thousand things." Knowing what to leave out — even when it's really good — can sometimes deliver far better results.

So, with a powerful brand, growing sales, and cult-like loyalty — what went wrong that brought the toy giant to the brink of bankruptcy?

Spaghetti, failed innovations, and falling bricks 🍝

By the late 90s, LEGO’s finances were not looking good.

And the reason why is rather elegant…they lost focus and disrupted their own success.

Sure, growth had been slowing during the 90s for a number of reasons, like:

More digital experiences competing for physical play time (i.e video games)
The likes of Sim City and Rollercoaster Tycoon bringing the idea of “construction” online
Their patent expiring, and the rise of knockoffs and counterfeits
The relocation of their competitors production to China, lowering costs of other toys

While these macro factors played a role, the real issue was that LEGO responded by refocusing on new revolutionary products that would reinvent the nature of play — clearly trying to repeat their initial breakout success from 40 years earlier.

“They became convinced that if all they offered was another box of bricks, they would become a commodity,” Robertson said in his book, adding that “they believed they needed to disrupt themselves before somebody else did.”

So, LEGO hired Poul Plougmann, a turnaround expert, who came up with several initiatives geared at reigniting growth. He centered them around 7 popular strategies for innovation:

Hire diverse and creative people
Head for blue-ocean markets
Be customer-centric
Practice disruptive innovation
Foster open innovation — head the wisdom of the crowd
Explore the full spectrum of innovation
Build an innovative culture

Generally, pushing the envelope and being willing to disrupt yourself is rare to see in big companies. Complacency kills, and like Clayton Christensen talks about in The Innovators Dilemma — it’s usually the incumbent companies who rest on their laurels and existing revenue that fail to take risks with new technologies that fail.

Now, we’ve seen Godtfred was no small thinker, and that value clearly passed onto his son, Kjeld, who was running LEGO at the time. So, in that sense, LEGO is the exception to the rule laid out by Christensen — they did embrace change and deviate from their main cheese, it just didn’t work.

Why?

Let’s look at some of their rollouts:

Electronic toys that were exuberantly expensive to make
A digitally connected action hero
A LEGO set for babies too young to even play with regular DUPLO bricks.
LEGO MovieMaker for kids to make animated movies with LEGO sets
The Darwin Project — making 3D bricks and allowing for a fully digitized LEGO universe to build in (their boldest/most expensive move to get ahead in digital future)
And considered worst, Galidor, a line of pre-made action hero’s.

Yikes, that’s no system of play or infinite possibility. 🫣

Okay, so what’s the trend here?

Randomness, over extension, and a lack of cohesive innovation around a specific and emerging opportunity. They didn’t identify some killer threat (like film was for Kodak, or streaming for Blockbuster) and go after it. They pushed into as many new markets as possible, and just wanted to diversify their channels/segments/products, etc. In this sense, it was like throwing spaghetti to the wall.

AKA, by trying to expand on all fronts, they took on too many big bets in a short period of time — losing the focus and disciple that got them there.

As LEGO Designer, Mark Stafford, goes into on Reddit:

The LEGO company at that stage had no idea how much it cost to manufacture the majority of their bricks, they had no idea how much certain sets made. The most shocking finding was about sets that included the LEGO micro-motor and fiber-optic kits - in both cases it cost LEGO more to source these parts than the whole set was being sold for - everyone of these sets was a massive loss leader and no one actually knew.
This was combined with a decision to 'retire' a large number of the LEGO Designers who had created the sets from the late 70's through the 80's and into the 90's and replace them with 30 'innovators' who were the top graduates from the best design colleges around Europe.
Unfortunately, though great designers, they knew little specifically about toy design and less about LEGO building. The number of parts climbed rapidly from 6,000 to over 12,000 causing a nightmare of logistics and storage and a huge amount of infrastructure expansion for no gain in sales.

So, while the industry was broadly dealing with more intense price competition, new consumer tastes, and tougher market conditions — it was the rush to innovate and aimless diversification away from their core, that beautiful studded brick, that led LEGO to crisis.

To start steering the ship back on course, Jorgen Vig Knudstorp, a former McKinsey consultant, came in as CEO in 2004 — ending the era of family management. He ditched products that were burning the bank, cut the number of LEGO pieces in production by more than half (making manufacturing and logistics more efficient), and led the return “back to the core” to make the brand strong again.

Now that we’ve seen what went wrong, we can get into how they’ve grown to become the most valuable toy company in the world, and started building a media empire.

How LEGO Grows: Rebuilding, brick by brick and beyond

The lean supply chain

Before you can get to solutions, you need to know the problem. And the first thing Jorgen Vig Knudstorp did after coming in as CEO was run a deep analysis on every aspect of the LEGO’s operations. He combed through everything and found several problem areas, but believed the most immediate opportunity for improvement was the supply chain.

From my perspective, the supply chain is a company’s circulation system. You have to fix it to keep the blood flowing.
— Jorgen Vig Knudstorp, Executive chairman and former CEO

His approach was holistic, looking at all stages for value creation and delivery — from product development, sourcing and manufacturing, to distribution.

The Lego Group’s supply chain was at least 10 years out of date. Poor customer service and spotty availability of products were eroding the company’s franchise in key markets.
Speedy attention to the supply chain, the leaders reasoned, would not only buy them time to deal with the other challenges, but could help set in motion a virtuous circle of improvements that would support subsequent changes in the rest of the company.
— Keith Oliver, Edouard Samakh, and Peter Heckmann, va PWC

In short, LEGO’s supply chain was setup in the 50s and geared towards delivery to smaller retailers. This served them well, until it didn’t. In the 90s competitors focused on re-gearing their chains for the big-box store, optimizing for just-in-time service to the likes of Walmart and Toys “R” Us.

Let’s take a look at the problems they found in the chain.

Product Development: LEGO’s product development lab, known as the “Kitchen,” was “a point of pride”. And rightly so from a creativity perspective. But from a business perspective, there was a huge disconnect as the supply chain was not aligned with their strategy. More products were being dreamed up and shipped, not making money, and adding to the complexity and cost of manufacturing (the more variety in brick pieces, the more overhead there is).
Sourcing: LEGO had almost twice as many suppliers as Boeing had to build their airplanes. They had tons of specialized pieces, designers over-ordered, and there was ultimately lots of waste.
Manufacturing: Usually with scale comes better unit economics, but the way LEGO had their production organized led to no advantages. Teams were operating in silos, leading to a fragmented system. This made long-term planning difficult, and the overall use of resources in the factories just a chaotic mess.
Distribution: LEGO treated all retail stores the same. Which, simply put, meant putting a disproportionate amount of resources into the majority of stores that brought in the minority of sales. They had thousands of retailers, and just 200 of them bought in about 70% of revenue. This led to poor distribution, resulting in missed sales and high inventory levels.

And with the insight into why the thing was broken, they put together a strategy centered around simplification, streamlining operations, and cross-chain alignment.

Nice buzz words, but they saw real gains. And not just operational ones.

Jorgen argues that the supply chain restructuring had a transformational impact on the entire company, stating that “getting the right product to the right place at the right time and at the right cost was an important early step in grappling with an array of strategic challenges.”

Another essential thing that LEGO did as part of their rebuilding — which well over 20 years later is still a massive growth driver — is lean into licensing. 🤝

LEGO’s licensing empire

25 years ago, in a galaxy far, far away, LEGO kickstarted something that would change the trajectory of the company forever.

They noticed that the US was becoming a license-driven market much faster than Europe. And with that, there was an opportunity to lean into pop cultural IP to keep LEGO relevant and in peoples minds.

To validate this growth opportunity, LEGO hitched their wagon to the cultural phenomenon of Star Wars in their iconic first IP franchise deal. When Episode I: The Phantom Menace released, LEGO introduced 13 different Star Wars themed sets.

This specific partnership is arguably what kept LEGO alive before the 2004 turnaround. And through to today, it’s resulted in 700 different sets, five video games, several TV and web series, and a bunch of other products that has brought LEGO billions in revenue.

The power of the partnership is that LEGO’s sales benefit from all the publicity and hype around Star Wars (via their fanbase and new marketing efforts), and Star Wars benefits from giving people a different way to interact with their universe.

And with the success of LEGO x Star Wars, best believe they doubled down on this strategy. They quickly went out to build agreements with established brand universes, including Harry Potter, Lord of the Rings, DC Comics, Marvel, and Disney.

What’s neat about this is that while Warner Bros (DC universe) and Disney (Marvel Universe) invest heavily to out compete each other and build massive fandoms — LEGO can sit behind the scenes, knowing that they stand to benefit from the success of both companies.

💡Simply put, leaning into the zeitgeist is a very powerful strategy. It keeps the conversation around your brand, and sets you up to ride the growth of cultural trends, and if you’re lucky, cultural phenomenon.

By opening that door to do licensed products, which was something they really hadn’t been involved with previously, it opened up a whole new world of play experiences by bringing in all of those other brands.
Fast forward 25 years, and now pretty much everything pop culture you can find it in brick form.
— James Zahn (Deputy Editor of The Toy Book), via Retail Dive

This has become a compounding flywheel and moat for LEGO. More licensing leads to more sales and loyalty, making further licensing deals easier.

And this strategy has been very tactically coupled with another…scarcity.

Scarcity, and the brick economy

Each year, LEGO systematically retires some sets in order to bring in new ones. Fans know this, and it creates a scarcity effect that does a few powerful things:

It makes their products seem more desirable.
It drives people to buy now so they don’t miss out.
And, [something they did not plan for] it creates an investment opportunity.

Yup, an investment.

If something is produced for a limited time then disappears from the market — that’s a supply and demand opportunity. And as Paul Krugman loosely said, hundred dollar bills don’t stay on the ground for long.

This has given rise to an entire secondary market for LEGO (known as the Brick Economy), bringing investors an average return of 11% annually, which just on that measure, some say, is a better investment than gold. Entire websites are even dedicated to tracking top performing themes and investment opportunities.

Now, that’s not investment advice, but if you haven’t entered our competition this week, remember to…

If you don’t want to build it, maybe you can stash it away and HODL! 🤑

Subscribe now

Share

The next big piece of LEGO’s growth story is all about how they’ve innovated beyond the plastic brick. Now, the last time they did this in the 90s, they lacked focus and over diversified. But, with a tight supply chain, strong fundamentals, and massive tailwinds of licensing…their shift to digital and media blue oceans this time around was extremely successful. 🍿

Going beyond the brick: LEGO’s digital and content strategy

One of LEGO’s 5 strategic pillars of development is “Connecting with consumers through digital and physical play”. And, the way they’ve done this is just a magnificent example of (1) an adaptation to the digital economy, (2) meeting your customers where they are, and (3) content marketing with 10X thinking.

What is very different in the mindset today is that of course this starts with a core product but we know that it’s not just the product alone that the kids expect. Kids are living in the very multidimensional world and they are so used to having multitudes of different touch points around themes that they love.
They want to be able to see something online. They want to be able to engage with an app, they want to play a game, they want to be able to see another kid unboxing the product and building something with it.
So we look at it as a 360 holistic experience and that’s where we get the ideas to develop the multitude of the different touch points. But everything connects and that’s very different from the diversification that was happening in the past.
— Julia Goldin, Chief Product and Marketing Officer at LEGO

In short, they have a 6 brick approach:

Their own social network → LEGO LIFE
Crowdsourcing ideas online → LEGO IDEAS
Marketing through education → YouTube
Digitalizing their physical sets → LEGO BOOST
Getting big in video games → i.e LEGO Star Wars Saga
Getting big in Hollywood → The LEGO Movie

Looking at the two at the top, a big part of their multi-layer strategy here is clearly getting big in the entertainment industry. And they’re doing it by pushing into it’s two biggest categories — video games and Hollywood. As we’ll see, this is a beautiful example of branded content marketing.

Let’s go deeper and see how all these separate bricks come together to make a powerful growth machine. 🔬

1. LEGO’s social app, and the power of leaning into existing behavior

Let’s start with community.

Like lots of successful products, LEGO Life came from the power of observation and leaning into how people were already behaving.

They saw how kids were sharing their builds in LEGO Club Magazine, and were also posting their creations in forums.

So, they built a social app with the goal of transferring that innate desire to share physical play experiences into an online environment. In their own words, it’s a “safe place for children to get inspired, share their creations, and connect with other fans”.

This move gives LEGO the ability to play in the mobile and digital space — as well as keep kids engaged with the brand.

2. Crowdsourcing design, and the power of listening to the customer

LEGO Ideas, quite simply, is a great example of how they’ve moved closer to their community.

Basically anyone can submit an idea, others vote, and if it get’s 10K nods of approval from fans the LEGO team will review it — giving it a shot at becoming an official product.

Besides giving people a way to connect with their favorite toy in a unique and exciting way, creators also get 1% of all sales.

So, through the Ideas platform, LEGO is able to crowdsource product design and have a pulse on what customers in different countries are interested in. It also gives LEGO a strong online presence and an engaged user base who continue push innovation for the company.

Take a look at this idea that came from leveraging the crowd… 👏

3. Digitalizing their toys, and a lesson on embracing new technology

LEGO took a stab at this back in the 90s, it didn’t work.

But with their new focus around the core brick and education, they set out to bridge the gap between physical and digital play.

One initiative, LEGO Boost, was to combine the LEGO sets with a digital gaming app, which would then allow kids to interact with the LEGO they built. This allowed LEGO to get into the toys-to-life space by creating online games and challenges around they toy — leaning into the imagination, role-playing, and play post-construction.

The LEGO Boost kit comes with a combination of sensors, motors, and the app that also teaches kids to code, allowing them to program their creations. Just snap a photo of the set built, and a bunch of games around the model is unlocked.

The idea doesn’t cannibalize the sale of the physical brick, as it’s still needed, but expands the universe around the toy where kids (who are already on all sorts of devices) can continue engaging with LEGO in different ways. And for parents, it continues to show LEGO as a best-in-class education product.

I’d certainly rather have my kids (when I have them) learning basic programming logic and solving puzzles vs the other garbage for kids out there.

Social media, and a lesson on educational marketing

While LEGO’s digital toys center around education, the exact same thing can be said for their social channels.

Take YouTube — where LEGO is the most popular brand channel on the platform. Cleary doing something right there.

Their content is all about educational and how-to videos that get people excited about trying new sets or inventing their own stuff outside of the manual. And, a huge part of their strategy on social media is to spread the narrative that (1) LEGO is much more than just a toy company making plastic bricks, and (2) that they are a product for all ages.

With a core message that goes beyond their product, LEGO has successfully created a blue ocean for themselves among other toy companies. They’re seen by the customer (which is the only thing that matters in positioning) as a brand that sparks imagination, builds creativity, educates, and sends you on an adventure.

And the creative giant creates content to attract builders young and old, firmly establishing LEGO as a toy for all ages.

Another significant flywheel that drives LEGO’s growth here is user-generated-content (UGC). There are tons of creators/die-hard fans who’ve spun up their own channels just to share LEGO creations, like “Beyond The Brick” with over 1M subscribers. Simply, people love to share their creations with the world — and we saw the exact same thing when we looked at Notion (templates) and Canva (social sharing). Humans just have an innate desire to showcase creativity — and LEGO gains from this tremendously.

The next two elements of LEGO’s 6-brick digital strategy are a great case study on how a company can tell a story with their brand.

Video games, and a lesson on meeting your customers where they are

LEGO has always tried to meet kids where they find entertainment, vs trying to keep people from changing their online play habits. That’s an important principle to remember in customer-centricity.

Just a minute ago, we saw how LEGO Boost connects physical sets to a digital game — but the real jackpot that LEGO has made in the video game space is where the game is a standalone piece of branded content — not a bridge to a toy.

They’ve produced over 180 games since the late 90s. Some of these are smaller mobile games, while others have been released in tandem with their licensing strategy and have become blockbuster hits across consoles — like LEGO Batman, the LEGO Star Wars Saga, and their bestseller, LEGO Marvel Super Hero’s. While these games are not quite the physical system of play, they stay very true to that at their core. Gameplay centers around constructing things, solving challenges, critical thinking, and of course playing in words built of bricks and minifig characters — making their games virtual renditions of the classic LEGO experience.

And this video game x licensing strategy bring the LEGO brand a ton of attention, and rides the wave of (1) other fandoms and (2) the mega distribution of big studios. This then dovetails nicely into partnered LEGO sets, where right after playing the LEGO Indiana Jones game, kids can go ask their parents for the The Lost Tomb set.

That’s a very nice virtuous cycle of growth with multiple revenue touch points.

So, video games are now big business for LEGO. Another pillar in their tactical shift into the entertainment industry is branded films.

Like I said…LEGO has never had a problem thinking big.

Hollywood, and a lesson on understanding your buying stakeholders

In 2014, The LEGO Movie came out.

That set in motion a media franchise, which is now the crown jewel of the company’s content marketing strategy. Their first star-studded film with Morgan Freeman playing what looks like God (of course) grossed $470M worldwide, and absolutely killed it in the reviews department across critics and the audience. It was the 4th biggest film in 2014, falling below the Goliath hits that are the Marvel universe, and it was the most evenly represented movie among genders.

This built, and continues to build, huge affinity with the brand among kids and adults. Which leads to an important lesson we can learn from the LEGO Movie — understand your stakeholders in the buying process.

As a product, LEGO’s main audience is kids. But kids don’t exactly buy things for themselves. This creates a marketing challenge where they need to appeal to kids as the influencers, and parents as buyers. The tricky part being fairly clear — Mom cares about very different things from little Johnny.

This is where the genius of LEGO’s creative team comes in, and one of the biggest points that set the movie apart for other franchised films from toy brands — it’s a great adventure for kids, but is also been written to intentionally appeal to adults. The film tugs at a quintessential theme — the parent-child relationship — leaving a subtle message to parents that they, too, can escape the monotony of the business world to spend time with their children by playing with LEGO.

Well played.

Another tactic in the film, once again, is how it boosts its success by piggybacks on other brands.

Just take a look at this quick video, featuring all the brands LEGO has ever partnered with.

This scene, known as the LEGO Master Builders Meeting, rallies together characters from sets going all the way back to the 80s. It sells nostalgia to the parents, gives a nice ode to the sets that they once played with and are now discontinued, and creates an emotional connection to the movie.

All in, the film not only brought in massive box office revenue, but it drastically increased sales for LEGO, and it set LEGO and Warner Brothers up to capitalize on more opportunities around franchise.

The lessons from the success of The LEGO Movie show that intimately understanding the stakeholders of your sales process opens can open up new doors for branded content and marketing opportunities.

Share

Wrapping up

While investigating all angles of LEGO’s growth, I came across a few other initiatives that I could get into today. But honestly, I don’t think it’s worth expanding on them too much.

I think the biggest takeaway from this piece is what caused LEGO to almost fail, and how they recovered from the brink of bankruptcy and innovated by betting “inside the brick”.

We saw that refocusing on the core product, rebuilding their supply chain and getting their house in order by slimming down the number of big bets they were taking, and licensing and their digital/content strategy have been the biggest growth drivers for LEGO. All of which give us some great practical lessons on business-building — which I summarize for us in a moment.

But for journalistic integrity, I’ll very briefly note some of the other things LEGO is doing to grow, just so you have the full picture.

Geographic expansion. A core strategic pillar of LEGO’s is “Expanding global capacity”, which makes a lot of sense when looking at how they are pushing into the Chinese and Indian markets. In short, they have done a great job in the US and Europe, and have also found that the LEGO brick and system of play works exactly the same for kids in the East. So, the product doesn’t need any localization for different cultures, as play is the same. Rather, growth into new markets like China is more of an effort in expanding their production capacity and distribution network to be efficient here. And given the size of these markets, this will unlock huge new revenue for LEGO.
Retail channels and native distribution. LEGO sells almost everywhere. They have their own retail stores, native website, as well as third-party channels like Amazon and other toy stores. However, another strategic focus of theirs right now is “Creating memorable retail experiences”, and ensuring less reliability on Amazon. This means they are opening more stores (in 2021, they opened 165 new ones) and doubling down on making the in-store (and their own online) experience more immersive and memorable for shoppers. This optimizes their value chain to have more of a hand in end-distribution — which means they control the entire customer experience.
Focusing on sustainability. Lastly, LEGO is betting on “Building for a sustainable future”. They’re aiming to have all their packaging made of sustainable materials by 2025, are making all their factories solar, and in 2021 unveiled a prototype brick made from recycled plastic bottles. This of course benefits the planet, but also helps with their brand position and the related business incentives (like taxes) for going-green efforts.

And to close us out today, below is a recap of the biggest takeaways from LEGO’s growth. No doubt I’ve missed some, so please feel free to drop any of yours in the comments below.

Oh, and if you’ve learnt anything new today or just had fun going down memory lane with me, you can support HTG by subscribing, hitting the like button, and sharing with someone — you just might win that LEGO set! 🙏

Subscribe now

Share

Key lessons on business-building

🙋‍♂️ Find a problem to work on where there is founder-market fit. LEGO was born from Ole Kirk Christiansen’s expertise in carpentry (skill) and wooden toys (market). Find an idea to work on where you lean into your strengths — it gives you a bigger surface area to get lucky.
🙏 Stay true to your core values and mission. LEGO is a value-driven company, still aligned around principles that came from almost 90 years ago. Values and mission should be unwavering, the rest should be flexible.
🌟 Be obsessed with quality and the customer experience. Quality does a great job at selling itself and building loyalty with customers.
🔗 Think in systems, not silos. LEGO exists today because they shifted away from discrete, once-off toys. By thinking holistically and interconnecting their product/brand, they build a sticky and enduring product. When they applied this thinking to their new supply-chain, they also saw major improvements.
🌕 10X your thinking and make bold bets. LEGO doesn’t think in incremental wins. Instead of asking how they can 10% up distribution, they aim to 10X the impact they want to have — leading to big ideas like airports and theme parts.
👨‍🔬 Experiment, a lot. The LEGO brick as we know it came from years of failed tests, but all focused around one (massive ROI) goal — make the bricks click. The more you bring testing to your product/business, the faster you learn and iterate towards a winner.
➿ Compound on your own successes. LEGO made their core brick backwards compatible — meaning each new brick produced built on the existing product and made the LEGO kids had more valuable.
🕰️ Find a way to be in your customers lives for longer. LEGO expanded their addressable market by moving into the lives of younger and older kids — a great lesson on thinking about your audience lifecycle, their workflow before and after your product, and how to boost CLV and retention.
🦾 Be keenly aware of the changing environment around you. Technology, cultural, and behavioral shifts are inevitable and will affect your business. LEGO was always hyper-aware of this and very responsive to change (even as a giant).
💃🏽 Stay agile. Following from the above point, it’s essential to always be taking bets and prepared to change course when you see the landscape changing. Equally, when opportunities present themselves, you need to be able to react quickly.
🔎 Tighter focus allows for more productive innovation. Be careful not to over diversify and take on too many big bets at once. As LEGO’s path to failure and recovery steps show us — less is often more.
🪵 Make sure your core house is in order before focusing too heavily on growth. Growth is great, but before throwing fuel on the fire — make sure you first have a fire pit, and some wood in it. Premature growth or growth without a foundation will be unsustainable.
🧱 Don’t lose focus on your products core JTDB, and your special sauce. LEGO veered too far away from the brick and their system of construction and play, leading them to near bankruptcy. It’s essential to stay focused on your strengths, and remember the main reason people use your product. Like we saw in our deep dive on Stripe — going deep on one problem can be hugely successful.
🧭 Always make sure the entire team is aligned around a cohesive strategy. LEGO almost failed because teams worked in silos, the supply chain was not in sync with business goals, and there was a general lack of strategic focus all the way from the leadership level.
🔬 A (well-diagnosed) setback is just another opportunity to improve. While LEGO almost failed, their recovery and growth into the giant they are today shows us that by properly diagnosing root problems, even massive setbacks can be turned around into big wins.
❤️ Brand > IP protection. Years after LEGO’s patent expired, no other clone product has come close to taking away market share from LEGO.
🎁 Sometimes the best strategy for growth is thinking inside the box. While LEGO gives us plenty lessons on thinking big, they also show us that innovating “inside the box” can be very effective.
🤝 Partnerships are a great way to piggyback on other brands success. LEGO has leveraged the brand, audience, and distribution power of other giant franchises and companies to propel their own brand and sales.
💬 Leaning into the cultural zeitgeist is a very powerful strategy. One of LEGO’s biggest strategic wins has been releasing products related to cultural phenomenon at the right time, like new Star Wars films. When people are talking about something — insert your brand into the conversation and ride the hype.
💎 Create scarcity around your offer. By sunsetting their products every few years, LEGO leans into FOMO to drive demand.
🙇‍♂️ Build and leverage your community. LEGO continuously tap into their customers for ideas — giving them a customer-centric innovation line, as well as a pulse on an engaged audience.
🤳🏻 Lean into existing behavior, vs trying to change it. AKA — meet your customers where they are. Instead of spending big bucks trying to stop people from changing the way they play, LEGO leant into behavioral changes and what people were organically doing.
💡 Create content that tells a story about your brand. LEGO’s branded content strategy of video games and movies is an excellent lesson on using content to create an emotional narrative around your brand.
👨‍👦‍👧 Understand all your buying stakeholders. LEGO is the most successful toy company in the world because they appeal to kids (influencers) and adults (buyers).

And that’s a wrap, thanks for reading!

Until next time.

— Jaryd ✌️

Share How They Grow