Lessons from Lego
It would be difficult to find a child who is not familiar with the iconic Lego building toy. Lego is one of those ubiquitous brands that transcends cultures around the world.
Lego was founded back in 1932, the brainchild of a Danish carpenter named Ole Kirk Christiansen. At first, Lego only made wooden toys. Quality was always important at Lego, even back in those early days – the company was named after the Danish phrase for "play well". Fifteen years later, the company expanded into plastic toys. Lego produced its first interlocking plastic bricks in 1949. The rest is history!
The road was not always smooth. A little over a decade ago, Lego was in serious trouble. The company had been following a strategy of massive diversification. From opening theme parks to releasing video games – it was reported that Lego management was just about willing to try anything. They had even considered building actual houses made with Lego bricks!
Meanwhile, Lego had real competition to deal with. Canadian company Mega Bloks, among several other companies, began making similar toys. Lego began a long and costly legal battle against these upstarts. As we all know, Lego was soundly defeated in the courts. Since then, even more companies have entered the building blocks market, adding to the competition for Lego.
With large losses, many thought the writing was on the wall for Lego. In 2004, the company’s main bank refused to loan any additional capital to Lego. The founding family was forced to reinvest into the company. 1,000 jobs were cut from its workforce. Management was shaken up.
The company began to restructure. Lego focused on what it does best, and unessential and unrelated businesses were sold off. According to Lego CEO Joergen Vig Knudstorp, “...we did spend a lot of time on strategy, finding out what is Lego’s true identity. Things like, why do you exist? What makes you unique?”
The results speak for themselves. Earlier this year, it was announced that privately-held Lego had surpassed Hasbro to become the second largest toy company in the world when ranked by revenue. And the company had surpassed Mattel to become the most profitable toy company in the world. Wow!
There are two big lessons in the Lego story.
Lesson #1 - QUALITY IS STILL IMPORTANT
To this day Lego still maintains its focus on quality. Quality is something that we here at Outset Media have always tried to maintain in our board games and card games. I’m sure over the years Lego has been tempted to cut corners, and thankfully they never did!
Lesson #2 - COMPETITION BREEDS EXCELLENCE
People are naturally scared of competition. Lego was certainly scared when Mega Bloks began manufacturing similar products – that is why they sued their competitors. But the competition refocused Lego, and made the company concentrate on what they do best. And when Lego finally lost in the courts - and competing products flooded the market - Lego still grew both in size and profitability.
Yes, competitors are scary! Whenever someone new enters the jigsaw puzzle market, that is certainly unnerving for us. But when that new competitor does come to town, and forces us to act in a more focused and strategic manner, it does make us a stronger and better company!
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