The Origins of LEGO: A Story of Resilience
Ole Kristiansen teaches the world to just ākeep on buildingā.
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Everyone Loves LEGOs
I think everyone in the world loves LEGOs. Itās just that, not everyone buys LEGOs because they are quite expensive. But you have to admit, the LEGO brand is on a league of its own.
LEGO can easily be classified as a Superbrand. Superbrands are brands that have done so well for so long, that itās just a cut above its competitors. Despite this, did you know that LEGO was once on the brink of bankruptcy?
LEGO has been privately-owned and run by the Kristiansen family ā the same family that founded the company. But at one point, LEGO had virtually no money left in the bank and was on the verge of being bought out by investors who were just waiting for the company to fall.
This story is about how generation after generation of the Kristiansen family managed to battle wave after wave of challenges that threatened the LEGO brand.
Hereās what youāll learn:
- (1930s) The humble beginnings of LEGO
- How Ole Kristiansen started selling the LEGO bricks
- The rise and massive expansion of LEGO
- The mistakes it made that led to its decline, and near-bankrupt status
- The BIG changes they made that led to its recovery and growth
- How LEGO is doing today
(1930s) Ole Kristiansen purchases a woodworking shop
In the 1930s, Ole Christiansen, the tenth son of a poor Danish family, purchased a woodworking shop in Billund. This shop had been in business since 1895. They were mostly doing carpentry work, constructing houses, and furniture.
The workshop burned down in 1924 when wood shavings were ignited. Ole constructed an even bigger workshop and hoped to recover this investment from better sales, but then the Great Depression hit them hard.
Ole tried to keep the business for as long as he could, but the money just wasnāt coming in. Little by little, he had to let some of his most loyal employees go. To make matters worse, in 1932, his wife passed away.
Ole was left with the responsibility of taking care of his 4 sons. I could only imagine what being in this position must be like. Your businesses are failing, the love of your life is gone, and you have 4 children to take care of.
He had every reason to be sad, but Ole, knew he could not afford to dwell on the terrible card life has dealt him. Instead, he used this as fuel to be more creative on how to maneuver the problems heās facing.
What inspired Ole to start making toys
Ole saw the pile of miniature versions of furniture stacked in his room. This tiny furniture were used as design aids back when they were running their workshop. This inspired him to start making toys. Luckily, he had a lot of wood left from the carpentry business that shut down, and so he started working on creating toys.
When people saw the toys he made, they were delighted, and so he started doubling down on the toy business. During that time, a lot of children were playing with the Yo-Yo, so Ole started making Yo-Yos as well, which turned out well for him.
Ole always wanted to make high-quality products
But despite this, sales were that great. Ole didnāt give up. He continued putting in the hours to create high-quality toys, and he never lost sight of making sure the smallest of details are perfectly crafted.
Eventually, word started to spread about Oleās shop. The beautifully-made high-quality wooden toys stood out. This started to attract investors. One day, a rich man went to the shop. The man was a wholesaler, and he was blown away with the quality of the toys. He saw the potential of Oleās products.
The man owned a store, and he wanted to sell these toys at his store since Christmas was nearing. So the man placed a big order and left.
It was a big order, which required a lot of manpower, so Ole brought in his son Godtfred to help out after school hours. Ole also hired some of the workers that worked for him before when he was still running the woodworking shop.
Bad news once again: the order is canceled
It was a big order, and everyone put in long hours in order to meet the production schedule. But just when Ole thought things were finally going well, he once again received discouraging news.
He received a letter. Apparently, the wholesaler had filed for bankruptcy and had to cancel his order.
Ole was in a bit of a pickle. They produced a lot of toys, and if they canāt sell these, he wouldnāt have enough money to get by over Christmas, which was fast approaching. Determined, Ole went out and decided to do the one thing he was never really great at ā sales.
Ole goes door-to-door
Ole went door to door to sell the toys. Despite him being bad at sales, he ended up getting rid of the entire inventory. He didnāt earn as much as what they couldāve earned if the wholesale deal went through, but it was enough to get them food over Christmas.
How Ole came up with the name LEGO
As time went by, Oleās toys still werenāt selling as fast. And so he figured, maybe it's because of our brand name?
So in 1934, Ole held a contest among his staff. Whoever comes up with the best name gets to take home a bottle of homemade mine. The winning names were (1) āLegioā (which was short for āLegion of Toysā), and (2)āLegoā, a contraction of the Danish phrase Leg Godt, which means āplay wellā.
They ended up choosing Lego. Later on, theyād find out that the word LEGO loosely means āI put togetherā in Latin, which perfectly describes LEGO today. After embracing the new LEGO name, the company continued to progress.
Ole teaches his son a lesson on never compromising on the quality
A big part of LEGOās success was Oleās focus on creating high-quality toys. Thereās this video LEGO put out, telling a story about that one time where when Godtfred was proudly sharing to his dad Ole that he only painted the toy lacker 2 layers of paint twice, rather than 3 times. He was hoping to impress his father about how much money they saved by cutting back on the layers of paint.
Ole got mad and made him repaint all of the toys.
He taught Godtfred a good lesson about the standards that they expect LEGO to stick to. Ole believed in always creating products that are of high quality. He believed in not cheating customers. He explained to Godtfred that that was not the way to create a good brand.
Every detail matters.
(1942) The LEGO factory burns down
In 1942, LEGO experienced another setback. This was during WW2 but the Nazis had nothing to do with it. It was a stormy night, and their wood workshop caught fire and burned to the ground.
They were less concerned about rebuilding the workshop. What they considered as a bigger loss were the product sketches and models that were lost in the workshop fire.
Ole was devasted. But once again, the thought that he was responsible for his workers and family was enough to fuel for him to get back and start rebuilding.
And Ole didnāt hold back. He started looking for new challenges for LEGO.
Post-WW2: Ole and Godtfred meet the bricks for the first time
After WW2, plastics now became available. There was this convention in Copenhagen where they were showing these new machines which produced plastic products.
Ole and Godtfred attended the convention and were checking out a plastic molding machine. To give Ole and Godfrey an idea of what the machine can produce, the seller handed them some plastic cubes.
The machine was very expensive, but the pair felt that it was worth it, and so they bought the machine and started making tiny plastic toys. When they were testing out the machine, they made were plastic teddy bears and tine plastic rattles. But the first plastic toy that they actually sold that became a massive success was the Ferguson Tractor ā a truck that can be taken apart and re-assembled. Over 75,000 units were sold.
This was a big win for LEGO.
LEGO didnāt actually invent the bricks
Did you know that LEGO wasnāt actually the first one to come up with these bricks? Apparently, Hilary Fisher Page is credited as the inventor of these self-locking building bricks.
Hilary Page entered the toy business in 1932. He was importing wooden toys from Russia but was growing increasingly unhappy with these wooden toys. He was an early adopter of the use of plastics in creating toys. This was way before Ole Kristiansen ever got a hold of his plastic molding machine. Page was already using plastic injection molding technology to create his toys in 1936.
After WW2, in 1947, Hilary Page submitted a patent for interlocking building cubes. These were smaller cubes that can be stacked on top of each other. Page then started selling these bricks under the brand Kiddicraft and called them the Kiddicraft Self-Locking Building Bricks.
Ole and his son Godtfred became aware of these cubes when they bought the machine at the convention in Copenhagen. The one selling the machine gave them these cubes as samples, possibly in the hopes of blowing them away as to what these machines can create.
Although Ole and Godtfred produced other toys using the machine, they couldnāt shake off the potential of the bricks.
So in 1949, they started making them as well.
(1949) LEGO starts making the LEGO bricks
Initially, the bricks were called the Automatic Binding Bricks, which kinda sounds like a rip-off of Pageās Self-Locking Building Bricks. But when they improved the bricks, in 1953, they renamed it simply into LEGO bricks.
LEGOās switch from wood to plastics was surprisingly not well received by customers, initially. Feedback was pretty bad, and a lot of LEGOās shipments were sent back because of poor sales. It came to the point that Godtfred himself needed to go door to door just to increase sales.
Serendipitously, on his way back from a business trip in England. In 1954, he ran into someone on the ship. This guy was the head of a big shopping center. The guy was venting and he was telling Godtfred how bad the toy industry was. He said that it was frustrating how the toys that were being sold were finished products that did not make room for any type of creativity.
This inspired Godtfred to create something new.
(1955) LEGO launches the LEGO System of Play
In 1955, LEGO launched the LEGO System of Play. This allowed kids to build their own houses, neighborhoods, and cities. It gave kids ideas of what they can build but did not limit their creativity since they could basically build whatever they wanted and go wherever their imagination took them.
LEGOs still had one tiny problem ā they kept falling apart. A slight nudge brought kidsā creations down. This design was still based on Pageās design which was hollow.
LEGO made a minor but incredibly impactful improvement ā they added tubes inside that allowed LEGO to stick together tightly, but not too tight that they could not be pulled apart.
It canāt be emphasized enough that LEGO did not invent the bricks, but they did innovate on top of it. LEGO may not have invented it, but itās because of the improvement they made which made those bricks extremely valuable. LEGO then had this design patented which secured LEGOās future.
Around this time, LEGOās factory once again burned to the ground. As soon as the new factory was rebuilt, the Kristiansenās decided that it was time to stop selling the wooden toys, and go all-in on the LEGO bricks.
On the year the LEGO bricks were patented, Ole Kristiansen, the founder of LEGO, passed away. This marked a new chapter in LEGOās history. LEGO entered its golden age of growth.
(1968) How LEGO came up with the idea of building Legoland
In 1961, LEGO began exporting to North America through its partner, Samsonite. In 1962, LEGO introduced Lego wheels, which now allowed them to build cars, trucks, and other vehicles using LEGOs.
There was a lot of interest for LEGO from entrepreneurs all over the world. But these business folk wanted to see the LEGOs first before they agree to purchase at wholesale.
The problem is, there was no airport in Billund.
So you know what Godtfredās solution was? To build one.
Godtfred gathered other rich people from other municipalities near Billund and together, they built a private 800-meter long runway near the LEGO factory. Traveling to Billund was no longer a problem, and now more investors could easily visit the LEGO showroom.
A lot of businessmen started coming to the LEGO showroom. Too many, in fact, that the showroom started to get too packed. This made Godtfred come up with another ingenious solution. What if, instead of building an even bigger showroom, we build a theme park instead?
Investors wonāt be the only ones who can see the limitless potential of LEGOs, people from all over the world can as well. Plus, we can earn from ticket sales too. So in 1968, the first Legoland Park was opened in Billund, Denmark. It used to be only three acres big, which is around 12,000 square meters. But that would eventually become 3 times bigger.
(1974) Why LEGO created the Minifigures
LEGO was predominantly targeting the male demographic but now they wanted to make it more appealing to girls as well. They introduced pieces that would allow girls to replicate their dollhouse experience with LEGOs. LEGO introduced furniture pieces and more colorful house sets. The only missing piece was the human figures that can live in these doll-houses. So thatās when LEGO introduced the minifigs in 1974.
The first batch of Minifigures pretty much look like LEGO pieces put together to form a human shape. It's not until 1978 when we see the Minifigures similar to the one you see in the LEGO movie. Itās the same design since 1978.
By the 1980s, LEGO reported that 70% of all Western European families with kids under 14 years old had Lego bricks in their homes. LEGO experienced a 15-year growth spurt, continuing until the 90s. The company had times when it doubled in size every 5 years, reaching revenues of up to $1.2 billion in 1993.
LEGOās innovation brought it here, but innovation would also bring LEGO to its knees.
LEGOās blunders
(1999ā2003) LEGO hits a new low
LEGO experienced a new low from 1999ā2003, but what exactly did they do wrong?
Well, Godtfred Kristiansen stepped down in 1979. His son Kjeld Kirk Kristiansen took over as managing director and CEO of the LEGO Group. During his time, as a way to pre-emptively protect their market share from rivals Mattel, LEGO started diversifying into a wide ranger of products. Mattel was doing the same thing, and so LEGO figured that it can have some success doing something similar.
LEGO started making too many moves in such a short period of time.They started making action figures and all kinds of toys. They also started making a wide range of LEGO sets. You see a lot of these LEGO sets today, but at that time, they did WAY too much. And these led to redundancies. Top management didnāt fully grasp how much it cost to manufacture most of the bricks, and that certain LEGO sets cost more. And some of these sets were too complicated that it required LEGO to source these parts elsewhere, basically, they were too complex and too expensive.
LEGO fired their top designers
Hoping to inject a more youthful approach, LEGO fired their top designers. These designers were involved in creating the LEGO sets from as early as the late 70s.
To replace the āold guardā of designers, LEGO brought in 30 new designers. The new designers were good designers but they didnāt know much about LEGO building. They kept creating designers that seemed great but actually became production nightmares. Because of the disconnect between design and production, the number of LEGO parts climbed from 6,000 to over 12,000.
This resulted in a nightmare of logistics, storage, and investment in an expansion effort that didnāt really boost sales. A few names that these new batch of designers produced were the Primo, Scala, and most importantly, the Galidor series.
They built too many Legolands in such a short period
Another cause of LEGOās decline was Legoland. The first Legoland they opened was in 1968, the one in Billund, Denmark. Hoping to reach more people, they opened three more in a span of 6 years. They opened one in England in 1996, one in the US in 1992, and one in Germany in 2002.
Legoland parks werenāt unprofitable, but managing and maintaining these new Legoland locations added to LEGOās overall operational costs without significantly boosting profits.
(2003) $300 Million in Losses
Itās hard to categorize all of these LEGOās new ventures as terrible mistakes. What caused its decline was because they started too many new ventures, too soon. Legoland, LEGO video games, the new LEGO series ā all of these are still around today and are doing quite well.
LEGOās decline was a matter of LEGO not being able to handle all of these new ventures at the same time, especially the collective impact of the losses that each of these expansion projects had on LEGO.
By 2003, LEGO was virtually out of cash with losses of up to $300 million that year alone, and they were expecting $400 million of losses the following year.
LEGO was on the brink of declaring bankruptcy and there was even talk going around about potential VC firms planning to acquire LEGO. They didnāt have much time left, and so they needed to do something big that required personal sacrifices, especially from the family that owns it.
Turnaround
Enter: Jorgen Vid Knudstorp
Kjeld Kirk Kristiansen stepped down as Managing Director and CEO of the LEGO group in 2004 and remained as chairman. He made way for Jorgen Vid Knudstorp to become CEO. This was historic because its the first time in LEGOās history that a non-family member is a CEO.
Knudstorp spared no time, and immediately stop the bleeding.
First on the list was to get LEGO to focus on what they do best ā creating LEGOs.
LEGO sold 70% of Legoland
All the diversified assets that LEGO spent on, they needed to get rid of them. Legoland was the first to go. LEGO sold 70% of Legoland to the Blackstone Group for $460 million.
LEGO sold off its video game business
LEGO also sold off their video game business. The video game division of LEGO started its own company, Travellerās Tales, and that company is responsible for many of the most successful LEGO games. They simply pay LEGO royalties. This was a fantastic move because it allowed Travellerās Tales some autonomy, which resulted in more games and better games.
LEGO closed its headquarters building
They also closed the LEGO headquarters building, and move management back into a nearby LEGO factory. The HQ was costly, and it removed management from being in touch with their products.
LEGO outsourced production to Mexico
Next, Knudstorp outsourced the production of LEGOs to cheaper facilities in Mexico and the Czech Republic.
LEGO also slashed redundancies. They got rid of the complex LEGO sets, and reduce the number of LEGO parts down to 6,000. LEGO analyzed all the costs, reorganized how the design and production team worked, and created systems where both were now in sync.
Although it was an innovation that almost killed LEGO, the company understands that it still needs it in order to grow. So LEGO didnāt move to kill innovation, but only to put a structure in how they do it.
Management allowed everyone to suggest new avenues for growth, but their ideas had to be put to the test first. This is when LEGO became more receptive of their fans' concerns. LEGO started to realize that they had a bunch of superfans. The kids that played with the first wave of LEGOs, they were all grown up. They still loved LEGO, but now they had more money.
LEGO calls this community as the AFOLs, or the Adult Fans of LEGO. These fans were so eager to share their ideas, and LEGO simply had to start listening to them.
These changes were changes that would yield good long term effects on the company, luckily for LEGO, they made some moves that are starting to do well. Moves they made just before their lowest point, and this bought them a lot of time, helping them stay afloat as they made their recovery.
LEGO began creating immersive storylines
LEGO started applying immersive storylines to their new line of toys. They launched the Bionicle toy line ā one of the most successful LEGO product lines ever.
The success of Bionicle saved LEGO
Bionicle was a culture-altering move for LEGO. When they were working on Bionicle, the LEGO team wanted to combine the best of LEGO building and the adventure of an action figure.
The immersive narrative of Bionicle was a massive success and was eye-opening for LEGO. This is when it starts realizing that putting context into the toys they made, extended the popularity of LEGOs, and formed a deeper connection with children.
LEGO Star Wars
Stories became a part of LEGOās DNA. To further support this, LEGO started partnering up with successful franchises. LEGO Star Wars was a massive success for LEGO. LEGO realized that tapping into existing fan bases with their own passionate fans can propel the LEGO brand as well. It was a win-win for both partners.
LEGOās licensing partners played a huge role in its success, especially in the US. In 2009, it accounted for 60% of its sales.
The Bionicle line and LEGO Star Wars helped LEGO stay afloat while they transitioned. Bionicle received the Toy of the Year award for most innovative toy in 2001.
By 2005, LEGOās recovery was complete. The brand then entered a period of non-stop growth that led to its current Superbrand status.
The Kristiansen family: Leading LEGO to success
It's safe to say that the Kristiansen family has done an incredible job with LEGO. Itās grown to this size and is one of the most valuable brands in the world, yet it still remains privately-owned.
When Kjeldt Kirk Kristiansen stepped down when LEGO was on the verge of bankruptcy, I still consider that as a brave move. Not everyone has the humility to do something like that. Stepping down feels like an admission of defeat, and sometimes, that's what it takes to get back up. And look where it has brought LEGO.
He has since named his son as the successor of the LEGO throne. Thomas Kirk Kristiansen, the fourth-generation, has served as LEGOās deputy chairman of the board since 2016.
He, his two sisters, and his father evenly split ownership of a 75% stake in the company. The Kristiansen's are the 3rd richest family in Denmark.
His great grandfather, Ole Kristiansen, was no longer around when LEGO began to take shape as the Superbrand it is today. Considering what he has been through. The setback after setback he experienced. His wife passing away. Raising his 4 sons alone. His carpentry business failing. There were so many reasons for LEGO to fail. He couldāve stopped right there.
But he did exactly what we do when we play with LEGOās: He just kept on building.
Thanks for reading!
Iām glad you made it this far.
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ā Chris
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