The LEGO Group: The Big Business Built Upon Little Bricks

The LEGO Group: The Big Business Built Upon Little Bricks


Chances are you’ve either played with
Lego when you were young or you had a friend who did. The plastic construction
sets are one of the best ways to promote creativity, and there are very few
companies out there that have as much of an impact on the lives of children as
Lego. Their business model is pretty simple: they buy plastic for one dollar and sell it for
75. Beneath this simplicity, however, is a very interesting story, and in this
week’s video we’ll learn where these plastic bricks really come from. The
father of Lego was a Danish man named Ole Christiansen. He came from a poor
family of farmers near the small town of Billund and his favorite hobby was
carving stuff out of wood. When he was old enough to travel he
practiced carpentry in Germany and Norway, earning just enough money to buy the
local woodworking shop in Billund when he returned in 1916. For the next 16
years he worked as a carpenter and he got pretty good at it. During that time he also married a woman
he met in Norway and together they eventually had four sons. Life was good,
but then the Great Depression happened and things took a turn for the worst. Prices across Europe crashed and the Danish farmers could barely earn enough
money to get by. Ole Christiansen was forced to fire most
of his shop’s staff because he couldn’t pay them. To top things off his wife died
that same year, leaving him alone to take care of their four sons. Ole got them to
work in the shop and in exchange he would make for them wooden toys. The kids like them very much and soon
Ole started making toys in addition to his regular business. The local farmers didn’t really have the
income to buy them though, and most of the time they would offer food in return. In the end Ole had to sell his toys
door-to-door in nearby cities where people actually had the money to afford
them. In 1934 he came up with a name for his
toys: he called them Lego from the Danish phrase “Leg Godt”, which means plays well. Coincidentally
the word Lego also means to assemble in Latin. In 1942 after a disastrous
fire burnt down his shop, Ole borrowed money to build an actual factory to
manufacture his wooden toys. From then onwards the toys became his main
business and the Danish people loved them. Ole made his eldest son Godtfred a
manager of the new company and together they began expanding their clientele not
only in Denmark, but also in Norway. By 1947 the company’s workforce had
increased to 40 employees and they were selling over 150 different wooden toys.
In 1949, while attending a toy fair in Copenhagen, Ole
found a merchant who so plastic building blocks that you could use to build
towers. Ole liked the idea very much so he brought samples back to Billund to
study them. One year later Lego started selling a modified version of
these blocks called automatic binding bricks. They look a lot like modern Lego
bricks but their underside was hollow, which made them clunky and hard to combine.
Most customers didn’t like them and by 1954 the binding bricks barely made up
of five percent of the company’s revenue. That same year while traveling to the UK
to attend a toy fair, Godtfred met a very enthusiastic
department store manager. They talked about the state of the toy industry and
the manager complained how little incentive people had to buy new toys. His argument was that ready-made toys
were actually harming the business because parents wouldn’t need to buy more
toys frequently. As soon as Godtfred came back to Billund, he started
thinking of a system that would encourage people to buy more of his toys.
He drafted up a list of qualities that he wanted his new system to have: some of
the things he listed were, for example, unlimited play potential, development
of creativity, and being suitable for children of any age and gender. The obvious choice for this new system
were the automatic binding bricks and one year later in 1955
Godtfred released the first real Lego construction set: the Lego System of Play. Unlike previous iterations of the binding
bricks, this time kids could build entire cities, not just individual buildings, and
the only limit was how many sets they had. Included in this new set where tiny
cars, trucks, and street signs and as you can imagine it became extremely popular.
Just two years later Godtfred developed the modern Lego bricks we know today by
introducing tubes on the underside, which made the bricks more stable and
allowed for more combinations. Godtfred became the official leader of Lego in
1958 when his father Ole passed away. His first order of business was to
accelerate the companies overseas expansion. Lego’s first international
office open in 1956 in Germany and soon after that they started spreading across
Western Europe. In 1961 Lego entered the American market by licensing their toys to Samsonite, the guys who you probably know today for
their suitcases. By that point Lego had stopped making
wooden toys altogether after a fire in 1960 destroyed their only
wooden toy factory. Over the next decade Lego became one of the world’s largest
toy manufacturers. By 1976 they had around $300 million sales across the world and they made up 1% of
Denmark’s total GDP. They released new sets based around
various themes, but they always remained true to their design principles of
simplicity and compatibility. A brick made in 1957, for example, would
have no trouble fitting in a modern construction set and although they’ve
added a bunch of new parts over the years, everything is backwards compatible.
One of Lego’s biggest hits was the Lego Minifigure from 1978,
which has since become one of Lego’s most iconic symbols. Estimates from 2003 say
that over four billion of these tiny figures have been made, and today you’ll
find them in almost every construction set. They even made a movie with them in 2014,
which is actually pretty good, it’s got a 7.8 rating on IMDb. Lego was doing great
in the 1980s. Their sales were growing it around 10% annually
and by 1992 they controlled 80% of the construction toy market
with roughly $600 million in annual sales. Lego’s patent for their
bricks, however, had expired in 1981 and in the early 1990s other
copycat brands were already popping up across the world. They would mass produced nearly
identical construction sets and they would sell them at a cheaper price,
rapidly cutting into Lego’s profits. Things got so bad that in 1994 the
company saw its first annual sales decline by 2% in Germany and 8% in the United States. The situation in the asian market was even
worse, since you know how loose they are over there with copyrighted and patents.
In 1998 Lego posted their first ever annual loss at $30 million and by
2004 the company was almost bankrupt, having lost $228 million in that
year alone. The CEO at the time was Gotfred’s son, Kjeld Christiansen, and he felt
so helpless that he resigned and appointed the company’s first non-family CEO:
Jørgen Vig Knudstorp. His solution to the crisis was a bit radical, but
it was definitely effective. Over the next three years he cut Lego’s
workforce by half and moved their main manufacturing activities to Mexico. This was a huge cut in expenses, but
what really saved the company was Jørgen’s decision to actively pursue licensing
deals. You know all those expensive Lego sets
based on Star Wars, Lord of the Rings, or Minecraft? Jørgen’s idea of combining Lego
with popular culture was brilliant and the success of these new sets saved the
company from bankruptcy. In 2008 licensed Lego products made up about 60%
of their total sales, and although the world was in the middle of
the Great Recession, people were buying more Lego than ever. Since then the
company has become even larger and in 2014 they overtook Mattel to become the
world’s largest toy company. Their most recent report from 2015 put
their global sales it’s $5.3 billion, larger than Mattel and Hasbro
combined. Lego have become so huge that Mattel and
Hasbro are actually considering merging just to stay relevant. The success of Lego as a concept is due
not only to its unique design, but also to the impressive marketing behind it. One of Lego’s best marketing decisions
was to build their Legoland theme parks. If you haven’t visited one you
definitely should. There are seven Legoland parks around the world right
now with another 4 under construction. All the parks have these huge model
cities built out of millions of Lego bricks and they’re definitely worth
seeing. The first one, by the way, is in Billund and Lego had to build an
airport there just because of how remote it was. I hope you enjoyed the story of
Lego. If you did hit that like button, subscribe, and check out my other videos
for the stories of more cool companies. Tell me in the comments below which
company you’d like me to feature next, and as always: stay smart.

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About the Author: Oren Garnes

100 Comments

  1. I have a huge box of lego from my childhood . I am keeping it for my future non existent children that i will never have . So essentially for myself.

  2. the narrator's intonation is identical in each sentence and makes them sound like a rebuttal. unbearable after 2:00.

  3. Really enjoyed this video! I'm watching one every day and I've nearly seen them all! Yu should definitely make one on Google and one on Youtube 😛

  4. Wait… are those buildings made out of giant lego bricks? …. or are those natural sized buildings made out of tiny lego bricks? ….. :O

  5. My grandfather worked with Bayer to produce plasticizers for LEGO and he said that they were very picky about it
    They wanted it to be non toxic so when kids would put LEGO bricks in their mouths they wouldn't get sick

  6. Great Depression, but even the men waiting to get free soup look more elegant and sofisticated then most do nowadays

  7. The map of Denmark you used in this video dates between 1864 and 1918, since it is missing the southen part of Jutland witch DK lost to Germany in a war with Prussia. After the WW1 most of the lands was returned to DK. Please update your maps. 😀

  8. When i was little my dad got me the Lego Star Destroyer for Christmas, but then one day he tracked in grease and we lost half of the pieces cleaning it up 🙁

  9. aww no mention of Bionicle? lego's first intellectual property that came about when they knew bricks with a story sold well but relied on lisencng?

  10. They didn't use minifigs for The Lego Movie, it was CGI. They purposefully made it look like stop motion with smudges, seams and fingerprints and moved their arms and legs in a way that you can replicate with a normal mini figure to respect the old brick films made previously.

  11. Ya remember that huge lego death star.. i saved up for that for 2 years. 2 FUCKING YEARS.. do you know how long that is for a kid? But when i got it it was pritty dope

  12. Correction: "leg godt" doesn't mean plays well, it means play well (wtihout an s). Also, the pronouncation is completely wrong but that's not important I guess 🙂

  13. Props for getting a map of Denmark that was correct for the time of his birth, but your Germany map does not match up because it's a "current" map of Germany. Germany has undergone many transformations since the beginning of the 20th century… And then later, in 1942, the map of Denmark is no longer correct.

  14. You missed alot of facts here. For one thing, LEGO tried to kill competition from Mega Bloks by claiming their design wasn't merely a patent but also a copyright. Thank God the courts threw out this ridiculous claim. Also, LEGO is the world's largest manufacturer of tires if counted in number of tires manufactured. Nobody else is even close. Of course, they are helped to maintain this record against automobile manufacturers by the fact that the tired they produce are much smaller. 🙂

  15. I wonder if kids back in the early days would pull apart the flat prices using their teeth…..

    Lolol every kid had a couple of pieces with bite marks in them

  16. I remember when the patent on the LEGO brick expired. Tyco started creating a knock-off version of LEGO called TYCO Super Blocks. I never liked liked LEGO's competitors, including Mega Bloks with their low-quality plastic and such.

  17. I can already imagine the forthcoming press release, "More Lego people in the world than human people."  Shouldn't be long, although in fairness many of those figures will now be in landfill and storage, whih is presumably equivalent to Lego death or at least hypee-sleep.

  18. I've owned Lego Star Wars kits, bought so many of them way back.
    I'm not surprised that there's Lord of the Rings in Lego, probably already saw that on some Wal-Mart shelves
    But…Lego Minecraft? That's just redundant; a block based recreation of a block based recreation of the real world, in the real world.

  19. WRONG!!!! 1:41
    I'm danish and can tell you that "Leg godt" means Play well, and not plays well. "LegER godt" means plays well…

  20. I had no idea that they had overtaken Mattel and Hasbro. I suppose it somewhat makes sense, considering that in so many cases, yes, a lego set is more expensive than a few action figures. But in a typical lego set you receive a few figures, and a playset or a vehicle.

    So Hasbro wants to sell an X-Wing. It comes with a pilot. Then you need to buy a droid to go in it, and maybe a rebel soldier or stormtrooper. So maybe $40 for the X-Wing, $8 for the droid, $8 for the trooper.

    Meanwhile, yes, the Lego set is more like $75. But they are now to scale with all the other kid's toys, and can be re-purposed.

    Also, in terms of taking up space. The minifgures themselves are much smaller than action figures.
    Then, if you break down the sets they can fit in small bins or small bags. You can't do that with a Hasbro Millennium Falcon.

  21. Lmao the LEGO copycats and LEGO itself are so compatible I use MegaBlocks and LEGO interchangeably on builds, even going so far as using both brands on the same build.

  22. Actually they don't resell just the plastic do they they also mold it design the sets boxes and advertise so while yeah they make a profit it's not 74 bucks per kilogram it's more like 20 or 30 bucks per kilogram

  23. Hello! Would like to make a video about Nokia – from its begining to today? There are many Nokia's fans, so it will be very good. Thanks in advance!

  24. There was an off-hand comment about building an airport at the end, but that is actually pretty big: The 2nd biggest airport in Denmark is not near any major city, but in Billund, for just 2 reasons: It lies in the south-west while the other 2 major airports are at the east and north end of the country respectively, and LEGO is situated there.

  25. Except you forgot to mention that The Lego Group actually sold Legoland to Merlin Entertainment as part of Jorgen’s plan to cut costs.

  26. How did kjeld forget to renew the patent though @5:25 ?

    LEGO lost $228,000,000 behind that mistake!

    At least he was smart enough to let Jorgensen save the company.

    But gracious what a mistake.

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