LEGO my turnaround: When innovation hurts

LEGO almost went out of business in the early 2000s thanks to an over innovation frenzy. How did the company get back to the brick?

Image of Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry
Author: David Robertson, Bill Breen
Publisher: Crown Business (2013)
Binding: Hardcover, 320 pages

LEGO… who doesn't love those little plastic bricks? But what do we know about the Danish company that makes the iconic toy? For one thing -- though it's hard to believe now -- LEGO almost went out of business in the early 2000s.

In his new book “Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry”, University of Pennsylvania Professor David C. Robertson writes about the company, its near-death experience, and how it came back to life.

LEGO for starters

Founded in 1932, LEGO is a privately-owned family business based in Billund, Denmark -- or as Robertson calls it "Nowhere, Denmark."

"There's three hours of nothing in every direction from the headquarters," he says.

The name of the company comes from the Danish phrase "leg godt", which means to "play well." And for many years, LEGO did just that, until the late 1990s.

Bricks fall apart

The popularity of video games, cheap Chinese-made toys, and shifting trends in the toy industry all weighed on LEGO’s sales in the 1990s.

"They found that kids [were] getting older, younger," says Robertson. "They [were] moving away from all the traditional toys, not just LEGO, but Barbie and Hotwheels."

Lots of innovation, not a lot of LEGO

So LEGO brought in a turnaround specialist and innovated like crazy. But its new line of products weren't very LEGO-y.

"There's a whole line of toys called Jack Stone, where you could snap them together in a couple minutes," Robertson says. "Parents were really disappointed, kids snapped together the Jack Stone in 10 minutes and then were off and running around the house again."

Turnaround a turnaround

Sales suffered and a whole new management team was brought in to refocus the company.

"[LEGO] talked to [their] customers, asked them what the brand meant to them," says Robertson. And the customers spoke very clearly, notes Robertson, "It is about the construction experience."

The company returned to its traditional product: the simple brick. Robertson says the move worked.

"They've been able to comeback," he says. "For the last five years, they've been growing sales at 24 percent per year and profits at 40 percent per year."

What's the coolest thing you ever made out of LEGO? Let us know in a comment below or on Facebook at APMMarketplace.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio
Image of Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry
Author: David Robertson, Bill Breen
Publisher: Crown Business (2013)
Binding: Hardcover, 320 pages

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