How LEGO survived near bankruptcy in 2003

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How LEGO survived near bankruptcy in 2003
A LEGO Minecraft set | Image credit: Flickr (CC) / Lego Photo mureut

LEGO has been voted the world’s most favorite toy on more than one occasion. Even that couldn’t save it from a near bankruptcy so the company had to save itself somehow.

In 2003 The Danish toy maker had big troubles giving the fans of the colorful bricks something thrilling. Not only that, but the company also had issues with cost management. Things were going really bad.

In 2004 Jorgen Vig Knudstorp took the CEO reign and decided to shake things up. He tightened the financial responsibility of the company but also did something no one until then had even thought as a possibility – he gave creative control to the fans. The company effectively chose a few of LEGOs biggest, most creative fans and recruited them. Their job was simple – to use their creativity to think of new sets and products people would like.

“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 it cost LEGO more to source these parts than the whole set was being sold for. Every one of these sets was a massive loss leader and no one actually knew”, writes LEGO designer Mark Stafford on Reddit.

One of the other reasons for trouble in the company was the decision to retire most LEGO designers from the 70s through the 90s, Stafford writes. The new designers had good ideas, but didn’t know much about toys and LEGOs. They decided to more than double the amount of parts used from 6000 to more than 12000 which created a logistics and storage nightmare.

Even worse, most of these new parts were exclusive to the set they were used for. So you couldn’t really benefit from them if you want to build something yourself. And you couldn’t really have a consistency in the brand. But then the company got a break. The Bionicle and Star Wars series turned out to be great sellers. LEGO saw the opportunity for making branded toys. So today there are dozens of branded sets and most of them are coming together for the LEGO Dimensions game.

When Jorgen Vig saw that there is movement, he was ready with some hard decisions. He slashed the number of parts down to 6000. Unprofitable sets were discontinued and unprofitable divisions were shut down. There was a complete corporate restructure and financial reorganization. The LEGO computer games business was split and some of the guys in the division went back to the UK and started their own computer game company called Travellers Tales. It then licensed the LEGO computer game business. It still makes the LEGO computer games and makes good profits for everyone, including LEGO.

The new designers had more freedom. They could talk to other fans, too and get ideas and feedback. All of the designers knew they had to keep the LEGO look and “feel” in every set. This is why the toys are still very “bricky”. They can look much more realistic with smoother parts, but then they wouldn’t really be LEGOs anymore. Keeping the classic shapes, but making new interesting sets, introducing new characters and best of all, still leaving the opportunity for the fans to combine LEGO sets and build their own creations, turned the company around and propelled it back into the skies.