“Brick by Brick: How LEGO Rewrote the Rules of Innovation” by David Robertson

We all know (and love?) the humble LEGO brick – that 4 pegged indestructible plastic cube, that come a nuclear attack, along with the the cockroach will be the only things that will survive.   I have always been intrigued in the history of this company and how it got a foot hold in the lives of children and adults alike.

This book takes a look at the history from the very first wooden toy, to the revolutionary and risky step of investing in the new emerging plastic industry to the licensing deals that saved LEGO from going under.

The book is written in a slightly different style from most company biographies.  More akin to a business tutorial than a story.  The authors slip into a tone every so often that is very parent-like scolding a child for doing something so obviously wrong.

Though you can forgive the authors for such a tone because looking back on it you do wonder how arrogant or naive was LEGO’s management that they failed to keep up with the times.  They failed to embrace the change of digital, keeping their heads in the sand that the last 40 years children still wanted to play with bricks and they will continue to play with bricks for the next 40.

They lost market share quickly as they tried to do too much with their brand.  They opened failed theme parks (that they later then sold off keeping only a minority stake), they cannibalized their distribution channel (WalMart/Target/ToysRus) by opening failed LEGO only retail stores and squandered millions on failed digital projects.

One of the biggest revelations what struck me was how poor accountants they were.  LEGO had no idea which lines were profitable and which lines were money losers.  They knew they had three strong markets, Germany, UK and America, but they didn’t have any real handle on why these markets were strong.

LEGO was going under.  Sales had flattened and costs were rising. Except most of their management couldn’t see it.  They were in disbelief and refused to stray off their current thinking.  

One of the biggest things that they fought against was licensing.   The now infamous StarWars LEGO nearly never happened.   The board was so against the idea of this as something that would dilute the brand and cheapen their offering that they dismissed it for nearly 18 months.

When they finally relented the next couple of years, StarWars accounted for a large percentage of their turnover, their tunes changed.   Suddenly everyone was behind the genius of licensing.   However, they then began to rely on the cash-cow that was StarWars to bail them out, and when StarWars stopped releasing movies, they noticed another flattening of growth.  In recent years they have secured the rights to the likes of Lord Of The Rings and Harry Potter to great profitability.

One of the things that LEGO was guilty of was unmetered creativity.  They allowed their engineers and designers to create whatever kits they wanted, with no thought to the cost of tooling injection molds to create the said kits.   When this was finally realized (after installing their new cost tracking software) they started to make big changes to their products, removing all the expensive to make kits and low sellers.

“…strip complexity out of the business by taking such cost-reducing steps as halving the number of components in the company’s product portfolio”

That was when the 13.5% metric was introduced.  Every new product had to prove it was going to be at least 13.5% profitable or it wouldn’t even be started.   This included everything from inception, prototyping, manufacturing, distributing and support.  Product teams had to evolve to encompass multidisciplinary skill sets to be able to assure the success of a product.

In another drive, LEGO started to notice that adults were as passionate about the humble brick as the excited 6 year old.  They failed to capitalize on the millions of online fans in the early days of the Internet, but with a change of management, these online communities soon were harnessed to help design, alpha test what was referred to as open-source LEGO kits.

LEGO had an unnerving attention to quality.  They felt that if it was not good enough it shouldn’t be released.  They literally spent millions on products (the doomed online Universe multi-player game sucked up $30M for example) seeking perfection.  However, the world wasn’t prepared to wait.

The crowd-sourcing nature of product development meant that “good enough” is what customers really wanted.   They were completely blind sided that a single developer working on his own, built an online collaborative universe of building blocks (Minecraft) when their own online gaming world was so buggy in their eyes (they actually wrote into the contract with the software company the software would be delivered “bug free”).

What’s certain is that Universe’s failure and Minecraft’s success demonstrate that to create a low-end disruptor, it’s far more effective to put a tight lid on resources, free the development group from outside distractions, kick the product into the market before it’s completely “finished,” learn from customers’ feedback, and make improvements in real time. 

What LEGO didn’t figure out that in the virtual world there is no assurances and guarantees.   There wasn’t enough time to go through all the different permutations to reach perfection.   They fixated on insisting the LEGO logo rendered on the end of each peg on the block to create that authenticate feel in a 3D Universe.

The history of this much loved Danish icon is absolutely fascinating and this book presents it in a very digestible format that doesn’t require a huge amount of effort.

“Brick by Brick: How LEGO Rewrote the Rules of Innovation” by David Robertson

Author: Alan Williamson

CTO | Partner | Investor | Java Champion | Author | Podcaster | Speaker | Architect

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