This video is sponsored by Skillshare. Learn something new with the link in the description. There is perhaps no simpler toy than the humble
LEGO brick. The iconic four plain flat sides and two studs
are simple to make, simple to use, and simple to learn. One would also think they’d be simple to
sell. And yet the LEGO Group has had a remarkable
number of ups and downs in its 88-year history — scares during which it seemed to face
certain death, and high points during which it seemed invincible. The company’s path has been so turbulent
because, as it turns out, selling LEGO really isn’t that simple. A mere 6 bricks can be combined in an astonishing
915 million different ways. The LEGO Group is tasked with finding which
of these combinations will excite children the most and, ultimately, create the most
profit. And while the buildable brick may seem an
obvious invention today, they were once neither obvious nor easy to make. At a time when premium toys were all made
of wood, plastic LEGO bricks were a radical departure from the norm. They seemed cheap, less friendly. The decision to use plastic was also far from
straightforward. Initially, bricks lacked the “sticking”
mechanism in which they stay together until deliberately detached — meaning any creation
could be destroyed with one flick of a finger. After years of experimenting with different
materials, in 1958, LEGO settled on a design that remains unchanged to this day — meaning
those 62-year-old bricks can still be stacked with those manufactured yesterday. The second revolutionary idea of its founder
was called the “LEGO System of Play” — that every set would be composed of the same basic
bricks — allowing them to be combined to produce something even grander. The financial genius of this idea was simple:
Now, not only would LEGO have a brand, like all companies, that consumers would grow to
love, but they would also invest in the ecosystem. The interoperability meant that once a child
bought his or her first LEGO set, they now lived in a LEGO household. There was more value to be had from buying
more and more sets. It was on these two foundational pillars that
LEGO grew to become the global sensation it is today. As of 2013, a total of 4.4 billion Minifigures
have been produced, 80 LEGO bricks per person on earth, and 300 million tires per year — technically
making it the largest producer of tires, above Michelin and Goodyear. But it wasn’t all smooth sailing. There were many missteps and challenges along
the way which directly led to the LEGO we know today — one of movies and licensed,
branded themes like Star Wars and Minecraft. The first of these problems began to surface
at the end of the 1980s, when the last of its core patents expired, ending its long-held
monopoly on interlocking, buildable toy blocks. In hindsight, although LEGO had seen decades
of profit, this was the first time it was tested as a company, not merely as a product. During the life of the patent, LEGO could
coast on the brilliant idea and design of its founder, knowing that no other company
could sell in the same market. This insulated the company from competition,
creating a culture in which feedback or suggestions from parents, or even children themselves,
was unwelcome. Its designers took a similar philosophy to
those of Apple — that they could create demand and that they didn’t need to chase
it. In 1988, however, all that changed. Now, any toy giant could sell similar brightly-colored,
themed playsets, which kids may or may not be able to distinguish. At first, the LEGO Group shamelessly sued
its competitors — MEGA Bloks, Oxford Bricks, and others — claiming that although its
patents had expired, their similar designs were now infringing on its trademarks. When this failed — miserably — it took
a different approach. It decided to throw every theme, set, and
character out there and just see what stuck. Between 1994-98, LEGO tripled the number of
toys it produced — introducing at least 5 new themes every single year. The one new addition which succeeded — did
so fabulously. LEGO Bionicles had very little in common with
its counterparts — they were based on a story of warring robots, were visually dark,
and used entirely different parts — but kids loved them. Just a few years later, 85% of American boys
aged 6-12 said they knew of the brand, and 45% owned at least one of them. Over 40 books were written based on the characters. Bionicles almost single-handedly kept the
company afloat, but was just one success atop a mountain of failures. For example, there was Jack Stone — a more
detailed character based on a new series of cartoons. And Galidor: Defenders of the Outer Dimension
— a live-action sci-fi series which cost LEGO millions and... almost no one watched. By 2003 it had become abundantly clear something
needed to change. The company was on the edge of bankruptcy
with $800 million in debt, a 30% decline in sales, and an estimated loss of $337,000 US
dollars every day. Even worse, the company didn’t really know
why. This became the task of its then newly-hired
CEO in 2004, to figure out why the company was losing so much money. Its original hypothesis was that kids were
increasingly turning towards modern alternatives — video games, and electronic toys. This turned out to be wrong. The real problem, it discovered, came from
within. The economics of LEGO are simple: What makes it such a compelling toy is that
every set is composed of the same basic pieces, which can be creatively rearranged and built-upon. This just happens to also be what makes it
such a fantastic business. A single, modular, universal part which can
be manufactured and later assembled into whatever final product is in demand at that time, is
a supply chain manager’s dream. Producing a given LEGO piece requires a $50-80,000
plastic injection mold. A popular brick may be produced 60 million
times — driving that mold cost down to essentially zero. However, in LEGO’s decade of aimless experimentation
of new sets and themes, the number of unique pieces doubled — from 6,000 to over 12,000. The company’s designers, insulated from
the financial costs of their decisions, had been allowed to go crazy with new, exciting
themes. One set, for example, included 8 different
pirates, with 10 different styles of legs. Each of those new pieces required its own
mold, and thus, rapidly increased production costs. LEGO’s new CEO started by consolidating
— getting rid of unprofitable sets, and doubling down on those that worked. What he found was that successful sets generally
had one thing in common: they centered around a narrative, especially a branded series,
like a movie. Although partnering with existing brands like
Star Wars was initially controversial within the company — they were worried it would
dilute its “family-friendly”, squeaky-clean image — they proved to be immensely popular. In 2004, only Star Wars and Bionicles sets
were making a profit, while the other 94% lost money. The issue was that Star Wars sets only sold
well after the release of a new movie — making LEGO sales highly dependent on the cinematic
schedule of its partner. These factors combined to usher in the modern
era of LEGO. To differentiate itself and diversify, it
strikes licensing deals with a large number of brands, and increasingly, seeks to create
its own. The success of the LEGO Movie allowed the
company to control its own branding, and keep the story alive in the minds of younger generations. Still, these decisions are controversial. LEGO has long attracted a large adult following,
some of whom say the company has lost its creative beginnings in favor of Hollywood
storytelling. Some vocal adult fans say the LEGO of today
places too much emphasis on play and not enough on building. What no one can say is that the company hasn’t
stayed focused on quality. 88 years ago, LEGO began as a creator of premium
toys, and today that’s no less true. With or without a patent, customers choose
LEGO simply because, they’re better. If anything, the premium-feel of the humble
LEGO brick has only grown — as you discover those from your childhood still smoothly,
satisfyingly, click-in-place after decades of waiting. If you’re someone who likes playing with
LEGO, there’s a pretty good chance you’re creative and like learning new things — which
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