In this episode of the Founders Journal, Alex Lieberman narrates the rise, fall, and resurgence of LEGO, tracing its journey from a struggling Danish carpentry shop to the world’s leading toy brand. He begins with founder Ole Kirk Christiansen’s 1929‑era pivot from carpentry to wooden toys amid personal tragedy, multiple factory fires, and the loss of his wife. The breakthrough arrives in 1958 with the patent for the iconic 2×4 brick, launching a three‑decade period of focused growth that emphasized expanding distribution, introducing minifigures, and building Legoland parks. The narrative then shifts to the 1978 loss of the brick patent, the ensuing flood of cheap imitators, and a misguided diversification into video games, electronic sets, fashion, and theme parks that diluted the brand and drove LEGO to the brink of bankruptcy by 2003. The turnaround is credited to Jørgen Vig Knudstorp, a former McKinsey consultant who slashed the product line, cut jobs, sold off non‑core assets, and refocused on the core brick. Post‑turnaround, LEGO leveraged three strategic pillars: (1) co‑creating with customers through LEGO Ideas and community research, (2) deepening product penetration by extending the core brick into movies, TV shows, adult‑focused sets, and a global retail network, and (3) forging licensing partnerships with major franchises (e.g., Harry Potter, Marvel, Minecraft) to attract new audiences. Lieberman distills three entrepreneurial lessons—build with customers, double‑down on core product rather than diversify, and use licensing as a hub‑and‑spoke growth model—illustrating how LEGO’s disciplined focus and community‑centric innovation transformed a near‑bankrupt company into a $9.3 billion global powerhouse.
Chapters
What's up, everyone? Welcome back to another episode of Founders Journal, my personal diary made public for the world. I'm Alex Lieberman, co-founder and executive chairman of Morning Brew. And today I am breaking down one of the greatest brands of all time, Lego. While Lego has become the world's largest toy company, thriving off of millions of kids and grown-ass men like me, it wasn't always that way. Lego's story is turbulent enough to make a Harvard MBA queasy. No offense to Harvard MBAs. And from family tragedy to factory fires to financial ruin, Lego almost died many times since its founding in 1929. But it did not. And now Lego's revival is considered by many to be one of the greatest turnarounds in corporate history. Here is the story of how Lego skirted bankruptcy to become the number one toy company in the world and the lessons that every entrepreneur can learn from the brick biz. Let's hop into it. Lego is the top-ranking toy brand in the world by a mile. It's bigger than Barbie, Nerf, Hot Wheels, Hasbro, and the creator of Pac-Man combined. But it wasn't always that way. Lego's founding story was incredible foreshadowing for the bumpy journey that the company has been on for the last 90 years. I'm going to take you on a quick trip to Billund, a quaint town smack dab in the middle of Denmark. Meet Ole Kirk Christiansen, a pirate-sounding carpenter and the founder of Lego. I have crazy respect for Ole Kirk, who founded Lego out of necessity and tragedy. After the stock market crash of 1929, Christiansen's carpentry business was absolutely crushed. His primary customers are farmers, and having been hit especially hard due to US and UK import restrictions, they no longer have the money to buy from him. By 1931, Christiansen makes the tough decision to let his last employee go and to start making wooden toys for kids based on an advice column that he read in a Danish magazine. As if making the hard pivot isn't hard enough, Olkirk must also face the skepticism of his family, who point-blank asked him, can't you find something else more useful to do? As well as the death of his wife, Christine, leaving him not only a solo entrepreneur but also a single parent to 4 children. Oh, and along the way, Olkirk had to face 3 factory fires While building his businesses, this is a great reminder for any entrepreneur: You are going to get smacked in the face by your business and by your life during the journey. Most of the time, you cannot control what happens to you, but you can control the way in which you rebound and your mindset around what happens. After a factory fire in 1942, which nearly killed the business and Christiansen's faith, Lego as we know it starts to take shape. On January 28th, 1958, Lego files the first patent for the iconic two by four brick that figuratively and. Literally acted as the foundation for what would become the number one toy company in the world. For the next 3 decades, Lego is an absolute rocket ship, climbing to $1 billion in revenue by 1988. And there's one word to describe why: focus. It's not a novel lesson, but a timeless one for any business builder. And as I reflect on my journey with Morning Brew, I can definitively say the reason that we were able to build a really successful company was because of our focus in the early years. Lego owned the fact that they caught lightning in a bottle, and they focused all of their energy on expanding their distribution instead of expanding their products during this period in their history. Beyond launching the first Legoland park in 1968, the company was dedicated to getting interlocking bricks in the hands of every child around the world by expanding their manufacturing internationally, creating theme sets around the bricks, starting with space, and introducing minifigures to bring sets to life. Now, any child could create anything they could dream up, all through the use of the plastic LEGO brick. But things started to head south quickly. 1978 was a key moment for LEGO. This is the year that the company lost its patent to its prized possession. This would have been like Coke giving away its recipe to its famous formula. All of a sudden, anyone could start manufacturing the brick, and that is exactly what companies did, especially competitors in China. F. By 1984, Tyco Toys began producing very similar bricks to Lego at a fraction of the price, which allowed them to steal a sizable portion of the US market. Lego started to really feel the impact of competition by 1993. And to add insult to injury, the '90s were defined by a ton of innovation in play for kids, namely with the advent of video and computer games. So I want you to put yourself in the shoes of Lego now. Try to imagine yourself as the CEO of the brand. Sales are slowing, competitors are eating your lunch, you're fighting Nintendo and Sony for kids' attention, and there is no end in sight. What do you do? If your answer is to try expanding your products outside of the core product, meaning the Lego brick, that is exactly what Lego did, and it completely screwed them. The late '90s and early 2000s were all about innovation for Lego. The company opened 3 new Legoland parks in the UK, San Diego, and Germany. The company stopped focusing on the brick and started focusing on digital entertainment, including video games, and it even launched its production company. Lego sets with electronic components were launched. Action figures were launched. Fashion lines and jewelry were launched. The brand was becoming diluted, and the result was a shitshow. By 2003, the company was virtually out of cash. Sales were down around 30%. The company was losing $300 million a year, and it was sitting on $800 million of debt. Filing for bankruptcy was a matter of when, not if. But thank God for Jørgen Vig Knudstorp. Because without him, I probably wouldn't be building a man cave of Lego sets ranging from the Taj Mahal to a functional Lego typewriter. Jørgen Nødstorp was a 36-year-old McKinsey consultant who was brought in to save the battle-tested brand, and his strategy was simple: cut Lego to its core and rebuild the business brick by brick. He cut the number of Lego pieces from 13,000 to 6,500. Fun fact, I think The number of colors that LEGO pieces got up to was 50. Originally was just a few of the primary colors. It got up to 50 colors. So he cut the number of LEGO pieces from 13,000 to 6,500. He cut 1,000 jobs. He stopped making unprofitable sets. Many of their sets during the trough of the business actually didn't make money. And he got rid of video games and sold off LEGOLAND parks. And thanks to Jørgen's leadership— and Jørgen today is the executive chairman of the business. Not only did the company thrive, but his leadership has been called, quote, in some ways a better model for innovation than Steve Jobs. And today, Lego has never been in a stronger position. Sales hit 64.6 billion Danish kroner, or in USD terms, it's $9.3 billion in terms of revenue, which is 10x their 2004 revenue when the company hit rock bottom. And Lego was named the most powerful brand in 2015, moving ahead of Ferrari. But I want to talk about the lessons here beyond cutting the fat, which is an obvious way for any business to refocus a hurting brand. What was the secret sauce that made Lego's turnaround story so monumental? There are 3 lessons that I have gleaned from the company's rise that I think are applicable to any entrepreneur and any business. So I want to go through them. First, Lego has done an amazing job of building alongside its customers, which entrepreneurs often forget about as they get bogged down by the minutia of their business. In 2005, the company launched LEGO Factory, a design competition for enthusiasts that would crown 10 winners, and those 10 winner sets would be put into production and sold by LEGO, featuring the creator's name and photo on the box, which would give social cred to people who were really passionate about the brand. Then in 2014, LEGO expanded on the idea with the launch of LEGO Ideas, which is a community platform that allows anyone to submit a LEGO set idea. And if your idea attracts 10,000 supporters, it gets approved for production. And becomes an actual set sold to customers. I kind of think of it as like Lego's version of Kickstarter. And the cool part about this whole strategy is that Lego gets to source free ideas from its customers. And then you as a customer, if you get your idea approved and backed by 10,000 people, you get social cred with, uh, your face and a bio about you in the instruction manual of the set. And you also get 1% of your set's net sales. When LEGO ends up starting to actually distribute the product through its stores and all of its channels. So far, LEGO Ideas has attracted 3 million members and 41,000 idea submissions, and 50 actual sets that were created by fans have ended up being produced and sold by the company. On top of all of this, so on top of like what I would call community-based creation, LEGO also spends an ungodly amount of time talking to its customers. In 2022, it ran a study called the Play Well Study, and basically the idea was Lego wanted to understand the way in which people play and how Lego as a company can improve well-being. And it talked to 55,000 adults and kids across 30 countries. Think about what companies are going to talk to that many people about how the company can better serve its needs to play. The second big lesson is that Lego has grown its business via product penetration versus portfolio diversification. What that means is the 2x4 block, kind of like the pinnacle of Lego, has stayed at the center of its universe. And every new offering doubles down on the core product. And how I think about this is, it reminds me of the famous 1957 Walt Disney drawing that shows every part of Disney, its parks, its merch, its TV, its music, all of it centers around its movies or the core characters and the intellectual property. Basically said differently, you build up really valuable IP, and then you find 10 different ways to monetize and distribute that IP in different ways, in different versions. Right? So for Disney, like Mickey Mouse, think about all of the ways that Mickey Mouse has been redistributed and remonetized beyond just the character itself. And how product penetration versus portfolio diversification shows up for Lego is everything from the 2014 Lego movie, which has made $470 million at the box office, and it earned a 96% on Rotten Tomatoes, all the way to Lego Masters, which is the Fox competition show where people go head to head building Legos against each other. It's now in season 3 to 904 branded stores that sell their sets around the world. And fun fact, I found out that as LEGO has put more emphasis on adults, which I'm going to talk about in a second, they actually host events for adults to build together at the different LEGO stores. On that note, LEGO has also expanded its sales and penetrated the product further by expanding its audience, with the adult market quadrupling over the last decade. And now they have 162 sets that focus on the 18+ market. I also think COVID was a massive accelerant for adults playing for Legos. And I also just think in a society in which mental health is in a tough place, in which people feel lonelier than ever, which people are stressed with work, Lego is an amazing outlet for people to play and feel relief from the reality of their lives. And personally, I think I'm responsible for 50% of the sales growth in the adult Lego market. So TL;DR, finding ways to go deeper with products that work versus trying to prove that you're more than a one-trick pony is Oftentimes the better strategy. Being a one-trick pony is totally fine. It's just about how big can that one-trick pony get to? How big can the market be around it? And you know, my best example of successful one-trick ponies are companies like Google that basically have you know become trillion-dollar companies off of a single product idea, which was the search engine. Now for the third and final lesson: Lego crushed licensing partnerships. One of Lego's best marketing strategies has been latching onto passionate audiences through licensing partnerships with proven movie and game franchises. All you need to do is go to Lego's website, lego.com, sort by bestsellers, and you will see many of its bestsellers are licensing deals ranging from sets with Bowser to Hogwarts to Optimus Prime to Minecraft to The Office. Now, The way I think about it is imagine that you're a child and you're a Harry Potter nerd, but you've never built a Lego set and you end up walking into Target and you end up seeing that you can build Hogwarts. There is no better way as a company to convert someone to Lego who has never built Lego than by doing so in a way that respects that customer's existing passion, which in this case would be Harry Potter. Said differently, a proven marketing strategy, no matter the business that you're in, is something that I call the hub and spoke model. Where you latch on to hubs, which are channels that give you access to spokes, which are a lot of the right customers. And so in the context of Lego, one of Lego's hubs are basically franchises that have millions of the right customers. So that's everything from Disney to Marvel to Minecraft to Harry Potter to Lord of the Rings. Lego is exceptional at exploiting this strategy through licensing. And so that is the brief founding story of Lego, their near-bankruptcy experience in the early 2000s, and the playbook that allowed them to thrive post-crisis. Obviously, this is just scratching the surface. So if you want to learn more about the company and the lessons you can learn as an entrepreneur, I've linked to some of my favorite resources about Lego in the show notes. And these were the resources that I was consuming as I was preparing for this episode. Finally, this is the first time I've done a company case study on the podcast in a long time. If you liked it and you want more of it, shoot me an email to alex@morningbrew.com to let me know. And also feel free to let me know what other companies you are excited by or are some of your favorite brands, and maybe I'll do a mini case study on them in the future. As always, thank you for listening, and I'll catch you next episode.
