The LEGO Story: Building a Business Brick by Brick

When looking at a LEGO brick, there are two things that immediately jump out at you – the first being how recognizable it is. Regardless of its shape, color, or size, when you see one you instantly know what you're looking at. The second thing is how simple it looks. While a single LEGO brick might not look like much to the world, it's when you combine them that the magic happens. A box of LEGO bricks can be combined into hundreds of thousands of different combinations, meaning that the only limitations to what one can build are imagination and creativity. The LEGO Group is a fascinating case study of how a great product, a clear philosophy, and passion can build a successful business. Join us as we take a closer look at one of Denmark's most famous companies, built from a lot of small plastic bricks, and even more heart.

• Foundations in Billund: The company's founder, Ole Kirk Christiansen, was originally a carpenter. The economic realities of the great depression forced him to shift his focus in order to support his family.

• From wood to plastic: LEGO initially produced wooden toys, but a plastic molding machine opened up new possibilities for the company.

• The System: The LEGO System in play was introduced in the mid-1950s, and proved to be an excellent blueprint for success.

• Finding avenues to success: Ever since its founding, LEGO has managed to find the best ways to succeed, even if this meant discarding tried and tested strategies and products for something new.

• A source of pride: LEGO and its products are a source of pride in Denmark and one of the small nation's most important companies.

• Fostering community: Even if LEGO is often perceived as a children's toy, adult fans of the company and its products have built up a strong community and are today an important customer demographic.

LEGO isn't, and has never been, a publicly traded company. Regardless of this, the company still publishes an annual report and has done so for over two decades. This might seem somewhat out of the ordinary for a privately held company, but it's not an uncommon practice for large Nordic companies. While somewhat unusual for non-nordic eyes, it allows us to get an insight into the financials and growth of the company. When reading through LEGO's annual reports (accessible through Quartr Pro) one gets a first-hand look at an incredibly well-run and successful business. While much can be said about this, it is best illustrated by looking at LEGO Group's revenue CAGR, which sits at 9% over the course of a 25-year span:

LEGO revenue and EBIT growth between 1998-2023

LEGO revenue and EBIT growth between 1998-2023

With that being said, let's dive into the fascinating story of The LEGO Group and how the business was built, brick by brick.

The LEGO story begins in Billund, a medium-sized town in central Jutland (Denmark's westernmost region) roughly 90 minutes by car north of the border with Germany. It was here that Ole Kirk Kristiansen, a carpenter by trade, started what would go on to become one of the most beloved toy manufacturers in the world.

Like the rest of Denmark (and much of the world), the effects of the great depression lay like a heavy, wet blanket over him and his family. He had previously done work for farmers around Jutland, but with meat and grain prices taking a nosedive, many of his most loyal customers could no longer afford to employ his services. His wife passed away in 1932, leaving him alone with his four sons and with a very bleak outlook on the future.

The economic realities of the time meant that Kristiansen had to come up with products that would be easy to sell, and he started a woodworking company. Initially, the small outfit focused on easily marketable household items, but in 1932 he introduced a new line of products: wooden toys. His reasoning behind the shift was that even in times of economic hardship, children need toys to play with.

While his reasoning was logical, the company still struggled financially. His newly introduced wooden cars, buses, yoyos, and similar items saw some success; there is still a desperate need for an injection of capital. Kristiansen asks his very reluctant siblings to stand as guarantors for a loan of a significant sum of money and is met with skepticism and a fair share of negative comments. Regardless of this, he manages to persuade his siblings to co-sign the loan, and the future of the company is secured.

With the financial future of the company secured in the short term, it was time to take the plunge in earnest. In 1935, Ole Kirk Kristiansen decided to focus solely on the toy production he started three years earlier. In conjunction with this, the carpenter turned toy maker decided that it was time to find a new name for the company that better reflected its focus.

According to the story, he decided to host a competition for all employees, where everyone got the chance to submit a name. The best suggestion would be used as the company's new name, and the employee who comes up with the best proposal would be the proud recipient of a bottle of Ole Kirk Kristiansen's homemade wine.

After everyone in the small factory had the chance to submit their proposal, Ole Kirk Kristiansen announced the winner: himself. He had taken the Danish words “Leg Godt” (roughly translated to “play well”), shuffled some letters around, and came up with a name that is both short, snappy, and that embodies the company philosophy. When the new name was fully adopted in 1936, the first pieces of the foundation of what would become the LEGO Group of today were laid.

In 1937, Ole Kirk Kristiansen made a significant investment: a brand-new milling machine from Germany, which cost roughly the equivalent of a house at the time. Despite some skepticism (once again from his immediate family), Kristiansen was sure that it was the right way forward. The new milling machine allowed work to be performed much faster and allowed the young company to ramp up production significantly.

But while the pace and sheer volume of toys produced was dialed up, there was one thing that remained in focus: quality. Kirk Kristiansen was first and foremost a craftsman who took great pride in his work, even if his end customer was a young child. He wanted all LEGO products to stand the test of time, and cut no corners during production. This obsession and pride in delivering the highest possible quality for their customers was not something that was to be taken lightly, not even by his own sons.

One famous story regarding this involves Godtfred Kirk Christiansen (Ole's son and the eventual CEO of the LEGO Group) and a shipment of wooden ducks. After delivering the batch of freshly painted toys to the railway station for transport to retailers, he proudly told Ole that he had just saved the company some money by applying two coats of varnish instead of the usual three. Following a severe scolding by his father, Godtfred went down to the railway station, fetched the shipment, and spent the rest of the night applying the missing coat of varnish to every single wooden duck.

Following the incident with the ducks, what had previously been a saying around the factory became the official company motto. Signs with the text “Only the best is good enough” were put up on the walls to constantly remind all employees about one of the guiding principles behind LEGO: Quality. While the carpenter had turned into a toymaker, he continued to have an artisan approach to his and his company's work.

In the early morning of the 9th of April 1940, German infantry and armor rolled across the border and quickly overwhelmed the Danish defenses. The Danes fought valiantly but were combating a foe they had no chance of holding off, and just 6 hours after the first shots of the invasion had been fired in Jutland, the papers finalizing the surrender had been signed in Copenhagen. Following the surrender, Ole Kirk Kristiansen and the rest of his countrymen had to face the reality of living under German occupation.

However, LEGO was able to continue its day-to-day operations in more or less the same way as before the invasion. Getting a hold of steel and various other materials was now more or less an impossibility, and rations of food and other goods became a reality. However, Lego was able to continue to use wood to produce its toys, and work was carried out in the factory in Billund throughout the first years of occupation.

But in 1942, disaster struck. Kristiansen was living together with his family in a house connected to the LEGO factory at the time, and in the middle of the night, he was awoken by a panicked employee frantically shouting that the factory was engulfed in flames. The Kristiansen family and the employees who lived close to the factory do what they can to save the facility, but their efforts are in vain. The family home is rescued, but the fire burns the factory down to the foundation. Ole Kirk Kristiansen's life's work lies in ruins, and his energy and will to carry on is shattered.

After contemplating and considering various offers to rebuild the factory in other parts of the country, Kristiansen decides to stay in Billund. His energy and passion had been reduced to embers together with his beloved factory, but a sense of duty towards his employees and his family spurred him to start over. After securing a loan (no doubt helped by the fact that he had paid off his previous sizable loan in 1939), work began on the new LEGO factory.

While the fire was a disaster and marked one of the toughest periods in Kristiansens life, LEGO would rise from the ashes stronger and in a better position to grow. While the old factory had served its purpose well, it had started to become a limitation due to its age. When the new facilities opened in 1943, it was state-of-the-art and well-equipped to handle production at a larger scale.

Denmark was liberated by Allied forces on May 5th, 1945. While this was a cause for massive, nationwide celebration, the LEGO factory in Billund still faced a looming threat. Not from a foreign power, but something else entirely: a lack of high-quality beechwood. All LEGO products at the time were made from a very specific type of wood found in a forest not too far from Billund, and without the right quantities, production was capped.

But things were about to change. In 1946, Ole Kirk Kristiansen attended a showcase of a new type of plastic injection molding machine in Copenhagen. He was immediately sold on the idea and ordered one for the factory in Billund. The machine was delivered from the British manufacturer at the end of 1947 and was first tested in Godtfred Kirk Christiansen's basement. After plenty of trial and error, the machine is installed in the factory and 1948 is spent experimenting and gaining experience of the molding process.

Employees began experimenting with plastics immediately after the arrival of the company's first plastic injection-molding machine in late 1947. The machine was installed in a building next to the woodworking factory after it had been tested in the basement of Godtfred Kirk Christiansen's home. The company got more acquainted with plastic molding throughout 1948, and in 1949 the company introduced various plastic products and most importantly: the forefather of the modern LEGO brick.

Ole and Godtfred were introduced to small, interlockable plastic cubes from the British manufacturer Kiddicraft in the late 40s, and they immediately saw their potential. The father and son redesigned the cubes and in 1949 the company's first plastic product was released: LEGO Automatic Binding Bricks. At the time, LEGO products were only sold in Denmark, and the automatic binding bricks were no exception.

Regardless of this, an English name was chosen out of respect for the original design, as well as a celebration of the allied forces that liberated Denmark from German occupation. It is however worth noting that the Automatic Binding Bricks were far from being the best-selling LEGO product at the time. At the beginning of the 1950s, that honor was reserved for a small plastic Ferguson tractor produced on license (a hint of what was to come in the future).

At the beginning of the 1950s, LEGO was doing well. Godtfrid Kirk Christiansen was taking more and more responsibility in the company and was slowly but surely taking over the helm from his father. The change in focus toward plastic had paid off, and in the early years of 1950, LEGO began exporting to Norway, Sweden, and Iceland. The money earned from exports was invested back into the factory to up production, and soon, LEGO products could be found in countries such as France and Germany. By the mid-1950s, Godtfred was in charge of the company his father had founded, and he proved to be just the right man for the task of expanding the Lego Group.

However, there is also a need for a brief explanation regarding the spelling of the family's surname. As you might have already picked up, Godtfred and his father spell their names Christiansen and Kristiansen respectively. Ole and coming generations prefer to spell their surname with K, while Godtfred always used Ch instead. In this article, we've elected to spell their names the same way they did.

By 1955 Godtfred Kirk Christiansen was in charge of the LEGO Group, and after speaking with a purchasing manager of a large Copenhagen department store, he got an idea. The purchasing manager was far from impressed with the toy industry at the time, saying that there was no kind of system or cohesion between products. Godtfred was immediately intrigued and became determined to bring a system to the toy industry. After looking through all of his company’s products, the only path that even seems remotely worth pursuing is the plastic bricks. He was tired of children being presented with a toy and then essentially left on their own, with very limited options for creativity.

The LEGO System in Play was introduced in 1955, together with very specific instructions to retailers to ensure that they were able to explain it to customers. Some of the key points include that the products are simple and durable, suitable for all ages, reasonably priced, allow creativity, and do not lose their appeal after a few months or years. The first products that follow this principle are the ones introduced in “Town Plan”. Miniatures of pedestrians, bicycles, buses, and other things that make up a city were paired together with structures built from LEGO bricks. These models can be used individually, but fit together cohesively, and the children could choose for themselves how they wanted to construct their own miniature community.

Another key aspect of the system was the fact that the products were marketed towards both boys and girls. This was highly, highly unusual at the time, and was something that Godtfred Kirk Christiansen made sure to make a priority. Instead of targeting effectively 50% of consumers with their products, all LEGO products from here on out were marketed as unisex, with both boys and girls being used in advertising material.

From here on out, the system is the guiding principle behind all decisions made by LEGO management, and Godtfred Kirk Christiansen was convinced that interlocking bricks and the system would be the best way forward. In 1958, he sat down to come up with a solution to a common problem faced by customers: lack of stability. While the bricks are interlockable they quickly become unstable when building taller structures, something he sets out to change.

The solution that he came up with is still used today: studs and tubes. Each LEGO brick has cylindrical "studs" on the top and hollow "tubes" on the underside. When two bricks are pressed together, the studs fit snugly into the tubes, creating a firm connection. This interlocking system allows for strong, stable constructions and fixes the stability issue. After producing some prototypes in secret, he sends the design to the patent office and anxiously awaits the results. Regardless of whether or not his worries are grounded in reality, he is highly concerned that someone will copy the idea.

With the patent secure and with Godtfred breathing a sigh of relief that they're now in the clear to start producing the bricks without the threat of someone copying them, there is still one potential issue that needs to be addressed: Kiddicraft. The British manufacturer had no qualms about showing LEGO the Automatic Binding Bricks, but how would they receive the news that they had just patented an idea clearly inspired by their original product?

One must imagine that Godtfred Kirk Christiansen was somewhat nervous when he contacted Kiddicraft to ask whether or not they had any objections to the new and improved LEGO brick. Much to the relief of everyone in Billund, Kiddicraft saw no issues whatsoever and even wished their Danish colleagues the best of luck going forward. They themselves had seen very limited success with their version of plastic bricks.

The LEGO Group would, as we know, be successful with their version.

After the stud and tube principle was introduced in 1958, the company went all-in on their new and improved bricks and their system. In 1960 the company stopped producing wooden toys and other plastic miniatures altogether. LEGO's future will be built on millions and millions of small, interlocking bricks.

The stud and tube principle proved to be a complete game-changer, and after the patent is granted all upcoming LEGO bricks will use the technology. It is still in use to this day, meaning that a brick purchased today can be locked together with one produced in 1958.

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In 1961, Godtfred Kirk Christiansens's cousin Dagny Holm joined the company as a modelbuilder. While children are now building their own creations at home, Godtfred and the company realized that building large-scale models and worlds at the LEGO factory acts as a great form of advertisement for the possibilities that the bricks offer. Dagny Holm proves to be exceptionally skilled at this, and visitors flock in the thousands to see her creations at the Lego showroom. While having visitors was the intention, it quickly became too much, and by the mid-1960s having a showroom in direct conjunction with the factory led to a multitude of problems. Luckily, there was a solution.

Godtfred teamed up with a storefront display designer from Copenhagen and told him about his grand idea: a theme park displaying miniature worlds built completely out of LEGO bricks. Said and done, moorland was purchased, and excavating and construction work began. Dagny Holm, who more than likely was the best model builder in the world at the time, assembled her team and got to work. Together they built a miniature city in intricate detail, dubbed Miniland, and filled the park with various other creations. Restaurants and different attractions were installed and in the summer of 1968, Legoland Billund opened its doors to the public.

The opening day was an overwhelming success, with far more visitors than expected. Understaffed and facing the real possibility of being overwhelmed by the crowds, several of LEGO's top executives rolled up their sleeves and spent the day washing dishes in the restaurant. In the first year of Legoland being open, it saw over 600,000 visitors, over double what the company had hoped for. The popularity of the park led to expansions, and to this day it continues to be an important part of the company's DNA. The original one is still standing in Billund and continues to be a popular tourist attraction, and at the time of writing, there are nine other parks spread out across the world.

With the foundational brick(s) in place, the 1960s marked the beginning of LEGO's global expansion in earnest. Sales representatives from all over the world descended on Billund to be trained in the purpose-built “Systems House”. The company sees rapid success and expands its production facilities both in Denmark and internationally. The 1960s were largely focused on international growth and ramping up production, something which proved to be two very worthwhile ventures.

While the company had always had an eye for improving its products and introducing complementary building blocks to its basic bricks, LEGO was looking for something that could help the company grow even more. This is also what led to the introduction of the first themed sets in the 1970s, with the first being the iconic LEGO space and castle sets. These sets weren't just collections of bricks where the children decided what to build completely by themselves. Instead, the box sets came with specific pieces and instructions to follow, enabling anyone who picked up the box to complete complex models without issues.

Naturally, these sets could also be used together with regular LEGO bricks, but having the possibility to build interesting structures simply by following instructions became a recipe for success.

In 1973, Godtfred stepped down as managing director, instead opting to hand over day-to-day operations to Vagn Holck Andersen. Andersen would serve as MD until 1979 when the next generation of the family, Kjeld Kirk Kristiansen took over as CEO. Godtfred would serve as the chairman until 1993 when he retired in earnest. He had spent all of his working life at LEGO, and was in many ways the architect of the company's success. Godtfred Kirk Kristiansen passed away in 1995 at the age of 75.

The 1980s and 1990s were characterized by significant diversification, modernization, and expansion. During the 80s, products became more complex with new and interesting box sets hitting the markets, something that would continue into the 90s. During this time, LEGO was also focusing on modernizing its production. New and improved manufacturing sites were built, old ones were upgraded, and modern technology was deployed in quality assurance.

Despite the innovations and modernizations, the 2000s brought financial turmoil for LEGO. By 2004, facing serious financial crises due to over-expansion, a cooling toy market, and a plethora of operational inefficiencies, the company initiated a major restructuring. Kjeld Kirk Kristiansen stepped down as CEO and instead took over the role of Chairman of the Board. Jørgen Vig Knudstorp was appointed CEO, the first ever from outside the Kristiansen family, and the tough work of steering the company back on course was initiated.

The period was marked by a refocus on core products and a reduction in the overly broad product range that had diluted the brand. Things looked very bleak, but through concerted efforts and the selling of key assets such as Legoland (LEGO Group would maintain day-to-day operational control), outsourcing of less technical pieces, cost-cutting measures, and successful licensing agreements saved the company. Knudstorp prioritized getting focus back on the two things that had made the company so successful in the first place: the bricks, and the Lego System in Play.

One of the key ingredients to LEGO being able to come through the financial turmoil relatively unscathed was its licensing agreements with various other companies. Technically, the first product ever produced on license was “Wooden Pluto”, a copy of Mickey Mouse’s dog. The records of when it was first released have been lost to history (perhaps in the fire of 1942), but Disney would return as a licensing partner after the turn of the millennium.

These licenses have proven to be an important source of revenue for the group and continue to be some of their most popular products. But none of these licensing agreements have become as iconic as the LEGO Star Wars series. Initially released in 1999, it became an immediate success and is one of Lego’s most successful ventures ever. Some notable IP collaborations include Ferrari, Warner Bros. Discovery, IKEA, Adidas, and many, many others.

At the beginning of the 2010s, LEGO had ended all of its outsourcing manufacturing agreements and once again produced all products themselves. The focus on various licensing agreements and continued innovation in the boxed sets intensifies, and a majority of all releases are tied to a major IP owned by another company.

Today, LEGO is a diversified company generating revenue from a plethora of different business sectors. LEGO box sets have moved from being a novelty to the core of the company’s physical offerings, with a wide array of different products including everything from famous buildings to spaceships. Even if the company today generates revenue from media ventures, merchandise, and actual Lego sets, the company is still built and run on two unwavering things: the brick, and the System in Play.

While Denmark might be a small country nestled between larger neighbors, it's still made a significant mark on the global business scene. For a country with roughly 6 million inhabitants, it's home to several companies that are considered global giants. For most of us with an interest in the markets, the most striking example of this is of course the biotech company Novo Nordisk, which in recent years has come to dominate international biotech discourse. However, the company behind Ozempic is not the only example of a truly global Danish enterprise. Other notable companies include both the shipping giant Maersk and the alcoholic beverage conglomerate Carlsberg Group.

However, none of these aforementioned examples instill the same sense of national pride, and in many cases love, in Danes as LEGO. While much of this can be attributed to patriotism and pride in the country's achievements (of which there is not a short supply in Denmark) it also has its cultural reasons. LEGO's philosophy and Danish culture are closely intertwined, with the country's values and the company's vision sharing many key markers. Danish culture places a strong emphasis on creativity, innovation, and design – traits that are deeply embedded in Lego's philosophy.

The concept of "hygge," which refers to a sense of coziness and contentment, often involves simple, creative pleasures. LEGO bricks, with their endless possibilities for building and imagination, embody this idea by encouraging playful creativity allowing people of all ages to build whatever they come up with in their mind. At the same time, education in Denmark has a focus on fostering independent thinking through problem-solving and hands-on learning. LEGO bricks complement this perfectly by promoting learning through play, allowing children to develop cognitive and motor skills while engaging in creative activities. This is also something that the company recognized early on its journey, heavily leaning into the idea that building with Lego bricks was “productive play” helping children to develop helpful, everyday skills.

One common misconception amongst those not all too well-versed with the LEGO group and the customer base is that LEGO is exclusively marketed towards children. While kids between roughly 7-16 have been a key customer group since the first bricks were manufactured in the 50s, it's not the only demographic that helps drive sales. Adult Fans of LEGO (AFOL), have become a key customer group as they're more often than not the ones that are able to purchase the larger, more complex boxed sets due to their price.

One other key factor behind the success of the company is the fact that it has managed to build up a community amongst its fans. Much of this can be attributed to the creative nature of the company’s products. Humans like to create things and share them with others, something which LEGO bricks enable in a very intuitive way. This combined with various initiatives from the company itself means that there is a real sense of camaraderie and a strong community among LEGO fans.

One of the most striking examples of this is LEGO Ideas. The concept was launched in 2014 and has proved to be both incredibly popular and a fantastic way to foster this sense of community. In short, LEGO Ideas lets anyone submit a build or model that they have designed, where other fans and enthusiasts can vote on whether or not they like the concept. Upon garnering enough votes, LEGO designers then decide whether or not the concept is viable and the long process of finalizing the idea begins. If an idea gets made into an actual set sold by LEGO, the designer gets to take part in the profit.

What evolved into the LEGO Group that we know today was founded by Ole Kirk Christiansen, and the company remains within the family's control, with ownership passing through several generations. At the top of the ownership structure is Kirkbi A/S, a holding and investment company that manages the family's assets, including their majority stake in the LEGO Group. Kirkbi A/S owns approximately 75% of the LEGO Group through a wholly-owned subsidiary called LEGO A/S. The remaining 25% is owned by the LEGO Foundation, a charitable organization established by the Kristiansen family.

Kirkbi A/S is in turn owned by the Kristiansen family, with Kjeld Kirk Kristiansen, the grandson of the founder, playing a significant role in the company's direction until he stepped down from the operational leadership in 2004. Kjeld Kirk Kristiansen now serves on the board of Kirkbi A/S and has gradually transitioned control to his children, notably Thomas Kirk Kristiansen, who represents the family’s fourth generation. He currently serves as the chairman of both Kirkbi and The LEGO Group. After Kjeld Kirk Kristiansen stepped transitioned to solely being involved in the Board, no family member has served as CEO of the LEGO Group.

Further reading: Why Family-Owned Businesses Outperform

LEGO might not be a public company, but the question of whether or not LEGO Group is planning to IPO is a constant topic amongst investors. The rumor mill surrounding a prospective IPO has more or less always been turning, but at varying intervals throughout the years. Officially, the Kristiansen family has stated numerous times that they're not interested in conducting a public offering. There are two simple, but compelling arguments for this stance. They want to maintain full control of the company, and management sees no need for an injection of external capital. However, one thing is certain: there is significant interest from investors. Time will tell whether or not the LEGO Group will ever list its shares on the public markets, but as of the time of the writing of this article, there are no confirmed plans.

When the economic realities of the time forced Ole Kirk Kristiansen to switch over his productions to toys, it's nigh on impossible to imagine that he had even the faintest idea of what the future would hold for his company. While the LEGO of today is a massive, global company, its physical and spiritual home is still located firmly in Billund. The success of the company can largely be attributed to a willingness to embrace new technologies, but also to staying steadfast to an idea. LEGO is more popular than ever, and continues to use the philosophy of the System in Play first conceptualized in 1955 as its guiding principle in day-to-day operations. While the LEGO of today is much, much different from when Ole Kirk Kristiansen first started producing toys, the company motto is still the same: only the best is good enough.