The Lego Story: Building a Business Brick by Brick

Lego bricks are one of the most popular toys worldwide, enabling children to explore their creativity and imagination while playing by combining bricks into whatever they want. The company has grown from a small toymaker into a truly global business and brand, and today has fans of all ages across the world. While currently not a public company, the Lego Group is still a fascinating case study of how a great product and a clear philosophy and idea can build a successful business. Join us as we take a closer look at one of Denmark's most famous companies.

• From small toymaker to global powerhouse: The company initially produced wooden toys, but a plastic molding machine opened up new avenues for the company.

• The Lego philosophy: Ever since the beginning Lego has been guided by one guiding principle: allow children to play creatively.

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

Before we get into the history of the company behind the world-famous bricks, we’re going to be discussing the Lego Group as a business. As you might already be aware Lego isn't, and has never been, a publicly traded company. Regardless of this, Lego Group 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 actually relatively common practice for large Nordic companies. This allows everyone with an interest in the company to get an insight into its financials, and when reading the annual reports (accessible through Quartr Core and Quartr Pro) one gets a first-hand look at an incredibly well-run and successful company. This 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

Lego might not be a public company, but the question of whether or not the company is planning to IPO or not is a constant topic amongst investors. The rumor mill surrounding the company and a prospective IPO has more or less always been turning, but at varying intervals throughout the years. Officially, the Kristiansen family (which are the majority owners) has stated numerous times that they’re not interested in conducting a public offering since they want to maintain full control of the company, together with the simple fact that the 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 concrete plans.

Further Reading: Why Family-Owned Businesses Outperform

The story of the company begins in 1932, when Ole Kirk Christiansen, a carpenter from Billund, Denmark, established a small business focused initially on household items. The shift to producing exclusively toys didn't happen immediately. It was the economic conditions of the 1930s and the Great Depression that influenced Christiansen to focus on affordable products: wooden toys. Despite the hardships of these times, including a devastating fire in 1942 that destroyed much of the factory, Ole Kirk managed to keep the business afloat. The name Lego was adopted in 1934, derived from the Danish phrase "leg godt," which translates to "play well."

While Lego was well established and a thriving small business, the foundation for what the company would become came in 1947 when Lego purchased a plastic injection molding machine, one of the first in Denmark. This purchase, in turn, led to the creation of the Automatic Binding Brick in 1949, a precursor to the modern Lego brick. However, these early models had limited functionality and were not the versatile building blocks we know today. The first iteration of the products took shape in 1958 when the modern design of the Lego brick was patented. This new design featured tubes inside the bricks that allowed them to be locked together with greater stability. This system of interlocking bricks was unique and set the foundation for the vast creative possibilities that Lego would eventually offer.

With the foundational brick(s) in place, the 1960s marked the beginning of Lego's global expansion. The bricks quickly captured the imagination of children worldwide, and the company gained popularity internationally.

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 completely 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.

During the end of the '60s, the company opened what in many ways has become the physical representation of the company’s core idea and philosophy. Partly inspired by Disney's Disneyland, Legoland was opened in Billund in 1968. Legoland, while not generating close to the same amount of revenue as the sale of physical bricks, continues to be an important part of the Lego Group's identity. The original one is still standing in Billund but other locations have opened around the world, including several in the USA, Europe, and Asia.

The 1980s and 1990s were characterized by significant diversification. Lego began exploring the potential of its system with the launch of Lego Technic in 1984, introducing pneumatics and later, prog, which added complexity and realism to Lego constructions. The 1990s further saw Lego branching into new demographics; the launch of Lego Duplo (larger bricks that run no risk of being accidentally swallowed) catered to younger children.

The media expansion began in 1999 with the launch of the Lego Star Wars theme, in collaboration with Lucasfilm. This not only diversified Lego's product lineup but also placed it squarely at the crossroads of play and popular culture. This venture was so successful that it led to further partnerships with other franchises, including the Harry Potter series.

Despite the innovations and expansions, the early 2000s brought financial turmoil for Lego. By 2004, facing serious financial crises due to over-expansion and operational inefficiencies, the company initiated a major restructuring. This period marked a refocus on core products and a reduction in the overly broad product range that had diluted the brand.

The company also embraced digital products, launching the Lego Digital Designer and promoting fan involvement through the Lego Ideas platform, which allowed enthusiasts to submit and vote on new designs. This strategy not only stabilized the company but also deepened customer engagement and loyalty. In recent years, Lego has not only recovered but has thrived, focusing on sustainability and digital innovation. The company pledged to invest in more sustainable production methods, including a promise to find a sustainable material for their bricks by 2030. The company has also expanded its media presence with a successful foray into film, most notably with "The Lego Movie" in 2014, which was both a critical and commercial success.

The Lego of today 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. These box sets have become increasingly complex, the Lego Group frequently partners with other companies to license IPs, with notable examples of collaborations being Ferrari, Warner Bros. Discovery, Disney, Porsche, and many more. The company also produces media in the form of TV series, video games, and movies. This coupled with the various theme parks around the world in turn means that the Lego Group as a whole generates revenue from a diverse mix of business segments.

At the core of Lego's design philosophy is the concept of "systematic creativity," which is enabled by the uniformity and compatibility of LEGO bricks. This system allows all LEGO pieces to fit together in countless ways while maintaining simplicity in design and function. Each brick's uniform fitting system means a LEGO piece bought today can still connect with one bought 50 years ago. This design consistency ensures longevity in use and encourages a playful exploration of construction and reconstruction, which is fundamental to creative learning. Enabling children to explore and play on their own terms has always been a guiding principle for the company, and is something that its designers continue to work towards today.

While Denmark might be a small country nestled between much 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. The most striking example of this is of course the biotech company Novo Nordisk, which in recent years has grown exponentially. But Novo Nordisk is not the only example of global Danish enterprises, 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 in Denmark. Lego has been, and still continues to be, incredibly loved in its home country and nearly all Danes have a fond place in their hearts for the company.