Profitable Business Models > Business models of large companies
LEGO: Business Model Canvas and History: How a Carpenter’s Dream Became the Most Successful Toy Company in the World
- by Joanne Moyo
- November 18, 2021
One way or another, you’ve encountered a LEGO piece. If you’re one of the lucky ones, your encounters with the beloved toy were not while clearing a blocked vacuum clean or worse, painfully stepping on one.
The Danish multinational group has been a significant part of many childhoods. In fact, some experts state that for every person on the planet, there exist 62 LEGO pieces. That’s the magnitude of the reach LEGO has had.
With over 80 years in the toy industry, LEGO has been through some ups and downs. At some point, it almost went bankrupt. Thankfully the toy giant managed to turn things around. Today, LEGO is enjoying something of a renaissance after a few brutal decades.
Despite the pandemic forcing retailers to close, 2020 saw 134 new LEGO Stores open globally, including 91 in China. Additionally, LEGO.com saw a traffic increase to 269 million visits last year alone, almost double the number in 2019. By 2020 the total LEGO brand revenue was $7.54 billion, with over 678 open stores in multiple countries.
The fact that a product so simple is still relevant in an increasingly digital world is truly amazing. But this relevance did not come without its fair share of obstacles. So how did an idea as simple as a toy brick become one of the most successful and profitable businesses in the world?
So let’s take an in-depth look at how LEGO has managed to grow and sustain its business model.
1932-1948: The Origin of Lego
The year is 1932, and the Great Depression has just hit Europe. In a little Denmark town called Billund lived a man named Ole Kirk Kristiansen, the tenth son of a poor Danish family.
Ole, 41 at that time, was a carpenter. He supplied Billund with all its woodworking needs such as doors, windows, kitchen cabinets, cupboards, coffins, drawers, tools for digging peat, and bodywork for carts. He had purchased a woodworking workshop in 1924 where he was also building houses and other large projects.
The workshop and his adjoining family home burnt down after a fire that his kids had started. Luckily, he was able to secure a loan to rebuild a bigger workshop. Unfortunately, the Great Depression caused the demand for large-scale projects to plummet.
Ole realized he needed to adapt to keep supporting his kids. So to save costs, he decided to create products that consumers could actually afford, given that no one had money to waste at that time.
He experimented with different wooden products starting with ironing boards, step ladders, and chairs, which failed to get any response from his customers. Eventually, he settled on children’s toys such as piggy banks, pull toys, cars and trucks, and houses. Creating toys was his saving grace as his wife had recently passed away. Making the toys brought him some comfort and a bit of joy for him and his four sons.
Unfortunately, the business was not profitable at first because of the Great Depression. Most of his customers were farmers who had no money and would sometimes trade food for his toys. So Ole continued producing practical furniture in addition to toys to try and stay afloat.
As the mid-’30s rolled by, a yo-yo toy wave gave Ole a brief respite, but it was short-lived. He faced bankruptcy but refused to stop making toys when his siblings tried to make it a condition of a bailout loan.
Ole was not one to be held down long by a disaster. He used his capacity to adapt to find a new solution to the hundreds of unsold yo-yo’s that now littered his workshop. He decided to use the leftover yo-yo parts as wheels for toy trucks which became a bestseller along with toy trains. His son Godtfred began working for him.
LEGO’s Business Model Canvas: The Experimenting Days
At this point, LEGO’s Business Model Canvas looked like this:
- Affordable wooden furniture and a few toys
- Poor rural farmers
- Selling furniture (and sometimes toys)
- Experimenting with different wooden toys
- Manufacturing other wooden products (iron boards, chairs etc)
- Wood suppliers
- Wood (highly available during the war)
1934-1935: Rebranding and LEGO’s first Investment
In 1934, realizing that he needed a strong brand name that appealed to children, Ole held a contest among his staff to name the company. The incentive was a bottle of homemade wine. Eventually, settling on LEGO, the first two syllables of the Danish phrase Leg Godt which means “play well.”
The focus from the beginning was to produce toys with high quality, just like the company did with their other wood products. So, the quality control process that LEGO is well known for today started from the company’s inception.
Ole was convinced that even children deserved toys of high quality, made of the finest materials so that they would last for many years of play. In fact, his son Godtfred coined LEGO’s first motto, “Only the best is good enough.” There was a placard hung on the factory wall reminding employees of the company’s attitude towards quality.
Ole was not one to shy away from new technology which could improve the quality of his products. He had a gift of spotting potential, so he bought his first milling machine in Germany for DKK 3,000. This amount was one-third of the company’s total profit the previous year.
1939: Impact of WWII on LEGO
Using wood to make his toys had been out of necessity. Most toy manufacturers at that time were using metal which Ole or his customers could not afford. However, the use of wood turned out to be a brilliant decision as WWII started.
During the first two years of the war, the demand for toys was greater than ever. LEGO was able to double its sales because all import activity was halted. This naturally favored the sale of Danish goods.
Metal was now being preserved for making war tools. Many traditional European toymakers suffered huge losses, with some even closing. LEGO was one of the few toy manufacturers left making toys for children during the tumultuous period.
LEGO’s Business Model Canvas: The Early Days
- High quality, affordable children toys
- Selling affordable toys (mainly wooden piggy banks, pull toys, cars and trucks, and houses)
- Manufacturing and selling toys
1940-1948: Rebuilding LEGO
1942: the great fire.
Tragedy struck once again, and the whole LEGO factory was gutted by fire. Fortunately, this time around, his home was saved. But it was almost too much for Ole to take. At this point, he considered not rebuilding the factory at all. The insurance refused to cover the loss and construction of a new production facility, so Ole took a two-year break.
1944-1947: Rebuilding LEGO
Probably out of a sense of responsibility towards his then 15 employees, Ole decided to start again. He got a loan from Vejle Bank and rebuilt a bigger factory in 1944, which now incorporated an assembly line. By the end of 1944, the company had over 40 employees and was steadily growing.
When WWII ended in 1945, the traditional materials used to manufacture products were not readily available. Plastic became the next best alternative. Additionally, it was increasingly difficult to source beechwood of the right quality from South Stenderup Forest near Kolding.
Noticing the shifting trend, Ole decided to ride the wave of plastic adoption. He set out to purchase Denmark’s first plastic injection molding machine and began making plastic toys.
Employees began experimenting with plastics soon after the arrival of the plastic injection-molding machine in late 1947. While still getting acquainted with plastic molding, the company introduced its first plastic products in 1948, but it was not until 1949 that plastic production started gaining traction.
In 1947, Hilary Fisher Page, who worked at a London-based company called Kiddicraft, sent drawings and samples of his interlocking blocks idea to Ole. Ole was skeptical at first and didn’t adopt Page’s design.
1949-1969: The Iconic Lego Brick
However, he changed his mind a few years later and, in 1949, LEGO began manufacturing plastic interlocking bricks similar to Page’s model. He called them “automatic binding bricks.”
Ole gave the brick toy an English name as a tribute to the Allied forces, which had liberated Europe and ended World War II in 1945. As with all of the company’s other toys, the bricks were sold exclusively in Denmark because of export restrictions in other countries
This first design was anything but perfect; for one, the blocks were not stable and tended to fall when stacked on top of one another. They were not LEGO’s most popular toy at that time, but they sold pretty well.
This gave LEGO the go-ahead they needed to try and diversify their product offering. The company launched LEGO plastic building bricks in 1949. These bricks were bigger than the Automatic Binding Bricks and intended for younger children aged 1-5.
LEGO markets their new product as “the perfect bricks for daycare centers,” with the packaging featuring Ole’s grandson playing with the bricks as a toddler.
1953: Expansion to Norway
Always looking to the future, Ole tries to predict how the toy market could develop once post-war import restrictions are lifted. So far, LEGO had been restricted to local operations; expanding into exports would mean more revenue.
He begins looking beyond the Danish market. He decides the first step towards global expansion would be to set up operations in Norway. Unfortunately, Norway had strict import restrictions at the time so LEGO could not directly export the finished toys.
To circumvent this problem, LEGO signed a licensing agreement with Svein Strømberg & Co. A/S, a plastics manufacturer in Norway.
Strømberg set up a manufacturing and sales division, called Norske Lego A/S, and licensed the molds and technical knowledge from LEGO’s Billund factory. In exchange, LEGO received royalties from equipment sales, and technical assistance from their Norwegian partners.
1954-1968: The modern LEGO brick
Ole’s son, Godtfred, became the junior managing director at the Lego Group in 1954. While the company was doing okay, LEGO’s customers rejected plastic products at the beginning.
Many preferred wooden or metal toys for various reasons, including durability. LEGO was dealing with many product returns from Danish retailers following poor sales. Godtfred realized the company needed to change and fast!
During a conversation with an overseas buyer, he was struck by the idea of a toy “system for creative play” that would include many toys in a line of related products. Godtfred wanted to market the idea that a child could craft LEGO bricks into whatever they dreamed up.
He realized they needed a solid marketing plan to get sale numbers up and compel parents to buy the LEGO brick. The value proposition for parents was that purchasing a LEGO toy was not just about playing; it was an outlet for their kids to improve their creativity and imagination.
1955: The Town Plan
In 1955, LEGO launched the “Town Plan” as the first of such a system. While they didn’t come with an instruction manual on how to build the town, these sets were the first LEGOs designed with the intention to be built into a specific thing. Before this the company was just designing sets of building blocks, without any specific models in mind.
Fortunately, the Danish economic boom meant that more and more Danes could now afford their own cars. LEGO capitalized on this and marketed its new product as an educational tool to teach children how to behave in traffic.
From the very beginning, LEGO had been producing products that reflected the surrounding society. Unfortunately, the toys received a lukewarm welcome because they weren’t stable, their “locking” ability was limited, and they were not versatile.
Since the original patented design belonged to Kiddicraft and Hilary Fisher Page, LEGO contacted them to ask whether they would object to improvements of the original design. Fortunately, Kiddicraft didn’t have an issue with this. Surprisingly, they wished the company luck with the bricks because they had not enjoyed much success with their product version.
Then, in 1957, LEGO introduced their instruction manual system that gave buyers a step-by-step guideline on how to build the specific LEGO sets. This new system catapulted LEGO into success and made the new sets more appealing because now buyers could easily replicate what they say on the packaging of the sets they bought.
1958: The modern LEGO brick, a roaring success!
It wasn’t until 1958 that the problems plaguing the bricks were solved. LEGO added tubing on the underside of the brick, allowing for more stable construction. LEGO was the first producer of bricks on the market to find a solution to the problem of “hollow” bricks that had a limited locking ability. The patented design was so perfect that LEGO would never alter it again.
Unfortunately, that same year, Ole Kirk Kristiansen died, leaving his son Godtfred at the company’s helm.
The following year, Godtfred decided to set up a separate molding factory in Vejle, 30 km away from Billund, because the original factory was failing to meet production demand. There was a strong need for added production capacity.
This department, together with the tooling department set up the previous year in Hohenwestedt, Germany, supplied the necessary extra precision-made molds.
1960-1969: A complete shift in the organizational structure
Another warehouse fire struck LEGO in 1960, which destroyed most of the company’s inventory of wooden toys. Godtfred had had enough of the fires and decided that the plastic line was now strong enough to replace the production of wooden toys. He was right, and sales soared.
LEGO was now in desperate need of new skills to move the company forward. So in 1961, the company decided to hire several experts to head up different areas such as legal, marketing, and manufacturing. LEGO also hired Hans Schiess, a Swiss plastics expert, who was in charge of developing molds, raw materials, injection molding machines, and the actual molding process.
That same year, LEGO entered into an agreement with an American company called Samsonite who would become their North American producers. LEGO closed off the year by expanding its plastic line by building cars, trucks, buses, and other vehicles.
In 1963, LEGO wanted to improve quality control and the speed of the manufacturing process. So Godtfred set up a quality control department with 13 employees, which significantly improved the company’s manufacturing process efficiency.
In 1964, LEGO switched from cellulose acetate plastic to ABS plastic, non-toxic and less prone to warping, discoloration, and more heat, acid, chemical, and salt resistance.
A few years later, in 1965, LEGO set up a special product development department called LEGO Futura. The department was meant to concentrate solely on developing products and testing their ideas together with children. The department was responsible for one of LEGO’s most successful products, the LEGO train system, released in 1966.
The focus now was on improving products, so the company wanted to add a range of functions to its toy sets. For example, trains and cars needed to do more than just drive, and doll furniture had to have actual cupboards and drawers.
The company also realized that older children needed a greater degree of realism, and that’s what LEGO Futura set out to do.
The company closed off the decade by opening the first Legoland Theme Park in Billund in June 1968. The three-acre park attracted 625,000 visitors in its first year alone.
LEGO’s Business Model Canvas: The Rebuilding Days
- High quality, affordable toys for kids, with step-by-step instructions
- Co-creation with kids (encouraging creativity)
- Local distributors
- Retail stores
- Selling toys
- LEGO theme park entry fees
- Royalties from Norway partner
- Product development and expansion
- Expansion into Norway, America, and across Denmark
- Manufacturing plants and infrastructure
- Employees(especially, Hans Schiess, a Swiss plastics expert)
- Svein Strømberg & Co. A/S (Norway partner)
- Plant and factory maintenance
1970-1999: Expanding, Establishing & Losing Dominance
From 1970 to 1990, LEGO went on a product launch spree:
- In 1971, they began to target girls by introducing furniture pieces and dollhouses.
- In 1972, they added boat and ship sets, with floating hull pieces
- In 1974, they added human figures with posable arms
- In 1975, the “Expert Series” sets were introduced, geared towards older, more experienced Lego builders, followed by the “Expert Builder” sets in 1977.
- In 1978 the “Minifigure” was added.
- In 1979, Lego introduced the Scala series, which had jewelry elements and was marketed towards young girls.
- In 1989 the LEGO Pirates theme was released, and it featured a variety of pirate ships, deserted islands, and treasures.
- In 1990 a new LEGO series designed for advanced builders was launched, and it featured a race car and an off-road vehicle. The level of detail and realism on these sets was utterly new.
LEGO also set out expanding into different countries. In 1974 the company opened its first North American production facility in Enfield, Connecticut, in the United States. A few years later, in 1988, Canada was their next target. In August that same year, 38 children from 17 countries took part in the first Lego World Cup building contest, held in Billund. Finally, in 1990, LEGO expanded into Malaysia.
1992-1999: The Decline Begins
As the ’90s rolled around, LEGO had a firm grip on the toy industry, but the world was starting to change. Digitalization and other fun things like video games were dominating the toy market. It was clear LEGO was losing its grip and could not compete in this new tech-savvy world.
The company panicked and started to make bad decisions. They launched a series of disastrous new product ideas that cost the company its reputation and money. LEGO launched a TV cartoon named Jack Stone, which, unfortunately, nobody watched. Then, they released a live-action, futuristic series called Galidor: Defenders of the Outer Dimension. The show tanked.
By the end of 1992, profits were starting to decline. A few years later, in 1996, LEGO made one of the worst decisions that exacerbated the problem. They let go of many LEGO designers who had created the wildly successful LEGO sets from the late 1970s.
LEGO replaced them with 30 new ‘innovators’ who graduated from the European design colleges around Europe. These new designers knew very little about toy design and even less about LEGO building.
Everything LEGO churned out from this point failed dismally because the new design team was trying to cut production time down. The old LEGO sets could take over a year to progress from the design stage to store shelves. Still, the new designers sacrificed set details for faster building times (with fewer pieces).
The difference was noticeable, and the market rejected the new LEGOS. In 1998 the company posted its first-ever loss of £23 million since inception. That same year, the company laid off 1,000 employees.
1999: LEGO movie characters
In a bid to offset the loss, LEGO landed a licensing deal with Hollywood. This was the first time the company was producing non-in-house LEGOS. They produced LEGO Star Wars and Winnie the Pooh Duplo. This was followed in 2000 by LEGO Harry Potter characters.
This temporarily boosted profits during the release of blockbuster movies; however, sales would taper off after public excitement died down. Furthermore, LEGO was bleeding money paying the license fees for these sets. Because they had passed the cost down to the customer, these movie LEGO sets were more expensive.
The rising costs, reduced availability of comparable sets that were not based on the movie licensing deals, and declining quality spelled disaster for LEGO.
The company had failed to understand the principle of consumer demand. The Star Wars launched LEGO had underestimated the market and had not produced enough toys to keep up with consumers. Within weeks, the products completely sold out.
The following year they got it wrong again by overproducing LEGO-themed toys during a year when no new movie was released. LEGO ended up with too many toys sitting on the shelf.
They had always relied on the fact that their brand was popular. People loved LEGO, not realizing that children of the 90s were now driven by the media they consumed.
LEGO’s Business Model Canvas: The Expansion Days
- Video games, series, and toys for kids
- Selling LEGOs
- Theme park entry fees
- Product launch
- Developing video games and children movies
- Global expansion
- New designers
- Movies related licences (brand, characters, etc.)
- Amusement parks
- Licensing fees
- Distribution costs
2000-2010: Trouble in Lego Paradise & LEGO Renaissance
By 2003 LEGO was in big trouble. Sales were down 30%, and the company was shouldering an $800m in debt. An internal report revealed that LEGO hadn’t added anything of value to its portfolio for a decade.
In 2004, LEGO had a loss of £174 million, things were not looking good. Many within the company management felt that the company should look to Mattel, who was producing Fisher-Price, Barbie, Hot Wheels, and Matchbox toys.
Mattel has a comprehensive and varied portfolio that LEGO tried to emulate. This brought the company to the brink of complete failure. They introduced jewelry for girls, clothes, opened theme parks that cost £125m to build, and lost £25m in their first year.
They built their own video games company from scratch, despite having no experience in the field. LEGO brick toys still sold, particularly the movie character sets; the rest sat on shelves. There was no innovation, and children were getting less and less time to play.
Ole’s grandson Kjeld Kirk Kristiansen resigned as CEO in 2004 and appointed Jørgen Vig Knudstorp, as the first non-family CEO. Under Jørgen’s leadership, the company sold the four Legoland parks to Merlin Entertainment. Manufacturing that had been primarily outsourced was returned to LEGO’s control.
Fortunately, Jørgen knew what he was doing and started to steer the company away from bankruptcy. He heard of Christian Faber, a former art director for an advertising agency known as “Advanced” who had an inoperable brain tumor. He decided to ask him for permission to adapt his story for a new LEGO series.
LEGO Bionicles was a story of robots fighting off a dark presence called the Makuta, an entity modeled after his cancer. The set was a hit and became the basis for a profitable children’s series.
Building on the success of the Bionicles series, LEGO released a new set called the Ninjago. It was followed up by a show based on the same characters, and the kids loved it. This laid the groundwork for the renaissance of the classic LEGO brick sets, the LEGO movie that came out in 2014.
The flailing giant had made it to the other side. From 2015 until now, the “Apple” of the toy industry has been on an upward trajectory.
LEGO’s Business Model Canvas: The Renaissance Days
- Durable, high-quality, and a variety of toys
- Global LEGO subculture
- Online store
- Product sales
- Movie sales
- Making movies
- Product expansion
- Merlin Entertainment
- Hollywood and TV Networks
- Plastic suppliers
The core issue for LEGO wasn’t their business model per se; it was in the execution. They got complacent, relied heavily on their established brand, and forgot that specialization, innovation, and adaptation were vital to longevity. Thankfully LEGO learned that lesson before it was too late and has managed to keep its business model profitable.
- Tags: business model canvas , denmark , hollywood , lego , toys business
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LEGO's great business model turnaround story
One of the biggest challenges large companies face is reinventing themselves and remaining successful. Sometimes they fail to do so and their business model expires like a yogurt in the fridge. Learn how LEGO escaped near-death with their amazing business model turnaround story.
In 1949 LEGO began manufacturing interlocking toy bricks in Billund, Denmark. This created infinite possibilities of imaginary worlds for generations of kids and LEGO grew over decades. Yet, LEGO almost faced bankruptcy ten years ago. Watch the video below to learn how LEGO pulled off a spectacular business turnaround, quadrupled its revenues in less than a decade and brought LEGO bricks back to households around the world. Today, they occupy the top spot in the toy manufacturing business (take that Barbie! ;-).
How LEGO created more (value) with less (resources)
One could argue that LEGO turned its business model around by creating more value for customers while using less resources. They first reengineered their operations improving the backstage of their Business Model (Canvas) . Then, they turned to customers and boosted value creation.
Operations focus: streamlining activities and using the resources in the backstage of the Business Model (Canvas):
- LEGO first streamlined its operations and decreased the complexity of its manufacturing processes. In particular, they reduced the number of different LEGO bricks by eliminating those that were difficult and costly to source. LEGO focused on a standard design of their bricks, which made their operations more nimble and allowed them to react quickly to market trends.
- LEGO also decided to get rid of LEGO branded products that were tangential to their business and weren’t profitable
LEGO expanded its business model only after establishing a robust operational base, ensuring a profit on the sets they were selling. Then they turned to customers and designed new and improved value propositions that would create more value for their customers.
Customer focus: creating more value with new value propositions in the frontstage of the Business Model (Canvas):
- Lego adapted their kits to the dreams and desires of kids in the 21st century (e.g. LEGO Mindstorms include smart bricks with both software and hardware to build customized robots).
- LEGO expanded to new markets by designing sets for undeserved segments (e.g. LEGO friends targeting girls) and expanding to emerging countries where their growth was soaring.
Tools & techniques
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- Story-telling one sticky note at a time
Also, LEGOs are so cool that even Scotland’s police use them.
What are your favorite business turnaround stories?
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InfoQ Homepage News Creating the Business Model Canvas Using Lego Serious Play
Creating the Business Model Canvas Using Lego Serious Play
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Mar 26, 2015 2 min read
There have been a number of attempts to combine visual thinking with other tools and it could be interesting to combine two visual facilitation techniques. Marko Rillo, Strategy Consultant and Owner of “5 MPC”, facilitates the creation of Business Model Canvas using Lego Serious Play . He shares his experience in his blog .
Several people have tried and tested the combination. Most tell about achieving powerful results. The Essence of combining the two methods side by side is to assist the participants in the session to focus on elaborating their business ideas.
Business Model Canvas was invented and written about by Alexander Osterwalder, Entrepreneur & Cofounder of Strategyzer . He defines the Business Model Canvas as:
The Business Model Canvas is a strategic management and an entrepreneurial tool. It allows you to describe, design, challenge, invent, and pivot your business model.
Marko mentions that with the help of Lego bricks the participants build their understanding of key elements of the business models – typical customers, primary sales channels, resources and partners. They can use the results of their construction to describe their value offering, cost structure and revenue streams. Furthermore the Lego Serious Play can also activate the introverts among the groups who in a normal marker-whiteboard situation would have held back.
Per Kristiansen, Lego Serious Play facilitator and Partner in Trivium has also elaborated the combination of Lego Serious Play and Business Model canvas in a short video . He explains how people can use Lego bricks to build a three dimensional representation of their business model. He shares his experience of facilitating this game as:
The process entailed getting the team to use Lego bricks to build metaphorical models to capture the meaning, knowledge and insights locked inside their heads and represent the key elements of the Business Model. The team then shared stories they made about the three dimensional Lego objects, bringing to life a three dimensional landscape that represented the business model and environment our Lean Startup is operating in. The output from the workshop was amazing and powerful, the team could actually see what their colleagues meant as they described the elements of the canvas. The issues we were struggling to identify and understand dramatically revealed themselves during the process and we quickly got alignment on what we needed to prioritize and validate immediately in our Lean Startup. A secondary benefit of the process is that it also gives participants who normally may not say as much in traditional workshops or sessions, share an equal voice and their feeling of inclusion in the output gives them a greater sense of inclusion and buy in to the output of the workshop.
Jan Peeters, Executive Coach collaborated with Olivier Treinen, Multilingual Coach, Change Facilitator and Recruiter at Mannaz A/S , and facilitated a large-scale event where they did a full scale business model workshop with the assistance of Lego Serious Play. In preparing for the event they wrote a helpful set of slides .
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Business Model Generation and LEGO(r) SERIOUS PLAY(r)
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Check out this blog post by Rory O’Connor. Rory is a trained LSP facilitator and now an entrepreneur running a start up in Ireland. I ran a workshop with his team where we used LEGO SERIOUS PLAY as the method to explore and develop their business model. We used the canvas developed by Osterwalder, Rory will be integrating the results into the LEAN Canvas developed by Ash Maurrya.
This is Rory’s first post on the session on his website
Using LEGO for Lean Startup!
If you follow the lean startup philosophy you will understand that words can mean a lot. What I mean is that when you try to capture the essence of the assumptions behind your business model on a single page with something like the strategy canvas, every word you use can be very important. Each word actually makes a difference and finding the right few words to capture all that insight you and your team have in your heads so that it will fit within the physical boundaries of the canvas segments can be quite difficult.
In theory forcing us to make it concise is good, it means we should really pick the right words, be careful with our language and make sure that the few words scrawled on Post-it notes in each of the canvas segments hold the same meaning for each member of the team. Of course its so important because if you are using a lean startup approach your team members will use these words on a daily basis to design the experiments to test the key assumptions in the business model.
The funny thing about language and words in particular is that most words have many meanings and applications. The meaning of a particular word or words can differ depending simply on location, with for example a public school in the UK meaning a fee paying private school and apparently in the US a public school is a state school which has no fees. Take as another example the word left which could mean “left behind” or “left hand”. And of course all you have to do is pick up two different dictionaries and look up a common word and you will often find subtle variations in meaning. If you ask any group what a particular term like profit means and get them to write down their meaning and take a look, you might be surprised at the variations you will get in the answers.
At Scurri.com we have been using a version of the strategy canvas, Ash Maurya’s lean canvas to document our business model and prioritise the experiments necessary to prove or disprove our key assumptions. The process itself is very powerful and it has already proved itself as an improvement on our previous processes. However one of the concerns I have is that I don’t think as a team we always have a fully shared understanding of the meaning of the words we write down. More importantly I don’t think we always really visualise and are fully aligned in our understanding of how all the different elements in the business model really fit together.
Individually I know we all had a sense deep in our mind of how the elements of the business model came together but I believe that normal discussions or workshops on their own regarding these key elements of the canvas did not allow us to go deep enough to get a real alignment of understanding amongst the team. I felt that each member of the team tended in their own mind to visualise the output of the words slightly differently to the next. Of course everyone on the team is unique and they view the world through different lenses, and that gives the team great strength but if we are not closely aligned in terms of understanding and meaning about the business model this can be a problem. What we are most concerned about is if you are not aligned you cant really act as a team and then the process of our testing assumptions becomes more difficult. Without alignment of understanding the team can be working against each other unknowingly.
For instance if you take a concept like the value proposition and google it, the amount of variation on the definition of this concept is startling. On our team (as with most teams) we have a variety of members who have attended different schools, have different backgrounds and different experiences. So when we record our output from a session into the value proposition segment of the canvas, we record the collective output using the words the person that happens to have the marker writes down. The recorder obviously will be somewhat influenced by their own training, background and experience in the interpretation and selection of the words they are going to use. So when the next team member reads the words it is possible they have a slightly different interpretation in their mind and thus a misalignment starts to occur. Up to this point within our organisation we have not spent too much time thinking about this and in the drive to move fast and iterate quickly when we rework an element on the canvas we have simply recorded the words that the person with the pen feels captures the meaning best, put them up on the canvas and moved on.
In hindsight there is a chance of something getting lost in translation and I think the something can be the detail of the knowledge, insight and learning that the team has built up over the previous days, weeks or months that a word or two on a post-it just doesn’t capture. As Eric Reis describes in his book the Lean Startup , sometime you just have to slow down to allow you to speed up again and in our case I think we came to that point with our Lean Canvas. Even though we had words up on the canvas we just felt the team needed to get more alignment on the shared understanding on each of the elements of the business model we were trying to test. So in true lean fashion we conducted an experiment.
The experiment we undertook to try and overcome these issues was to use LEGO bricks to build a three dimensional representation of our business model. This solution may sound a bit radical but there was a method to our madness. To be fair we didn’t just take a few bricks and start building without purpose, we used a scientifically proven concept which I had a good deal of previous experience of called LEGO® SERIOUS PLAY®. We used this powerful methodology to help the entire team to gain a really strong shared understanding of how each of the elements of the business model fit together. A new experimental workshop format was developed specifically for the purpose that combined the conceptual framework of the business canvas and using the LEGO SERIOUS PLAY process as a powerful method or language to accelerate the sharing insights and understanding.
The process entailed getting the team to use LEGO bricks to build metaphorical models to capture the meaning, knowledge and insights locked inside their heads and represent the key elements of the Business Model. The team then shared stories they made about the three dimensional LEGO objects bringing to life a three dimensional landscape that represented the business model and environment our Lean Startup is operating in.
The output from the workshop was amazing and powerful, the team could actually see what their colleagues meant as they described the elements of the canvas. Issues we were struggling to identify and understand dramatically revealed themselves during the process and we quickly got alignment on what we needed to prioritise and validate immediately in our Lean Startup. A secondary benefit of the process is it also gives participants who normally may not say as much in traditional workshops or sessions an equal voice and their feeling of inclusion in the output gives them a greater sense of inclusion and buy in to the output of the workshop.
- The actual words you use to describe a concept, idea or solution can be important
- Our language can be interpreted in subtly different ways
- The Lean Canvas requires you to capture big ideas with a few words
- Gaining alignment on understanding is harder than it seems
- Lego Serious Play is a tool that can gain alignment, build a shared insight and focus the team on what needs to be done
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I have used the Lego Serious Play and Business Model Canvass combined in a few strategy sessions and it is very powerful. It can become complex when you have different business models per department (as I had with one of my clients) but they walked away with a better understanding of what each department is doing and how to better integrate their offerings and go-to-market value propositions.
The final models did not consist of 9 separate structures as per the business mode canvass as Lego allows one to integrate while building. But what happens is that the final model is very comprehensive and well thought through and constructed. It appeals especially to people who are senior in organisations as this gives the Play a foundation with which they can relate and it makes a proposal more attractive and ‘serious”
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How does Lego make money?
By Nikita Sheth | Verified by Andrew Boyd | Updated Aug. 17, 2023
- LEGO is one of the leading global brands in kids' toys, producing interlocking plastic bricks.
- In 2015, The Lego Group surpassed Mattel to become the world's largest toy company by revenue.
- LEGO makes money through toy sales, theme park admissions, and licensing agreements.
Ole Kirk Christiansen founded the LEGO company in 1932, with headquarters in Billund, Denmark. LEGO toys were originally wooden, but the company started producing its famous plastic interlocking brick kits in 1949, thanks to the invention of plastic injection molding.
LEGO's success led it to open theme parks in Europe and the US, known as "Legoland."
The company expanded to include retail stores and licensing agreements with other large toy distributors.
The name "LEGO" derives from the Danish words "leg godt," translating to "play well."
While LEGO is a global brand, the company chose to avoid an IPO.
Coming up next
What does lego do, how does lego work, how lego makes money, future growth engine, competitors.
LEGO produces kids' toys, and it swept the globe in the 70s and 80s with its range of plastic interlocking brick systems sold in various model kits. The company famously built an airport in its hometown of Billund to distribute its products around the globe.
Samsonite managed LEGO's US and Canadian operations from 1961 to 1972 (and up till 1986 in Canada) before LEGO decided to control its operations in these markets. The company rose to fame as a toy company in the 80s and 90s, selling tens of millions of LEGO sets into developed markets worldwide.
The LEGO company experienced success due to its strategy of providing kids with educational, fun brick kits in a range of different models. Some of its biggest hits came from its Disney, Star Wards, and Harry Potter kits. The company continues to create novel kit ideas that are incredibly popular with the youth market.
LEGO expanded its footprint into new global markets by offering model kits for underserved areas of the toy market. The company's LEGO "Friends" range of kits targets young girls. The company nearly entered bankruptcy in 2004 after overextending itself in product development.
In 2020, the company started to see a decline in global sales growth, causing analysts to state that it hit the peak of its growth cycle. Sales are falling for the first time in more than a decade, and the company is downscaling its operations to save on operating costs.
Lego makes money by selling model kits to the youth and adult market. It also operates theme parks "LEGOland" across the globe, and it has an eCommerce and retail business selling its toys.
LEGO produces its kits using a mass-production model, shipping them to retail store locations worldwide.
LEGO's largest production facility is its "Lego Produktion AG" business, founded in 1974 in Baar, Switzerland, accounting for 30% of its manufacturing capacity. The company closed the Baar manufacturing plant in 2004
In 1962, LEGO started producing miniature tires for its products. As a result, it became the largest tire manufacturer globally by 2011, producing more than 380 million tires for its toys that year.
The LEGO group opened eight theme parks in locations around the globe.
The company calls these parks "Legoland." The first park arrived in the company's hometown of Billund, Denmark.
It went on to open theme parks in Windsor, England, Carlsbad, California, and Legoland Deutschland in Günzburg, Germany.
Each park features Lifesize scaled models of landmarks and miniature models of famous global cities and LEGO-themed amusement rides.
The LEGO Group has 168 retail outlets in locations around the globe.
LEGO franchised its store operations to the Majid Al Futtaim Group in 2015, with the company opening six stores in the United Arab Emirates and Kuwait. The franchising model was a success, and LEGO franchises opened at 388 locations worldwide.
LEGO also operates an eCommerce platform for its business, selling its toys online.
The online division has all of the classic LEGO products.
It also sells many exclusive sets not found in its retail locations. Customers also have the option of purchasing individual parts.
In 2014, LEGO partnered with movie makers Warner Brothers to make a very successful foray into the movie business with the LEGO movie.
The movie met with unanimously positive reviews. It grossed $468 million at the Box Office and caused a 13% uplift in LEGO sales that year.
LEGO plan on growing the business by expanding its global retail network and pushing ahead with new products and improving their digital experience.
It also plans on putting more investment into sustainable products made from recycled single-use PET bottles.
Beyond that, LEGO plans to diversify their . They received a letter from a 7-year-old girl in 2014, talking about how she couldn't find any LEGO sets featuring female characters. As a result, the company pivoted to make its products more gender-inclusive.
LEGO's top competitors include the following toy brands.
- Bandai Namco.
- New Bright.
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Why lego factory's business model is so successful.
LEGO Factory business model canvas
LEGO Factory’s Company Overview
The original Design byME or Lego Factory vision was for a unique customization service, where consumers could design whatever they imagined on their computer, and buy the real model in their own LEGO box. Design byME attracted several million people each year to build a huge range of amazing creations using the LEGO Digital Designer (LDD) software.
Foundations date: 2005
Sector: Consumer Goods
LEGO Factory’s Customer Needs
Life changing: self-actualization, motivation, heirloom, affiliation/belonging
Emotional: attractiveness, design/aesthetics, rewards me, fun/entertainment, nostalgia, badge value
Functional: simplifies, Quality, variety
LEGO Factory’s Related Competitors
Lego factory’s business operations.
Blue ocean strategy:
The blue ocean approach is predicated on the premise that market limits and industry structure are not predetermined and may be reconfigured via the actions and attitudes of industry participants. This is referred to as the reconstructionist perspective by the writers. Assuming that structure and market boundaries exist solely in managers' thoughts, practitioners who subscribe to this perspective avoid being constrained by actual market structures. To them, more demand exists, primarily untapped. The core of the issue is determining how to produce it.
Producing goods in collaboration with customers based on their input, comments, naming, and price. It represents a new form of the socioeconomic output in which enormous individuals collaborate (usually over the internet). In general, initiatives based on the commons have less rigid hierarchical structures than those found on more conventional commercial models. However, sometimes not always?commons-based enterprises are structured so that contributors are not compensated financially.
This pattern is based on the capacity to convert current goods or services into digital versions, which have several benefits over intangible products, including increased accessibility and speed of distribution. In an ideal world, the digitalization of a product or service would occur without compromising the consumer value proposition. In other words, efficiency and multiplication achieved via digitalization do not detract from the consumer's perceived value. Being digitally sustainable encompasses all aspects of sustaining the institutional framework for developing and maintaining digital objects and resources and ensuring their long-term survival.
The aikido business model is often characterized as using a competitor's strength to get an edge over them. This is accomplished through finding weaknesses in a competitor's strategic position. In addition, it adds to marketing sustainability by exposing rivals' flaws, finding internal and external areas for development, and attracting consumers via specific product offers that deviate from the norm.
A digital strategy is a strategic management and a business reaction or solution to a digital issue, which is often best handled as part of a broader company plan. A digital strategy is frequently defined by the application of new technologies to existing business activities and a focus on enabling new digital skills for their company (such as those formed by the Information Age and frequently as a result of advances in digital technologies such as computers, data, telecommunication services, and the World wide web, to name a few).
Innovation is the outcome of collaborative creativity in turning an idea into a feasible concept, accompanied by a collaborative effort to bring that concept to life as a product, service, or process improvement. The digital era has created an environment conducive to business model innovation since technology has transformed how businesses operate and provide services to consumers.
Direct selling refers to a situation in which a company's goods are immediately accessible from the manufacturer or service provider rather than via intermediate channels. The business avoids the retail margin and any extra expenses connected with the intermediaries in this manner. These savings may be passed on to the client, establishing a consistent sales experience. Furthermore, such intimate touch may help to strengthen client connections. Finally, direct selling benefits consumers by providing convenience and service, such as personal demonstrations and explanations of goods, home delivery, and substantial satisfaction guarantees.
Ingredient branding is a kind of marketing in which a component or ingredient of a product or service is elevated to prominence and given its own identity. It is the process of developing a brand for an element or component of a product in order to communicate the ingredient's superior quality or performance. For example, everybody is aware of the now-famous Intel Inside and its subsequent success.
Online retailers provide specialized content to various niche client groups via continuing mass-customized customer relationships. The sector of technical content providers is a second client segment. Combining these two factors may result in an infinite number of niches. New material is produced and distributed through online channels, which implies that online retailers must prioritize platform maintenance and marketing in addition to service delivery.
The long tail is a strategy that allows businesses to realize significant profit out of selling low volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The term was coined in 2004 by Chris Anderson, who argued that products in low demand or with low sales volume can collectively make up market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough.
Micro-segmentation is a more sophisticated type of segmentation in which a small number of consumers are classified into very accurate categories based on various variables, including behavioral forecasts. Customer micro-segmentation is the process of segmenting a firm's customers into groups based on their relationship with that business. The purpose of segmenting customers is to determine how to relate to each segment's customers to optimize each customer's value to the company.
A business concept established by Henry Chesbrough that inspires firms to pursue out external sources of innovation in order to enhance product lines and reduce the time needed to bring the product to the market, as well as to industry or release developed in-house innovation that does not fit the customer's experience but could be used effectively elsewhere.
A client is both the manufacturer and the consumer in user manufacturing. For instance, an online platform could offer the client the tools required to create and market the product, such as product design software, manufacturing services, or an online store to sell the goods. In addition, numerous software solutions enable users to create and customize their products to respond to changing consumer requirements seamlessly.
An online marketplace (or online e-commerce marketplace) is a kind of e-commerce website in which product or service information is supplied by various third parties or, in some instances, the brand itself, while the marketplace operator handles transactions. Additionally, this pattern encompasses peer-to-peer (P2P) e-commerce between businesses or people. By and large, since marketplaces aggregate goods from a diverse range of suppliers, the variety and availability are typically greater than in vendor-specific online retail shops. Additionally, pricing might be more competitive.
Electronic commerce, or e-commerce (alternatively spelled eCommerce), is a business model, or a subset of a larger business model, that allows a company or person to do business via an electronic network, usually the internet. As a result, customers gain from increased accessibility and convenience, while the business benefits from integrating sales and distribution with other internal operations. Electronic commerce is prevalent throughout all four main market segments: business to business, business to consumer, consumer to consumer, and consumer to business. Ecommerce may be used to sell almost any goods or service, from books and music to financial services and airline tickets.
Providing services to the in-crowd Consumers in mature markets need travel, leisure, and lifestyle businesses to customize their interactions with these customers significantly. For travel, leisure, and lifestyle businesses, their most valuable asset is their brand. The brand functions as a social network navigator as well as a separator between the in-crowd and the crowd. Potential brand ambassadors are the most influential members of a social network. In addition, brand ambassadors collaborate in the selective marketing of high-status goods and services.
A marketing strategy for a product or service includes characteristics that appeal to a particular minority market segment. A typical niche product will be distinguishable from other goods and manufactured and sold for specialized purposes within its associated niche market. Niche retail has focused on direct-to-consumer and direct-to-business internet sales channels. The slogan for niche retail is Everything except the brand.
Take the wheel:
Historically, the fundamental principles for generating and extracting economic value were rigorous. Businesses attempted to implement the same business concepts more effectively than their rivals. New sources of sustained competitive advantage are often only accessible via business model reinvention driven by disruptive innovation rather than incremental change or continuous improvement.
The lock-in strategy?in which a business locks in consumers by imposing a high barrier to transferring to a competitor?has acquired new traction with New Economy firms during the last decade.
Product innovation is the process of developing and introducing a new or better version of an existing product or service. This is a broader definition of innovation than the generally recognized definition, which includes creating new goods that are considered innovative in this context. For example, Apple launched a succession of successful new products and services in 2001?the iPod, the iTunes online music service, and the iPhone?which catapulted the firm to the top of its industry.
Mass customization is a strategy that entails using modular goods and manufacturing processes to allow efficient product individualization. Mass customization refers to producing customized output using flexible computer-aided manufacturing systems in marketing, manufacturing, contact centers, and management. Mass customization is the next frontier for manufacturing and service sectors alike. Beyond the physical product, mass customization is utilized by a diverse variety of software products and services with the goal of developing strong connections with customers via personalization and suggestion.
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YouTube Explained with Business Model Canvas Estimated Reading Time: just 4 min
The Business Model Canvas (BMC) is the structure of a business plan in one single page.
The Canvas is popular with entrepreneurs and intrapreneurs for business model innovation.
Fundamentally it delivers three things:
Focus: since it is more concise than a traditional business plan Flexibility: sitting on a single page, it is a lot easier to tweak than a business plan Transparency: it makes a much easier to understand a business model
This business model design template is based on:
- Customer Segments
- Value Propositions
- Customer Relationships
- Key Activities
- Key Resources
- Key Partners
- Revenue Streams
- Cost Structure
- Social & Environmental
An interesting case study of how to apply the Business Model Canvas is Youtube.
YouTube is a company based in San Bruno, CA.
It is the biggest video-sharing website in the world with more than 400 hours of content uploaded each minute and around one billion hours of content being watched every day.
The initial concept of the company was created by Chad Hurley, Steve Chen, and Jawed Karim (three former PayPal employees) and it was launched in February 2005.
YouTube allows users to upload, view, rate, share, add to favorites, report, comment on videos, and subscribe to other users.
More in dept, referring to the BMC Framework, Youtube business model can be described as follow:
1. Customer Segments: there are 3 groups of people the company is trying to reach
- Internet Users (looking for content to watch/listen)
- Advertisers (looking for users that fall into their Buyer Personas)
- Content Producers (looking for users to watch/listen their content in order to attract advertisers)
These Customer Segments are tightly bonded since the satisfaction of each one of them is strictly related to the satisfaction of the members of the other 2 groups.
Therefore, the groups generate a Multi-sided Market.
Users, Advertisers and Content Producers are segmented based on:
- Demographic Factors
- Psychographic Factors to build Buyer Personas in order to find the right matches and to generate mutual satisfaction.
2. Value Propositions: YouTube developed dedicated Value Propositions for each of the Customer Segments
- Internet Users are provided with a platform for connecting people by distributing content
- Advertisers are provided with a way to connect to a relevant audience
- Content Producers are provided with a stage where they can perform
Anyway, operating in a Multi-sided Market, a harmonization of the Value Propositions is needed.
Therefore, YouTube extensively uses Artificial Intelligence and Big Data Analytics to Cluster its Customer Segments in order to find the right matches and to generate mutual satisfaction.
3. Channels: the way YouTube communicates and delivers its Value Propositions to its Customer Segments is based on Own Channels such as:
- Mobile Apps
- Smart TV Apps
These are fully integrated in order to maximize the possibility to generate mutual satisfaction between the Customer Segments.
4. Customer Relationships: YouTube entertains Digital Relationships with its Customer Segments that are typically established through:
- Review Systems/Sharing Functions that help to select the most popular content and to create communities around it
- Google Analytics where all the data about content are sent and analysed in order to connect Advertisers and Users through
- Content Creators
- Customer Care
Suggestions by YouTube, Review Systems and Sharing Functions helps to create a Viral loop where more and more users are dragged into visiting content.
5. Key Activities: the core activities for YouTube are:
- Platform Development to allow it to generate an increasing mutual satisfaction between the Customer Segments
- Community & Content Management to eliminate inappropriate/offensive content and to ensure the Review Systems work smoothly
- IT Operations to get the complex machine going
6. Key Resources: the key assets for YouTube are:
- Content that is the Value Proposition delivered to users
- Traffic that is generated by good content
- Platforms that make the content available for the users to enjoy
- Recommendation Algorithms that retain traffic by proposing a more interesting content
These digital factors are fundamental to create a relationship with Advertisers and, therefore, to generate revenues.
7. Key Partners: YouTube’s business model works thanks to the relationship the company has with:
- Google that is the owner of the company and provides data/tools such as (Google Ads and Google Analytics)
- Content Creators that, acting as partners/suppliers, generate content and attract the users
- Advertisers that, acting as partners, generate revenues
The partnership YouTube put in place with Content Creators and Advertisers is a sort of Strategic Alliance that aims to cluster Users into Buyer Personas to target them with advertising and to generate revenues.
8. Revenue Streams: revenues are mainly generated by Advertising while YouTube is working hard in finding new ways to generate incomes such as Premium, TV and Music Subscriptions
9. Cost Structure: the main expenses for YouTube are due to:
- IT Operations
- Property rights
10. Social & Environmental Benefits/Costs: apparently there are no major Environmental Benefits/Costs related to YouTube Business Model.
When talking about Social Costs it could be good to point out that this business model can affect the time people spend on the phone.
Increasing time spent on the mobile screen is a concern that emerged also from an interview to Apple CEO Tim Cook at BBC where he stated: “I’ve been using my phone and I have to tell you: I thought I was fairly disciplined about this. And I was wrong. When I began to get the data, I found I was spending a lot more time than I should and the number of times I picked up the phone were too many.”
- Author Details
Business Strategy | Product Marketing | Executive Master eCommerce Management | Business Innovation Master | MSc
I am driven by my personal growth and of people/contexts that surround me. I followed a professional path in Valentino Fashion Group and Luxottica during which, thanks to the ability to understand different businesses and interests, I was able to succeed in Operations, Merchandising and Retail. These organizations have exploited my ability to mediate and translate needs/constraints into practice, assigning me to Project Management roles. Luxottica relied on my ability to analyze, to anticipate things and to imagine/implement solutions by appointing me in Supply Chain Management department and assigning me to the Product Management of IoT solutions for Anti-counterfeiting and Retail digitalization. During this professional path, I also developed my leadership by managing teams to build Processes, Organizations, Systems and Governance Tools.
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