How LEGO Nearly Went Broke in 2003

LEGO was founded in 1932. By the 1990s it was a beloved family business — four generations deep — running out of steam. Growth was slowing and management's response was to diversify into almost everything: theme parks, clothing, video games, licensed character sets, a software division, and a jewelry line. In 2003 the company posted a loss of roughly 1.4 billion Danish kroner, about $220 million, and was close to running out of cash.

Jørgen Vig Knudstorp, a young McKinsey consultant recently hired into the strategy team, was promoted to CEO in October 2004. He inherited a warehouse full of about 12,000 unique brick shapes — roughly double the number of a decade earlier, because every new line manager had added custom pieces. Knudstorp cut the active catalog to about 7,000. He sold the Legoland theme parks to Blackstone in 2005 for £250 million. He exited the clothing and jewelry deals. He closed factories in Switzerland and Korea and moved production to lower-cost Hungary and Mexico.

The deeper move was cultural. Sets had drifted into intricate designs with custom bricks that worked in exactly one model. Knudstorp reoriented the company around classic interoperable pieces that could be reused. Designers were required to justify every new piece. The Adult Fans of LEGO community, previously ignored, was formally invited into product development.

By 2006 LEGO was profitable. By 2015 it had overtaken Mattel as the world's largest toy company by revenue. The 2014 Lego Movie grossed more than $468 million at the box office, and vastly more in set sales pulled through by the brand attention.