How LEGO Forgot Its Own Secret

For a time, the LEGO Group seemed unstoppable.

By 2013, its 24% profit margin dwarfed that of its main competitors, Mattel (14%) and Hasbro (7%). Two years later, it became. And sales in North America topped $1bn for the first time.

But a decade earlier, the company was in a death spiral.

In 2003, it was losing $1 million a day and had $800 million in debt.

How did one of the most beloved brands on the planet get it so wrong?

The Danger of Indigestion

In the late 1990s, LEGO’s leadership was spooked. Consultants warned them that the simple brick was obsolete. Fearing irrelevance, they did what many companies do: they chased growth everywhere except their core business.

The future CEO Jørgen Vig Knudstorp (JVK) would later say, “Most companies don’t die from starvation, they die from indigestion."

LEGO was suffering from a severe case of it. It expanded into areas where it lacked expertise. This included theme parks costing £125 million to build, which lost £25 million in their first year. It also ventured into a clothing line and jewelry for girls. They expanded the number of unique LEGO pieces from around 6,000 to over 12,000, creating a logistical nightmare.

They believed the brick was the problem, so they looked for answers everywhere else. This was the central strategic mistake.

The Turnaround: A Return to the Core

In 2004, JVK was appointed as the first CEO from outside the founding family to save the company. He wasn't given a complex new strategy. Instead, a friend gave him two simple questions that he obsessed over for two years: "What went wrong with LEGO?" and more importantly,

"Why do you actually exist?"

JVK later said that true leadership means taking responsibility. It's not about blaming things like currency issues, financial crises, or bad weather. Because if that’s the major reason for how your business develops what the hell are you doing in the job?"

This forced him to focus on the second, more important question.

The answer to "Why do you exist?" was surprisingly simple. In JVK's own words:

The brick wasn't a liability; it was their sole, unique reason for being.

The path forward wasn't a sexy new venture. It was a disciplined and painful return to the core. They sold off the LEGOLAND parks. They slashed the number of unique pieces from over 13,000 back down to 6,500. They re-focused on the brick and the "System of Play," where every piece is backwards-compatible.

They started to listen to their most passionate customers, the Adult Fans of LEGO (AFOLs). They even began hiring some of them. It was a strategy built not on what they could do, but on what only they could do.

How to Rediscover Your Core

Is your business suffering from indigestion? Are you chasing new ideas at the expense of the core business that made you successful? The LEGO story offers a powerful framework for leaders.

Ask these two simple questions:

• Why do you exist? If your company disappeared tomorrow, what unique value would the world truly lose? Be brutally honest. Is your answer something only you can provide, or has it become generic?

• What is your "brick"? What is the one thing your company does that is the undeniable source of your value? Are you investing in and constantly reinventing that core, or have you, like LEGO, started to believe it's obsolete?

The final lesson comes from a T.S. Eliot quote that JVK often uses: "We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time."

Sometimes, the most powerful innovation isn't chasing something new. It's rediscovering the profound and unique value in the thing you’ve been doing all along.

Onward,

Aaron Shields

P.S. Is your business suffering from indigestion—chasing too many opportunities while your core advantage weakens? Sometimes the clearest path forward is found by looking back at your foundation. Reply to this email, and I'll set up a free 15-minute call to discuss how your past may be the key to your future success.