Lessons from LEGO's Near-Disaster on the Power of Saying ‘No’
A look back at how the iconic brand nearly fell apart—and how less became more.
Opinions expressed by Entrepreneur contributors are their own.
Key Insights
- Understanding that growth doesn't equate to ownership is vital; striving to control all aspects of your business can drain resources and attention from what truly matters.
- Operating everything in-house may spread your best talent too thin, ultimately limiting effectiveness and innovation.
- Regularly assessing ownership versus operational involvement can reveal opportunities to delegate tasks long before financial strain mandates it.
By the turn of the century, LEGO ventured far beyond its iconic bricks. The brand had established Legoland parks, launched a video game division, and even delved into fashion and television projects. On the surface, this diversification seemed prudent; a toy manufacturer morphing into a comprehensive entertainment entity.
However, the reality painted a different picture. LEGO sought to juggle theme parks, gaming, and clothing simultaneously, despite a clear lack of expertise in these new arenas. As the company splintered focus, the flagship product—the very brick sets that defined its brand—suffered. By 2003, LEGO faced a staggering revenue decline of nearly 30% in just one year, teetering precariously within 18 months of bankruptcy.
In 2004, new CEO Jørgen Vig Knudstorp opted for a surprising strategy. Rather than shuttering their experimental ventures, he divested LEGO's majority stake in the theme parks while retaining licensing rights, allowing the brand to remain in parks without operational burdens. The video game studio was disbanded, shifting to partnerships with skilled developers. This pivot birthed popular titles like Lego Star Wars and Lego Batman—something parents today probably recognize.
A decade later, The Lego Movie blossomed under the same licensing framework, illustrating a successful collaboration rather than an internal project. LEGO retained ownership of its diverse businesses but relinquished the direct management.
This marked a stellar recovery story that reshaped its operational model and strengthened its financial health.
Rethinking Ownership vs. Management
The original ideas for theme parks and video games weren't inherently flawed; the fundamental error was believing LEGO itself must oversee them. Managing a theme park isn't comparable to designing a toy—it demands distinct skills. While the leadership correctly identified lucrative opportunities, they mistakenly thought handling each venture personally was a requirement.
The solution lay in discerning which segments should be owned internally versus those better suited for delegation. Most importantly, the brand needed to refocus on its core offering—the brick system—ensuring it outperformed competitors.
Reflecting on this, I notice similar patterns in the entrepreneurs I coach. I’ve been there myself.
My Personal Turning Point
A few years ago, after my father's passing, I took on full responsibility for our family businesses, which we had previously shared. Simultaneously, my coaching venture was gaining traction. The obvious move appeared to be shutting down my coaching practice, the area generating the least income, to devote attention to our established, profitable operations.
Yet, I couldn’t bring myself to cut that personal project. It brought me fulfillment, and sacrificing it felt counterproductive. Instead, I reevaluated the established businesses to see where I could afford to step back and how I might delegate effectively.
A Practical Audit for Your Business
The audits we typically conduct overlook the critical assessment of personal time investments versus revenue-generating activities. Meanwhile, LEGO’s theme parks and game division might not have appeared failing at first, but they were gradually undermining the leadership focus long before financial issues surfaced.
That’s not to say these acquisitions were poor decisions. Business owners introduce new initiatives for good reasons, often pursuing promising avenues that align naturally with existing customer interests. The key mistake lies in assuming that pursuing a good opportunity mandates direct involvement in every aspect.
For your business, take time to identify its various components—be it product lines, client segments, or additional ventures. For each, ask: “What does this generate in revenue?” and “Does it require my direct involvement, or could someone else manage it effectively?”
Your goal is to pinpoint discrepancies between necessary operations and those that could thrive without your direct supervision.
When discovered, you'll face the same pivotal choice LEGO did, like divesting non-core operations while preserving what initially provided value. The aim has always been to develop something sustainable. Sometimes, achieving this means being candid about where your personal involvement is indispensable.
So here's to building a fulfilling business—and life—with no regrets.
