Lego's Near-Collapse and ComebackNear-Collapse and Comeback 19 October 2026 · 6 min read · 411 reads
Business · Decisions · Focus
Lego's Near-Collapse and Comeback Near-Collapse and Comeback
Too many new products almost broke the brick company. What went wrong, how it refocused on its core, and what any growing brand can take from it.
How does a company that makes one of the best-loved toys in the world lose money? You would think a brick that every child knows would be a safe business. For Lego, in the early 2000s, it was not.
I
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have
been
reading
about
that
period.
The
short
version
is
that
Lego
tried
to
be
many
things,
and
the
brick
became
just
one
of
them.
Here
is
what
I
found,
and
where
I
think
the
story
is
thinner
than
it
sounds.
A simple idea, then a crowd
The Lego Group was founded in 1932 in Denmark by Ole Kirk Christiansen, a carpenter, according to the Wikipedia article on the company. The name comes from the Danish words "leg godt", which mean "play well". Plastic bricks were in production by 1947.
One reason this matters: the article says the last Lego patent expired in 1989, and it names Mega Bloks among the rivals. So the company had a protected product for decades, and then a lot more competition.
In the 1990s and early 2000s, Lego pushed outward. The article lists a media arm formed in 1996 in London and a video game business. It mentions a three-year games publishing deal with Electronic Arts in December 2001, and the first Lego brand store in Cologne in October 2002. And there were theme parks. The first Legoland opened in Billund, Denmark, in 1968.
None of those ideas is silly by itself. A toy company with a famous name wants films, games and stores. But each one needs its own skills, its own costs and its own focus.
The pieces that came and went
It helps to see how many separate things the company was doing. From the Wikipedia article: a media arm that was turned into a separate film and television business in 2003 and sold in 2005. A video game business that the article says was shut down in 2004 (Wikipedia tags that detail as needing a better source, but Entrepreneur also says the games business was closed). A factory in Switzerland that made about 30 percent of the world's output when its closure was announced in 2001, and that closed in 2004. A growing set of brand stores. And a string of legal fights against copycat makers around the world.
Each of those is a reasonable thing for a famous toy company to try. But together they pulled attention away from the one thing it was best at. I find the factory story especially telling. A plant that made nearly a third of the output was closed, which tells me the company was reshaping its basic operations, not just trimming at the edges.
There is also a plain business point here. Once the patent expired, rivals could copy the brick. When your main product can be copied, the temptation is to chase the next big thing. The better answer, in this case, seems to have been to make the core better and keep it special.
When it began to hurt
The article says that in 2003 Lego faced a budget deficit of about 1.4 billion Danish kroner (roughly 220 million US dollars at the time). In 2004, almost 1,000 employees were laid off, and the company reported a net loss of about 1.9 billion kroner on turnover of about 7.9 billion, counting its theme parks. I am quoting the article's figures in kroner, as it does.
For the details inside the company, I found one useful but limited source. An article on Entrepreneur.com from 2014 retells the account of a former Lego designer, Mark Stafford, as shared online. It is an insider's memory, not audited records, so I treat it as a view from the inside, not a full proof. He said the company did not know the cost of making most of its bricks. He said some kits with fancy parts cost more to build than they sold for. And he said the number of different parts roughly doubled, from about 6,000 to over 12,000, which added storage and logistics cost without more sales. He named several product lines that failed, including one called Galidor.
Different parts in the Lego range
Before6,000 parts (appro
Peak12,000 parts (appro
After the cut6,000 parts (appro
The reset
In 2004, Jørgen Vig Knudstorp, a former management consultant, became chief executive, per the Entrepreneur article. According to the sources I read, the reset had a clear pattern.
Cut and count. Costs were examined across the business, and design choices were tied to what they cost to make. The part count was cut back to about 6,000, though the same account says it has grown again since.
Sell what is not core. In July 2005, Lego agreed to sell its four theme parks to another company, Merlin Entertainments, for 375 million euros, keeping a 30 percent stake. Lego also closed its Swiss factory and refocused on toys. The games business was shut down, per Entrepreneur, and its former staff later made the games under licence.
Go back to builders. The Entrepreneur piece says Lego held its first designer recruitment workshop in September 2006 and hired 11 designers, including a few adult fans of Lego.
The numbers moved. The Wikipedia article says Lego made a profit of about 702 million kroner in 2005, after a large loss the year before. By 2011, sales rose 11 percent to about 3.5 billion US dollars, and profit rose to 776 million US dollars, with a line called Ninjago as the main driver.
A comeback that was not permanent
The Wikipedia article adds one more twist. The article says that in June 2019, Lego bought the remaining shares in Merlin, the company that had taken over the theme parks. (Reports differ on exactly who put up the money, so I will not go further than that.) If that is right, the original decision to sell was not a permanent rule that parks do not belong. It looks more like a decision for that moment, when the company needed cash and focus.
I like that. A refocus is not a vow never to try again. It is a way to get strong enough so that when you do try something new, you can afford it.
What I do not want to overstate
Two cautions. First, I could not find audited figures that tie each cause neatly to each loss, and the inside details come from one person's account. Second, the story did not end in 2005. The article reports that in 2017 Lego cut 1,400 jobs after its first reported sales decrease in 13 years. A comeback is not a finish line. The same company that fixed focus once still had to keep earning it.
What I take from this
The lesson I find most useful is not "never try new things." It is that every new line has a hidden bill. It uses attention, people and cash. When a business has a strong core, the first question about any new idea should be: does this make the core stronger, or does it just keep us busy?
One thing to try this week: list everything your business sells or offers, including the small extras. Next to each, write what it costs you in time and money, and what it earns. If you find one that costs more than it brings in and does not help the core, decide whether to pause it for 90 days.
Sources
- Wikipedia, "Lego Group": https://en.wikipedia.org/wiki/Lego_Group
- Entrepreneur (originally Business Insider), "How Lego Came Back From the Brink of Bankruptcy", 2014: https://www.entrepreneur.com/article/231447
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