The Lego Story (book review)

The LEGO Group was founded in 1932 by Ole Kirk Kristiansen and the story is told in The Lego Story by Jens Andersen.

The takeaway, like all successes, is to work hard and get lucky. Rather than a review, let’s tour history through industry.

1919, Denmark’s economy slows. “Farmers in Billund and other districts benefited from Denmark’s neutrality during the First World War, by selling grain and meat to the warring nations and earning some extra hard cash by producing peat.” When farmers have money they can pay carpenters like Ole Kristiansen. And if farmers don’t, they can’t.

1925, a fire in Ole’s woodshop. This will be a recurring theme.

1929, the depression. “For a while, the future looked promisingly bright, but shock waves from the Wall Street Crash in October 1929 that wiped out billions of dollars in wealth quickly spread to Europe. Germany and England, Denmark’s biggest trading partners, were badly affected, and the price of grain, butter, and pork crashed.”

1932, anything that sells. Though woodworking had been his trade, it was the 1931 Yo-Yo craze that inspired Ole to make toys. “By the 1930s, yo-yo-ing had become a nationwide fad,” writes Chat GPT, “with tournaments and competitions being held across the country.” Ole’s brothers and sisters want to know why a good carpenter would waste his time, “I think you’re much too good for that, Christiansen—why don’t you find something more useful to do!”

1933. “We worked like dogs, my wife, my children, and I, and gradually things began to pick up. Many days we were working from morning till midnight, and I bought a cart with rubber wheels so the neighbors wouldn’t be disturbed when I took the packages to the station late at night.”

1940, Germany invades Denmark. Though occupied (and part of the resistance group, running grenades to saboteurs in LEGO boxes) it was a good time for LEGO. Parents were “keen to protect their children from hardship,” and during the five years of occupation, LEGO’s revenue grew.

1942, another fire in the woodshop.

1946, plastics? Ole buys a plastic molding machine. Through the early 1950s executives at LEGO will say no no no, plastic toys will never take off.

1947, Ole sees his first plastic brick from an English toy manufacturer. This is the seed for LEGO but will prove a thorn in their intellectual property side for decades to come.

1951, the top-selling LEGO toy is the (plastic molded) Marshal Plan-delivered Ferguson tractor.

1955, LEGO bricks roll out to toy stores.

1956, LEGO bricks roll out to Germany. Andersen writes, “Selling toys in Germany would be like selling sand in the Sahara.” LEGO advertises in one city, Hamburg, creating a two-minute film to play before features. Word spreads.

1958, good news, LEGO invents the tube on the underside of the LEGO brick. Ole Kirk passes away and his son Godtfred takes over.

1962, the Scale Model Line. Godtfred grows up playing LEGO, so do other people. What if we make LEGO for professional adults? The Scale Model line is for engineers to design with LEGOs. Even the everyman could create his own house. The project fails but leads to the 1/3 size pieces ubiquitous in today’s sets.

1968 LEGOLAND Denmark opens. It’s a hit.

1976 oil crisis. “A significant part of LEGO’s challenges in the 1970s could be ascribed to two separate oil crises, a stagnating global economy, Denmark’s falling birth rate, and a declining toy market abroad.”

1978 minifig enters. Lego, Kjeld Kristiansen notes, has three phases: blocks, wheels, and mini-figures.

1989 LEGO pirates. But Gameboy too.

If there’s one consistent lesson through each decade of LEGO it’s the importance of sales. Every few years someone comes along and says the toys are good enough and every few years someone else reminds them but we have to sell these things. It’s just hard work.

‘Typical’ monthly mortgages (1971-2022)

This is the ‘typical’ house payment for the last fifty years. ‘Typical’ being the median sale price and average thirty year rate.

If my parents had bought when I was born they paid $982. But if they bought when my brother was born, it would be almost two-hundred dollars less each month. A huge difference for a young family.

The sweet spot for modern buyers was October 2011 when payments flirted with $1,000. 

The Covid-19 drop and surge can be seen toward the right. It wasn’t until August of 2021 that payments crossed the trend line into wild heights. 

What difference does it make for someone now? Since the end of 2020, the ‘typical’ payment increased seven-hundred dollars a month. 

Interest rates are a headline metric, but are not the most important thing for buyers. The fall 2022 ‘typical’ monthly payment is: $2,580. A $50,000 decline on the purchase price is equivalent to 1% lower interest payments. Not only that, home prices have a .9 correlation with monthly payments whereas interest rates have a -.55 score.

Housing is easy news to consume. The bad is about rising prices and rates. The good is about remodels, flips, and luxury. The truth is somewhere in the middle, here it’s in color.

How “off track” are housing prices? The red line is the 2016- March 2020 trend line relative to the graph of median listing prices. Currently prices are a 33% premium to what the historical growth suggests.

United States figures only.

Sweet words

Successful copywriting uses the customer’s language. Find out what, how, when, and why the customer thinks – and the words they use.

One accent of customer language is certainty. We dislike not knowing. Not knowing feels risky. It’s why this bag of sugar is so sweet: 30 calories per serving. Diets are trends. Eat this or that? Now or later? Are health bars actually healthy? Is sugar bad for me? It’s too much! But this simple bag of sugar puts it in the customer language: calories, and not that many. 

Road construction is another example, only inverted. Fines doubled when workers present. I don’t know how much, but I certainly don’t want it to be doubled! In this case, the natural dislike of the unknown is magnified and aids in the messaging to slow down. 

This hook helped Jaws (1975) set the mold for summer blockbusters. It was a difficult movie to make, in part due to “that sonofabitchin’ bastard rig” (the shark) which kept breaking down. The footage was such a mess that during editing Steven Spielberg used barren shots of the water along with John Williams’ score. That was great because rather than seeing the shark, audiences imagined the shark, a worse fate. 

Organizations can remove or introduce anxiety in their customer communications. How much depends. On what? On what the customer thinks. 

We talked about Jaws’ role in the evolution of the movie business model in this post, Batman BATNA. Contact too:

Batman (part 2)

What do the following movies have in common? 

American Beauty, The Green Mile, The Matrix, The Sixth Sense, Being John Malkovich, Boys Don’t Cry, The Blair Witch Project, Fight Club, Toy Story 2, American Pie, and Star Wars Episode I. 

They were released in the same year. It was so good they wrote a book: Best. Movie. Year. Ever. 

Was it talent? Maybe. Good economics? Perhaps. Instead, let’s look at this using the Placement, Promotion, and Product Bullseye. If a business ‘hits the bullseye’ it succeeds. 

In 2000, Thomas Tull founded Legendary Entertainment. It was one of the first companies to combine private equity investments with Hollywood movie-making. 

It was good timing. The late 90s saw the highest number of movie screens in America. In 2004, Blockbuster’s store count peaked. A year later DVD sales did too.

The placement for movies was primo. There had never been more screens on which to place movies. Make enough of something and some of them will be very good. 

Tull also nailed the promotion for movies. Prior to Legendary, Hollywood used mass-market advertising – because it worked! Jaws pioneered and Star Wars exploded the model that with national advertising and distribution, movies could be huge. 

But Tull saw national consumers as three segments. There were huge fans, who would pay regardless of promotion. There was also the free tickets and twenty bucks crowd. These people wouldn’t go for free tickets and twenty bucks. Then there was the middle group. It was them Tull wanted to reach with the advertising. Persuade the persuadable and he did just that 

The final piece of the picture puzzle was a great product. Hire great directors – Nolan, Snyder, del Toro – and get out of their way. Legendary’s product was helped too by characters like Batman, stories like We Are Marshall, and laugh-fests like The Hangover. 

The product was also profitable. Movie studios controlled the pricing and theaters earned their keep on soda, sweets, and treats. Ditto for DVD, a product with a high upfront cost but zero marginal cost . 

Now flip it. Books are also media. Lee Child is a 3x NYT Best Seller and when Killing Floor was released in 1997 it had a limited audience, was hard to find, and was promoted in a review of books section of the newspaper. Not ideal. 

Books became a better business model. They’re better placed: physical or digital. Promotion is more focused, specifically with the rise of podcasts. But Child still has ‘his biggest fan’ come up on the street to ask when his next book is out. It’s out now, he tells them, go buy it!. The product, for the right authors too, has never been better. But best sellers are not blockbusters.

Businesses ask: Where to direct resources? Through contrast, the bullseye model highlights the trade-offs. 

Keep following along. 👇 

Part one of Batman was looking at the movie industry from 1975-Marvel in the Batman BATNA post.

The Leatherman JTBD

Just because something looks like a job to be done doesn’t mean it is a job to be done.

Tim Leatherman was in Vietnam in the 1970s. He noticed that all the Japanese motor bikes had luggage racks for transporting goods but that all the Vespa scooters did not. So with the help of his brother-in-law, Leatherman designed and built one hundred racks for Vespa scooters. He arranged for consignment distribution and hired someone to pass out leaflets.

It seemed like a good fit. There was demonstrated demand. There were motorbikes everywhere! “But when we left Vietnam there were still 97 in the bedroom of our house. It turned out that the people who rode Vespas considered themselves a class above and they had maids who went out and did the shopping.”

The JTBD of a scooter was personal transport and something else. For some people the something else was goods transport, for others it was status.

Leatherman’s podcast with Guy Raz included a second JTBD lesson.

Tim wanted to design a knife with pliers, patent it, and license the idea to the major knife companies. Once he had a working prototype he went to Gerber but they declined, saying it was a tool and not a knife. Everyone knows not to bring a tool to a knife fight. Ok, thought Tim, I’ll pitch this to the tool companies. “And the message I got back from them was, ‘Sorry this is a gadget and gadgets don’t sell.'”

In this case the knife and tool companies confused the category for the job. Much like a hardware company might think they are in the business of just making quarter-inch drill bits when really the customer wants the quarter-inch hole.

The JTBD of Headspace is feeling better through action. The JTBD of dining out is food and atmosphere. The JTBD of Jazzercise was dancing and a dancer’s body.

‘Jobs’ is a great mental model and thanks to Leatherman and Raz for sharing another pair of examples.

What to think while waiting

David Henderson recalls his first class with Armen Alchian in 1972, who started class noting that if someone understands the incentives they can understand a lot of ‘mysterious’ behavior.

“On the first day of class he said when we went to the bookstore we’d be in a long line and we’d be angry about that. But we shouldn’t be. We should be happy because it means economics works. The people working are on a standard wage and they don’t have a strong incentive. There’s no ownership, no one gets a big benefit if they do better.” – David Henderson, September 2021

We should be happy to wait? Kinda.

One theme around here is the value of curiosity. Mostly that means to wonder how and why and when things happen – or even when they don’t happen. And incentives are ripe for thought.

We’ve looked at prediction incentives, Marine incentives, and the incentives of salting roads. There’s music incentives, be careful what you count. And football recruit incentives, more careful counting.

Incentives come up so much because one way to be curious is to ask: why does that happen? and part-of-the-reason that happens are the incentives.

This kind of curiosity takes work. Like exercise takes calories, crypto (or cars) take gas, or relationships take conversations – curiosity takes work. To be curious is to think, wonder, and ask questions. To be curious is to move past the simple story and see what else is there. Sometimes there’s not more, sometimes there’s incentives, and sometimes there’s something unexpected.

One of the highlights of my interneting has been writing a post about curiousity for Ribbon Farm.

NFTs and Gary Vee

One way to support this time is different… is to say that the technology has changed. The smartphone’s GPS, camera, and chips all allowed a slew of businesses to serve customers in new ways.

Another way to see change is to ask the Bob Pittman question: is this another one of these? MTV followed from the idea of narrow-casting radio stations. If there was a rock station, country station, oldies station and so on on the radio shouldn’t there be something like that for television: a news station (CNN), a movie station (HBO), a music station (MTV)? This too was a technology shift.

“I believe there’s not a single sporting event or concert in ten years that the ticket is not an NFT. There’s no incentive for that organization or artist to launch it as anything but an NFT. A QR code or piece of paper means nothing. But if Luka Doncic drops a hundred points in that game it becomes a forever collectible. There’s a trillion-fucking-dollars worth of ticket stubs that have sold on eBay over the last twenty years.” – Gary Vaynerchuk, My First Million podcast, August 2021

A third way to consider change is to ask about the business model and the incentives. Sport is not a competition, sports is entertainment. Bob Iger wrote that he learned this lesson working the 1974 Olympics. “We weren’t just broadcasting events, we were telling stories.” There’s only one sport honest about this.

Are NFTs a new technology? Yes. Is this (NFTs) ‘another one of those (collectibles)’? Yes. Does the business model allow for this kind of innovation? Yes!

Thorpe’s Two Questions

Ed Thorpe is in graduate school and has a professor who is ‘mailing it in’. In class Thorpe stands up to the instructor, demeans him, and is threatened with expulsion. Needing to stay in school, if only to avoid the Vietnam War draft, Thorpe crafts a careful apology:

“I explained that I’d come to realize his teaching methods were unique and that students, though they may not always appreciate it rarely encounter a professor of his caliber. What I said was true, but allowed more than one interpretation.”

It was an early lesson that was almost quite costly. In the future, Thorpe started to ask two questions: “None of this would have happened if I’d have asked myself beforehand, if you do this, what do you want to happen? And, if you do this, what do you think will happen?

Book: A Man for All Markets