LEGO: Bankruptcy to Most Profitable Toy Company

Introduction

This is a story of Lego. And how onboarding saved them from a bankruptcy. Not just that, onboarding and piggybacking helped them become the world's most profitable toy company in the world.

The early days

In its early years, LEGO bricks were sold in buckets, offering a blank canvas for children.

The challenge of versatility

LEGO's open-ended nature with no instructions (onboarding) was a huge friction point. The lack of direction in what to build or how to build it made it hard to use.

Strategic shift: themed LEGO sets

The company started producing themed sets each with a specific concept and detailed instructions. These sets featured popular themes, like Harry Potter, Transformers, castles, or even animals.

By providing a clear goal and step-by-step guidance, LEGO sets become more usable.

Skyrocketing sales and lessons learned

The themed LEGO kits began selling rapidly, tapping into the familiarity of popular cultures, such as movies and cartoons. Here's everything they did right:

• Onboarding: By providing clear instructions, LEGO made it easier for new users to reach the aha moment.

• Piggybacking: LEGO capitalized on the popularity of existing franchises. It piggybacked on what kids already understood well and solved motivation friction.

• Moment Marketing: Aligning with popular trends and cultural moments, LEGO sets stayed in. When I went to Hamleys last weekend, LEGO still dominated the shelves.

• Habit Loop: Completing a set leads to a sense of accomplishment. This builds a habit loop because kids are encouraged to try something harder.

Let's compare growth loops

Earlier, with classic buckets, it was harder to use. So, we can assume fewer kids were motivated to create and share.

After that, because it was easier to create, more kids were able to create. So, let's say it went up by three times. Instead of 10% of kids that were successful, now 30% were successful in creating their first creation.

This got them 3X the same shareabililty on the same marketing spend.

Obviously, this is an oversimplified graph but you can layer on all sorts of little things, like tapping into a franchisee with an existing fanbase made CAC go lower. And since it was easier to build and more shareworthy, more people shared.

So, it might be significantly higher than 3X.

Themed sets boost upsells

Instead of a single, vast box of bricks, themed sets for "Transformers" or "Cars" target specific interests. In markets like India, where sharing is common, themed sets also encourage individual ownership. Neighbors are more likely to buy different sets rather than just sharing.

Individual use case + collaboration

Lego has both individual use case and team-use case. People have lego parties. Kids go to each others houses to play. Siblings will share and play. Parents (buyer) help their kids build together and understand the value proposition so don’t mind a repeat purchase.

Inherently viral (parents share)

When a child builds something, parents will share on social media or privately to their other parent friends. This sharing can drive further purchases as parents buy new sets to sustain. Lego also created their own social network for kids to share.

Give people something to talk about

The takeaway is to give people something to talk about when they successfully use your product.

Reforge gives people a gorgeous certificate of sorts when you complete their course and it gets people to share + add to their linkedin profile.

Hubspot will send an email when your email campaign completes.

Spotify's wrapped campaign gives people something to share and talk about.

If people are successful when they use your product, why should they talk about you?

Balancing freedom and structure

After building the first set, many children return to a blank canvas. So, start with one onboarding with heightened motivation levels and make sure they're successful.

High natural churn

Problem: They cater to children and children don't need toys when they grow up. So, there is a natural churn. The good thing with children is more enter the market each year, so LEGO always has a relevant target audience to educate and convert.

Solution: So LEGO expanded their portfolio stretching toys for ages starting 2 to 18.

Young Adult: Some toys for 18+ are here. These are much complex to build and target fans. They are also more expensive (niche market, higher AOV). Some sets include Titanic, Seinfeld, Queer Eye, Super Mario 64.

It also gives smarter kids more inspiration to graduate to a complex set. I saw a kid on Reddit (14 y/o) wanting an 18+ set for Christmas.

Takeaway: Even though your product has high natural churn, if you have a quick conversion funnel (time-to-purchase), it is solvable. Not all businessses need to be sticky or have less churn.

Once this strategy is locked down, their distribution strategy can include any channels.

Other similar examples

Unity lets people create games. The realised that game developers wanted to recreate their childhood games when they were first starting out. So they created an onboarding flow with starter kits. Games were dead easy to create but helped exponentially with the activation levels.

Lucidchart has a massive library of company-generated templates so people can get started. Their product is horizontal with lots of use cases (and a bit complex) so templates raise motivation levels and show possibilites.

Figma, the design giant, also has community-generated templates alongside a few company-generated templates. It's pretty popular because Figma wraps it nicely for SEO and indexes each of these pages. They even ask users for tags which is great for their SEO listing.