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How an old pair of sneakers made LEGO the world’s largest toy manufacturer

by Martin Lindstrom

The solution to LEGO’s problems—the thing that may have rescued it from potential bankruptcy—lay in an old pair of sneakers.

It was 2003, and the company was in trouble, having lost 30 percent of its turnover over the past year. In 2004, another 10 percent vanished. As Jørgen Vig Knudstorp, LEGO’s CEO, put it, “We are on a burning platform, losing money with negative cash flow, and at real risk of debt default which could lead to a breakup of the company.”

How had the Danish toymaker fallen so far so fast?

I had begun advising LEGO in 2004 when the company asked me to develop its overall branding strategy. I didn’t want the company to move away from what it had been doing well for so long, but no one could deny the increasing everywhere-ness of all things digital. From the mid-1990s on, LEGO began moving away from its core product – building blocks – and focusing instead on its loosely knit empire of theme parks, children’s clothing lines, video games, books, magazines, television programs and retail stores.

Somewhere during this same period, management decided that considering how impatient, impulsive and fidgety millennials were, LEGO should begin manufacturing bigger bricks.

Every big data study LEGO commissioned drew the exact same conclusions: future generations would lose interest in LEGO. So-called Digital Natives lacked time and patience and would quickly run out of ideas and storylines to build around.  Each LEGO study showed that the generational need for instant gratification was more potent than any building block could ever hope to overcome.

In the face of such a prognosis, it seemed impossible for LEGO to turn things around—but it did. It sold off its theme parks. It continued successful brand alliances with the Harry Potter, Star Wars and Bob the Builder franchises. It reduced the number of products while entering new and underserved global markets.

Still, probably the biggest turnaround in LEGO’s thinking came as the result of a visit we paid in early 2004 to the home of an 11-year-old boy in a midsized German city. Our mission? To figure out what really made LEGO stand out. What executives found out that day was that everything they thought they knew, or had been told, about late twentieth- and early twenty-first-century children and their new digital behaviors was wrong. In addition to being a LEGO aficionado, the 11-year-old boy was a passionate skateboarder. Asked which of his possessions he was most proud of, he pointed to a pair of beat-up Adidas sneakers with ridges and nooks along one side. Those sneakers were his trophy, he said. Holding them up so everyone in the room could admire them, he explained that one side was worn down and abraded at precisely the right angle. The heels were scuffed and planed in an unmistakable way. The entire look of the sneakers, and the impression they conveyed to the world, was perfect; it signaled to him, to his friends and to the rest of the world that he was one of the best skateboarders in the city. At that moment, it all came together for the LEGO team. Those theories about time compression and instant gratification? They seemed to be off base. Inspired by what an 11-year-old boy had told them, the team realized that children attain social currency among their peers by playing and achieving a high level of mastery at their chosen skill, whatever that skill happens to be. If the skill is valuable, and worthwhile, they will stick with it until they get it right, never mind how long it takes.

Until that point, LEGO’s decision making was predicated entirely on reams of big data. Yet ultimately it was a small data, chance insight that helped propel the company’s turnaround. LEGO not only re-engineered its bricks back to their normal size, it began adding even more, and smaller, bricks inside their boxes. The bricks became more detailed, the instruction manuals more exacting, the construction challenges more labor-intensive. For users, it seemed, LEGO was all about the summons, the provocation, the mastery, the craftsmanship and, not least, the hard-won experience—a conclusion that complex predictive analytics, despite their remarkable ability to parse “average” scores, had missed.

Cut to ten years later when, during the first half of 2014, in the wake of the worldwide success of The Lego Movie and sales of related merchandise, LEGO’s sales rose 11 percent to exceed $2 billion. For the first time ever, LEGO had surpassed Mattel to become the world’s largest toy maker. Believe it or not, almost every insight I come up with as a global branding consultant happens just this way – searching for small data, seemingly insignificant observations that point toward unmet customer needs. I’ve discovered that Small Data shapes the foundation for breakthrough ideas or transformative ways of turning around brands.

I might be developing a new car key for Porsche owners, designing a credit card for billionaires, creating a newfangled innovation for a weight-loss organization, helping reverse the fortunes of a supermarket chain or trying to position the Chinese automotive industry to compete globally.

There’s a well-known quote that says if you want to understand how animals live, you don’t go to the zoo, you go to the jungle. And so I do.

Over the past fifteen years, I’ve interviewed thousands of men, women and children in their homes in 77 countries. I’m on a plane, or inside a hotel room, 300 nights a year giving me an ongoing opportunity to observe people and the cultures they inhabit from their perspectives. In our small data, now and forever, lies the greatest evidence of who we are and what we desire, even if, as LEGO executives found out more than a decade ago, it’s a pair of old Adidas sneakers with worn-down heels.

Martin Lindstrom is a Danish born branding expert. To learn more about Small Data, you can watch his Thinkers50 video blog and read his book of the same name (available on Amazon US and Amazon UK). For more information, see Martin’s T50 Profile.