"Back to the Brick"

"The company almost collapsed … having drifted for years, diversifying into too many areas, producing too many products…"

A newly appointed leader comes in an “decreed that the company must go ‘back to the brick’: focusing on its core products, forgetting about brand-stretching…”

He also imposed “stricter management controls, for example reducing the number of different” products…

"But at the same time it must resist the sort of undisciplined innovation that almost ruined it."

"Can the company continue its winning streak? Its growth is slowing: its net profits grew by 9% in 2013 compared with 35% in 2012, and its revenues rose by 10% compared with 23% in 2012"

"When the company is getting bigger and the market isn’t growing, it’s a pure mathematical consequence that growth rates will have to reach a more sustainable level."

"…Relatively late in making its China play—jumping in when some other western firms are jumping out with nothing but regrets to show for it."

If I made you guess which company the quotes above are about, I assume you’d pick Apple. And understandably so. But you’d be wrong.

It’s actually Lego.

All the quotes are from an Economist article entitled “Unpacking Lego”, about the Danish toy-makers recent massive success after being near-collapse a decade ago. The parallels between the Lego story and the Apple story are quite robust.

And to me, they point to a common refrain: losing focus is the quickest and surest path to death for any company. Both Apple and Lego went right up to that brink, but were the rare companies where a last-minute leadership change was able to jolt the company back to life.

And, interestingly, in both cases, that salvation came by quickly trimming the fat of the companies and getting “back to the brick,” as Lego CEO Jorgen Vig Knudstorp called it. That is, regaining focus on the core product by removing all the distractions. Simplifying, even when the natural inclination is to keep expanding.

For both companies, it worked — to almost unfathomable levels. But…

Lego, now back on top of the world, is running into the same "law of large numbers" issues that Apple is. To re-quote Knudstorp: “When the company is getting bigger and the market isn’t growing, it’s a pure mathematical consequence that growth rates will have to reach a more sustainable level.”

And the resulting pressure from public markets create an environment for the bloat to creep back in…

This seems to be a main reason why no company can win forever. Even the great ones, like Lego and Apple, that save themselves by hitting the reset button, eventually are forced one way or another to expand beyond the “brick”.

Apple has so far navigated this successfully the second time around by creating new products that are tightly connected by an ecosystem. Lego now appears to be doing it by expanding their reach into things like film, tightly connected by their IP. But we’ll see…

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    TL;DR: Once you conquer a market - for example, the upper-end smartphone market for Apple and the Lego market for… Lego...
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