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Lessons from LEGO’s Digital Economy

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Danish toy company Lego continues to ride the crest of the wave, despite stiff competition by mobile video games.

The Danish company is the second largest in its industry in terms of sales, surpassed only by Mattel, the manufacturer of Barbie, which in 2013 generated lower operating profits than its rival. These successful results were largely due to Lego’s digital economy, which has prevented the company from being pushed aside by new technologies. To examine its business strategy, the first thing to be  considered is that its audience consists of children.

While it’s true that construction games are also a challenge for adults, who can easily take part in the process, play with their children, and take an interest in their kids having fun with this type of toys (before other types of entertainment), the purchase decision is influenced by the demands of the children, and the company targets its efforts at them, as well as the nuclear family as a whole.

Lego’s video games

Lego launched its first computer video game, based on its physical games, in 1997. At that time, the PC had proven itself to be a powerful entertainment platform and was beginning to enter the home. Consoles were still an expensive option by comparison. Since then, the company hasn’t stopped releasing new games and has progressively added supports for its software development as new ones have started to become more popular.

lego’s digital economy

From Windows, it made the jump to Mac OS, and to video game consoles at the end of the 90s and early 2000s, including portable devices like the GameBoy Advanced and Nintendo DS. Lego’s objective has always been to be wherever kids find entertainment, instead of trying to use advertising spending, for example, to try to keep kids from changing their habits.

If kids are playing on the computer, then that’s where Lego breaks in, to position itself among the available play options. Of course, this isn’t the company’s primary business, but the visibility helps the physical games to sell better. Today, smartphones and tablets are the supports that have the biggest influence on children. For years, Lego has been releasing games for these devices, mostly for iOS, abut there are also a few available for Android.

All the mobile video games that are based on Lego’s physical games are free. There are other games that are centred around characters or worlds whose copyright does not belong to the company, like the Batman, Harry Potter or Lord of the Rings sagas. In these cases, the downloads are paid and there is only an iOS version. But in all cases, the main function of the video games is to spread the brand.

Perhaps the biggest challenge in Lego’s digital economy in this area is the video game Minecraft, which is based on building virtual structures with blocks, and will soon release its own movie, perhaps inspired by the ‘The LEGO Movie’ project. The movie was a success for Lego not only in terms of publicity, but also at the box office and among critics. It’s not a shoddy product; quite the opposite, it’s an adventure comedy with refined aesthetics, humour and charisma. It was so well received that the sequel is already being prepared for 2017. In this case, the objective was to generate affinity with the brand, especially with families, which was the film’s target audience.

lego’s digital economy

Unafraid of 3D printing

The popularization of 3D printers is making some companies afraid that their products will be able to be printed at home, giving rise to a kind of piracy that affects certain businesses, just as the creation of P2P networks did for the music and film industries. In response to these concerns, toy manufacturer Hasbro, which makes Transformers, signed an agreement with 3D Systems to allow some of its toys to be produced in the home. And Lego is thinking of taking a step in that same direction.

Lego’s CFO, John Goodwin, confessed to Financial Times just this year that 3D printing represents an opportunity for the company. He said that this technology opens up new paths and added that they are looking for a way to take advantage of it so that consumers can benefit. For example, they recently filed for a patent that allows the customization of the 3D-printed pieces.

Stimulating crowdsourcing among fans

Lego has an online platform where it invites its consumers and fans to upload their own ideas for physical products. If one of the proposals gets 10,000 votes, the manufacturer will consider whether or not it should be launched commercially. This initiative allows the company to be in constant contact with its most loyal customers and to enrich itself with their suggestions.

It also helps to create a circle of fans, which is decisive for a brand, both because of the fans’ loyalty and the publicity that they generate, which is of the best kind.

The manufacturer also has exclusive web content, such as Build with Chrome, which is an application that runs in the browser and allows the user to move and connect Lego pieces, simulating how it would be done in reality. The software offers a 3D environment adapted to the building of structures.

Innovation in toys

In addition to all these actions, Lego has also devoted its energy to innovation in toy manufacture. Robotics is one area that the company has been focusing on for years and its new kits have been expanded to include the latest technology, such as sensors. The company recently announced a project to connect its physical products to the virtual world of video games. Consumers will be able to build a structure and then take a picture of it with a smartphone camera to unlock a game based on the construction. This trial will be limited to the United States for now.

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Entrepreneurship

Understanding Cryptic Startup Terms

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The startup world throws around a lot of jargon.

Some of it is fluff, some of it is important.

Rather than pretend like you know what people are talking about, I’ve found it’s good to make sure I actually understand the terminology.

So, here’s a few essential startup terms you should know.

KPI

Stands for Key Performance Indicator. This is a measurable value that indicates how effectively your company or product is achieving its business goals.

Example: I would guess a main KPI of AirBnB is guests per night (how many people are staying on an AirBnB property on any given night).

The idea is that you can focus on improving key indicators, which should then directly influence your company’s goals.

Churn Rate

Your churn rate is the percentage of customers who stop subscribing to your service in a given time period. You can calculate the churn of anything (like revenue or employees), but it’s most often referring to customers.

This is considered the main enemy of any subscription company.

Example: As of this writing, Buffer’s monthly user churn is 5.9%.

Your acceptable churn rate depends entirely on your specific industry and company.

OKR

Stands for Objectives & Key Results. This is a framework for setting, communicating, and monitoring goals.

Objectives are goals, which tell you where to go. Each objective has key results, which indicate how you’ll get there.

Example:

Objective: Increase our recurring revenue.

Key Results:

  • Share of monthly subscriptions increased to 85%.
  • Average subscription size of at least $295 per month.
  • Reduce churn to less than 1% per month.

More examples.

MRR

Stands for Monthly Recurring Revenue. This is income that a company an reliably anticipate every 30 days. MRR is intended for products or services that have a defined price and recurring term.

Example: As of this writing, Treehouse’s MRR is $2M+.

To put two terms together, your MRR churn is the erosion of your monthly recurring revenue.

There is also ARR: Annual Recurring Revenue, not to be confused with Annual Run Rate (below) which even uses MRR in its calculation.

USP

Stands for Unique Selling Proposition. This refers to the unique factor of your company or product that sets you apart from all your competition. It’s the answer to the question, “Why should I do business with you instead of anyone else?”

Example: M&M’s “Melts in your mouth, not in your hand.” M&Ms use a patented hard sugar coating that keep chocolate from melting in your hands.

ARR

Stands for Annual Run Rate. This is a method used to project future revenue based on your current revenue. To get it, simply multiply your MRR by 12.

While that might seem inaccurate, ARR is a helpful tool to get an idea of long term growth and visualize the size of your business.

Example: If a company’s MRR for last month was $100k, its current ARR $1.2M.

Burn rate

Your burn rate is the rate at which your company spends money in excess of income. It’s a measure of negative cash flow. It is usually quoted in terms of cash spent (lost) per month.

Burn rate a good measuring stick for a company’s runway — the amount of time it has before it runs out of money.

Example: If a company has $1 million in the bank, makes $100k per month, and spends $200k per month, it has a burn rate of $100,000/month. It also has a runway of 10 months.

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This article was written by Jordan Bowman. 

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Innovation and Happiness

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What, exactly, is value? Or, in a less philosophical way: how is it that you practically know when you have experienced something of value?

From my experience so far, I believe that our experience of value is deeply related to our true emotions and feelings, and is thus rooted in our common humanity. Building on what I’ve written about previously on innovation (innovation being the simultaneous movement towards new and better) our entire perception of “value” and “better” is inextricably intertwined with our emotional experience of our world. In this perspective, being able to make ourselves happy is a precondition to being able to make others happy, and this includes how we craft products, services and experiences for others.

Let me explain.

Our Emotions

We, as human beings, have a limited number of emotions that we can experience and that motivate us to action. Opinions differ as to what those emotions are, but one popular perspective is that they include happiness, anger, fear, sadness, disgust, guilt and surprise. As practical experience tells us, we can experience these emotions to different levels of intensity. We can also experience several emotions simultaneously, because our brains are highly complex, interconnected webs of living cells, all interacting simultaneously.

The regions of the brain that deal with emotions are quite close to the centre of the brain – closer, in fact, than the regions of your brain that are responsible for our rational, critical thinking processes. The centre of the brain is, of course, closer to the mid-brain and spinal cord, and, thus, it can be conjectured that emotions are more powerful movers of our selves than our rational thoughts. Think about this for yourself: are you more likely to be moved to action by an appeal to your emotions, or by an appeal to your logic? Are you very easily able to commit and see through your New Year’s resolutions, or do you give up on them within a few short weeks (like most of us)? I suppose the answer to that will depend on how much discipline you have over your emotions, and how in touch you are with your emotions.

How dull would life be if you only lived by way of logic, ignoring all of your feelings of happiness, sadness, fear, anger, and so on? Emotion and logic both have their place in our daily lives, and wisdom involves knowing which to give precedence at the right time.

How is it, though, that emotions could possibly lead us to experience what we deem to be “valuable”?

Emotions and Value

What are the things that facilitate happiness for you, personally? Are those not the things that you consider valuable? Tony Robbins speaks of the things that motivate us as human beings, listed here for convenience:

  1. Certainty/safety – I need to feel safe now, and that I will feel safe in the future.
  2. Uncertainty/variety – I need to experience new things and encounter unexpected challenges or experiences (note how this contradicts our first need).
  3. Significance – I need to feel as though I am significant to another person.
  4. Love/connection – I need to feel as though I am loving others and am loved by others, and/or connected to others.
  5. Growth – I need to feel as though I am growing and developing as a human being in all of my various spheres.
  6. Giving – I need to feel as though I am giving back to others in a meaningful way.

The first four needs are basic needs that everyone has and will find some way of meeting, regardless of how healthy or sustainable those ways are. Very few people seem to get to the point in their lives where they realise that they need the last two things: to grow personally, and to give to others. It is, in fact, a need of ours to give to others in meaningful ways! This is, however, quite difficult if you have not yet found healthy ways of having your other, more basic needs met first.

The degree to which we experience those different needs is different for each and every one of us. Some of us need more variety and uncertainty or excitement than others. Some of us have a greater need for significance than others. And others still have a greater need for personal growth. The intensity of each of those needs also varies over time, depending on what’s going on in our lives.

Think, for example, of a situation where, on a rather average day at work, you feel hungry. You start looking around for new something to eat at the cafeteria (it would be “valuable” to you right now to ensure your own longevity and satisfaction by eating something, but you also want a bit of variety), when all of a sudden the fire alarm goes off and people start running and screaming around you as smoke fills the corridors. Immediately, your priorities shift to a different kind of bodily safety or certainty. The last thing you’d probably be thinking of right now is food, or, for that matter, connecting with other people in meaningful ways or about your career growth path (if you’re laughing at this picture right now, it most certainly highlights the practical absurdity of thinking of inappropriate needs for the situation). Your immediate perception of what’s “valuable” shifts to preserving your own life, and you too probably start to run towards safety.

Similarly, your needs shift and change as you go through different phases of your life. When you are young and unattached, you generally have a greater need for uncertainty and variety – to go explore the world and its various options. The moment that you start to “settle down” and start having children, your priorities may start to shift a bit more towards providing you and your loved ones with greater safety. As the children leave the house, you may start once again engaging in hobbies that you have neglected for a long time, and perhaps go back to school, as growing as a person again becomes a focal point for you. As you grow, you also start realising that you have a desire to give back, and so start volunteering at a local shelter, or volunteering to teach others. (This is, of course, a highly stereotypical view, and is not necessarily the healthiest approach to life – that is up to you to discover for yourself).

In all of these examples, it is in the meeting of these fundamental needs of ours that we experience what we intuitively call “value”. That is, of course, given that we’re doing so in healthy ways. And how is it that we know that these needs of ours are or are not being met? Through our emotions, of course! We usually tend to feel happy once our needs have been met, and happily surprised when met unexpectedly. We tend to feel angry, sad or disappointed, or disgusted when they are not met. We tend to feel guilty when we act in ways that hurt others and go against the meeting of our own needs. (An important caveat here: this is not always the case though. When we come from dysfunctional relational backgrounds or have experienced a lot of pain and suffering at the hands of others in our past, our emotional responses to the world need to be taken with a pinch of salt. Psychotherapy is an incredibly effective tool in helping to sift our true feelings/emotions from those generated by PTSD).

Meeting Our Own Needs

Part and parcel of our highly dysfunctional society today is the lack of being able to meet our own needs in healthy ways, while trying to meet the needs of others, thinking that if we meet their needs then they’ll meet ours. This is a particular pattern of dysfunction that sets in in early childhood when parents cannot meet the needs of their children, and children assume that they have to teach their parents to how look after them (an oversimplification of codependency theory, I know). Unfortunately, their parents are so disconnected from themselves and their own emotions that there is no way that they would be able to be in touch with the emotions of their children. Children then preoccupy themselves with their external environments and external distractions, never really learning to be in touch with their own emotions, and so the cycle is perpetuated through the generations. As adults, we preoccupy ourselves with trying to please everybody around us (colleagues, managers, friends, partners) so they will like us and maybe, just maybe, they will help us meet our needs. Unfortunately, meeting one’s own needs is a full- time job for one person, and so the chances of them catering to your needs will be very slim.

This pattern of dysfunction is incredibly common nowadays, and is especially evident by how much codependency, addiction and abuse (physical and emotional) there is in the world today – our world of endless, instantly available distractions. We need to bring ourselves to a standstill, before life does this on our behalf in the form of catastrophe, and recognise that we need to take up full responsibility for having our own needs met and for our own happiness. This, of course, does not mean that we have full control over having our needs met, such as in the example of connectedness and love, where one cannot possibly control another person into loving you or being friends. All we can do is adjust ourselves, and rationally put ourselves in the best position we can to be able to have those needs met, and then be okay with being dependent on another person as they could be on you.

I say all of this because, before we can actually give back to others in meaningful, healthy ways, we have to be able to give to ourselves in healthy, meaningful ways.

Innovating Through Empathy

Once we are regularly in touch with and can meet our own basic needs by creatively coming up with ways of finding happiness in healthy ways, we can then start to look at meeting the needs of others in healthy ways (which, as said earlier, happens to be one of our own personal needs). By being in touch with oneself, knowing oneself and how to work with your own emotions, you can build up your ability to empathise with others. This allows you to feel what they feel, as if you were in their shoes. By being well-versed in looking after yourself and your own needs, you can then more easily help them find ways to have their own needs met.

This is especially relevant and pertinent in a business context. If we, as individual human beings (who happen to be employees as well), are out of touch with ourselves, how could we possibly be crafting products, services or experiences for other people that will make them happy enough, by way of having their needs/desires met, that they will pay you their hard-earned money and keep coming back to you for those offerings?

Coming back to the idea that innovating is about the simultaneous movement towards things that are both new and better, there is the underlying sense that it requires both creativity and an understanding of what’s valuable. Thinking only about the value/betteraspect, my reasoning, as explained above, is that being in touch with your own emotions as guides as to what’s valuable to you will allow you to come up with ways of structuring your life to facilitate greater happiness for yourself. This is the primary way in which you will be able to empathise with others and help to give them that which is valuable to them.

Conclusion

It would appear to me as though innovating on behalf of others and our own personal happiness and fulfilment are inextricably interwoven. We cannot separate our humanity from the business world, because our business, as human beings, is the business, challenge and art of finding and facilitating happiness in a challenging, dynamic world, for ourselves and others. The way in which we help others find happiness through our products, services and experiences, is for us to first find ways of making ourselves happy – a journey on which our true emotions and feelings will be our guides.

Commit yourself to making yourself happy, and being the only person in your life who is truly and ultimately responsible for your own happiness, and you will see that, within a few short months, you will be more capable of seeing what’s valuable for yourself and others. You will also be more capable of facilitating the happiness of others in healthier, more sustainable ways, and in so doing meet your own need to give back to others.

The rest of the challenge of innovating is in being able to facilitate the “new” – a topic which most certainly deserves its own special treatment.

About the Author

This article was written by Thane Thomson, who is currently working for DStv Digital Media in research and development.

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