Isegoria

Venture capitalist Stewart Alsop II used to be editor-in-chief and executive vice-president of InfoWorld. Before that, he wrote a few proto-geeky articles for Inc., like this one on fast-growing TSR Hobbies, from 1982:

The company’s success earned TSR Hobbies the sixth position on INC.’s list of fast-growing privately held companies (see “The INC. Private 100,” December 1981). Founded in the basement of a house in 1973 and incorporated in 1975, TSR had revenues of $12.9 million and a payroll of 130 in the year ended June 30, 1981, and projects revenues of $27 million and a payroll of 170 in fiscal 1982.

The company is so profitable that it has never had to go hat in hand to bankers or other money sources to finance its spectacular growth. Though it has a $2.5-million line of credit at a Chicago bank, the company’s debt-to-equity ratio was an enviable 1-to-10 at the end of fiscal 1981. Its return on equity was 116%, and by last December, the original investment of $3,000 had grown to $3.5 million.

In their business explorations, TSR’s owners and managers have been called upon to use many of the skills that are required to play Dungeons & Dragons. “I quit playing the game about two years ago to get some objectivity,” says Kevin B. Blume, 30, chief operating officer.”I love to play, but it wasn’t that difficult to forego. Now I’m playing a much larger game called business. That’s why we’re intuitively good businessmen — because games are a great way to learn.”

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For Gygax, the years between childhood and the founding of TSR were really no more than an interlude when he had to keep fantasy in the closet. He never graduated from high school, and spent 15 years as an insurance underwriter analyzing the actuarial experience of client groups. “There were too many boundaries in insurance,” he says. “All I really wanted to do was write and design fantasy games.”

In 1970, he quit his job and started living out his fantasy. He paid the bills by repairing shoes in his basement. He also got a trickle of royalties for writing and editing rules for war games, and was paid 60 cents a page for typing up the rules. In 1971, he published his own set of rules for a war game, which he called Chainmail. A year later, in the second edition, he added something called a fantasy supplement, describing an imaginative setting for playing the game.

To his surprise, all of the inquiries about Chainmail began to focus on the fantasy supplement. So in 1973, he persuaded his boyhood friend and fellow gamer Donald Kaye to borrow $1,000 against his life insurance and the two of them formed a partnership called Tactical Studies Rules (TSR). With Kaye’s money, they published a set of wargame rules for lead miniatures, called Cavaliers & Roundheads.

In January 1974, Gygax and Kaye were joined part-time by another gamer, Brian Blume, who had been a tool-and-die maker for his father’s company for five years. Blume invested an additional $2,000 and the three of them published the rules for Dungeons & Dragons. It took a year to sell the first 1,000 copies of D&D. The next January, Donald Kaye had a fatal heart attack: He had been scheduled for heart surgery, but had never told his partners. “The key to having a lot of success is enjoying what you do so you don’t mind thinking about it all the time,” says Gygax. “Donald never got a chance to participate like that in TSR.”

The partnership moved into Gygax’s basement and printed another 2,000 copies of D&D, which took only five months to sell out. “We had to compete with my shoe-repair machinery,” recalls Gygax. “But the assembly process wasn’t complicated. My wife, my kinds, and I would march around the diningroom table picking up the pieces and putting them in the box.”

In October, a newly incorporated TSR Hobbies, with Brian full-time, and the printing and assembly subcontracted, began to get serious about business. The third printing of 3,000 copies of D&D also took only five months to sell out.In the next fiscal year, 1976, the company had $300,000 in revenues. “We knew it was good,” says Gygax, “but we didn’t know just how good. We decided in 1975 to compete with Milton Bradley and Parker Brothers.”

James Maliszewski notes the complete absence of any mention of Dave Arneson.

TSR’s income statement for fiscal year 1981 caught my eye:

The Lego store might as well have a “No Girls Allowed” sign, Peggy Orenstein quips, because, as Brad Wieners explains, their boy-focused turnaround has been so successful:

Revenue has increased 105 percent since 2006, according to the privately held company’s 2010 annual report, and Lego topped $1 billion in U.S. sales for the first time last year. It’s on track to do that again in 2011. “They’re killing it now,” says Gerrick Johnson, equities analyst at BMO Capital Markets, who has followed the company’s impact on listed toymakers such as Mattel (MAT) and Hasbro (HAS) for a decade. Lego, he says, “is the hottest toy company in the boy segment, and maybe the hottest in toys overall.”

Now, after four years of research, design, and exhaustive testing, Lego believes it has a breakthrough, and Lego is for girls, too:

On Dec. 26 in the U.K. and Jan. 1 in the U.S., Lego will roll out Lego Friends, aimed at girls 5 and up. (French Lego retailers are going rogue and plan to bring out Lego Friends on Dec. 15.) In Lego’s larger markets, like the U.S., Lego determined it was better to introduce the new line after the holidays, when Wal-Mart Stores (WMT), for example, would give the line dedicated shelf space it wouldn’t during the holiday sales rush. The company’s confidence is evident in the launch — a full line of 23 different products backed by a $40 million global marketing push. “This is the most significant strategic launch we’ve done in a decade,” says Lego Group Chief Executive Officer Jørgen Vig Knudstorp. “We want to reach the other 50 percent of the world’s children.”

If you found yourself desperately hunting for gifts for a little girl for Christmas, you may be thinking, “Lego, are you messing with me on purpose?”

Anyway, how did they appeal to girls?

To develop Lego Friends, Knudstorp relaunched the same extensive field research — more cultural anthropology than focus groups — that the company conducted in 2005 and 2006 to restore its brand. It recruited top product designers and sales strategists from within the company, had them join forces with outside consultants, and dispatched them in small teams to shadow girls and interview their families over a period of months in Germany, Korea, the U.K., and the U.S.

The research techniques and findings have been controversial at Lego from the moment it became clear that if the company were serious about appealing to girls, it would have to do something about its boxy minifigure, its 4-centimeter plastic man with swiveling legs, a yellow jug-head, and a painted-on face. “Let’s be honest: Girls hate him,” says Mads Nipper, the executive vice-president for products and markets, Lego’s equivalent of a chief marketing officer. In terms of Lego iconography, the minifigure is second only to the original studded brick. It’s as hallowed as a 1 5/8th-inch piece of plastic can ever be.
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During ’05 and ’06, the Lego “anthros,” as the research teams have been called, discovered some underappreciated cultural gaps. The idea of creative play as conducive to learning, or even formal education, is an article of faith at Lego that goes back to its founder, who defended his decision to become a toymaker during the Great Depression by pointing out that all animals use play to develop their brains. In Japan, however, Lego found that study and play were more clearly delineated. Few Japanese parents bought Lego, as they do in Germany or the U.S., because they were “toys with vitamins in them,” as Lego senior director Søren Holm only half-jokingly puts it.

American boys, meanwhile, turned out to be the least free of any group Lego tracked. British and German boys are far more likely to play unsupervised in yards and wooded areas and even have greater latitude in decorating their bedroom walls. Among slightly older American boys, 9 to 12, building with Lego represented a rare chance to be left alone. (On one subject, boys of all ages and nationalities agreed: A castle without a dragon is worse than no castle at all.)

Lego won’t say how much it spent on its anthropology, but research went on for months and shattered many of the assumptions that had led the company astray. You could say a worn-out sneaker saved Lego. “We asked an 11-year-old German boy, ‘what is your favorite possession?’ And he pointed to his shoes. But it wasn’t the brand of shoe that made them special,” says Holm, who heads up the Lego Concept Lab, its internal skunkworks. “When we asked him why these were so important to him, he showed us how they were worn on the side and bottom, and explained that his friends could tell from how they were worn down that he had mastered a certain style of riding, even a specific trick.”

The skate maneuvers had taken hours and hours to perfect, defying the consensus that modern kids don’t have the attention span to stick with painstaking challenges, especially during playtime. To compete with the plug-and-play quality of computer games, Lego had been dumbing down its building sets, aiming for faster “builds” and instant gratification. From the German skateboarder onward, Lego saw it had drawn the wrong lessons from computer games. Instead of focusing on their immediacy, the company now noticed how kids responded to the scoring, ranking, and levels of play — opportunities to demonstrate mastery. So while it didn’t take a genius or months of research to realize it might be a good idea to bring back the police station or fire engine that are at the heart of Lego’s most popular product line (Lego City), the “anthros” informed how the hook-and-ladder or motorcycle cop should be designed, packaged, and rolled out.

Encouraged by what it had learned about boys, Lego sent its team back out to scrutinize girls, starting in 2007. The company was surprised to learn that in their eyes, Lego suffered from an aesthetic deficit. “The greatest concern for girls really was beauty,” says Hanne Groth, Lego’s market research manager. Beauty, on the face of it, is an unsurprising virtue for a girl-friendly toy, but based on the ways girls played, Groth says, it came, as “mastery” had for boys, to stand for fairly specific needs: harmony (a pleasing, everything-in-its-right-place sense of order); friendlier colors; and a high level of detail.

“It was an education,” recalls Fenella Blaize Holden, an under-30 British designer, on the process of getting Lego Friends made. “No one could understand, why do we need more than one handbag? So I’d have to say, well, is one sword enough for the knights, or is it better to have a dagger, too? And then they’d come around.”

Lego confirmed that girls favor role-play, but they also love to build — just not the same way as boys. Whereas boys tend to be “linear” — building rapidly, even against the clock, to finish a kit so it looks just like what’s on the box — girls prefer “stops along the way,” and to begin storytelling and rearranging. Lego has bagged the pieces in Lego Friends boxes so that girls can begin playing various scenarios without finishing the whole model. Lego Friends also introduces six new Lego colors — including Easter-egg-like shades of azure and lavender. (Bright pink was already in the Lego palette.)

Then there are the lady figures. Twenty-nine mini-doll figures will be introduced in 2012, all 5 millimeters taller and curvier than the standard dwarf minifig. There are five main characters. Like American Girl Dolls, which are sold with their own book-length biographies, these five come with names and backstories. Their adventures have a backdrop: Heartlake City, which has a salon, a horse academy, a veterinary clinic, and a café. “We had nine nationalities on the team to make certain the underlying experience would work in many cultures,” says Nanna Ulrich Gudum, senior creative director.

The key difference between girls and the ladyfig and boys and the minifig was that many more girls projected themselves onto the ladyfig — she became an avatar. Boys tend to play with minifigs in the third person. “The girls needed a figure they could identify with, that looks like them,” says Rosario Costa, a Lego design director. The Lego team knew they were on to something when girls told them, “I want to shrink down and be there.”

The Lego Friends team is aware of the paradox at the heart of its work: To break down old stereotypes about how girls play, it risks reinforcing others. “If it takes color-coding or ponies and hairdressers to get girls playing with Lego, I’ll put up with it, at least for now, because it’s just so good for little girls’ brains,” says Lise Eliot. A neuroscientist at the Rosalind Franklin University of Medicine and Science in Chicago, Eliot is the author of Pink Brain Blue Brain, a 2009 survey of hundreds of scientific papers on gender differences in children. “Especially on television, the advertising explicitly shows who should be playing with a toy, and kids pick up on those cues,” Eliot says. “There is no reason to think Lego is more intrinsically appealing to boys.”

Maybe not, but even Knudstorp acknowledges that Lego’s girl problem will be hard to conquer.