Forbes Faces: Kjeld Kirk Kristiansen

That's what Chief Executive Kjeld Kirk Kristiansen Kjeld Kirk Kristiansen , grandson of Lego's founder, must have been thinking as his company ran up losses of $123 million last year.

For only the second time in the privately held Danish company's 68-year history, Lego yesterday announced that it lost money. The other time Lego had losses, in 1998, it responded by laying off 10% of its staff. That move helped the company return to profitability the following year, and it's taking a similar tactic this time.

"Obviously, running such a high deficit has made us take a fundamental look at our business," says Paul Plougmann Paul Plougmann , Lego's chief officer of operations. "Like a cold splash of water in the face, it has opened our eyes to what we are not good at and what we do well." What the company, which had revenue of $1.2 billion in 1999, said it does not do well is enter sectors that stray from the core toymaking business, including wristwatch production and publishing. In addition to cutting back those lines, Lego said it will shelf plans to build the fifth Legoland theme park in Japan.

The restructuring will result in the elimination of 500 of 8,000 jobs. It will also shutter two factories in Switzerland, sell a tool plant in Germany and an engine-making facility in Hungary.

With the volatility of the toy industry, Lego cannot depend exclusively on the rainbow-colored interlocking bricks, says Morningstar toy analyst T.K. Mackay. After all, building-set toy sales in the United States were $479 million in 2000, virtually flat from the previous year, according to the Toy Manufacturers of America . And with 52 Lego plastic toy bricks for every inhabitant of the planet, market saturation is a major problem. "Times change and consumers change, and it may be time for the company to change," said Diane Cardinale, a spokeswoman for the Toy Manufacturers of America.

To return to the glory days, the company has started making toys to complement the Lego, introducing a record 170 new products at the American International Toy Fair in mid-February. The most high-profile product is the Bionicle action figure, which sells for $7. In a departure from the firm's educational and pacifist tradition (Lego is the combination of Danish words that mean "play well"), Bionicle dolls wield weapons. The company insists on euphemistically referring to the arms as tools. The company has also tried to snatch back the attention and money it lost to Sony and Nintendo with Mindstorms--Lego bricks with a computer inside that allow children to build tools like tennis ball-retrieving robots.

Lego has survived major obstacles in the past, including the Great Depression and Nazi invasion. The firm was founded in 1932 by Ole Kirk Christiansen Ole Kirk Christiansen , who originally crafted wooden toys in his carpentry shop. In 1947, the year grandson Kjeld Kirk Kristiansen (the family changed the spelling of its name) was born, Lego became the first firm in Denmark to buy a plastic injection-molding machine for making toys. Three years later, the company developed Automatic Binding Bricks, a forerunner of today's Legos.

The toys, both recreational and educational, were perfect for households of increasing size and income throughout the post-war world. But the bricks, which built a personal fortune of $3 billion for the Kristiansen family, are now looking increasingly creaky.