• FirefoxInstall the new Firefox »
  • start 

    An Entrepreneur Builds a Multimillion Dollar Business with Lego Pieces

    By Adrienne Burke | Yahoo Small Business

    Ranan Lachman, founder and CEO of Pley

    Ranan Lachman says his million-dollar business idea came to him in “one of those moments you realize you’re doing something wrong as a parent.” His mistake? Spending more than $5,000 on Lego toys over the years.

    It’s not that he doesn’t enjoy seeing his son build Super Star Destroyers. “I’m proud of him,” Lachman says. “He drops everything else for two to six hours and can say, ‘look at what I’ve done.’ But then he moves onto something else and you’re stuck with a $400 piece of plastic.”

    Lachman decided it would be more cost effective, as well as environmentally sound, to lease Lego sets and return them when his son tired of them. Of course, no such service existed. So he built one.

    His Lego subscription business, Pley, started small. Lachman invested his own savings to establish an e-commerce website and buy hundreds of new game sets. He began a year ago shipping them to renters from his garage. But what he calls “the Netflix for Legos” has grown 50 percent per month. Now Pley operates from a warehouse in San Jose, Calif., next door to the real Netflix headquarters.

    Lachman’s business model is so similar to Netflix, in fact, that he recruited former Netflix COO Tom Dillon to his board and poached several Netflix employees to help him build a technology infrastructure.

    “When users come to our website, they can make selections from our catalog and add an unlimited number of items to their Pley list,” Lachman explains. “We ship the first item on their list as it becomes available, and once they get it they can keep it as long as they want. When they’re done playing with it, they return it and we ship the next one.”

    The company owns some 40 million Lego pieces, offers a catalog of more than 300 games, and has shipped over 250,000 Lego minifigures across the country since May 2013. Depending on the size and value of the games they want, more than 15,000 households pay $15, $25, or $39 monthly—subscription fees that were set based on interviews with thousands of Lego-buying moms. Last month Lachman raised $6.75 million in venture capital from investors who valued the 23-employee company at $20 million.

    Lachman attributes the rapid success to “the brain power of the team.” Several of his PhD employees developed an algorithm and database that can determine, based on weight, which pieces are missing from a game. “Each set has between 200 and 5,000 pieces. We weighed every piece to the one-hundredth of a gram, and know exactly what a complete set should weigh,” Lachman says. An imaging step will soon be added to the process to identify colors for replacement pieces. When a returned game is received in the Pley warehouse, it takes 2.5 minutes to sanitize all of the pieces to FDA standards, replace any missing parts, and ship it back out to next user, he says.

    Lachman is proud that Pley is reducing waste and saving families money. And, he says, “We’re probably the only company in the world that teaches kids to share their toys.”

    Remarkably, his business is also boosting sales of Lego products. A Pley study revealed that kids who access the games through the subscription service interact more often with Legos are more engaged with the brand than those who play only with games they own. That translates to sales of additional Lego products, such as books and video games. Long term, Lachman says he plans to offer other educational game brands and expand the service globally.

    A former fighter-pilot with a Duke MBA who competes in Ironman races, Lachman previously owned and sold an investment research company. But his dream, he says, had always been to work in a toy store. “That’s what I’m doing now. It’s a dream come true,” he says.

    Yahoo Small Business Services