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Building a successful start-up, brick by Lego brick

In 1998 the Lego Group entered into a licensing agreement with Lucasfilm, the company founded by "Star Wars" creator George Lucas. It allowed Lego to manufacture sets based on the movies, with instructions showing builders how to turn 2,000 tiny plastic bricks into the Death Star.

Fourteen years later the Walt Disney Company bought Lucasfilm for $4 billion, with the licensing deal still very much in place. Countless Lego products tied in with the franchise followed, and the Lego Group went on to manufacture sets based on other popular movie franchises, such as "Harry Potter" and "The Avengers."

Licensing is part of an overall strategy that's made the Lego Group wildly successful. According to its 2015 annual report, Lego Group made $1.4 billion in net profit, more than double what it made just four years earlier. But while this is good news for Lego, it's created a tough situation for some consumers.

A child plays with Lego blocks
Jay Directo | AFP | Getty Images

The Lego Group still creates sets priced well within the modest reach of a child's allowance, but parents who have taken their kids to the toy store know perfectly well that there is no appetite for a 30-piece set that can be built in five minutes. Kids want one of the high-end sets with thousands of pieces, and those can retail for hundreds of dollars.

If that were a one-time expense, parents might be willing to make an exception, but it rarely is. Often, the child will just want another set seconds after finishing the last one and putting it on the shelf to be forever ignored. If the parent relents and buys another such set in the same month, the expense can become equal to that of a car lease payment.

Luckily, parents of Lego-obsessed youngsters can breathe a sigh of relief. Netbricks, a company based in Elk Grove Village, Illinois, offers the opportunity to rent Lego sets for a monthly fee. There are several tiers, such as the Master plan, which allows 60-day rentals of $400 worth of Lego sets for $49 a month. At the end of the 60-day period, the sets are shipped back free of charge and new sets are shipped to the subscriber.

Company president Rick Weil founded it after experiencing the same thing that so many other parents do. In other words, he was hemorrhaging money on Legos for his kids and wondered if there was a way to slow the bleeding.

"It seemed like a problem that a lot of people had," he said. "I figured if there's a big enough problem, then there's probably a market there. … Licensing adds a fair amount to the price of a set, and the expense of the product lent itself to the rental business."

Netbricks started selling to the public in 2015 and at launch a Groupon promotion led to an initial enroll of 5,000 people, far outpacing expectations. He said that requests for the now-discontinued Death Star set accounted for fully 12 percent of his initial customer requests, with the $240 Tower Bridge set taking second place.

"These are people who buy at a lower price point," he said. "Something like the Death Star is a once-a-year purchase for these families."

(Pictured: The world-famous Tower Bridge features iconic towers, working drawbridge and a red double-decker bus. It also includes 4,295 pieces and costs $240.)

Netbricks currently employs eight people, including Weil. Each employee has a dedicated job, right down to the person who does the all-important cleaning of the returned sets, using a medical-grade technique that's absolutely necessary for anyone who considers the term "used Legos."

Weil said that parents are actually far less concerned about cooties than they are about penalty fees for lost pieces. Netbricks assesses no charge for those.

"Part of our service is no charge for normal piece loss," Weil said, citing a range of 15 to 20 lost pieces for regular sets or 20 to 30 for larger ones. He added that the company's real concern is the malicious actor who "harvests" Lego sets with the intention of selling rare pieces to desperate builders who need that special brick to finish their creation.

Weil would not disclose his company's financial information, but he said that it's profitable on a gross margin basis, and he expects it to be cash-flow positive in six months' time. He added that he's in no rush to see the company get ahead of itself by expanding too quickly.

"We made a decision early on that although there's more demand out there that we can get, we didn't want to take on a huge volume of customers until operations are ready to scale," he said. "If you don't have customer service and structure where you can field all calls, that's not a great way to grow a business."

Netbricks currently boasts 215 "fully active" members, which it defines as members who have rented and returned sets for more than one cycle. The current total is well below the 5,000 customers who signed up at launch, but Weil said that was to be expected because of the one-time impact of the Groupon promotion. The lower number of repeat customers is a more accurate reflection of Lego diehards. And Weil said that Netbricks has been successful in retaining repeat customers, so they must be doing something right.

Netbricks is not allowed to buy Legos from Lego.com, because Lego is trying to discourage resellers. Netbricks buys its entire inventory from retailers (Walmart, Target, Toys-R-Us, etc.).

"Lego is aware of what we're doing and we've had a handful of communications with them," Weil said. "It was nothing atypical of how a top five worldwide brand would work to protect their brand and trademark. Anytime anybody pops up and is using the word 'Lego' in a commercial sense, the Lego company sends out information and notification as to how they would like you to use their trademarks, and that's been the extent of our business to business communication with Lego."

Lego Group could not provide a comment by press time.

"We're focused on providing an experience for big-time Lego fans. We have a lot of respect for the Lego company and their retail model," Weil said.

By Daniel Bukszpan, special to CNBC.com