In 1916, Christiansen purchased a woodworking shop in Billund which had been in business since 1895. He earned his living by constructing houses and furniture for farmers in the region, with the help of a small staff of apprentices. His workshop burned down in 1924 when a fire, lit by two of his young sons, ignited some wood shavings. Undaunted, Ole Kirk took the disaster as an opportunity to construct a larger workshop, and worked towards expanding his business even further; however, the Great Depression would soon have an impact on his livelihood. In finding ways to minimize production costs, Ole Kirk began producing miniature versions of his products as design aids. It was these miniature stepladders and ironing boards that inspired him to begin producing toys.
In 1932, Ole Kirk's shop started making wooden pull toys, piggy banks, cars and trucks. He enjoyed a modest amount of success, but families were poor and often unable to afford such toys. Farmers in the area sometimes traded food in exchange for his toys; Ole Kirk found he had to continue producing practical furniture in addition to toys in order to stay in business. In the mid-1930s, the yo-yo toy fad gave him a brief period of activity, until its sudden collapse. Once again, Ole Kirk turned disadvantage to his favor, turning the disused yo-yo parts into wheels for a toy truck. His son Godtfred began working for him, taking an active role in the company.
It was in 1934 that the company name Lego was coined by Christiansen from the Danish phrase leg godt, meaning "play well." The Lego Group claims that "Lego" means "I put together" or "I assemble" in Latin , though this is a rather liberal translation of a verb form that would normally translate as "I read" or "I gather."
When plastic came into widespread use, Ole Kirk kept with the times and began producing plastic toys. One of the first modular toys to be produced was a truck that could be taken apart and re-assembled. In 1947, Ole Kirk and Godtfred obtained samples of interlocking plastic bricks produced by the company Kiddicraft. These "Kiddicraft Self-Locking Building Bricks" were designed and patented by Mr. Hilary Harry Fisher Page, a British citizen.   In 1949 the Lego Group began producing similar bricks, calling them "Automatic Binding Bricks." Lego bricks, manufactured from cellulose acetate, were developed in the spirit of traditional wooden blocks that could be stacked upon one another; however, these plastic bricks could be "locked" together. They had several round "studs" on top, and a hollow rectangular bottom. They would stick together, but not so tightly that they couldn't be pulled apart. In 1953, the bricks were given a new name: Lego Mursten, or "Lego Bricks."
The use of plastic for toy manufacture was not highly regarded by retailers and consumers of the time. Many of the Lego Group's shipments were returned, following poor sales; it was thought that plastic toys could never replace wooden ones. Despite such criticism, however, the Kirk Christiansens persevered. By 1954, Godtfred had become the junior managing director of the Lego Group. It was his conversation with an overseas buyer that struck the idea of a toy system. Godtfred saw the immense potential in Lego bricks to become a system for creative play, but the bricks still had some problems from a technical standpoint: their "locking" ability was limited, and they were not very versatile. It wasn't until 1958 that the modern-day brick design was developed. The bricks were improved with hollow tubes in the underside of the brick. This added support in the base, enabling much better locking ability and improved versatility. That same year, Ole Kirk Christiansen died, and Godtfred inherited leadership of the company.