Shoedog by Phil Knight
04 September, 2018 - 16 min read
I. Brief Summary
- Phil Knight's incredible humble and fragile beginnings of the company started with importing shoes from Japan and selling them out of the back of his Plymouth Valiant. He originally borrowed $1000 from his father to finance the first batch of order. He was a Stanford graduate and a CPA but his calling was a shoe dog. His knowledge of and passion for running shoes and sports came from being a middle-distance runner for the University of Oregon track team. It all started with a paper he wrote on, "Can Japanese Sports Shoes Do to German Sports Shoes What Japanese Cameras Did to German Cameras?" Even though nobody was all that impressed with the paper, Phil became obsessed with the idea of selling Japanese, high-end and low-cost running shoes in the US. On his post-graduation trip around the world, he made a stop in Japan. There he discovered the Tiger brand, made by Onitsuka (onitska tyga with a silent "u" and "r") who gave him the exclusive distribution rights for the western United States to sell Tiger shoes. Phil randomly blurted out “Blue Ribbon,” when Onitsuka asked him for the name of his company. The first 300 pairs took over a year to be delivered, during which Phil worked as an accountant. When Phil finally got the shoes, one of the first people he mailed to was Bill Bowerman, his former running coach at the University of Oregon. To Phil’s surprise, Bill offered to become his partner by buying a 50% stake in Blue Ribbon Sports and take care of product design. Eventually Knight decided to design and manufacture its own shoes for tennis, basketball, running, etc. The decision to call the company Nike was not Knight’s top choice. He wanted to name it Dimension Six, but his employees pushed him to choose Nike. Knight paid an art student $35 to design the Nike logo. His first year, the company grossed around $8,000, which quickly grew to $300,000 by 1969, $8 million by the time it went public in 1980, and eventually $34 billion by 2017. There are no how-tos or tips to this amazing tale. There is no clear path but a chaotic journey. There are lots of twists and turns around the company's finances, lawsuits and frequently running out of money. Knight was not a micromanager. He hired a team and got out of their way. He let them do their job. Shoe Dog, Phil Knight’s memoir about creating Nike, is a refreshingly candid entrepreneurial reminder of what the path to business success really looks like.
II. Big Ideas
- Like many entrepreneurs, Phil Knight started by solving his own problem – running shoes. A former runner himself, Phil knew what his customers wanted, how they thought, and what would get them onboard.
- Phil Knight started his career selling imported Japanese shoes, not by manufacturing his own. In fact, it was only frictions with the Japanese company that forced him to found Nike. If they’d kept their partnership amiable, Phil might have been working with Onitsuka for decades, and Nike might never have happened.
- Phil surrounded himself with good people and recruited trusted friends and partners. The Nike team consisted of an overweight accountant to a paralyzed track star. What they have in common was Phil trusts them to perform.
- Phil Knight admits that he rarely gave positive feedback for great achievements and would often be insecure about his decisions.
- Nike ran into continuous problems as it grew – lawsuits with Onitsuka, constant problems with manufacturing and finances, failed new shoes, a $25 million fine from US Customs. But the perseverance of the team, and the undercurrent of high demand for Nikes, persisted and drove the company past its problems.
Finances, Liquidity and Cash Flow
- Phil started in the 1960s, well before venture capital was an established industry and before high-growth high-risk companies were the norm. He did try at one point to raise venture capital for Nike but had zero success.
- Knight had no choice other than to use traditional bank loans and other non-equity types of finance to grow his business. Knight bootstrapped his business in so many clever ways.
- He also knew the value of free cash flow, which is the amount of cash generated by a business that is available to pay back debt, pay investors, and/or grow the business. The challenge of scaling a business that eats cash to generate more cash.
- Knight and his team kept all possible cash pouring into growth and ran the operation incredibly debt heavy, and because of the constant lack of equity, everything was always just one bad turn of fate away from going under. And that state of affairs lasted for about 16 years. The company didn't stabilize until Nike went public in 1980.
Quality and Innovation
- Using a waffle iron and different trials of rubber molds, co-founder Bill Bowerman created the waffle-sole design that nearly all running shoes now have. Back then, the "Waffle Trainer" quickly became the top-selling running shoe in the United States.
- Another example was when a young entrepreneur came to Knight with a crazy idea of putting air pockets in the soles of shoes and said that no other shoe company was interested in changing its shoe design so drastically, Knight jumped at the idea. The result was Nike's Air Technology line, which became a major innovative feat.
- Knight never fully endorsed the idea of advertising because he couldn't see the return on investment for expensive print pieces. It's amazing to think that a company with such extraordinary brand power and marketing muscle started out with such a contempt for traditional advertising.
- Of course, that doesn't mean he didn't understand the value of publicity. In fact, he fought hard to sign the athletes that helped launch Nike's image in the media and consumer market. Nike's first major athlete was runner Steve Prefontaine, who first showed the world the power of Nike's shoes for serious athletes. Then Nike signed tennis player John McEnroe, and many more high-level athletes from there helped the company to accelerate sales and market share quickly.
- “Don’t tell people how to do things, tell them what to do and let them surprise you with their results.”
- “I do not follow conventional wisdom.”
- “Driving back to Portland I’d puzzle over my sudden success at selling. I’d been unable to sell encyclopedias, and I’d despised it to boot. I’d been slightly better at selling mutual funds, but I’d felt dead inside. So why was selling shoes so different? Because, I realized, it wasn’t selling. I believed in running. I believed that if people got out and ran a few miles every day, the world would be a better place, and I believed these shoes were better to run in. People, sensing my belief, wanted some of that belief for themselves. Belief, I decided. Belief is irresistible.”
- “Shoe dogs were people who devoted themselves wholly to the making, selling, buying, or designing of shoes. Lifers used the phrase cheerfully to describe other lifers…they thought and talked about nothing else. The average person takes seventy-five hundred steps a day, 247 million steps over the course of a long life – shoe dogs simply wanted to be part of that journey. Shoes were their way of connecting with humanity. What better way of connecting, shoe dogs thought, than by refining the hinge that joins each person to the world’s surface?”
- “Life is growth,’ I said. “Business is growth. You grow or you die.”
- “Supply and Demand is always the root problem in business.”
- “For an Entrepreneur, Every Day Is a Crisis”
- “Your goal should not be to seek a job or even a career, but to seek a calling. That search has just begun. In your time here at Stanford Business School, you’ve probably gone through 50 or 100 case studies. And in the years ahead you’ll probably go through thousands more. Most case studies are not about decision-making, not even about judgment. They are about a search, for wisdom.”
- “No matter the sport – no matter the human endeavor, really – total effort will win people’s hearts.”
- “Like books, sports give people a sense of having lived other lives, of taking part in other people’s victories. And defeats. When sports are at their best, the spirit of the fan merges with the spirit of the athlete, and in that convergence, in that transference, is the oneness that the mystics talk about.”
- “Again and again I’d gently try to explain the shoe business to my banker. If I don’t keep growing, I’d say, I won’t be able to persuade Onitsuka that I’m the best man to distribute their shoes in the West. If I can’t persuade Onitsuka that I’m the best, they’ll find some other Marlboro Man to take my place. And that doesn’t even take into account the battle with the biggest monster out there, Adidas. My banker was unmoved. Unlike Athena, he did not admire my eyes of persuasion. Equity. How I was beginning to loathe this word. My banker used it over and over, until it became a tune I couldn’t get out of my head. Equity—I heard it while brushing my teeth in the morning. Equity—I heard it while punching my pillow at night. Equity—I reached the point where I refused to even say it aloud, because it wasn’t a real word, it was bureaucratic jargon, a euphemism for cold hard cash, of which I had none.”
- “Any dollar that wasn’t nailed down I was plowing directly back into the business. Was that so rash? To have cash balances sitting around doing nothing made no sense to me. Sure, it would have been the cautious, conservative, prudent thing. But the roadside was littered with cautious, conservative, prudent entrepreneurs. I wanted to keep my foot pressed hard on the gas pedal. Somehow, in meeting after meeting, I held my tongue. Everything my banker said, I ultimately accepted. Then I’d do exactly as I pleased. I’d place another order with Onitsuka, double the size of the previous order, and show up at the bank all wide-eyed innocence, asking for a letter of credit to cover it. My banker would always be shocked. You want HOW much? And I’d always pretend to be shocked that he was shocked. I thought you’d see the wisdom… I’d wheedle, grovel, negotiate, and eventually he’d approve my loan. After I’d sold out the shoes, and repaid the borrowing in full, I’d do it all over again. Place a mega order with Onitsuka, double the size of the previous order, then go to the bank in my best suit, an angelic look on my face. I was forever pushing my conservative bankers to the brink, forcing them into a game of chicken. I’d order a number of shoes that seemed to them to be absurd, a number we’d need to stretch to pay for, and I’d always just barely pay for them, in the nick of time, and then just barely pay our other monthly bills, at the last minute, always doing just enough, and no more, to prevent the bankers from booting us. And then, at the end of the month, I’d empty our accounts to pay Nissho and start from zero again.”
- “We couldn’t afford to fix the broken glass, so on really cold days we just wore sweaters. Meanwhile, in the middle of the room I erected a plywood wall, thereby creating warehouse space in the back and retail-office space up front. I was no handyman, and the floor was badly warped, so the wall wasn’t close to straight or even. From ten feet away it appeared to undulate. Woodell and I decided that was kind of groovy. At an office thrift store we bought three battered desks, one for me, one for Woodell, one for “the next person stupid enough to work for us.” I also built a corkboard wall, to which I pinned different Tiger models.”
- “We used to think that everything started in the lab. Now we realize that everything spins off the consumer.” Now we understand that the most important thing we do is market the product. We’ve come around to saying that Nike is a marketing-oriented company, and the product is our most important marketing tool.”
- “It’s hard enough to invent, manufacture, and market a product, but then the logistics, the mechanics, the hydraulics of getting it to the people who want it, when they want it—this is how companies die, how ulcers are born.”
- “Someone somewhere once said that business is war without bullets, and I tended to agree. ” “Like it or not, life is a game.” Play by the rules, but be ferocious. Dream audaciously. Have the courage to fail forward. Act with urgency.” “I wanted to leave a mark on the world. I wanted to win. No, that’s not right, I simply didn’t want to lose.” “You only have to succeed the last time.”
- “I’d like to publicly acknowledge the power of luck. Athletes get lucky, poets get lucky, businesses get lucky. Hard work is critical, a good team is essential, brains and determination are invaluable, but luck may decide the outcome.”
- “I was a linear thinker, and according to Zen linear thinking is nothing but a delusional, one of many that keeps us unhappy. Reality is nonlinear, Zen says. No future, no past. All is now. In every religion, it seemed, self is the obstacle, the enemy. And yet Zen declares plainly that the self doesn’t exist. Self is a mirage, a fever dream, and our stubborn belief in its reality not only wastes life, but shortens it. Self is the bald-faced lie we tell ourselves daily, and happiness requires seeing through the lie, debunking it. To study the self, said the thirteenth-century Zen master Dogen, is to forget the self. Inner voice, outer voices, it’s all the same. No dividing lines.”
- “To study the self is to forget the self. Mi casa, su casa. Oneness- in some way, shape, or form, it’s what every person I’ve ever met has been seeking.”
- “Expect nothing, seek nothing, grasp nothing.”
- “The man who moves a mountain begins by carrying away small stones.”
- “I hated war, but I loved the warrior spirit. I hated the sword, but loved the samurai.”
- “All is vanity, says the Bible. All is now, says the Zen. All is dust, says the desert.”
- “Love truth, but pardon error.”
- “A tiger hunts best when he’s hungry.”
- “The art of competing, I’d learned from track, was the art of forgetting, and I now remind myself of the that fact. You must forget your limits. You must forget your doubts, your pain, your past. You must forget that internal voice screaming, begging, “Not one more step!””
- “Happiness is a how, not a what.”
- “I had no love of violence, but I was fascinated by leadership, or lack thereof, under extreme conditions. War is the most extreme of conditions. But business has its warlike parallels. Someone somewhere said once said that business is war without bullets, and I tended to agree.”
- “I wanted to build something that was my own, something I could point to and say: I made that. It was the on,y way I saw life meaningful.”
- “My psyche was in true harmony when I had a mix of alone time and team time.”
- “Don’t you dare feel sorry for me. I am here to kill your business.”
- “If business truly is war without bullets, then debentures are war bonds.”
- “Total effort will win people’s hearts.”
- “When sports are at their best, the spirit of the fan merges with the spirit of the athlete, and in that convergence, in that transference, is the oneness that the mystics talk about.”
- “And a lot of us will be facing more experienced competitors, and maybe we don’t have any right to win. But all I know is if I go out and bust my gut until I black out and somebody still beats me, and if I have made that guy reach down and use everything he has and then more, why then it just proves that on that day he’s a better man than I.”
- “The cowards never started and the weak died along the way—that leaves us.”
- “That magical pronoun, “we”— he’d always use it, and it would always make me feel better. ”
- “You are remembered for the rules you break.”
- “We were more than a brand; we were a statement.”
- “Beating the competition is relatively easy. Beating yourself is a never-ending commitment.”
- “In our first meetings on the subject of China we’d always say: One billion people. Two. Billion. Feet.”
- “More than simply alive, you’re helping others to live more fully, and if that’s business, all right, call me a businessman.”
- “When good don’t pass international borders, soldiers will.”
- “I find students today much smarter and more competent than in my time, I also find them far more pessimistic…All we have to do, I tell the students, is work and study, study and work, hard as we can. Put another way: We must all be the professors of the jungle.”
- “Seek a calling. If you are following your calling, the fatigue will be easier to bear, the disappointments will be fuel, the highs will be nothing you’ve ever felt.”
- “America is becoming less entrepreneurial, not more. ”
- “Giving up doesn’t mean stopping. Don’t ever stop.”
- “Luck plays a big role. Yes, I’d like to publicly acknowledge the power of luck. Athletes get lucky, poets get lucky, businesses get lucky. Hard work is critical, a good team is essential, brains and determination are invaluable, but luck may decide the outcome. ”
- “The harder you work, the better your Tao.”