Business Book Review: Shoe Dog

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If you’ve been a Nike Inc shareholder over the years, you’ll have had a good run – the stock is up 320% in 10 years, with dividends on top.

Nike is the strongest selling clothing brand in the world, and one of the strongest and most valuable of all brands.  But in the 1960s, the Olympics were dominated by athletes wearing Adidas and Puma, the brands of brothers Adolf and Rudolf Dassler.

An ex-University of Oregon Ducks track athlete, Phil Knight, started Nike as Blue Ribbon Sports as a sideline to his day job at Price Waterhouse, adding one-by-one an eclectic mix of shoe fanatics to his team when there was no such thing.  His famous college coach Bill Bowerman helped create the shoes that would launch Nike ahead of Puma and Adidas.

Shoe Dog is Knight’s memoir, and has his side of the story of the battles (mostly) and successes along the way.

Knight started the company with an idea he come up with for a Stanford Graduate School of Business class in 1962 – to create a competitor to Adidas using track shoes imported from Japan. After graduation, he took around-the-world trip part-financed by his father, with a plan to drop in on Onitsuka Co. Ltd., in Kobe, Japan, the manufacturer of Tiger athletic shoes (which are now Asics).

He showed up for a meeting with Onitsuka in his only suit, with no actual company, or, for that matter, money. Onitsuka’s management was somehow impressed by Knight, and agreed to sell him 15 pairs of Tiger samples and signed him as its West Coast distributor of Tiger.

When the samples arrived 14 months later, Bowerman began saw so much potential in Tigers that he asked to be made a 49/51 partner and for $500, he was in.

First year sales: $8,000.

For six years, Knight worked two jobs. As a CPA for Price Waterhouse, and as an Army Reserve (two Tuesdays a month and one Sunday, plus two weeks in the summer). On free weekends, he loaded up Plymouth Valiant and sold Tigers at high school and college track meets.

To help him run Blue Ribbon, and with no real plan in place, Knight began collecting his first “staff”.  Jeff Johnson was hired on a commission basis as the company’s first full-time sales rep in LA. Johnson kept files on customers’ likes, and he would write a letter a day to Knight for years, with suggestions, advice or straight out demands – Knight didn’t answer one.

Geoff Hollister was a student and track star at Oregon when Knight hired him to sell shoes in the state.  Bob Woodell was a former Oregon athlete who was wheelchair-bound, and was hired on the suggestion of Bowerman.  Rob Strasser was a lawyer who handled their court case against Onitsuka, and would eventually run marketing. Del Hayes, Knight’s former boss and drinking buddy at Price Waterhouse, took on manufacturing.

Even his wife, Penny, started at NIke. They met when she was an accounting student at Portland State, and he was the teacher. Infatuated, he hired her to work at the office, dated and married her.

 

Blue Ribbon battled cash flow, banking and supply issues constantly in the early years, but sales consistently grew exponentially every year.  Another spot of genius from Bowerman changed everything. Using his wife’s waffle iron, the track coach came up with the waffle trainer—a shoe that offered unprecedented cushioning for all types of runners. Released in 1974, it was an instant hit.

The company became Nike out of desperation in 1978 after Onitsuka decided to nullify Blue Ribbon’s distribution agreement.  Onitsuka had been fishing around the USA for distributors who could sell even more Tigers after Knight refused to sell his company to the Japanese. That meant a court battle, and that Blue Ribbon would have to find some outfit to manufacture its shoes.

It was Johnson who came up with the name Nike, after the Greek goddess of victory. Knight didn’t like it, but he didn’t have anything better, and the factory they’d hired in Mexico needed a name for the footwear it was producing—a badly made shoe that was designed for soccer and football but didn’t work in either market. In that rushed period, the famous Swoosh logo was created by an art student Carol Davidson at Knight’s college, who was paid $35.

Nike won the court battle, and retained the rights to the Bowerman-designed Cortez.

The next phase of Nike’s growth explosion came from Knight’s endorsement deals with the world’s greatest athletes and a bunch of athlete and slogan-focussed TV ads.

Nike started out with tennis star Ilie Năstase while they were still Blue Ribbon, and then in 1984 signed the standard bearer for athlete endorsements: a basketball player out of North Carolina named Michael Jordan, for the unheard-of sum of $500,000 plus stock options.

Nike’s athlete roster went on to include the best and highest profile athletes, including John McEnroe, Andre Agassi, Pete Sampras, Michael Johnson, Jerry Rice, Bo Jackson, Charles Barkley, Tiger Woods, Wayne Gretzky, Bode Miller, Lance Armstrong, Ken Griffey Jr., Serena Williams and Kobe Bryant.

 

 

Nike faced another battle in the 1970s, after beating the banks and suppliers.  The US Government hit Nike with $27 million import tariff bill in 1977.

The Eighties brought a challenger in Massachusetts firm, Reebok. With aerobics at its peak, Nike’s lack of a competitive aerobics shoe to match caused Nike’s first internal crisis.  Knight had moved out of the CEO’s chair to concentrate on developing Nike’s business in China, communicating with COO Woodell every couple of weeks. The company was stuck with massive amounts of inventory and a management structure that was inadequate for a publicly listed, multibillion dollar company. Knight, to his credit, acted fast, and restructured.

In the 90s, Nike were forced to face down human rights activists and the media because of conditions and wages in Nike’s supplier shoe factories in China, Indonesia and Vietnam. While other global shoe brands sometimes shared the same facilities, Nike was the one facing the public pressure.  Knight took ownership of the problem and overhauled Nike’s code of conduct for its foreign contract factories.

Knight moved to “chairman emeritus” in 2016.  He has been the biggest booster for the University of Oregon’s athletic department, donating more than $300 million to give the school new football and basketball facilities, a lacrosse field, a weight room and an academic center. His goal is to make the Ducks national champions in football.

But unlike many fellow sports fans billionaires, he owns no sports teams.  He’s lived a relatively modest lifestyle, with one indulgence: a $65 million Gulfstream G650 with Oregon Ducks wings. His net worth is estimated by Forbes at $26 billion.

Knight ran a half-assed business early on, but throughout his time managing Nike, he was determined not to let anything beat them, and he and his team weathered every battle during periods of exponential growth and being under-resourced.  They faced every crisis head-on, and were open to new design ideas and not making a fast buck.

That, and the endorsement deals aside, Knight’s great achievement was to change the entire supply chain of the athletic goods industry, anticipating in 1964 the globalisation that dominated the world by the mid-80s. He first sourced shoes from low-cost factories in Japan, then moved on with the economics to Taiwan and South Korea and later China and Vietnam.  When cash flow and supply issues were outpaced by demand, he implemented the “futures” system that locked retailers into orders in advance of the season.

The book starts off a bit slow as its very personalised – but it’s a great read as it gets into the business history of Nike.

Buy here:

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