What was Nike like as a startup?
And what you can learn from it
Can you imagine Nike was a startup once? A lone guy in his parents’ garage hustling his way through importing cheap running shoes from Japan and selling them door to door (or rather race track to race track). Such is the company’s current scale and standing in popular culture that it’s hard to imagine it once was nothing more than a scrappy upstart with chronic cash shortages. And yet, this is the story Phil Knight, Nike’s founder and long time CEO recounts in his brilliant autobiography Shoe dog. This post highlights my key takeaways from the book — I hope it will encourage you to go ahead and read it, the story is as compelling as it’s entertaining.
Studying how today’s greatest companies started is a good way to put things in perspective : they all struggled almost terminally at some point in their life, and yet managed to overcome adversity to become the giants they are today. Nike is a case in point. Its story will feel different — the way business gets conducted has massively changed since the 60s-70s — and yet so familiar to every contemporary entrepreneur. Hence many lessons from Phil Knight’s journey still apply today.
Here are a few of them:
1. Disruptive companies often start as gimmicks for hobbyists
Most radical innovations initially appear like curiosities, only entertained by geeks and weirdos. It took four and half years for the general public to acknowledge that the Wright brothers had successfully completed a human flight (people initially didn’t care, or simply didn’t believe it). Early adopters of the Internet were usually ignored, if not ridiculed . Only loonies were thought to be willing to let strangers sleep in their home, until Airbnb became more valuable than any hotel chains in the world. Etc.
“Get a horse!”
Surprisingly, running went through a similar evolution. It wasn’t a thing in the 60s and 70s, and, as hard as it is for us to imagine today, occasional joggers were generally perceived as maniacs:
“In fact, in 1965, running wasn’t even a sport. It wasn’t popular, it wasn’t unpopular — it just was. To go out for a three-mile run was something weirdos did, presumably to burn off manic energy. Running for pleasure, running for exercise, running for endorphins, running to live better and longer — these things were unheard of. People often went out of their way to mock runners. Drivers would slow down and honk their horns. “Get a horse!” they’d yell, throwing a beer or soda at the runner’s head. Johnson had been drenched by many a Pepsi. He wanted to change all this. He wanted to help all the oppressed runners of the world, to bring them into the light, enfold them in a community.”
Nike was born out of the tight runners’ community and started by addressing the needs of these early adopters. In similar fashion to many Silicon Valley startups, the founders simply scratched their own itch: they loved track running and single-mindedly dedicated their life to designing the best shoes to do so. There is therefore hope for all the drones, VR/AR, 3D printing, bitcoin, and other brain hacking enthusiasts out there. What looks like fringe activities today may well become mainstream once relentless tinkering and technological advances will have made them cheap and usable enough for the broader population to enjoy.
2. Product first
Product always came first at Nike. Decades before the lean startup jargon was invented, Nike’s founding team was busy applying the core principles of customer-centric design. Their story followed a familiar arc: working with early adopters to create a new product, receiving feedback from a larger group, iterating until finding broader product market fit, scaling production and marketing. Johnson, the company’s first employee, built an epistolary community of fellow runners (a forum of sorts), who, in exchange for his expert advice, would provide him with invaluable product feedback:
“ Unlike me, however, most customers came to depend on Johnson’s letters. Most wrote him back. They’d tell him about their lives, their troubles, their injuries, and Johnson would lavishly console, sympathize, and advise. Especially about injuries. Few in the 1960s knew the first thing about running injuries, or sports injuries in general, so Johnson’s letters were often filled with information that was impossible to find anywhere else. [..] Some customers freely volunteered their opinion about Tigers, so Johnson began aggregating this customer feedback, using it to create new design sketches. One man, for instance, complained that Tiger flats didn’t have enough cushion. He wanted to run the Boston Marathon but didn’t think Tigers would last the twenty-six miles. So Johnson hired a local cobbler to graft rubber soles from a pair of shower shoes into a pair of Tiger flats. Voilà.”
Keep in mind that at the time, Nike didn’t even produce its own shoes (it actually wasn’t even called Nike, but Blue Ribbon Athletics) but imported the Tiger brand from Japan — and so every product improvement would only benefit their consumers and Onitsuka, the manufacturer and owner of the design.
The communication may have taken place over the network of the US Postal rather than on a subreddit but the story has every other characteristic of Silicon Valley’s startup culture. A group of hobbyists tinkering in complete anonymity with products the rest of the world has no idea it will one day die for owning.
3. Marketing second
Nike currently spends more than $3bn a year on advertising, or 10% of revenues, and is considered one of the world’s most valuable brand. It is synonymous with high-impact, mass-market advertising. However, it wasn’t always this way — originally, Knight was not interested and did not believe in the power of advertising. Their early focus was exclusively on getting athletes to wear their wares. Not only so that they could be widely seen, but also to validate the quality of the product they had designed. If the best athletes trusted Nike to win, so could the Sunday jogger. Marketing was merely used as another form of product validation.
4. Culture is what made the team stick together and achieve greatness in the long run
There are as many corporate cultures as there are companies, but great companies tend to communicate theirs more clearly (and be more polarising as a result). Google is all about excellence in software engineering. Apple is about creating the most beautifully efficient designs and experiences.
Nike is about achieving greatness in the face of adversity. It is intimately linked to the management team’s deep-seated inferiority complex and desire to prove its worth. Knight repeatedly points out how much of a freak show his executive team must have appeared to outsiders:
“I can see myself so clearly at the head of a conference table, shouting, being shouted at — laughing until my voice was gone. The problems confronting us were grave, complex, seemingly insurmountable, made more so by the fact we were separated from each other by three thousand miles, at a time when communication wasn’t easy or instant. And yet we were always laughing. Sometimes, after a really cathartic guffaw, I’d look around the table and feel overcome by emotion. Camaraderie, loyalty, gratitude. Even love. Surely love. But I also remember feeling shocked that these were the men I’d assembled. These were the founding fathers of a multimillion-dollar company that sold athletic shoes? A paralyzed guy, two morbidly obese guys, a chain-smoking guy? […]
Undoubtedly we looked, to any casual observer, like a sorry, motley crew, hopelessly mismatched. But in fact, we were more alike than different, and that gave a coherence to our goals and our efforts. We were mostly Oregon guys, which was important. We had an inborn need to prove ourselves, to show the world that we weren’t hicks and hayseeds. And we were nearly all merciless self-loathers, which kept the egos in check. There was none of that smartest-guy-in-the-room foolishness. Hayes, Strasser, Woodell, Johnson, each would have been the smartest guy in any room, but none believed it of himself, or the next guy.”
Remarkably, the theme of the underdog thriving for greatness is still the dominant message in their advertising today:
5. Silicon valley is not a place, it’s a mindset
While a lot of the Nike story sounds like a familiar Silicon Valley tale, none of it actually happened in the Valley, but in rural Oregon. The team built on what could have been a drag and turned it into the fuel for their ambition. Seeing themselves as the perennial underdog, they set to show the world they could build the largest sports company in the world. And they proved in the process that great companies can come from anywhere.
6. No matter how hard it is today, it was much harder before
By definition, entrepreneurship has and always will be one of the most difficult human endeavours. However, reading about the challenges Knight encountered to import sneakers from Japan in the 60s (before the Internet, emails, Alibaba, cheap phone communications, etc.) is a good reminder of how much harder and slower business was back then. He spent most of the early years of the company worrying not only about when the next shipment would come, but whether it would come at all, and what he would find inside if it did. With no data to rely on, importers flew blind and relied on trust entirely.
“Long on contrition, short on credit”
Not only were the tools slower and less reliable, the mindset was different as well. Silicon Valley hadn’t fully emerged yet, and the concept of reinvesting all profits into faster growth was not well understood or accepted, especially outside of big trading cities. The time he didn’t spend waiting for news from his supplier, Knight would typically spend begging his banker to extend an extra loan, and not to shut his account down. With venture capital out of the equation, and only two business banks in his town, he couldn’t afford to lose one of them.
“I recall one day, sitting in Wallace’s office. Both he and White were working me over pretty good. Wallace seemed to be enjoying himself, though White kept giving me looks that said, “Sorry, pal, this is my job.” As always I politely took the abuse they dished out, playing the role of meek small business owner. Long on contrition, short on credit. I knew the role backward and forward, but I remember feeling that at any moment I might cut loose a bloodcurdling scream. Here I’d built this dynamic company, from nothing, and, by all measures it was a beast — sales doubling every year, like clockwork — and this was the thanks I got? Two bankers treating me like a deadbeat? […]
At issue was more than the old philosophical disagreement about growth. Blue Ribbon was approaching six hundred thousand dollars in sales, and that day I’d gone in to ask for a loan of $1.2 million, a number that had symbolic meaning for Wallace. It was the first time I’d broken the million-dollar barrier. In his mind this was like the four-minute mile. Very few people were meant to break it. He was weary of this whole thing, he said, weary of me. For the umpteenth time he explained that he lived on cash balances, and for the umpteenth time I suggested ever so politely that if my sales and earnings were going up, up, up, Wallace should be happy to have my business. Wallace rapped his pen on the table. My credit was maxed out, he said. Officially, irrevocably, immediately. He wasn’t authorizing one more cent until I put some cash in my account and left it there. Meanwhile, henceforth, he’d be imposing strict sales quotas for me to meet. Miss one quota, he said, by even one day, and, well . . . He didn’t finish the sentence. His voice trailed off, and I was left to fill the silence with worst-case scenarios.”
A VC treating an entrepreneur that way today wouldn’t stay in business for long…
7. You “only” need to grow 33% year over year to reach Nike’s size
Nike was never a rocket ship. They never grew revenues 10x year over year. They had $8,000 of revenues in 1964 (the year they started trading), and $20,000 in 1965. It took them 7 years to “pivot” into manufacturing and distributing their own brand. By then, they only had $2m in annual revenues. The real acceleration happened after 1975 when they almost doubled every year until 1981, the year they crossed $450m in revenues and became a public company. They remained profitable throughout, generating $25m of net income in 1981.
Their growth naturally slowed down with scale but maintained a remarkable consistency over time: $3bn of revenues in 91, $9.5bn in 2001, $21bn in 2010 and $32bn in 2015. All in all, from the $20,000 of revenues in 1965 to the $32bn in 2015, Nike “only” grew 33% each year. The message is clear: if your company is riding a deep, long-lasting trend (in Nike’s case: the democratisation of sports and the primacy of comfort through technology), and operates in a market with no winner-takes-all dynamics (an important caveat, especially for tech platforms), growth at all costs doesn’t make sense. The important thing is to survive long enough and grow with the market. Remember, you only need to grow your business by a third every year for 50 years to build a $90bn company (Nike’s current market cap). [But more realistically, you’ll need to double it every year for the first ten years as it’ll naturally slow down with scale].
8. You create your own luck (also, new brand names always sound stupid)
Knight tends to present Nike’s story as a succession of lucky breaks. He randomly bumped into the graphic design student who later came up with the swoosh logo. One of his employees had a mystical experience and saw the word “Nike” appear before him in his sleep, the day before launching production of their own brand. Knight actually hesitated for a long time before eventually settling for Nike, which he didn’t like at first. There was certainly no grand plan or vision for what the brand would become:
“What’d you decide?” Woodell asked me at the end of the day. “Nike,” I mumbled. “Hm,” he said. “Yeah, I know,” I said. “Maybe it’ll grow on us,” he said. Maybe.
But what in isolation may have looked like a moment of blind luck was the fruit of years of work to reach that decision point. They had to have assembled a team of brilliant people capable of dreaming such name, be ready to build a cutting-edge product, distribute it to a passionate base of early adopters, and manage the whole operation. While memory tends to reduce success stories to a few pivotal moments, it downplays the critical work that came into reaching these decision points. In all likelihood, Nike would have succeeded under another name, and Knight would today be pondering on how lucky they had been when choosing that name.
9. It’s about the journey, not the money
From his parents’ spare bedroom to his retirement as a CEO of Nike, Phil Knight accumulated north of $10bn in personal wealth (it helps to be a sole founder). While an extraordinary achievement, this is not what he takes out of that 50-year journey.
“Just before getting on the plane home we signed deals with two Chinese factories, and officially became the first American shoemaker in twenty-five years to be allowed to do business in China.
It seems wrong to call it “business”. It seems wrong to throw all those hectic days and sleepless nights, all those magnificent triumphs and desperate struggles, under that bland, generic banner: business. What we were doing felt like so much more. Each new day brought fifty new problems, fifty tough decisions that needed to be made, right now, and we were acutely aware that one rash move, one wrong decision could be the end. The margin for error was forever getting narrower, while the stakes were forever creeping higher — and none of us wavered in the belief that “stakes” didn’t mean “money”. For some, I realise, business is the all-out pursuit of profits, period, full stop, but for us business was no more about making money than being human is about making blood. Yes, the human body needs blood. It needs to manufacture red and white cells and platelets and redistribute them evenly, smoothly, to all the right places, on time, or else. But that day-to-day business of the human body isn’t our mission as human beings. It’s a basic process that enables our higher aims, and life always thrives to transcend the basic processes of living- and at some point in the late 1970s, I did, too. I redefined winning, expanded it beyond my original definition of not losing, of merely staying alive. That was no longer enough to sustain me, or my company. We wanted, as all great businesses do, to create, to contribute, and we dared to say so aloud. When you make something, when you improve something, when you deliver something, when you add some new thing or service to the lives of strangers, making them happier, or healthier, or safer, or better, and when you do it all crisply and efficiently, smartly, the way everything should be done but so seldom is — you’re participating more fully in the whole grand human drama. More than simply alive, you’re helping other to live more fully, and if that’s business, all right, call me a businessman.
Maybe it will grow on me.”
Some (especially us Europeans) may cringe at this kind of grand, almost transcendental, spiel. But I am inclined to take it at face value. A lot of the entrepreneurs I work with would say the same thing. Maybe not with as much emphasis, but with the same spirit. Because this is the true spirit of entrepreneurship.
So, in summary, I highly recommend Phil Knight’s Shoe Dog to whoever has an interest in entrepreneurship or brand building. As one of the greatest success story of our age, Nike teaches us a few essential lessons on how to play the long game in business: if you pick a large enough space that you are passionate about, there is no limit to the size your business can reach, and for how long you could be working on it. Solve a problem you really care about (even if only you and a few people do too in the beginning), obsess about constantly improving your product, surround yourself with people who share your values, focus on steady progress rather than one-off growth hacks, and enjoy the journey while remembering that no matter how hard it is today, it used to be much worse.
