0:00

Listeners, you should know, David and I were texting

0:02

before this, debating, do we change

0:05

this thing around? Do we play with this? Should

0:07

we reorganize this section? And he texted me, let's

0:10

just do it. So in the

0:12

honor of bad jokes by David Rosenthal,

0:15

here we go. Welcome

0:16

to season 13, episode

0:19

one of Acquired, the podcast about great

0:21

technology companies

0:32

and

0:38

the stories and playbooks behind them. I'm Ben

0:40

Gilbert. I'm David Rosenthal.

0:43

And we are your hosts. There's

0:45

an age old question in business, what

0:47

is more important, a great product

0:49

or great marketing? Well,

0:51

today we have literally the perfect

0:53

case study in that very question

0:56

in Nike. Does breakthrough

0:58

innovation drive that business? Or

1:01

is their core competency really around their

1:03

profound advertisements and their sponsorship

1:06

deals with athletes and teams or their

1:08

probably best in the world brand

1:10

positioning?

1:12

To understand it, we have to examine Nike's

1:14

entire 60 year history, of course, because this

1:16

is Acquired. And because shoe

1:18

dog is so good. That's amazing. You

1:21

got to start at the beginning.

1:22

So really the question is, what makes this company

1:24

the single largest apparel business

1:27

in the world today, outside of luxury,

1:29

of course?

1:30

And how is it possible to be a shoe

1:32

company that does over $50 billion

1:35

in revenue when they technically don't

1:37

make a single shoe?

1:39

So you may think you know Nike from the

1:41

movie Air or Shoe Dog. But what

1:44

hasn't been told is how those old stories

1:46

tied to the gigantic shift in strategy

1:49

that Nike is really in the middle of right

1:51

now. Well,

1:52

LPs, we got to thank you for voting

1:54

for this episode. David and I have had it sort of

1:56

in our episode backlog for

1:59

two, three years.

1:59

And when we put it up for a vote, the

2:02

overwhelming majority of you selected this

2:04

as our next episode. So if you also

2:07

want to vote for future episodes and become an Acquired

2:09

LP, that is Acquired.fm slash

2:11

LP.

2:12

If you want an update every time we drop

2:14

a new episode so you don't miss it, you can

2:16

sign up at Acquired.fm slash

2:19

email. And we'll be dropping little Easter

2:21

eggs and hints in those emails to

2:23

tease about what the next episode is going to

2:25

be. So that's Acquired.fm slash

2:27

email. Don't miss a new episode. And

2:30

lastly, make sure you check out ACQ2,

2:32

our second show where we interview people who

2:34

are building their companies today available

2:37

in any podcast player.

2:39

And without further ado, listeners, as always,

2:42

this show is not investment advice. Dave and

2:44

I may have investments in the companies we discuss, and this

2:46

show is for informational

2:48

and entertainment purposes only.

2:50

David Rosenthal, what is that stack of books

2:52

on your desk? Oh my God, I think Amazon owes

2:55

a thank you note to Acquired LPs because I

2:57

bought every Nike

2:59

book out there. I mean, my six foot long

3:01

desk is covered in Nike books.

3:04

So fun to read all of them. I thought there was just Shoe Dog. I

3:06

didn't realize there was the literally over a dozen

3:09

that you and I collectively read.

3:10

There's so many of them. I read thousands

3:13

of pages, but there are three

3:15

books that all basically tell more

3:18

or less the same story that we

3:20

weave together to come up with our core

3:22

Acquired Nike story here today. And I bring

3:24

it up because it's actually pretty important

3:26

what these three books are.

3:28

The first, of course, is Shoe

3:30

Dog, the goat business memoir

3:32

of all time. The second is

3:35

a book called Just Do It that was written

3:37

by the journalist Donald Katz. Ben,

3:40

do you know who Donald Katz

3:42

is?

3:43

Ooh, I do not.

3:45

So Don, after he

3:47

wrote this book, and I think he wrote one or two other books,

3:49

he had quite the career change. He

3:52

went on

3:53

to found the company Audible. Oh,

3:56

really? Isn't that crazy? Yeah,

4:00

just wow. So he wrote kind of the

4:02

canonical third party journalists

4:05

take on Nike. And then the third

4:07

book is a book called Swoosh,

4:10

which I bet most people

4:12

have not read, but kind of like taste of

4:15

luxury. I think people who are really in the know in

4:17

the footwear industry have read this book.

4:19

It was written by one JB Strasser

4:22

and her sister, Laurie Beckland.

4:24

JB Strasser is Julie Strasser,

4:26

who was the wife

4:28

of Rob Strasser. Now,

4:31

Rob, if you've seen the movie Air, the character

4:33

played by Jason Bateman

4:36

is Rob Strasser, Nike's

4:39

legendary first head

4:41

of marketing. The

4:42

item among many that is not discussed

4:44

in the movie is that Rob

4:47

shortly after signing Jordan

4:49

had an enormous fight

4:52

with Phil Knight, left the

4:54

company with Peter Moore, who was the

4:57

designer behind Jordans

4:58

and ended up joining Adidas

5:01

as CEO of Adidas America

5:04

just a few short years later. It's like an incredible

5:06

betrayal. This is like a Judas

5:09

level betrayal. I mean, to say he was persona

5:11

non grata around Nike is an

5:14

understatement of the century. And here's this book that

5:16

was written in real time by his wife

5:18

as this was all happening. Incredible.

5:21

Yeah. So Strasser will get

5:23

into his contributions, but he is

5:26

probably second only to Phil Knight in willing

5:28

Nike into existence.

5:30

We start, however, with the shoe dog

5:32

story, the origin of

5:34

blue ribbon sports, and actually

5:36

a little bit before shoe dog starts in July 1948,

5:40

when one Bill Bowerman becomes

5:43

the head track coach at

5:45

the University of Oregon. Now,

5:48

Bill was a legendary

5:51

figure in addition to being Nike's

5:53

co-founder along with Phil Knight.

5:56

I mean, kind of the only way to describe him is he

5:58

was like a descendant of the

5:59

of the Oregon Trail. The

6:02

cowards never started and the weak died along the way

6:04

was one of his favorite sayings. Yes.

6:07

So, Bill's dad

6:09

was the governor of Oregon.

6:11

And

6:12

Bill fought in World War

6:14

II as a major,

6:16

and he actually negotiated at the end of the

6:18

war the stand-down of a German battalion.

6:21

He's also such a character. He lived

6:23

in a remote mountaintop in the Oregon Mountains.

6:26

And the male delivery people who would come

6:28

up to his home kept knocking over

6:31

his mailbox with their trucks.

6:32

So, he rigs the mailbox with explosives

6:35

to blow up the truck the next time

6:37

it happens. And he literally blew up the truck. I

6:40

mean, the stuff you could get away with

6:42

in the 50s. They do

6:44

not make him like that anymore. No, they do not.

6:47

So, when Bill comes home after the war, he

6:50

first coaches high school and then he becomes the

6:52

head track coach at the University of Oregon.

6:55

He takes this background and character

6:57

that he has and he becomes

6:59

maybe arguably the most successful

7:03

track coach in American

7:05

history. So, I believe Bill

7:07

coaches the first American sub-four-minute

7:10

milers. He ends up coaching several

7:12

Olympic teams. He definitely turns

7:14

the University of Oregon into the most prestigious

7:17

track program in America. You

7:19

know, he's

7:20

a national celebrity, which is pretty

7:23

crazy for

7:24

Oregon in the 1940s, 1950s. Right.

7:28

So,

7:29

a few years into Bowerman's tenure as

7:31

head coach, he recruits a pretty

7:34

talented middle distance

7:36

runner, freshman, from Portland nearby,

7:39

one Phil Knight. Now,

7:41

Phil also has some interesting Oregon

7:44

roots. He's the son of Bill Knight,

7:46

who is another well-known University of

7:48

Oregon alum. He was a former

7:50

lawyer in Portland, and he's

7:52

the publisher of the Oregon Journal newspaper.

7:56

Phil follows in his dad's footsteps. He majors

7:58

in journalism at Oregon.

7:59

and he runs for Bowerman. And

8:02

I would say Phil is okay as

8:04

a runner.

8:05

Well, it's interesting. Phil Knight would

8:07

describe himself in his prime as an okay

8:10

runner because he was running

8:12

with the best, collegiate runners

8:14

in the world, coached by Bill Bowerman,

8:17

who barely gave Phil Knight the time of day.

8:20

I get the sense he was not a man of many words and

8:22

certainly almost no words of encouragement other

8:24

than run faster. And so, you've

8:27

got Phil Knight. The guy runs a four-minute,

8:30

13-second mile and is convinced

8:32

he's okay.

8:34

This is exactly what I was gonna say. I think at

8:36

any other school, Phil would have been a star. This

8:39

isn't really in Shoe Dog, but I know Phil's

8:41

personality from reading so much about him over

8:43

the past couple weeks.

8:45

I think he probably went to Oregon

8:47

in part

8:48

because he wasn't gonna be a star there. I mean,

8:50

he is, I

8:51

think, the most introverted CEO

8:54

that we have ever covered on Acquired. I

8:57

mean, Rockefeller was pretty introverted, but

8:59

he looks like Elon Musk compared to Phil Knight.

9:02

Yeah, and a lot of the CEOs that show up in

9:04

these Acquired episodes are deeply

9:07

private people, but it's mostly because

9:09

they want to stay out of the limelight. And

9:11

when they're in the limelight, you can see that they can turn

9:13

it on and they're bright and shiny and

9:16

they're sort of loving working the room. That's

9:18

not Phil Knight at all.

9:19

Not at all. I mean, I was super

9:21

lucky. I owed a huge thank

9:23

you in my life to Phil Knight. I went to

9:25

Stanford Business School. I was one of the first

9:27

classes to graduate at the Knight

9:30

Management Center that he endowed there. Didn't

9:32

he give your graduation speech? Exactly.

9:35

It was amazing. It was kind of the first draft

9:37

of Shoe Dog that he had been working on. The book came out

9:39

a couple years later. So great. But I remember

9:41

thinking, this does not seem

9:44

like the founder and CEO of Nike.

9:46

You know, even here talking at Stanford, the

9:48

most warmly receptive audience

9:50

possible,

9:51

like, he was very nervous. Yeah.

9:54

Huh. So Knight

9:56

runs at Oregon. And it's

9:58

important to say we should note about... He

10:01

was definitely a person,

10:03

a man like they don't make anymore.

10:06

But despite what you might think, he wasn't militaristic.

10:09

He really was pretty innovative. He

10:11

was the first track coach,

10:13

maybe college coach of any sport,

10:16

who really put a focus on rest for his

10:18

runners.

10:19

And part of this famously

10:21

for the Nike story too was

10:24

technology and was shoes.

10:26

So Bowerman actually taught himself

10:28

how to be a cobbler and would take

10:31

athletic shoes, usually Adidas athletic shoes,

10:33

and modify them or even build his own and

10:36

then use his athletes as

10:38

guinea pigs to any advantage

10:40

that they could have he would be looking

10:42

for and shoes were part of it.

10:44

And the technology that Bowerman was experimenting

10:47

with was crazy stuff. He

10:49

would rip shoes apart and he would rebuild

10:52

them, this is from the Nike website, with

10:54

snakeskin, deer hide, or fish

10:57

skin. Goofy and

10:59

crazy stuff. And his guinea pig was

11:01

Phil Knight because Phil wasn't at the

11:03

front of the pack so he could sort of afford to experiment

11:05

on him. So very fortunate for Phil Knight

11:08

and his future that he was not the fastest

11:10

runner on the Oregon team.

11:11

Exactly. This is where it all comes

11:13

together. So

11:15

after Phil graduates,

11:18

he goes to business school

11:20

right after undergrad to Stanford,

11:23

to Stanford GSB, hence the connection.

11:25

He graduates from GSB

11:27

in 1962. It's also crazy.

11:30

Nike feels like such a modern company. This

11:33

was a long time ago.

11:35

So

11:36

in Phil's final term

11:38

there at Stanford, he takes what is then

11:40

the

11:41

only quote unquote entrepreneurship

11:43

course at GSB. I mean, today there's like 100 different

11:46

entrepreneurship courses

11:48

taught by the

11:49

famous Professor Frank Schallenberger

11:51

who Knight gives tons of credit

11:53

to for Blue Ribbon Sports and ultimately

11:56

Nike.

11:57

And in the course for Knight's final

11:59

paper. he writes the

12:01

business plan for

12:03

Blue Ribbon Sports, pretty much word

12:05

for word. His thesis is that he

12:07

knows from growing up with his dad, and

12:09

I think he actually maybe spent some summers

12:12

at college and then at GSB working

12:14

in the newsroom at the Oregon Journal, and

12:17

he knows from the photography department

12:19

that high-end professional cameras

12:22

had traditionally been the

12:24

domain of the Germans. Leica

12:26

was the most famous camera brand,

12:29

and then at this point in time in the 50s

12:32

and 60s, the Japanese are starting

12:34

to enter the market. So Nikon was the

12:36

big Japanese entrant. Fuji,

12:38

Ricoh. Exactly. They

12:41

made great cameras and they undercut

12:43

Leica on prices by a huge amount.

12:47

And he also knows about

12:49

the sporting goods market from his time

12:51

at Oregon, and particularly being

12:53

a test pilot, as they would say for Bill's

12:56

shoes.

12:57

And actually the dynamics are pretty

12:59

much exactly the same in the

13:01

athletic goods market. There are

13:04

two companies, both German,

13:06

that dominate sports equipment.

13:09

One, of course, is Adidas.

13:12

Or Adidas, as the Germans

13:14

would say. Yes, as we will get into in just

13:16

a sec here. And the other one to a lesser

13:18

extent was Puma. Now, there

13:20

was an American athletic

13:23

apparel footwear maker in

13:25

Converse and others, but

13:28

Converse at the time was stuck

13:30

in the canvas shoe era, which was already

13:33

like ancient history. So if you know Chuck Taylor,

13:35

All Stars, the famous seminal Converse

13:38

shoes, Ben, if you had to guess,

13:40

when do you think Chuck Taylor played basketball?

13:44

Ooh, let's see. I think

13:46

if I remember our NBA episode, the

13:48

NBA was really getting going like

13:50

post-war. So like the 50s, I'd

13:53

guess he was an early 50s NBA player.

13:55

Yeah, you might think so contemporaneously with

13:58

the time we're talking about right now.

14:00

No, Chuck Taylor played professional basketball

14:02

in the 1920s. Whoa,

14:05

that's when the Chuck Taylor All-Star

14:07

technology is from. It's a

14:09

canvas shoe. By this point

14:11

in time, the market had migrated to

14:14

leather upper shoes, of which

14:17

Adidas or Adidas was the leading

14:19

technology manufacturer of it. So

14:23

anyway, basketball shoes wasn't really

14:25

the market yet. It would become much, much later,

14:27

as we shall see. The market was

14:29

running shoes. And

14:32

it was like an okay market, but this was not

14:34

the camera market. So Phil Knight's

14:37

thesis here, it actually didn't

14:39

get any sort of notice or praise famously

14:42

from his classmates or even really from the faculty

14:44

because they're like, okay, this is a

14:46

good idea to apply Japanese

14:50

low-ed disruption to the athletic

14:52

apparel market and the footwear market. But

14:55

this is not a big market. The market

14:57

such as it existed was track shoes.

14:59

Right. Think about how you would define a market

15:02

size. There's

15:02

not that many track athletes at any given point in

15:04

history. So not that interesting.

15:06

And it's worth maybe saying one word on

15:09

the Adidas or Adidas story

15:11

before we move back to Phil Knight and

15:13

Chewdog here, because it's pretty crazy.

15:16

So it's called Adidas

15:18

because Adidas was founded by

15:21

Adolph Dassler or Adi

15:23

for short, Adi Das.

15:26

In like the 1920s? Yes.

15:29

So after World War I when Germany

15:31

was totally decimated, but before World

15:33

War II, he becomes like a

15:36

fairly well-known elite

15:39

cobbler shoe purveyor,

15:41

track cleat purveyor to Olympians

15:44

at the time. So actually,

15:46

ironically, I guess Jesse Owens

15:49

wins the 1936 Olympics,

15:52

the big American demonstration,

15:55

literally beating Hitler in Berlin in Germany

15:58

in Adidas shoes.

15:59

And actually that was Adi Dassler taking a big

16:02

risk

16:03

by sneaking a pair of

16:05

Adidas shoes to someone

16:08

who could get them to Jesse Owens like the night before his

16:10

race. And Jesse Owens was like, oh, these are actually awesome.

16:13

And so it was like a big sort of, uh-oh,

16:15

is this going to be a problem for Adi when it comes out

16:17

that the American one wearing German shoes? Interesting.

16:20

I didn't know that part of the story. That makes sense because

16:23

Adi's older brother, Rudy, worked

16:25

with him in the business, as did Adi's wife

16:28

and son. After World War

16:30

II, though, the two brothers have

16:33

a huge acrimonious split.

16:35

Rudy goes off and starts a separate

16:38

shoe company.

16:39

It never came out what the fight was about,

16:41

but

16:42

one of the rumors is that Rudy

16:44

went and fought in the Nazi

16:46

army and Adi didn't. And

16:48

maybe that might have, I don't know, but may have

16:50

had something to do with it.

16:52

Anyway, crazy. Rudy goes across

16:54

town and starts a competing company

16:57

after the war

16:58

named

16:59

Puma. Craziest thing. Adidas,

17:01

Adidas, and Puma

17:03

are the two brothers. They're both the Dassler brothers.

17:06

Crazy. Okay, so take us back to Phil Knight. Phil

17:08

has this idea in this class in

17:11

business school, this good idea but small

17:13

idea to sell Japanese track

17:16

shoes in the US and undercut Adidas.

17:18

In 1963, after

17:21

he graduates,

17:22

Phil decides that he's going

17:24

to go off before he really starts life.

17:27

He's going to go take a trip around the world and he convinces

17:29

one of his buddies from GSB to go with him. They

17:32

go first to Hawaii famously and the buddy

17:35

meets a girl in Hawaii and... It's like, why

17:37

would I leave Hawaii? Yeah, I mean, smart

17:39

guy. Phil though

17:41

goes on to Japan and he's

17:43

still thinking about this idea.

17:45

When he's in Japan, he starts going to tracks

17:47

in Tokyo and watching what people

17:50

are wearing, running around the tracks

17:52

and he observes and he decides that

17:54

the Tiger brand shoes

17:56

that he's seeing are the best. So

17:59

he looks up the...

17:59

the company that makes tigers. Turns out they're

18:02

made by a company called Onitsuka,

18:04

which is based in Kobe in the south of

18:06

Japan near Osaka. And

18:09

Phil, for a desperate introvert,

18:12

kind of crazily, this is how passionate he is about

18:14

this idea. He gets it

18:16

in his head that he's gonna hop on a train from

18:18

Tokyo

18:19

and just go knock on their door and

18:22

say hi to the Onitsuka

18:24

Corporation and maybe ask

18:26

them if he could import some of their shoes.

18:29

So the story goes that he shows up

18:31

on the door and I can only imagine what 23-year-old

18:34

Phil Knight is feeling

18:36

as he's going through this.

18:38

Well, this is the other side of Phil's personality

18:41

where he's sort of a tortured soul.

18:44

He's introverted, but

18:46

he's unbelievably driven. He

18:48

has a splinter in his mind where

18:51

when his buddy's like, actually, this is pretty good, I'm gonna stay in

18:53

Hawaii, Phil's like,

18:54

but I'm longing for something. Yes. There's

18:57

something wrong with my existence

19:00

in the world that needs to be fixed and I need

19:02

to go and find out where

19:04

I belong and what to do and how to change the

19:06

world and how to build something.

19:09

And I think he's got a motor that's just

19:11

different than the way that other humans operate.

19:14

I've been thinking a lot about, I think this is

19:16

David Senra saying that the

19:18

CEOs and the founders of these

19:20

companies that we cover, that he covers,

19:23

they are the Genghis Khans of our time.

19:26

And Phil doesn't present as

19:28

a Genghis Khan, but he

19:30

still is. Deep down

19:32

underneath all that introvert, he

19:34

has that same drive that

19:37

John Rockefeller had, that an Elon Musk has,

19:39

that a Mark Zuckerberg has. And this unbelievably

19:42

competitive spirit is the

19:45

founding element of Nike's culture

19:47

that permeates to this day.

19:49

At Nike, you play to win. And

19:52

I think everyone shows up to work

19:54

and you wear Nike stuff and you don't ever

19:56

wear any of the competitors. Not to, hey,

19:59

I wanna try out this stuff. It's like,

20:00

hey,

20:01

we don't do that here. That's playing for the other team. Get

20:04

off the other team. You're on our team. And you wake

20:06

up every day and you show up to

20:08

go to work and kick your competitors' asses.

20:11

And sometimes that takes them to questionable

20:13

places that we'll talk about later in the episode. But Nike

20:16

is among the most competitive cultures

20:19

in the world.

20:20

It's funny you say Nike there as

20:22

sort of founding principles because

20:24

Nike isn't going to come for quite a while here.

20:27

While Phil is making this train

20:29

trip down to Kobe,

20:32

he suddenly has a realization. His plan is

20:34

he's going to show up at the door. He's going to

20:36

say that he's an American businessman, a

20:39

distributor, and he wants to distribute their shoes

20:41

in America, literally his business plan from the GSB

20:44

class.

20:45

He doesn't have a company, though. And he doesn't have a

20:47

name for the company. So he has to

20:49

think fast and come up with a name.

20:52

And there are multiple conflicting stories about where

20:54

the name comes from.

20:56

The one that Phil tells is that the

20:58

name Blue Ribbon Sports comes from

21:00

him thinking back to his childhood

21:02

days, becoming a track athlete

21:04

in middle school and high school. He

21:07

talks about he got cut from the baseball team and

21:09

his mom encouraged him to go out for track. And

21:11

then the Blue Ribbons that he won

21:13

at his track meets really helped

21:16

define his personality. It's a very nice story. Very

21:18

nice story. That's where the name comes from.

21:21

The other story that appears in the other

21:23

books is that Phil was out drinking

21:25

the night before either drinking

21:28

Pabst Blue Ribbon PBR beers,

21:31

or I think more likely the other one that I read

21:33

is Suntory Blue Ribbon Whiskey,

21:36

which is a Japanese whiskey brand.

21:38

We saw a billboard or something like that. And

21:41

that's where the name Blue Ribbon came from.

21:44

As with any of these stories, we'll never know, and it's

21:46

probably some of both.

21:47

Yes. Either way, perhaps

21:49

driven by this drive to succeed,

21:53

Phil

21:54

puts on the performance of a lifetime in

21:56

this meeting.

21:58

He claims that he is a.

22:00

He's a US businessman

22:02

from America. He's gone to Stanford Business School.

22:04

He has a company called Blue Ribbon Sports. He wants

22:06

to import their shoes. By the way,

22:09

he ran track for the legendary Bill

22:11

Bowerman, who of course they know.

22:13

He tells them that

22:15

he's done market research. He thinks that

22:17

the US track shoe, running

22:20

shoe market could be a $1 billion

22:23

market, which he totally

22:25

makes up. He has no evidence

22:27

to back this up whatsoever. He's

22:29

done lots of market research.

22:32

Lots of market research. And it is completely

22:34

wrong in both directions.

22:36

The actual US market

22:38

for running shoes at this point

22:41

in time, I mean,

22:42

there's no way it was a billion dollars. Maybe $100

22:45

million,

22:45

maybe? I

22:47

mean, we just were talking about running was not a thing.

22:49

It was a thing that athletes did. Right.

22:52

And the running craze or

22:54

the fitness craze hadn't really started

22:56

yet. So to

22:57

give you a sense, David, I think you're probably spot on with that,

23:00

maybe $100 million, maybe $200 million for

23:02

track shoes in the US. The branded

23:05

athletic shoe market all up, including

23:07

all sports for the whole US across

23:09

all age groups, everything, $2 billion.

23:13

So he's completely wrong on what it actually

23:15

is at that point in time.

23:16

He's also completely wrong on

23:19

what it would become in the other direction,

23:22

thanks to Blue Ribbon and Nike. They

23:24

had a large hand in growing.

23:25

And I'll spoil it for listeners. The

23:28

branded athletic shoe market in the US

23:30

today

23:31

is $130 billion. Now,

23:34

obviously, not all of that is track and running.

23:37

But a large part is

23:39

running shoes. And that's growing 5% year

23:41

over year. So still a growth market,

23:43

even at that scale, which by the way, that number, $130

23:45

billion, just to compare it against

23:48

some other things, that is bigger than the video

23:50

game market.

23:51

Wow. Hey, I mean, not everybody has to

23:53

play video games. But everybody has to wear

23:55

shoes.

23:57

So Knight leaves this meeting, this

23:59

performance of.

23:59

of a lifetime,

24:01

he gets an agreement from Onitsuka

24:03

that if he

24:05

wires them $50, they will send samples

24:09

of the shoes to his office

24:12

back in the States,

24:13

i.e. his family home in Portland,

24:16

Oregon. So first thing Knight does,

24:18

he gets in touch with his dad, I don't know, he sends

24:20

him like a telegram or something,

24:22

back in Portland and asks him to wire $50 to

24:25

the Onitsuka Corporation of Japan for

24:29

purchasing these samples. He

24:31

gets home, I think it's two or three months later

24:34

after this. Surely the shoes would have arrived. But

24:36

surely the shoes would have arrived. He

24:38

rushes home, says, hi mom,

24:41

hi dad,

24:42

did the shoes arrive? His dad's like,

24:44

what shoes?

24:45

The shoes did not arrive. The

24:47

shoes would not arrive for almost

24:49

another year. Wow.

24:53

A little foreshadowing in what

24:55

doing business with Onitsuka is going to be like for

24:57

the fledgling Blue Ribbon Sports. And

24:59

this is just to like get some samples to

25:01

see if he can sell $50 worth of shoes.

25:04

That takes over a year.

25:05

So Phil gets home, he's disappointed. He's

25:07

got to start his life, he gets a job as an accountant,

25:10

he's got a business school degree studying to take

25:12

the CPA exams and become a licensed CPA.

25:16

And then finally, at

25:17

the end of 1963, I think right around

25:19

Christmas, Phil writes in Shoe Dog,

25:22

the samples show up.

25:24

And Phil gets them, they're

25:26

great, they're what he remembers. He thinks,

25:29

these aren't quite maybe

25:31

as good as Adidas, but

25:33

they're good enough. And I can sell them cheaply

25:35

enough that

25:36

my business plan will work. They're

25:39

way cheaper. So

25:41

Phil gets back and writes Onitsuka, says, great,

25:43

I would like to be the

25:44

US distributor for

25:46

track and field shoes. And Onitsuka

25:48

says, okay, great, you can be the distributor

25:51

for the Western United States. We already

25:53

have somebody that we're working with on the East Coast,

25:55

but you can have the Western 13 states.

25:56

Phil's like, great.

25:59

He quits.

25:59

his accounting job, he starts

26:02

the company, he goes to work, he hires one

26:04

of his twin younger sisters, who I think was maybe

26:06

still in high school to help him part-time

26:09

with receiving the inventory and sending them out

26:11

and stuff. The naivete is just dripping off

26:14

of Phil at this point. It's like, oh good, I have a business,

26:16

so surely I will make enough money to be able to

26:18

quit my job and hire people.

26:20

Yes, and now he doesn't have enough

26:22

money to open a retail outlet, or

26:24

even really to get enough inventory to sell

26:27

wholesale to other retailers. So

26:29

his genius business

26:31

plan, I don't know how much of this was part of the Stanford

26:34

paper or not,

26:35

is he's going to drive around to track

26:37

meets in Oregon and up and down the West

26:39

Coast and sell the shoes

26:41

out of his car. Pretty awesome. That's

26:44

legitimately doing the shoe leather work

26:47

that no one else is willing to do, and getting

26:49

through that hard part to get your business off the

26:51

ground, establishing proprietary distribution channels.

26:54

Yes.

26:55

Speaking of proprietary, he

26:58

also has another actually

27:01

really great idea, which

27:03

is that while he's driving around,

27:06

he'll go down to Eugene

27:08

and see his old coach,

27:10

Bowerman, at the University of Oregon.

27:13

And he thinks, oh, if I

27:15

could get Bill to put

27:17

his runners

27:19

in Tigers, then that would be

27:21

great marketing for me. And I know

27:23

he's not always super happy with Adidas. We're

27:25

going to have a better relationship. He'll be able to experiment

27:28

with these shoes. And I'll sell them to him for

27:30

cheap, because

27:31

at this point in time, even the legendary

27:33

Bill Bowerman and the University of Oregon,

27:36

they bought all the shoes.

27:38

Nobody was giving them shoes. It

27:41

was like a major line item in their budget.

27:43

Crazy. And so let's just

27:45

take a quick pause and recognize

27:47

this company that would eventually become

27:49

Nike started, A,

27:51

not as Nike, B,

27:54

not with a swoosh, C, not

27:57

making a product. It's literally

27:59

just import.

27:59

and reselling someone else's

28:02

product, and the plan is to build

28:04

a big business off the back of

28:07

not actually making things.

28:09

Not exactly what GSP or any

28:12

other business school would determine a recipe for

28:14

success here. But

28:15

maybe that penciled more at

28:17

the time. Being in this super globalized

28:19

world that we're in now with the internet and

28:22

companies with these massive resources that can

28:24

scale immediately. And venture capital.

28:27

Exactly, and venture capital, which can just supercharge

28:29

a company's growth if something's working. The

28:31

idea that your core competency is just

28:34

distributing someone else's product among

28:37

a geographic area where you have

28:39

a relationship with customers, that might

28:41

have actually been a pretty good plan and much

28:43

more defensible in a way that it's

28:45

much harder to build something like that from scratch

28:48

now.

28:48

That's a super good point. And it turned out actually

28:51

that

28:51

Onitsuka had already studied the

28:54

US market, whether they agreed with Phil's

28:56

plucked out a thin air market size or not. They

28:59

wanted to enter the market,

29:01

but they didn't think they could do it on their own. So they

29:03

actually were looking for somebody like Phil.

29:05

Yep.

29:06

So Phil goes down to see Bowerman. And

29:09

to

29:10

Phil's surprise, I mean, Bowerman is not a

29:12

warm and fuzzy guy. He's never really

29:14

shown Phil much encouragement when he

29:16

ran for him or since.

29:19

Bowerman says, this

29:20

is a pretty good idea.

29:22

Not only

29:23

do I want the shoes for

29:26

cheap,

29:27

I want you to cut me in on the deal. I

29:29

want to be partners with you in this company.

29:31

And Phil is like,

29:33

floored.

29:34

And like real partners, 50-50-ish. It's

29:36

not like I want you to like toss me a percent here or

29:38

there for being an advisor or something. It's like, okay,

29:41

great, co-founders, just like that. So

29:43

Phil's like, what's the deal you have

29:46

in mind? I think originally Bowerman

29:49

says 50-50 and then he sleeps on it and he comes back

29:51

with his lawyer and he says, actually,

29:53

let's do 51-49. I want you to

29:55

have 51, me to be 49. Cause

29:57

I don't really want to be involved here.

29:59

Now, on the one

30:02

hand, this is super exploitatory

30:04

of Bowerman, of his old athlete that still

30:06

obviously looks up to him like a father. It's kind

30:08

of like there weren't

30:10

really VCs yet in this era, but when

30:12

there would be like VCs taking 50, 60, 70% of

30:14

the company.

30:16

On the other hand, this is a no-brainer

30:19

yes for Phil. Right, he's giddy

30:21

about it. He's like, oh, only half the company? Great.

30:24

Well, and if Phil doesn't do this deal,

30:27

he would have 100% of Phil Knight's

30:29

blue ribbon sports, but he does do

30:31

the deal and he gets 51% of

30:34

Bill Bowerman's blue

30:36

ribbon sports, which is a completely different

30:38

animal. Yes. So

30:41

I was thinking about this. After reading Shoe Dog,

30:43

I was like, hmm,

30:45

because I just read it for the second time.

30:47

It just feels a little weird that Bowerman

30:50

would just kind of immediately be

30:52

like, yes, I'll go into business

30:55

with you person who ran

30:57

for me that I never had a particularly close relationship

30:59

with.

31:00

And so I've always wondered like, why was

31:02

he so eager to do this?

31:04

And as part of the research, I

31:07

stumbled upon this guy named Scott Reams,

31:10

who was formerly a Nike historian. He

31:12

worked in the marketing department and then for over 20 years

31:14

worked at Nike and became a company historian.

31:17

He has an epic set of LinkedIn posts

31:19

that are really like

31:20

these incredible gems pointing

31:23

out things in company history. And so he's got this

31:25

post. He says,

31:26

based on letters in the University of Oregon and

31:28

Nike archives, Bill Bowerman corresponded

31:31

directly with many footwear manufacturers

31:34

in the 1950s. So

31:36

like 15 plus years before this, including

31:39

Adi Dassler directly to Adi

31:41

Dassler

31:42

trying to purchase shoes for his runners directly

31:44

to avoid retail markup. He made it

31:47

clear he had ideas on how

31:49

to make running shoes better. Remember, these are

31:51

in letters to Adi Dassler years

31:53

before. The responses he received

31:56

referred him to footwear distributors in the United

31:58

States for Adi Dassler.

31:59

and ignored his design offer.

32:02

So Bowerman is sitting there and he is

32:05

primed. He's like, oh, you're gonna import foreign

32:07

shoes and give me a deal? I'm in.

32:09

Just like Onitsuka was primed

32:11

to receive young Phil Knight, so

32:14

was Bowerman. Ben, this is so awesome. I

32:17

was gonna save this for a reveal later

32:19

in the episode.

32:20

Scott Reames is legendary. He

32:23

was, as you say, Nike's corporate historian. He

32:25

worked super closely with Phil on

32:28

writing Shoe Dog. Oh, did you read his post?

32:30

I sent you his LinkedIn. Did you look through them all too? Not

32:32

only I sent him a message on LinkedIn,

32:34

I talked to him. I spent

32:36

hours talking to Scott. Really? He

32:38

spent a few days helping me put our

32:41

version,

32:41

acquired's version of the Nike story

32:43

together. We have a huge, huge thank you to him,

32:46

but I was gonna surprise you with this. This

32:48

is super cool.

32:50

That is so awesome. Oh,

32:52

that's so cool. I guess I should tell you. So listeners,

32:54

we talked to, like,

32:56

nearly a dozen people to prepare for this episode.

32:59

I also want to thank Eric Sprunk, who is

33:01

a 27-year Nike veteran. And

33:04

David, you know that I chatted with him, but he was COO until a

33:06

couple years ago, and very cool to get his perspective

33:09

and Scott's perspective. I'm curious

33:11

if you have any other nuggets that come up, too. Oh,

33:14

I've got one in particular that I want to bring Scott's perspective

33:16

in, but it's a little farther in the story. Great.

33:18

All right, so, Bowerman. So, okay, we've got 51-49 Bowerman

33:23

in Blue Ribbon Sports. They each put

33:25

in $500 to finance the

33:27

first big shipment

33:29

of inventory of tigers from Onitsuka.

33:31

And they

33:33

do, they, meaning Phil, does

33:35

what he intended to do. He drives around

33:37

to track meets around the Pacific Northwest

33:40

and

33:41

sells them out of the back of his car. And

33:44

even with that funny sales strategy,

33:47

and in Shoe Dog, Phil talks about this while

33:50

he was in Hawaii with his buddy. The way

33:52

they made money was they sold encyclopedias

33:54

door-to-door, and then Phil gets a job

33:57

as a stockbroker trying

33:59

to sell stocks.

34:00

He doesn't make any sale. Like he's the most introverted person

34:02

in the world. He can't be a salesman.

34:04

But for some reason when he's selling shoes,

34:07

when he's doing his crazy idea,

34:10

he can literally just go to track meets and

34:12

convince kids and their parents to buy these

34:14

shoes out of the back of his car. When you believe

34:16

in something, sales are just natural.

34:19

It's so true.

34:20

So they sell out basically immediately

34:23

and then they plow all the profit that they're making

34:25

back into the next orders of inventory

34:27

from Onitsuka. So they do $8,000 in revenue

34:29

in 1964. That

34:32

doubles in 1965. They do $16,000 in revenue.

34:37

But Ben, as I think you're about to say,

34:39

there's kind of a problem here. Well, there's a few

34:41

problems. One of which is they're not making

34:43

that much money. It's not

34:45

a great

34:46

gross margin business. You have to pay to import

34:48

these shoes from Japan. How much can you really mark

34:51

them up to sell them? And if you're making, I don't

34:53

know, two, three bucks profit, something

34:55

like that, on each pair of shoes, you have to sell

34:57

a lot of shoes and

34:59

if your only way to get money to buy more

35:02

inventory is

35:03

the profits from the shoes that you sold

35:06

last order,

35:07

I don't even know how you double your over a year because

35:09

where's the money coming from to get the inventory? This

35:12

is not a solvable problem. It's

35:14

a circular issue. There's no way to do it. So

35:16

Phil is selling

35:18

the Tigers for $6.95 a pair.

35:22

It costs him and Bowerman about $3.50 to

35:25

get each pair of shoes. So that leaves

35:28

what, about $3.50?

35:31

Pretty soon, Phil hires

35:33

his first full-time employee, the

35:35

legendary Jeff Johnson, who has

35:38

a huge role in Nike,

35:40

as we shall see.

35:42

Once Jeff and other sales reps come

35:44

on board,

35:45

he's giving them about $1.75 in commissions.

35:49

So half the gross margin ends up going

35:51

into sales and marketing expenses. Exactly.

35:53

So that leaves what, a buck $75, maybe $2, like

35:57

you said, in profit per pair.

36:00

How are you gonna order more inventory

36:03

at $3.50 a pair when

36:05

you're making $2 in

36:06

profit per pair? The

36:08

math doesn't pencil.

36:10

Wow.

36:11

Quick aside on Jeff Johnson.

36:13

Like we said, he is absolutely legendary.

36:16

He also sells out of the back of his

36:18

car. He's based in California. He met

36:20

Knight at Stanford. Jeff was a Stanford

36:22

undergrad who ran track and met Knight

36:25

while he was at GSB.

36:26

Johnson sells out of the back of his car.

36:29

He evangelizes the brand. He designs

36:31

shoes. He eventually opens Nike's first

36:33

retail store in LA. He sets

36:35

up manufacturing. He moves back and forth

36:37

across the country. He is basically

36:39

like

36:40

everything you would ever want

36:43

in a first employee at a company.

36:45

To find a Jeff Johnson

36:47

is the most incredible

36:50

thing that could ever happen to a startup company. And

36:52

he has an irrational passion for

36:54

running, which basically no one else did at

36:56

the time. Here's a great quote from Shoe Dog. So

36:58

it's in Phil Knight's voice.

37:00

In 1965, running wasn't even a sport. It

37:03

wasn't popular. It wasn't unpopular.

37:05

It just was. To go out for a three mile

37:07

run was something weirdos did, presumably

37:09

to burn off their manic energy. Running

37:12

for pleasure, running for exercise, running for endorphins,

37:14

running to live better and longer. These were

37:16

things that were unheard of. People went out

37:19

of their way to mock runners. Drivers

37:21

would slow down and honk their horns. Get

37:23

a horse. They'd yell throwing a beer

37:26

or soda at the runner's head. And he goes

37:28

on to say that Johnson had many sodas

37:30

thrown at his head while he was out running. This

37:32

is one of the moments that just floored

37:34

me rereading Shoe Dog and

37:37

internalizing that.

37:38

Running, I go for a run

37:41

maybe three times a week these days. Right,

37:43

it's just normalized into life. Every

37:46

time I walk out in the street, basically

37:48

anywhere in the world, unless I'm like truly

37:50

in the middle of nowhere, you see people running.

37:53

And the idea that motorists would throw beer and soda

37:55

cans at runners is

37:58

crazy. Yeah. Totally wild.

38:01

So back to this financing issue.

38:04

As you can imagine, the only

38:06

way to grow

38:07

as a company with

38:10

the set of operating constraints that Blue Ribbon

38:12

Sports has

38:13

is through financing.

38:15

And the only way to get financing

38:18

in Portland, Oregon in those days

38:20

was to go to Oregon regional

38:23

banks. I think actually there were laws

38:25

in the US that corporate

38:28

banking could not happen across state lines.

38:30

Correct. So there are only like two or three banks that

38:33

Knight even has the option of going to.

38:35

Yep.

38:36

And by the way, when you're going to get money from the bank,

38:38

it's not equity capital. They're not saying

38:41

like a venture capitalist would say, oh, I'll buy a piece

38:43

of your business and value it at this and give

38:45

you the money at that. It's just pure

38:48

loan that you owe back to them at some

38:50

point in time with interest. Yep.

38:53

And the bankers who are making

38:55

these loans in Portland then was a

38:57

very, very small town in a very, very

39:00

small state on the west coast of the US.

39:03

They're not going to be very risk seeking. They're

39:05

going to be quite risk averse. So

39:07

there's another good passage that I grabbed from Shoe

39:09

Dog that explains this. Phil Knight,

39:12

I was projecting $16,000 in my second year. And

39:15

according to my banker, this was a very

39:17

troubling trend. 100% increase

39:20

in sales is troubling, I asked. Your

39:22

rate of growth is too fast for your equity, he

39:24

said.

39:25

Growth off your balance sheet is dangerous.

39:28

And this is where Phil Knight's complete opposite

39:30

approach comes in. He goes, life is growth. Business

39:33

is growth. You grow or you die.

39:36

And the banker says, that's not how we see

39:38

it.

39:39

And there's a couple of important points to make in here,

39:41

one of which is this equity they're referring to. We

39:44

refer to equity these days, especially in startup

39:46

land, as percentage points in a startup. And

39:49

what he's talking about here is the technical definition

39:52

of equity. The book value of equity. Right,

39:54

your total assets minus your total liabilities

39:57

is your equity. And in many cases, the equity is the

39:59

equity. You can sort of squint at this if you don't have

40:01

a lot of liabilities or a lot of debt on your books and

40:03

say, okay, so it's basically like the cash in the

40:06

bank. It's the assets you have on hand as your equity.

40:08

So what this banker is basically saying to Phil Knight

40:10

is,

40:11

I will only loan you up

40:13

to the amount of money that I already know

40:15

you have.

40:17

Now, that's not terribly helpful. It's

40:19

basically a cash advance. It's

40:21

like, well, the money that I have is sort

40:23

of tied up in other stuff like inventory

40:26

and you're just loaning me enough money for me

40:28

to make my next order. But there's not actually

40:30

any real new capital.

40:33

It's not like there's a post money valuation. You're

40:35

basically just saying you can borrow these dollars, then you

40:37

can give them back to me and I'm going to cap your

40:39

dollar limit super low.

40:41

Yeah, it's basically factoring, right,

40:43

is what it's known as today. Right. So,

40:47

yeah, as you can imagine, there are quite

40:49

a lot of struggles with the various

40:51

banks in Oregon and it's all very

40:54

well chronicled in shoe dog.

40:57

So since

40:58

growth is literally rate limited

41:01

by the banks, Knight decides

41:03

that he can't justify taking a

41:05

salary. He goes back to being

41:07

an accountant by day. He joins Pricewaterhouse

41:10

in the Portland office.

41:11

He does that for a couple of years. I

41:13

mean, years, years takes a

41:16

long time to grow this thing.

41:18

Eventually, Blue Ribbon does become big enough

41:20

and he needs to devote enough time to it that he can't be

41:22

a full time accountant.

41:24

So instead he gets a job teaching accounting

41:26

at Portland State

41:28

where he meets two women,

41:30

both of which will change his life. The

41:32

first one is a student. Things were

41:34

different in the 60s. A student in

41:37

his first class that he teaches named Penny

41:39

Parks, who he

41:42

sees has great potential as

41:44

an accountant. So he hires her as

41:46

a bookkeeper part time while she's a student, I

41:48

believe, for Blue Ribbon Sports.

41:51

Very shortly thereafter, she becomes

41:53

Penny Knight, his wife.

41:56

Now I think of gosh, like 60

41:58

years, maybe something. like that. The

42:01

other woman he meets is an art student,

42:04

not an accountant, an art student named

42:06

Carolyn Davidson.

42:08

And Phil overhears her talking with some

42:10

friends in the hallway one day talking about art

42:12

classes. And he stops her and he says,

42:14

Hey, I've got a company. We need

42:16

some part-time art and design work for

42:19

like

42:19

brochures and sponsorship collateral.

42:22

Because everyone's telling him that he needs to do advertising.

42:24

Phil Knight to this point, which is hilarious given

42:26

Nike today doesn't believe in advertising. And

42:29

so he's like, fine, I'll give in to some

42:31

other people who are advising me that I should make

42:33

some brochures or something. And the way I'm going to do

42:35

it is I'm going to hire a part-time

42:38

student

42:38

from Portland State to do my advertising

42:41

collateral for $2 an hour. Yes.

42:44

She says, sure, put a

42:46

pin in that we are going to come back to

42:48

Carolyn Davidson and the Nike

42:50

art department in a minute here.

42:53

Yes.

42:54

But first, now is a great time to

42:56

tell you about one of our favorite companies here at Acquired

42:58

and a new sponsor this season.

43:01

Ooh, David, you teaser. What else

43:03

could anyone possibly design for Nike

43:05

that would change Phil Knight's life? It's a

43:07

great story and there's more to it than I

43:09

think you've heard before. So

43:11

what sponsor are we talking about? Brand new one for us,

43:13

a company called Blinkist.

43:15

We are doing something pretty special with them

43:18

here at Acquired. Blinkist, as you

43:20

might know, takes books and condenses

43:23

them into the most important

43:25

points. I really could have used that for research

43:27

on this one. Yes. It lets you

43:30

read or listen to the summaries. So

43:32

it's great for people who want to read more books, but you might not

43:34

have time to get to your whole dream bookshelf.

43:37

Now we told the good people at Blinkist how

43:39

we go about researching for Acquired and they had

43:41

an idea and we're running with it. So if

43:43

you go to Blinkist.com slash Nike

43:46

or click the link in the show notes, you can get blinks

43:48

for the Nike books that we use to

43:50

research this episode. And many

43:52

of them, they are making custom for you

43:54

guys in real time.

43:56

So expect more Nike books to be

43:58

showing up as they're

43:59

literally making these for the acquired

44:02

audience. And not only that, if you

44:04

use the link, you'll get the whole Nike

44:06

collection for free as these books

44:08

get added. And Blinkist has told us anyone

44:11

who signs up through that link or uses

44:13

the coupon code NIKE will then get

44:15

an additional 50% off a premium

44:17

subscription to all 6,500 titles in their

44:20

library. So

44:22

for those of you who lead companies and organizations,

44:24

I know there's a lot of founders and executives listening, Blinkist

44:27

also lets your company become a customer

44:29

with Blinkist for Business. So 1,500

44:32

different organizations use this worldwide.

44:34

This gives you not only access to condensed books,

44:37

but also courses and coaching pathways

44:39

like leadership from Simon Sinek or

44:41

courses on mindfulness or communication

44:43

and history. It's awesome for teaching new

44:45

skills or for the learning and development

44:48

department at your company. So a fun

44:50

way this came about, a little acquired behind the

44:52

scenes, Blinkist was just acquired

44:54

by Go1, which is a friend of

44:56

the show where the founder and the leadership

44:58

team have been long time acquired listeners.

45:01

David and I are both investors

45:03

in Go1 and now Blinkist, and

45:06

we'll share more about Go1 later this season,

45:08

but know that they are an amazing one-stop

45:10

shop to get all the content that you need for

45:12

your company, like for your whole workforce from

45:15

HR trainings to specific skill

45:17

development classes. And they get

45:20

that content from the best places in the

45:22

world to produce that content. It's not like

45:24

they're making something you've never heard of. They

45:26

probably have awesome content that

45:28

you're looking for just bundled into one easy subscription.

45:31

So back to Blinkist. To join

45:33

the 27 million people who use Blinkist,

45:35

go to blinkist.com slash Nike

45:38

or click the link in the show notes to get access

45:40

to what we use for research.

45:42

Pretty cool.

45:44

Okay, David, so

45:45

should we share the Carolyn Davidson thing

45:48

now or don't we need to evolve Nike

45:50

a little bit more before it really comes into play? Yeah,

45:52

put a pin in it. We'll come back to it.

45:54

So in the meantime,

45:56

buy hooker, buy crook, and

45:58

maybe.

45:59

Onitsuka as we will see would argue by Crook.

46:02

Blue Ribbon Sports' sales do

46:04

keep growing. They do keep getting

46:07

just enough and just enough in time financing

46:09

to finance their inventory and orders

46:11

from Tiger and Onitsuka. In 1966,

46:14

they do $44,000 in revenue. In 1967,

46:18

they do $84,000 in revenue, noticing

46:22

a doubling theme here. Turns

46:25

out even from a very low base, if you double

46:27

every year for like 20 years, you

46:30

can still become a big company.

46:31

So then in 1967,

46:32

Bowerman,

46:34

remember, you know, Bowerman's been

46:37

involved, his name, his association with the

46:39

company has been huge throughout all this. But

46:41

like you were saying a minute ago, Ben, his

46:44

real motivation is he wants R&D

46:47

access. He wants to be able to

46:49

make shoes. And in 1967, ahead of the 1968 Mexico City

46:51

Olympics, he

46:55

comes up with a new idea for an entirely

46:58

new type of shoe, one

47:01

that he probably can't really manufacture

47:03

on his own.

47:04

But now he has this relationship with Tiger,

47:06

with Onitsuka.

47:07

And his idea is that

47:09

rather than leather on the

47:11

upper parts of these track

47:14

shoes,

47:15

what if we instead use a breathable material

47:17

like nylon so that my

47:19

runner's feet aren't sweating throughout

47:22

the whole race?

47:23

On the one hand, like, guess nobody likes sweaty

47:25

feet.

47:25

On the other hand, if your feet sweat a lot in leather

47:28

shoes over the course of several miles, well,

47:30

they're gonna get heavier and weighed down.

47:33

And so maybe this might help the shoes

47:35

stay lighter. And Bowerman is obsessed

47:37

with lightweight in his shoes. So

47:41

Onitsuka is very receptive

47:43

to this. They think, great,

47:45

we love this. We'll make the shoe. We can do

47:47

that. We can source the nylon. We'll make the shoe.

47:49

So Bowerman and Phil get together like,

47:52

this is amazing. We're gonna have our

47:53

own model, you know, that we've designed, that Bowerman's

47:56

designed. Which you should already

47:58

start to get a little bit nervous here.

47:59

Cause it's like, well, okay, who? Who owns this

48:02

shoe? Exactly. Well, that would

48:04

be for the courts to decide. Is it like the

48:06

blue ribbon shoes design company

48:09

owns the design and they hired a contract manufacturer?

48:11

Or is it more like, oh, we just gave you a little suggestion

48:14

idea and like we BRS don't own anything.

48:16

Yep.

48:17

The relationship

48:18

complicates a little bit here. It's no longer

48:20

just, hey, we're the American distributor

48:23

of tigers. So Bowerman

48:25

and Phil want to call the shoe.

48:27

They actually want to borrow from the Adidas

48:30

playbook and call the shoe, the Aztec

48:33

ahead of the Mexico city Olympics.

48:36

Adidas has been doing this for years. They always come

48:38

out with new shoe models ahead of whatever

48:41

the Olympics is in the world every four

48:43

years. Adidas of course has already beaten

48:45

them to the punch. They have trademarked

48:47

a shoe that they're coming out with called

48:49

the Azteca gold. And

48:52

I don't know if it's blue ribbon or

48:54

on it's Uka decides that the Aztec is

48:56

too close to that.

48:57

So

48:58

legend has it, you know, knowing these

49:00

men. I assume this is

49:03

quite true. Bowerman is

49:05

casting a bout for other ideas for names of the shoe.

49:07

And he says tonight, what

49:09

was the name of that Spanish guy that kicked

49:11

the, you know what out of the Aztecs?

49:14

And Knight is like, oh, that's Cortez. And

49:16

thus

49:17

the

49:18

blue ribbon slash tiger Cortez

49:21

is born. Naming aside, the nylon

49:23

uppers are a huge innovation

49:28

and this becomes a big hit.

49:31

I bet someone out there is wearing Nike

49:33

Cortez's right now.

49:34

It's become like a lifestyle shoe and less

49:37

of a running shoe cause the definition of a running shoe has

49:39

changed dramatically.

49:40

And so

49:41

the fascinating thing is if you look down at

49:44

your Nike Cortez or you Google a picture

49:46

of it,

49:47

it's basically exactly the same as

49:49

the thing that they came out with. But when they came out, it had

49:51

the Onitsuka now ASICS

49:54

design on it, not the swoosh. Yeah,

49:56

spoiler alert, tiger eventually became

49:58

ASICS.

49:59

Yes. So

50:01

also in 1967, Bowerman has

50:03

another just

50:05

monumental contribution. His

50:07

contributions, though sporadic when they happen, are

50:10

enormous. So he

50:12

writes a book.

50:14

I feel like some marketing agency these days would advise

50:16

a startup on, oh yeah, this is how you build a market, write

50:19

a book, start an evangelizer movement.

50:21

Bowerman just does this because it's what he wants to do.

50:24

He had gone on a trip to visit

50:26

another international track coach

50:29

in New Zealand a few years earlier.

50:32

And he discovers the concept

50:34

of jogging. I don't even know if the word

50:36

jogging really existed in America

50:38

at this point in time. The idea

50:41

of running not to win, but

50:44

to run for joy or for physical

50:46

fitness

50:47

was an entirely foreign concept.

50:50

All right, I'm gonna read a paragraph from Shoe Dog

50:52

here. This is Phil Knight.

50:54

He told me on top of everything else, he

50:57

was also writing a book. A book, I said, about

50:59

jogging, he said gruffly.

51:01

Bowerman was forever griping

51:04

that people make the mistake of thinking only

51:06

elite Olympians are athletes. But

51:08

everyone's an athlete, he said. If you have a body,

51:11

then you're an athlete. Now he was determined

51:13

to get this point across to a larger audience,

51:16

the reading public. Sound interesting,

51:18

I said, but I thought my old coach had popped

51:20

out a screw. Who the heck would want to read

51:22

a book about jogging?

51:24

This is Phil Knight, the founder of Nike.

51:27

Right, I mean, even Phil Knight is

51:29

like jogging. That's crazy.

51:31

So Bowerman writes this book, it's called Jogging,

51:33

A Physical Fitness Program for All

51:36

Ages. He writes the book, it comes out in 1967. Life

51:40

Magazine, Life Magazine was huge

51:42

in America at the time. They come out to Oregon

51:45

and they write a profile of him

51:47

and his

51:49

jogging clubs that he started for

51:51

the citizens of Eugene of all

51:53

ages to get into jogging and physical fitness.

51:56

And by God, I mean, as much

51:59

as anything.

51:59

This

52:01

book and this article is

52:03

what starts the fitness

52:06

movement in America. Yup.

52:08

It's the craziest thing.

52:10

I keep going back and forth when looking at Nike

52:12

and say,

52:13

did they benefit from this

52:15

enormous wave that they were riding or

52:17

did they create a wave? And I

52:19

think it was actually both. Yes.

52:22

So Knight has this great quote about

52:24

this later in life. He's asked literally

52:26

this question if Nike started

52:29

the fitness revolution. And his answer is

52:31

so typically, Phil Knight, he says, we

52:33

were at least right there and we sure

52:36

rode it for one hell of a ride.

52:38

I love it.

52:40

Here's a crazy bit of trivia, David.

52:42

So for me, when I reflect back on

52:44

like the birth of the jogging movement, because I'm

52:46

a millennial and I wasn't there, I think

52:49

of Forrest Gump.

52:50

You know, he's running across America and all these people

52:52

are running with him. And that time and that

52:54

aesthetic to me is like, oh, that's when jogging sort of really

52:56

took off. He was wearing Nike

52:58

Cortez's. Yeah.

53:01

Perfect. So great.

53:03

And the fact that Blue Ribbon really did

53:05

have starting to become pretty

53:07

real distribution at this point to

53:10

the West Coast. They actually had built

53:12

a brand and a trustworthiness with customers

53:14

and coaches and that sort of thing for themselves that

53:17

not only could Bowerman write the book and

53:19

evangelize and have the idea, but they

53:21

could actually get shoes onto the feet

53:23

of people because out of this budding company,

53:25

they actually had a little bit of distribution and more

53:28

than just athletes. Yeah.

53:31

Or more importantly, changing the definition of athlete.

53:33

Yes, I like that changing the definition more

53:36

than just people who define themselves

53:38

by their occupation, whether amateur

53:40

or professional as athletes. Right.

53:43

So by 1970, just

53:45

a short while after this, Blue

53:48

Ribbon is now doing over half a million

53:50

dollars. In annual sales. So

53:52

they're like a real company now.

53:54

They're selling out of the Cortez is literally

53:56

as fast as they can get them off the boats from

53:59

Japan.

54:00

Onitsuka renews Blue

54:02

Ribbon's distribution agreement in 1970 for

54:05

three more years to run through 1973. When

54:09

this happens, Phil then goes

54:11

to the bankers in Oregon and

54:13

asks for, hey, you know,

54:16

great.

54:16

The Cortez is selling out great, fitness is this

54:19

new thing. We're a half a million dollar revenue

54:21

company. We've got a three year ironclad

54:23

deal with our manufacturer. Surely

54:26

you could assign some value to that contract,

54:28

if not to our brand and our team

54:30

and all these other intangibles, you won't just

54:33

treat us as if we're book value now.

54:35

Like we'll have some real enterprise value because

54:37

you can invest in our enterprise here,

54:39

our enduring institution.

54:41

So he asks for a line of credit

54:43

of $1.2 million

54:45

to finance inventory.

54:48

He'd never asked for a over million dollar

54:51

line of credit before. He trips the alarms. He

54:53

trips the alarm system. $1.2 million,

54:57

a kid off the street can literally

54:59

walk down Sandhill and raise $1.2 million today. Inflation

55:03

adjusted, it's probably like $8 million or something.

55:05

Sure, whatever. But a kid off the street can walk

55:08

in a Stanford and raise $8 million today. Exactly,

55:10

just say it's an AI company. So the

55:13

bankers,

55:14

not literally, although literally, they would do

55:16

this very shortly thereafter, they throw him

55:19

out.

55:19

They're like, no, no, no, no,

55:21

we're done here. You can't be doing this, we're done.

55:23

I'm just fascinated by this concept of

55:26

it's almost as if the idea

55:28

of enterprise value didn't exist, that

55:31

literally a company could only possibly

55:33

be thought of as its assets minus

55:35

its liabilities.

55:36

So what that meant was if you

55:39

want to grow your company and you want

55:41

to grow it as fast as possible, then

55:43

it means you can only take out as much debt

55:45

as you have assets in the company.

55:47

But you probably shouldn't, because then

55:50

if anything goes wrong, your company is immediately

55:52

wiped out because your debt to

55:54

assets ratio is literally 100. And

55:57

what Phil Knight did was all of the time,

55:59

kept it as a company.

55:59

at a 100% ratio or close to it, like a 90% ratio. He'd

56:03

look and see how many assets they had and say, great,

56:06

we should have exactly that much debt too, so

56:08

I can grow as fast as possible. And so

56:10

it kind of becomes this game of musical chairs where

56:13

when you're levered that hard,

56:15

you need to be growing super

56:17

fast because you need to

56:20

get that inventory off the boat, sell it

56:22

so you can as fast as possible go and pay

56:25

off the bank so that A, the

56:27

interest doesn't pile up and you don't trip a bunch of covenants,

56:30

so that then you can go ask them for another loan to

56:32

do the same thing again. And you literally

56:34

need growth as

56:37

the only way to keep the lights on. It's not just

56:39

growth as a virtue, it's growth as a

56:41

necessity. And this, in addition

56:43

to the competitive thing

56:46

I mentioned earlier where Nike is a competitive

56:48

company,

56:49

Nike is a growth company. And if you

56:51

go to their investor relations page to this day,

56:54

across the top in big bold letters,

56:56

it says Nike Inc is a growth

56:59

company.

57:00

They were born out of this is the only

57:02

possible way to continue our existence

57:06

is grow so we can pay off the bankers.

57:08

Two things here. One, this

57:10

is so sad. That's the way

57:13

it was. And thank God

57:15

the business world has evolved

57:17

since then. I mean, you can decry the ridiculousness

57:20

of startups and VC and

57:22

tech and all that now, but this is

57:24

a way better alternative than the

57:26

way things used to be too

57:28

though. Ironically,

57:30

I actually as

57:33

crazy as this sounds think

57:35

it was a critical element of Nike

57:38

succeeding and becoming Nike because

57:40

if it were too easy,

57:42

there would have been a flood of other competitors

57:45

or Onitsuka and others would

57:47

have just done this themselves. Right. It's

57:50

like many of the stories we tell that it's path dependent.

57:52

The only way to have built what they

57:54

built is to have endured what they endured

57:56

in a system that was stacked against them.

57:59

Yes.

57:59

And there's huge survivorship bias here. But

58:03

the journey that they had to go through to survive

58:06

is incredible. Plenty of other companies maxed

58:08

out their available credit and debt

58:10

all the time and had 100% liabilities to

58:13

assets ratio and went out of business. And

58:15

went under, yes.

58:17

And Nike almost does.

58:18

So

58:20

when this happens, when he gets thrown out of the banks,

58:22

Phil needs to do something to raise money.

58:24

So he decides

58:26

the only thing he can think of is to do a small

58:29

public offering, like a local

58:31

IPO. Remember how Ben and Jerry's was

58:33

the first? Direct listing. Yeah,

58:35

I think it's something like that where they sold shares, Ben

58:37

and Jerry's sold shares in Vermont to like their

58:39

neighbors. This is what Phil

58:42

wants to do.

58:43

And this is how bad it is. So A, he

58:45

changes the name of the company. This

58:47

is so good. Nike isn't anywhere in

58:49

the picture yet. He changes the name of the company

58:51

to sports-tech, T-E-K, with

58:56

the idea that, oh, this will make us sound like a technology

58:58

company. And then people will be interested in investing.

59:01

Because he hears that people are getting financing

59:03

for their business in the form of equity

59:06

capital, where they're willing to assign a valuation

59:09

to the company. And regardless of what

59:11

your current sales and assets look like, that

59:13

sort

59:13

of

59:13

takes your potential future growth into account

59:16

and gives you capital in exchange

59:18

for that. And what they want is a percent of the upside, equity

59:21

investing as we know it today in startups.

59:23

And

59:24

all of that is happening in Northern California

59:26

into tech companies as we chronicled

59:29

on the Sequoia episode with Don Valentine. It's

59:31

that era. Exactly. We

59:33

are right in that era now. Don is about to start Sequoia.

59:36

A lot of this is happening around Stanford. Of course,

59:38

Phil up in Oregon is hearing about this.

59:41

But once anybody, any proto venture

59:43

capitalist digs into sports-tech, they're

59:45

gonna be like, no. So

59:48

what I've never been able to figure out is did he change it to sports-tech,

59:51

Inc. and then change it back to blue ribbon sports or

59:54

did they sort of

59:54

like, I'm trying to figure out if they ever literally changed

59:56

the name on documents. That's a great question

59:59

for Scout Reams. We'll have to ask him. Yeah, yeah.

1:00:02

So

1:00:02

this is how bad it is though. The offering fails.

1:00:05

Nobody's interested. None of these proto VCs,

1:00:08

none of the local business people in Portland,

1:00:10

they're all like, oh, no, no. This is a terrible

1:00:13

company. Well, and Phil might undersells it

1:00:15

too, before he learns some of his later

1:00:17

lessons. It's his super

1:00:20

humble, you know, I'm not a very good runner.

1:00:22

I'm only a 4.13 miler type attitude.

1:00:24

Right. Oh, shucks. Yeah, and so that's

1:00:27

not gonna sell shares in your company. Yep.

1:00:30

So he ultimately has to raise

1:00:32

some money from the families of some

1:00:34

of the employees at Blue Ribbon. Most famously,

1:00:37

Bob Woodell, who would become

1:00:40

Nike's first president other than Phil

1:00:42

when Phil takes a sabbatical later in the

1:00:44

eighties. Bob is this amazing

1:00:46

story. He was also a Bowerman runner,

1:00:49

had a terrible accident in college

1:00:51

and was confined to a wheelchair for the rest of

1:00:53

his life, becomes one of Nike's

1:00:56

and Blue Ribbon's first employees

1:00:58

and then becomes a huge leader,

1:01:00

built so many things at the company and

1:01:02

becomes the first president other than Phil. But

1:01:05

he doesn't come from wealth and his family loans,

1:01:09

I think three or $5,000 to Blue Ribbon, like

1:01:12

a huge amount of money for them. It's

1:01:15

like a huge amount of the family's net worth.

1:01:18

Phil would convert that into equity before the actual

1:01:20

IPO and they would become millionaires

1:01:22

and change their lives. It's amazing.

1:01:24

Yeah, the way that he was financing this was basically through

1:01:27

convertible debt. All the pre-IPO, little

1:01:29

friends and family financings that

1:01:30

he's doing here are convertible notes. So

1:01:33

this brings us

1:01:35

to 1971, the Annis

1:01:38

either Mirabelus or

1:01:41

Haribla. Depending on how

1:01:43

you wanna think about it, I just butchered both

1:01:45

Latin and French there, but

1:01:47

clearly this financing path

1:01:50

isn't gonna work for the next stage of

1:01:52

growth. Eventually,

1:01:54

I think he reads in either a magazine or

1:01:56

a newspaper article about Japanese

1:01:59

trade.

1:01:59

trading companies. How he had

1:02:02

never heard of Japanese trading companies before then,

1:02:04

given the amount of business he was doing in Japan,

1:02:07

is crazy. Although it was in

1:02:09

Onitsuka's strong interest for

1:02:12

Phil and Blue Ribbon not to find out about Japanese

1:02:14

trading companies as we shall see.

1:02:17

And what they are is this very strange

1:02:20

type of company that we don't

1:02:22

really have, at least in the tech ecosystem

1:02:25

today. No, does not exist in America

1:02:27

or in most countries. And it's sort of a hybrid

1:02:30

between a

1:02:32

lender and

1:02:35

a

1:02:36

supply chain partner, where

1:02:38

it's a company that has some primary

1:02:41

business that they're doing. Slash private

1:02:43

equity firm slash holding company. Yes.

1:02:46

It's a company that in this particular instance

1:02:48

has a business that they're in and

1:02:50

generates a bunch of cash. So what do you do with the

1:02:52

company's treasury? Well, you could do boring

1:02:55

stuff with it, or you could make strategic investments

1:02:57

with it, or you could operate

1:02:59

a financing business

1:03:01

where you leverage all

1:03:03

of the unique relationships you have from the parent

1:03:06

company

1:03:07

to do diligence,

1:03:09

to advantage your investments, to

1:03:11

put your foot on the scale. And you're using

1:03:14

the fact that you have a large treasury to

1:03:16

open a competitively advantaged

1:03:18

bank, especially in sourcing

1:03:21

international goods. Yes. To do

1:03:24

asset based financing, exactly

1:03:28

what Blue Ribbon needs. So

1:03:31

the company that he ends up meeting at

1:03:33

the local branch office of it in Portland,

1:03:35

I think they might have been the only Japanese trading

1:03:37

company with a branch office in Portland,

1:03:39

is Nisho Iwai, which is

1:03:42

one of the smaller ones. Today, the company is called

1:03:44

Sojits. Today it is still

1:03:46

a $40 billion revenue company.

1:03:49

Back then in 1971, it was a $100 billion annual revenue

1:03:56

company, and it was I think the sixth

1:03:59

largest.

1:03:59

Japanese trading company. The other ones that many

1:04:02

listeners probably will have heard of are companies

1:04:04

like Mitsubishi

1:04:06

or Mitsui or Sumitomo.

1:04:09

These are

1:04:10

enormous companies and especially

1:04:12

in the 70s as Japan was really

1:04:14

rising. We told the story on the Sony episode.

1:04:17

Nisha Ui was a

1:04:20

godsend for Blue Ribbon. And

1:04:22

it could have gone either way.

1:04:24

That was the thing with these Japanese trading companies

1:04:27

is if you weren't super clear on exactly

1:04:29

what you wanted upfront, it could totally

1:04:31

go the way of private equity where

1:04:34

you tripped one covenant or up you

1:04:37

this that the other thing and suddenly

1:04:39

they're able to own a controlling interest

1:04:41

of your company or they're able to take over management

1:04:44

and install their own people. It was a PE

1:04:46

style financing where oftentimes they

1:04:48

would sort of take over and absorb the businesses

1:04:51

that they were financing. So Phil Knight

1:04:53

was going into this saying, okay,

1:04:55

that really, really, really can't happen to Blue

1:04:57

Ribbon. Can I possibly negotiate with these

1:05:00

guys to

1:05:01

make it so that

1:05:02

their interests are aligned with mine, but

1:05:04

not in a way that could compromise

1:05:07

my control? Right. Because he gets

1:05:09

a little spooked. According to Shoe Dog, Phil

1:05:11

walks into the office of Nisha Ui

1:05:14

in Portland. This is like the Portland, Oregon

1:05:16

branch office of Nisha Ui

1:05:19

meets with one of the officers there

1:05:21

who would go on to become

1:05:23

an incredible personal relationship

1:05:25

for Nike and for Phil,

1:05:28

a guy named Tom Sumeragi.

1:05:30

And he offers on the spot

1:05:32

to finance all of Nike's inventory

1:05:35

on the spot in a meeting in the branch office

1:05:37

in Portland. So Phil's like, whoa, how do I deal

1:05:39

with these guys? Right.

1:05:41

They're a little too eager. This can't be

1:05:43

that good of a deal. What's going on here?

1:05:45

It turns out ultimately, it's a great deal.

1:05:47

And why is it a great deal? Well, the first

1:05:49

thing you have to know is Nisha knows

1:05:52

Japanese manufacturers. And

1:05:54

so they start asking Phil Knight questions like,

1:05:57

well, who do you work with in Japan? And like, would

1:05:59

you ever make your own? and are

1:06:01

you looking for relationships with more factories? And

1:06:03

so they start to get the sense that like, maybe

1:06:06

eventually we could

1:06:09

put our foot on the scale in certain ways and

1:06:11

help this company win. And so if we're doing business

1:06:13

with them as their financing

1:06:15

partner, this could be really good for us too.

1:06:18

So Phil, in retrospect,

1:06:20

makes the mistake of calling

1:06:22

up on Itsuka and saying, hey,

1:06:25

you know, I'm in this lurch with financing. I just

1:06:27

met Nisha Iwai. They

1:06:30

offered to finance all my orders with

1:06:32

you guys.

1:06:33

Would you be okay if I do it? And

1:06:36

they immediately say, absolutely

1:06:37

not. And the reason

1:06:40

they say absolutely not is Ben, just like you're saying, they

1:06:42

know what's going to happen here is Nisha

1:06:45

is going to say to Phil,

1:06:47

hey, you know, this is nice

1:06:49

that you're

1:06:50

buying Onitsuka's inventory. Onitsuka,

1:06:52

I think, is like a 20, 30, maybe $40

1:06:53

million revenue company in

1:06:56

Kobe at this point in time. Right.

1:06:59

This could creep into us. Nisha is a $100

1:07:01

billion company, right? Nisha

1:07:04

is going to say, hey, we'll introduce you

1:07:06

to manufacturers, to factories here

1:07:08

in Japan,

1:07:09

build your own shoes, make your own brand,

1:07:12

screw these tiger guys. And

1:07:14

that is exactly what happens.

1:07:15

Yes. And before we get into exactly

1:07:17

how this all plays out and

1:07:20

effectively the real founding of Nike, creating

1:07:22

their own shoes and how that all goes down, with this financing

1:07:24

as a key part of it, this

1:07:27

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1:07:33

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1:07:40

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1:07:44

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1:07:47

Knight had the crazy idea of taking on Adidas

1:07:49

with Blue Ribbon, Crusoe and its

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and for many AI workloads, you'll get

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1:08:31

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1:08:43

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Crusoe helps to reduce this by

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1:09:43

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But for 99% of AI workloads,

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1:09:49

Crusoe can put these data centers out

1:09:51

where energy happens in these oil fields

1:09:54

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1:09:56

as an aside, while we're here talking about Nike's

1:09:59

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1:09:59

financing strategy, what Crusoe

1:10:02

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1:10:43

Okay. So, Blue Ribbon's in this interesting situation

1:10:45

where

1:10:46

they've been kicked out of their bank from

1:10:48

a lending perspective. They can still keep their money

1:10:50

there. They still have the operating accounts, but they can't get

1:10:53

any more

1:10:54

debt there to finance their inventory,

1:10:57

which they need to buy. You know, they need this

1:10:59

cash to be able to buy their next round to grow the

1:11:01

company. Nisho enters the picture. How does

1:11:03

it go from here? So this basically

1:11:06

sets off a whole chain of events

1:11:08

that would later get prosecuted in court.

1:11:10

So, Onitsuka,

1:11:12

as we said, they are super nervous. They

1:11:15

know what this Nisho relationship is going to mean

1:11:17

for Blue Ribbon, and it's not good for them.

1:11:19

So they start looking around

1:11:22

at

1:11:22

working with other potential distributors

1:11:25

in the U.S. They assume that Blue

1:11:27

Ribbon, one way or another, is going

1:11:29

to end their relationship with them here.

1:11:32

They also, as kind of a last ditch

1:11:34

effort,

1:11:35

make an offer to buy Phil

1:11:37

out, to buy Blue Ribbon. And

1:11:40

Phil thinks he's being smart

1:11:42

here. He

1:11:43

stalls. He doesn't say yes. He doesn't

1:11:45

say no. He's like, uh, let me talk to Bowerman.

1:11:48

Yes. And one thing I was trying to

1:11:50

figure out, so in Shoe Dog, it

1:11:52

doesn't give a value. Phil just

1:11:54

says that his contact at Onitsuka

1:11:57

offers to buy 51% off. of

1:12:00

Blue Ribbon

1:12:01

and keep him as a minority partner.

1:12:04

And from some other sources, what

1:12:07

Phil Knight says in interviews is

1:12:09

that they offered to buy it for book value. Yes,

1:12:12

that's what I read too,

1:12:13

which I imagine is like zero. So

1:12:16

it's a pretty terrible deal because what

1:12:18

is the book value of a company that 100% of the time has its

1:12:20

capital tied up in inventory? Right,

1:12:24

it's zero. So

1:12:26

it's zero, or most generously,

1:12:29

it's the value of the inventory. So in 1971, I believe

1:12:31

they did 1.3 million in revenue,

1:12:38

which best estimates

1:12:41

would be that their

1:12:43

cost was something like $600,000, $700,000. Right,

1:12:47

but they probably turned to that inventory several times. So

1:12:50

at any given point in time, the inventory is less than that. Right.

1:12:53

So it's a terrible deal, it's a takeover,

1:12:55

and so Phil Knight's basically just like, I don't

1:12:58

want to piss them off by declining,

1:13:00

so I'll just say nothing. He knows

1:13:02

at this point that

1:13:04

he's done with Onitsuka, they're

1:13:06

going to go with Nisio,

1:13:08

and they're going to set up their own factory

1:13:10

relationships and make their own shoes. But

1:13:13

he can't just shut off Tiger.

1:13:16

It's going to take time to spin this stuff up. He

1:13:18

needs the Tiger shoes in the interim,

1:13:20

so he stalls.

1:13:21

And by the way, this relationship so far has

1:13:23

been unbelievably fruitful. They're

1:13:26

at the point now where because of Blue Ribbon, 70% of

1:13:28

runners in the US, mind

1:13:32

you, runners is not a large category yet, but runners

1:13:34

in the US have Onitsuka shoes. Yeah,

1:13:37

so this is pretty important. Yeah. So

1:13:40

there's a whole bunch of stuff. Phil

1:13:42

hires a spy. There's a thing

1:13:45

where the Onitsuka management team comes over to

1:13:47

visit Blue Ribbon headquarters. Phil

1:13:50

steals some documents out of the guy's

1:13:52

briefcase. Literally the guy gets

1:13:54

up to go to the bathroom or something, and Phil

1:13:57

grabs it out of a folder and photos

1:13:59

it.

1:13:59

copies it. Yeah, it's pretty bad. Even

1:14:02

worse, Phil's a combination, as we keep

1:14:04

saying, of Genghis Khan and extremely

1:14:06

introverted and really naive. He writes

1:14:08

a memo to the whole company saying that he's

1:14:11

hired a spy at Onitsuka. This

1:14:13

is not the kind of stuff that you want coming up in

1:14:15

legal discovery later. A

1:14:17

whole bunch of this stuff happens. They end up in

1:14:19

this literal Mexican standoff here where

1:14:22

there's no way out without firing shots

1:14:25

and somebody has to fire a shot

1:14:28

first. And it's Phil. Phil

1:14:30

shoots first. He's like Han, he shoots first. And

1:14:32

I say Mexican standoff too because A, that is

1:14:34

the situation they're in. B, the

1:14:36

first shot gets fired

1:14:39

in Mexico.

1:14:41

So while Phil is waiting

1:14:44

on spinning up the Japanese factory

1:14:46

relationships with Nisho Iwai,

1:14:49

he remembers from back

1:14:50

in the Mexico City Olympics in 1968, I

1:14:53

think, that there was a factory,

1:14:55

I believe in Guadalajara, that

1:14:57

Adidas had used to make

1:15:00

soccer cleats for the Olympics.

1:15:03

And he says, you know, those soccer cleats that

1:15:05

Adidas made were pretty good.

1:15:07

Let me go down to that factory and

1:15:09

see if I can get some of those cleats

1:15:12

and we'll sell them here in America

1:15:15

as blue ribbon American

1:15:17

football cleats.

1:15:18

Now technically,

1:15:21

he thinks this won't violate his exclusivity

1:15:24

agreement with Onitsuka because Onitsuka

1:15:26

doesn't make football cleats.

1:15:29

Now that's debatable. Yeah.

1:15:32

There's a paragraph in the written agreement

1:15:34

that gives Phil Knight three years or

1:15:36

whatever it is of exclusive distribution. In

1:15:39

exchange, he is forbidden from

1:15:41

importing other brands of track

1:15:43

and field shoes.

1:15:45

And so theoretically, he thinks as long as they're

1:15:47

not track shoes, it's fine. So he goes down to the

1:15:49

factory in Mexico. He's like, can I get the shoes?

1:15:52

And they're like, yeah, sure.

1:15:53

What do you want to put on them when we made them for

1:15:55

Adidas? You know, we had the three stripes on them, the Adidas

1:15:58

stripes.

1:15:59

What design do you want?

1:15:59

you want on your version of these shoes? And

1:16:02

oh yeah, by the way, what do you want to call them? And

1:16:04

Phil's like, let me get

1:16:06

back to you on both of those. So

1:16:10

he goes home to Portland and calls up

1:16:12

who else?

1:16:13

Carolyn Davidson. Yup, the part-time

1:16:16

art department at Blue Ribbon Sports for $2

1:16:18

an hour.

1:16:19

And he asks her to

1:16:21

design something like Adidas'

1:16:24

stripes

1:16:25

that can go on the sides of these soccer

1:16:27

slash football cleats. Huge

1:16:30

thank you here to Scott Reams for helping us sort

1:16:32

out exactly what the timeline is and what the details

1:16:35

are, because it's not well understood

1:16:37

how this all went down.

1:16:39

And

1:16:40

you can actually hear quotes from

1:16:42

Phil Knight in interviews and a little bit in

1:16:44

Shoe Dog where it disputes

1:16:47

other records of how this all went down.

1:16:49

And people care a lot about this because obviously

1:16:51

what we're getting here is the origin of

1:16:54

the swoosh and of Nike. And so how

1:16:56

does this end up happening? The most

1:16:58

interesting thing is from Scott,

1:17:00

he put this on LinkedIn, he talked to Carolyn herself

1:17:03

about this. Her recollection is that

1:17:06

originally in the request

1:17:08

to create what became the swoosh,

1:17:10

they wanted

1:17:12

structural support

1:17:14

as an element in the design. And

1:17:17

she came back with some designs, they didn't like any

1:17:19

of them. And so in the

1:17:22

second revision, they dropped

1:17:24

the requirement that it be supportive in

1:17:26

any way and that it's just about

1:17:28

having the brand sewn onto the outside.

1:17:31

Also, super importantly,

1:17:33

this is not the name that we're

1:17:36

talking about here. So point one,

1:17:37

we're just talking about a logo to

1:17:39

go on the shoes.

1:17:41

So all the thought of like, oh, the swoosh

1:17:43

is like the wing of the goddess of victory.

1:17:46

No, not the case, this is before

1:17:48

the name.

1:17:49

Right, so it's literally not inspired by

1:17:51

the Greek goddess of victory. Like I was just in

1:17:54

France, I just stood in front of the winged

1:17:56

victory statue. It's this beautiful, incredible

1:17:58

thing in Paris.

1:17:59

There's this myth running around forever

1:18:02

and ever that the swoosh is inspired by one

1:18:04

of those wings The name Nike came after

1:18:06

the design of the swoosh, which by the way also

1:18:09

was not called a swoosh yet Okay, so as you say

1:18:11

she goes through two rounds of sketches when

1:18:13

the second round comes back

1:18:16

They're out of time. The factory is calling

1:18:18

and they're like hey

1:18:20

shoes are just about ready. We just got to put the sides

1:18:22

on them

1:18:23

What do you want?

1:18:24

So finally Phil and

1:18:27

Jeff Johnson and Bob Waddell they're sitting

1:18:29

around and a couple other folks and they're

1:18:31

like well We got to pick one and like

1:18:33

well, maybe I don't know this one

1:18:35

that kind of looks like a checkmark It

1:18:37

maybe is the best of the bunch and Phil

1:18:39

very famously says the line I

1:18:42

don't love it, but maybe it'll grow

1:18:44

on me and

1:18:46

that Becomes

1:18:48

the swoosh now ultimately they do give

1:18:50

Carolyn stock in the company before the

1:18:53

IPO So she makes more than two dollars

1:18:55

an hour But for this project she

1:18:57

was paid $35

1:18:58

which also she said she spent way more than 17

1:19:01

and a half hours But it was just kind of coming up with some

1:19:03

price to charge

1:19:04

fun thing about I did the math on the

1:19:07

IPO shares when Nike would pub like

1:19:09

they did give her 500 shares

1:19:11

the stock price today is around 110 and it has

1:19:13

split Seven

1:19:16

times so two to the seventh

1:19:18

times a hundred and ten dollars a share times

1:19:20

her 500 shares is

1:19:23

worth seven million dollars today nice

1:19:26

and I

1:19:26

Heard Phil say somewhere. I think it might have been

1:19:29

in the GSB graduation speech I

1:19:32

believe he said that she held the shares.

1:19:34

Yes as late as 2016 2017 he

1:19:38

is on the record saying she has never sold the share. Yeah

1:19:41

Wow Incredible prequel

1:19:44

so they send the logo off

1:19:46

So a short while later factory in Mexico

1:19:48

calls them up and it's like alright

1:19:50

shoes are done We're ready to box

1:19:52

them and ship them.

1:19:54

What should the model name

1:19:57

of these shoes be like

1:19:59

the Cortez?

1:19:59

or the Aztec of gold or

1:20:02

whatever they had called them. What's

1:20:04

the model name of the shoes?

1:20:06

And so back at Nike headquarters,

1:20:08

they're all sitting around brainstorming.

1:20:10

And this is where all

1:20:12

the famous ideas that get thrown out, Phil

1:20:14

Knight loves Dimension Six, the

1:20:17

other people are throwing out the Bengal, the Falcon,

1:20:19

all the naming ideas.

1:20:21

The idea is they wanna name the model

1:20:23

of the shoes, like these cleats, what are the cleats

1:20:26

called? They're not coming up with a name

1:20:28

for the company. And it's the idea it's gonna

1:20:30

be the blue ribbon Dimension Sixes.

1:20:33

Yes.

1:20:34

So legend has it.

1:20:35

And as best as we can tell, this is actually

1:20:38

true.

1:20:39

In typical Phil Knight style, he

1:20:42

can't make a decision. They're waiting towards the end. It's the

1:20:44

same story has happened with the logo all

1:20:46

over again.

1:20:48

They're batting it around. And then the night before they

1:20:50

need to finally drop dead, give

1:20:52

the name of the shoes to the factory,

1:20:55

Jeff Johnson comes in and is like,

1:20:57

I had a dream last night. Johnson.

1:21:01

And in the dream, the

1:21:03

name came to me, Nike.

1:21:07

And everybody's like,

1:21:08

what are you talking about?

1:21:09

What are you talking about? And he's like,

1:21:11

the winged Greek

1:21:14

goddess of victory. These

1:21:16

are gonna be the Nike football

1:21:19

cleats. And everybody's like,

1:21:21

all right, well, we like that better than the other stuff,

1:21:23

ship it. But

1:21:25

it wasn't that big a deal.

1:21:27

Like it was a big deal, but it wasn't that big a deal.

1:21:29

This wasn't

1:21:30

intended to be Nike.

1:21:32

This was intended to be the name of the model, the football cleat.

1:21:35

That they weren't even sure was gonna work. Right. And

1:21:37

it didn't work. Turns out this factory,

1:21:38

not very high quality. Well,

1:21:41

no, I don't think that was the problem. I think the factory was fine.

1:21:43

I mean, they made shoes for Adidas for the Olympics. The

1:21:45

problem was it was in Guadalajara. It

1:21:48

doesn't get very cold in Guadalajara.

1:21:50

So

1:21:51

the shoes were great, but

1:21:54

in freezing temperatures, they would crack. They'd

1:21:56

never been tested in the cold. And,

1:21:58

you know, as America.

1:21:59

at least know many American football

1:22:02

games that played in cold temperatures.

1:22:04

So they ordered 3,000 pairs. They

1:22:06

sold them apparently. The Notre Dame football

1:22:08

team wore them that year, at least the quarterback

1:22:10

did. Then they would crack in cold weather.

1:22:13

So it was a very inauspicious start to

1:22:15

Nike and the Swoosh here. Yeah, it's kind of

1:22:17

amazing that they even continued

1:22:20

after that or that they didn't just give up and say, okay,

1:22:22

shoe distribution sounds a lot better than making

1:22:24

shoes. Yes, but again, whether

1:22:27

it violated the letter of the

1:22:29

agreement with Onitsuka or not, ultimately

1:22:31

the courts would decide it didn't, but

1:22:33

it's

1:22:34

game over here. Like the relationship

1:22:36

is done, they have burned the bridge,

1:22:38

it's over.

1:22:39

Yeah, and this to me is

1:22:42

a little bit of a thing in Nike's DNA

1:22:45

where they are competitive

1:22:48

all the way up to the line and then one toe

1:22:50

over. Yeah, what's the Uber corporate

1:22:52

value toe stepping from the Travis era?

1:22:55

It's very much that. We are fiercely

1:22:57

competitive. And at this point in time, it was to stay alive.

1:22:59

So I get it. But for their whole existence,

1:23:02

it's like, is there anything we can do that other

1:23:04

people aren't doing because they kind of think you

1:23:06

can't, but maybe we'll do it anyway and

1:23:08

deal with the repercussions.

1:23:10

That kind of happens with Nike over

1:23:12

and over and over again. And for most

1:23:14

of these

1:23:16

situations, this one very much

1:23:18

included, yeah, like this ends up

1:23:20

in lawsuits and yeah, it's probably

1:23:22

a toe over the line. On the other hand, it's also

1:23:24

a little bit like Uber in the early days

1:23:26

with toe stepping. The alternative was the

1:23:28

taxi industry. It's good

1:23:31

for the world that they stepped a toe over

1:23:33

the line. They didn't do this. There's no Nike.

1:23:36

Yep.

1:23:37

So with that, Onitsuka

1:23:39

pulls out of the relationship.

1:23:42

They don't send any more tigers to Blue

1:23:44

Ribbon.

1:23:45

Phil signs a deal finally with Nisha

1:23:47

EY.

1:23:48

And the core part of the deal is Nisha

1:23:50

will

1:23:51

A,

1:23:53

finance all of Blue

1:23:56

Ribbon's financing needs, henceforth,

1:23:59

pretty much at a scale.

1:23:59

that goes all the way up to

1:24:02

the moon. I mean, they're a $100 billion revenue

1:24:04

company, certainly way more than any of the

1:24:06

Oregon banks could do.

1:24:07

And they'll do that at market interest rates.

1:24:10

Two,

1:24:11

Nisha will help Blue Ribbon

1:24:13

set up

1:24:14

direct manufacturing relationships

1:24:16

in Japan, which they do. And then

1:24:18

three, in exchange for all that, Nisha

1:24:20

gets a 4% royalty on every shoe that

1:24:25

Blue Ribbon sells,

1:24:27

which ultimately ends up being a great

1:24:29

relationship. And that's on top of the financing.

1:24:32

So they already owe interest on borrowing the money,

1:24:34

but now they additionally owe a 4% royalty. Yes,

1:24:36

this is sort of like the trading company

1:24:39

playbook.

1:24:40

And is that just for the inventory they finance or

1:24:42

all sales? I believe it's for all sales.

1:24:45

Whoa, does that still exist?

1:24:47

I don't know. I doubt if it does in the same

1:24:49

way. I know that

1:24:51

the relationship with Nisha Iwai continued

1:24:54

for like 30, 40 years,

1:24:56

like a very long time.

1:24:58

If it still does exist

1:25:00

today, I'm sure it is not the same

1:25:02

terms, but this goes on for a very

1:25:05

long period of time.

1:25:06

Wow. I mean,

1:25:07

at this point in history, to have the house in order

1:25:09

with a strong financing partner, there's crazy

1:25:12

stuff we didn't even cover. Like he got kicked out of multiple

1:25:15

banks. The FBI got involved.

1:25:17

They were playing it a little bit too

1:25:19

fast and loose where they were using every available

1:25:22

penny to buy inventory.

1:25:25

And so there would be checks that bounced for

1:25:27

payroll and things like that. When these things topple,

1:25:30

they topple all at once. And so they had like

1:25:32

a day where they got called into the bank

1:25:35

and then the bank called the FBI and then they got investigated

1:25:37

for fraud. It was an insane

1:25:41

few years there.

1:25:42

Yeah, Shoe Dog has a lot of great, like

1:25:45

Phil Knight's personal experience going

1:25:47

through this, which is, I mean, it's worth the read

1:25:49

no matter what, but read it for that. But

1:25:51

safe to say this moment here in,

1:25:54

what is it? 71, 72. They

1:25:56

can kind of take a deep breath and

1:25:58

say, well, the business ahead of me is, is still really

1:26:01

hard because now Onitsuka is going to be working

1:26:03

against us. We have to figure out how to

1:26:05

design and make shoes ourselves. But

1:26:07

at least we have a real financing

1:26:10

partner that has struck a deal to work with

1:26:12

us. Yep.

1:26:13

So once this is all in place, Phil

1:26:15

goes over to Japan and

1:26:17

works with Nisha, goes visits

1:26:19

lots of factories, ends up meeting

1:26:21

the Nippon rubber factory.

1:26:24

He's touring with lots of folks and his sort of test

1:26:26

of these factories of whether they

1:26:28

can be a good partner is he pulls out a Cortez

1:26:31

and he asks the factory

1:26:33

how long it would take them

1:26:35

to make a version of

1:26:37

this shoe. So he meets

1:26:39

with Nippon rubber in the morning. They say, let's

1:26:41

go out to lunch. Let us borrow the shoe,

1:26:44

inspect it a little bit.

1:26:46

We'll come back after lunch and we'll have an answer for

1:26:48

you. They come back after lunch

1:26:51

and there is an almost perfect

1:26:54

duplicate of the Cortez sitting there

1:26:56

on the conference room table and Phil's

1:26:58

like, hell yeah,

1:27:01

this is what I'm talking about. What an amazing

1:27:04

way to do business because

1:27:05

he had met with all these other factories that are like, oh,

1:27:08

we'll get back to you in a few weeks and like over

1:27:10

lunch, they built one. Amazing.

1:27:13

So he is jazzed. He

1:27:15

orders all sorts of models. He's like,

1:27:18

can you do all the running shoes that we

1:27:21

slash tiger we're doing before, at least the ones that

1:27:23

we in Bowerman designed. They're

1:27:25

like, yep, no problem. He's like, can you do

1:27:27

tennis shoes, basketball shoes, cleats

1:27:29

is like, yep, yep, yep, whatever you want. So,

1:27:32

um, in a kind of very unfilled

1:27:34

night, like peak of confidence here, he

1:27:37

says, great, well, I'll just start

1:27:39

right now. Model names. So he

1:27:41

writes out the Wimbledon tennis shoe,

1:27:44

the Forest Hill tennis shoe, the Blazer

1:27:46

basketball shoe, the Bruin basketball

1:27:48

shoe, the marathon, of course, the Cortez,

1:27:51

he's

1:27:51

like, great, let's do

1:27:53

all of them. And these are Nike franchises

1:27:55

that stood the test of time. Many of these shoes

1:27:58

are still made the Blazer.

1:27:59

For sure, yup, of course the Cortez. And

1:28:02

they're like, okay, great. And then

1:28:04

Phil's like, one more thing, the

1:28:07

boxes. Can you make

1:28:09

them bright orange? I want them to

1:28:11

stand out.

1:28:12

And Yvonne Rivers like,

1:28:13

you got it, man, whatever you want. It's awesome,

1:28:16

so great. And to this day, they're orange.

1:28:19

And by the end of this trip,

1:28:21

Phil and Blue Ribbon Sports has a whole

1:28:23

new line of athletic shoe models coming

1:28:26

out of Japan with a much better relationship,

1:28:29

solid financing,

1:28:31

and a brand new brand to show it

1:28:33

all off, the winged goddess of

1:28:35

victory,

1:28:36

Nike. Yup. And

1:28:39

there's kind of this funny thing where it

1:28:41

is still Blue Ribbon Sports. So

1:28:44

in 1971, they do create Nike Inc. It

1:28:47

is a wholly owned subsidiary of

1:28:49

Blue Ribbon Sports, and it is responsible

1:28:51

for manufacturing, well, or contracting

1:28:54

with manufacturers to make this line

1:28:56

of shoes, this Nike designed line

1:28:59

of shoes owned by Blue Ribbon Sports. Of course, later

1:29:01

on, these would flip and Nike

1:29:03

would become the parent company. But for now, it's a

1:29:06

subsidiary of Blue Ribbon.

1:29:07

Amazing. So Phil

1:29:10

gets home and he tells Bowerman about this. And

1:29:12

this is where

1:29:13

yet another sporadic

1:29:15

but incredible

1:29:17

Bowerman stroke of genius

1:29:19

comes to play for Blue

1:29:21

Ribbon slash Nike.

1:29:23

Bowerman's jazz. He's like, great,

1:29:25

I never liked the Onituka guys that much anyway. Hey,

1:29:28

but he doesn't really care about that. What he cares about is he's

1:29:30

like, wait, so there are factories now? We

1:29:33

can tell them exactly what to do? You mean

1:29:35

I'm the new chief R&D officer

1:29:38

of Blue Ribbon Sports? Let's

1:29:40

get to work. So that

1:29:42

weekend, supposedly it was the weekend right

1:29:45

after Nike

1:29:46

told Bowerman about what was

1:29:48

happening.

1:29:49

He goes home

1:29:50

and over breakfast on Sunday,

1:29:52

Bill is sitting there, his

1:29:54

wife Barbara is making waffles

1:29:57

for breakfast. And honest to God, I think, you know,

1:29:59

I mean, according to Scott,

1:29:59

out of corn to everybody, this really happened. Bill

1:30:02

is struck with inspiration and he's like,

1:30:04

hey honey, can I borrow

1:30:06

that waffle iron? Borrow,

1:30:09

that waffle iron was not coming back.

1:30:12

He goes out in the back in his mountain

1:30:15

home

1:30:16

and he had a vat

1:30:18

of polyurethane sitting there and he had

1:30:20

it because the

1:30:22

University of Oregon had just redone

1:30:24

their track

1:30:25

and made it into a polyurethane track instead of

1:30:27

a cinder track.

1:30:28

Empowerment at the time was like, well this is

1:30:31

great, this is the future, the Olympics

1:30:33

are gonna do this and whatnot, but

1:30:35

the shoes that I have, that I have my

1:30:37

runners in, they're not gripping the track that well

1:30:40

and so he sees the waffle iron and he's

1:30:42

like, what if I pour polyurethane

1:30:45

into the waffle iron? Which has

1:30:48

two problems. Yes, the shape is, yeah,

1:30:50

you can imagine how that could grip a track well.

1:30:52

There's two problems. One, hot polyurethane,

1:30:55

super toxic.

1:30:57

The man for many years of his life,

1:30:59

because he's been experimenting forever, is like breathing

1:31:01

in all these hot terrible chemicals. He's literally

1:31:03

a mad scientist. Yes,

1:31:05

and two,

1:31:06

pouring hot polyurethane into

1:31:09

a waffle iron is going to permanently

1:31:12

glue the iron shut.

1:31:13

Yes, which is exactly what happens. So

1:31:15

apparently the first actual

1:31:18

waffle

1:31:18

trainer shoe

1:31:20

was inspired by this design, but he literally

1:31:22

couldn't make one in a traditional

1:31:25

waffle iron. Now, according to Scott, in a really,

1:31:27

you cannot make this stuff up.

1:31:30

Everybody thought that that original waffle iron

1:31:32

was lost to history and was

1:31:34

this even true or apocryphal anyway?

1:31:37

Years and years later,

1:31:39

after Bill had died,

1:31:41

I think it was his kids are going

1:31:43

through the estate. No. And out back

1:31:45

his members is up in the mountains. They didn't have

1:31:47

real trash service, so they threw the trash

1:31:51

in a garbage pile in the

1:31:53

back and they're doing some renovations to

1:31:55

the house or something. Somehow

1:31:57

they discover out in the trash heap.

1:32:00

the glued shut waffle iron and

1:32:02

it is in Nike's possession to

1:32:04

this day. That is awesome.

1:32:06

Isn't that awesome?

1:32:09

So where of course this is leading is

1:32:11

the waffle trainer, which is

1:32:14

another one of Bowerman's genius

1:32:16

inventions and becomes the first big

1:32:19

hit shoe for the new Nike

1:32:21

brand. He would

1:32:24

eventually after gluing the first waffle iron

1:32:26

shut then create a mold out of plaster in

1:32:28

the waffle iron pour polyurethane into

1:32:30

that and then make the waffle

1:32:33

soles for the shoes. They

1:32:35

work incredibly well on artificial

1:32:37

surfaces, not just tracks, but

1:32:40

also astroturf, which is becoming

1:32:42

a thing at this point in time. So the University

1:32:44

of Oregon football team wears them that

1:32:47

year on their new astroturf field. It's

1:32:49

like a huge thing. They beat Oregon State wearing

1:32:51

their waffle trainers. This is incredible

1:32:54

publicity for Nike.

1:32:56

And I think the waffle trainer

1:32:59

is starting to be worn outside of track

1:33:01

situations. Like this is the first hint of

1:33:03

a lifestyle sneaker.

1:33:05

Yes, I forget what the first colorway

1:33:08

that they do it in is. Look at you

1:33:10

sneaker head over there colorway. Eventually,

1:33:14

I think it's Phil who's like, oh we should do this in

1:33:16

a blue that'll go well with blue jeans.

1:33:20

Ah, yeah,

1:33:21

the canonical

1:33:22

old school waffle trainer is blue

1:33:25

with a yellow swoosh.

1:33:26

And I think a lot of those were sold to be lifestyle

1:33:28

shoes going with blue jeans.

1:33:31

Which turns into Nike's real

1:33:33

business eventually. But

1:33:35

that

1:33:35

the success on the field on astroturf

1:33:38

fields, the success in track

1:33:40

that year. So this is 1972

1:33:42

blue ribbons first full year doing sales

1:33:45

as Nike purely on their own.

1:33:47

They do $3.2 million in revenue. Remember

1:33:49

just a couple of years before their last kind of

1:33:52

full year with Tiger, they were doing

1:33:54

half a million dollars in revenue. So

1:33:56

to go from

1:33:57

all the crazy drama ending the

1:33:59

Tiger.

1:33:59

relationship, starting

1:34:02

up their own factory production,

1:34:04

making the waffle trainer to be at 3.2 million

1:34:07

dollars, fully financed by Nisha.

1:34:10

What a great spot to be in.

1:34:12

Nike is designing their own shoes and going

1:34:14

direct to the manufacturer. I

1:34:15

think the benefit to the business at this point is not

1:34:17

margin expansion. It's purely aliveness

1:34:20

and can we convince people to

1:34:23

buy things from us that aren't

1:34:25

Onitsuka Tigers? Because to this point

1:34:28

it's still unproven if

1:34:30

it's hey Blue Ribbon has

1:34:32

great distribution and people will buy anything from

1:34:34

these guys because we trust the company

1:34:36

or if it's people really want an Onitsuka Tiger

1:34:39

because they were really good shoes for runners

1:34:41

and I don't really want whatever this new thing you're

1:34:44

selling is.

1:34:45

Yes and it turned out that

1:34:47

it was the former. People were willing,

1:34:50

definitely willing, to buy Blue Ribbon

1:34:52

shoes and to buy Bill Bowerman shoes

1:34:55

regardless of Tiger

1:34:57

and Onitsuka. Which is kind of amazing.

1:35:00

That is completely opposite to what

1:35:02

my intuition would have suggested. I

1:35:04

would have definitely believed there's

1:35:07

these shoes that are popular among

1:35:09

other competitors so I should be wearing them to

1:35:11

be as competitive as them. If I run in them myself

1:35:14

I learn to like them.

1:35:15

It's very strange that it ends up

1:35:17

being the relationship that matters.

1:35:20

Like thinking oh I trust whatever this

1:35:22

running shoe distribution company

1:35:25