Shoe Dog – Nike’s Early Years Were a Constant Battle for Cash
By • Published May 11, 2017 • 5 minute read
I recently finished Shoe Dog, Phil Knight’s memoir about founding and building Nike. It is an amazing story – and highly relevant for the customers PrimeRevenue serves. It’s a story about a constant struggle for cash to fuel growth, the power of global trade, and the risks associated with relying on a single bank to fund anything strategic.
(Spoiler alert: to bring these points home, I’m going to highlight some key events covered in the book.)
Nike started from humble beginnings in 1962 as Blue Ribbon Sports, an importer of Tiger running shoes from Japan. Knight ran track at the University of Oregon, so he knew more than most about running shoes in the early 60s. He noticed too that Japanese camera manufacturers had improved their products enough to start taking share from German brands. Knight reasoned that Japanese athletic shoes could do the same to Adidas, the dominant market leader. So, he negotiated the rights to distribute Tiger running shoes in the U.S.
Knight started selling shoes from the trunk of his car at track meets, and later from a retail store in LA. Sales in 1964 were a mighty $8000, funded first by loans from his dad to pre-pay for orders of Tiger shoes. He secured his first commercial funding from First National Bank of Oregon – a letter of credit for $3000.
From the earliest days, Knight and his tiny company began giving design input to Tiger to improve the performance of their shoes. As a result, demand grew consistently for running shoe innovations sold by knowledgeable guys to running aficionados. Sales doubled consistently year over year – with revenue in 1968 reaching $150,000.
And then the trials of success began. The combination of 100% YoY growth, terms from Tiger that required payment far earlier than shipment and conservative bank funding created a triple existential threat. Bankers constantly pressured Knight to slow his growth to shore up equity in the business to reduce the risk of a disaster waiting to happen. Tiger consistently shipped product late and/or not according to order specifications. Despite the pressure and stress, Knight kept selling out inventory, just paying off his line of credit in time, and placing an order for twice as many shoes as the last time. To make ends meet, he worked full time as an accountant while running Blue Ribbon on the side.
The value of alternative funding hit home in 1975. Knight had started Nike as a hedge against Tiger pulling Blue Ribbon’s distribution rights. Sales were still doubling every year, and supply couldn’t keep up with demand as running started going mainstream. They formed a secondary funding relationship with a Japanese trading company as a backup to the bank, now Bank of California. During a particularly difficult cash flow crisis, the bank decided to pull their $1M line of credit. At that moment in the spring of 1975, Nike could easily have become a footnote in the annals of footwear history. Instead, the Japanese trading company took the time to analyze the business, precisely understand the risks and awesome potential and stepped up with additional money to bridge Nike’s funding gap.
There are many other existential moments detailed in Shoe Dog, where powerful players attempt to exploit a still fledgling and fragile company. Perhaps the most egregious example is the U.S. Customs Department sending Nike a bill for import duties equal to their prior year’s revenues.
Of course, everyone knows how the story ends. Nike generated close to $34B in revenue for its most recent trailing 12-month period and directly employs more than 70,000 people worldwide. While revolutionizing athletic footwear and apparel, Knight and his colleagues built an iconic global brand from scratch and helped make world-class athletes global celebrities.
What struck me most was the tenacity of these people to drive an idea to greatness in the early years. How Knight & Co. handled the constant struggle to balance growth with the need to control cash flow played a starring role in making that happen. Had the team taken a then – conventional approach to improving cash flow – going through a single funder – there is a good chance things would have turned out differently.
That scenario is exactly why PrimeRevenue was founded – to give buyers and suppliers an alternative way to optimize cash flow and to make sure they’re never held hostage to a single source of funding. This is why thousands of buyers and suppliers trade billions in invoice value with us every month through our supplier finance program.
