Winning Is A State Of Mind At Nike
Back in 1965, Phil Knight, cofounder of Nike Inc., had no idea he had just launched a company that would shortly become a front-runner on a fast track. Knight, only 27 at the time, was an auditor with Coopers & Lybrand in Portland, Oreg. After work and on weekends, he'd load up his station wagon with Japanese sneakers, drive to local track meets, and hawk the sneaks from his tailgate. He is still a bit bemused by what happened.
"I hope nobody ever starts thinking this company is some kind of institution," he says. "We're still just a bunch of guys selling sneakers."
Back in 1965, Knight's partner, 54-year-old Bill Bowerman, a widely respected track-and-field coach at the University of Oregon, also had no idea what the future would hold. Bowerman had dug up $500 to finance half of Knight's tailgate inventory, and used to spend his evenings at a kitchen table tinkering with the imported sneaks, a stitch here, a little more padding there, anything to squeeze out a few more seconds for future Olympians.
Nor was there any way Jeff Johnson could have foreseen the physical fitness hysteria that would soon sweep the country. In 1965, 23-year-old Johnson, a former graduate student in anthropology, became Nike's first employee, while toiling full-time as a social worker for the city of Los Angeles. After work, he ran a makeshift retail store in his apartment where he sold Knight's Japanese sneakers.
"I believed in Knight," he says. "I knew I could sell those shoes and I knew exactly how I was going to do it."
The combination of their individual talents -- Knight's marketing, Bowerman's commitment to athletic excellence, and Johnson's energetic salesmanship -- with the growing national awareness of physical fitness had the power of a nuclear reaction.
When Nike went public in 1980, the country saw for the first time that the "sneaker guys from Oregon" had built a company with annual sales of $270 million, net income of roughly $13 million, and annual production of 30 million pairs of shoes. This was all the more impressive because in 1972, the company's sales were under $3 million.
When anything is moving that fast, it's difficult to describe how it's being done. In Nike's case, for example, it's possible to look at this fortuitous arrangement of individuals swept up in a national trend as just another case of being in the right place at the right time. There is, perhaps, something of this in every story. But in the Nike story, providence gets a lot of human help.
Nike is primarily a company created by athletes for other athletes. As a result, the company dwells on winning. Bowerman, for example, has devoted his life to winning and even today, at 70 years old, is still coaching. When Phil Knight was a middle-distance runner on his track team at the University of Oregon, Bowerman used to holler at him to "run faster." Knight wanted to win and eventually ran the mile in 4 minutes, 13 seconds. Nor was Johnson any slouch. Once, during his own running career, he ran the mile in 4 minutes, 14 seconds.
All three of these men had been winning and thinking about winning for so long that when they started out in business, they couldn't think any other way. Winning was exalted to a corporate philosophy and has since become something of a tribal ritual vigorously performed by a horde of Nike employees at the aptly named "Annual Beer Relays," where various departments form teams to race against each other.
It's a way of doing business captured in the company's name. Contrary to what many people still think, the name is not Japanese for "sneaker," but the Greek name of the goddess of victory. "My impression of this company," says Johnson, "is that we're a bunch of athletes trying to beat everybody."
Phil Knight, who was still good enough at 43 to run a brisk 800-meter leg in this year's Beer Relays, traces Nike's roots all the way back to the late '50s when he was on Bowerman's track team. "Bowerman was totally dedicated to running," he says. "He wanted to do everything he could to help you win. Even then, he was playing with shoes.By today's standards, they were very crude. I mean they were all leather and very heavy. If you wore them in a race today, you'd think you were wearing street shoes."
In 1960, Knight entered Stanford's Graduate School of Business. During his second year, he took a course in small business management. The course required that he write a paper on emerging business opportunities. "Everybody was writing about computers and electronics," he says, "but all I really knew about was running." Knight's research convinced him that the market potential for running shoes was tremendous. At the time, the only companies that were making athletic shoes anything like today's models were the West German firms Adidas and Puma. A few Japanese companies were only in the early stages of shoe design, but they were making rapid progress. Knight concluded that the Japanese could become the dominant market force in athletic shoes.
In the fall of 1962, Knight celebrated his graduation from business school with a trip around the world. An early stop on his schedule was Japan."I hadn't gone there with the intention of doing business," he says, "but I kept thinking about the paper I'd written and decided to check things out." Knight wandered through several department stores looking at the various brands of running shoes. He chose the Tiger brand as the most attractive and functional.
The next day Knight walked into the offices of the shoe's manufacturer, Onitsuka, in nearby Kobe. "I really didn't know what I was supposed to do," Knight says, "but they sat me down with this guy, and it was all new to him, too. I told him I was an importer and that I wanted to import some of his shoes. He said that sounded just fine to him, and then he asked me what my company's name was. Blue Ribbon Sports I said, just like that. I had to say something fast, and Blue Ribbon made me think of winning." Knight gave the Onitsuka representative $50 for a small order of samples and left to finish his world tour.
Knight waited more than a year for the samples to arrive. After a day of auditing for Coopers & Lybrand he'd come home and check the mail. "I kept getting letters from Onitsuka," he says, "always asking me to 'please wait a little more days.' Everybody told me I'd lost my $50."
In December 1963, the shipment of samples finally arrived. Knight immediately took the shoes to Bowerman and asked his opinion. The coach was enthusiastic, and the two men agreed on a partnership to be called Blue Ribbon Sports. Bowerman and Knight put up $500 each so they could order more shoes. Knight would supply a Japanese manufacturer and his business talents, and Bowerman would contribute his knowledge of shoe design and his countless contacts in sports.
In its first year, fledgling Blue Ribbon Sports sold 1,300 pairs of Tiger track shoes and tallied up $8,000 in revenues. Knight had all the more reason to be proud because he got the sales the hard way. Most of the time he would call up track coaches at local schools and ask if he could have 20 minutes with the team before a practice so he could tell them about some new track shoes. "I tried opening some retail accounts," Knight says, "but most of them thought Japanese track shoes were the funniest thing they'd ever heard of. They thought it was strictly comic-book stuff."
After a few runners tried them in competition and found them vastly superior to the clodhoppers they'd been wearing, sales began to pick up. In fact, running in general was becoming increasingly popular in Oregon, largely due to Bowerman's efforts in Eugene.
"I took a trip to New Zealand in 1961," Bowerman says, "and I was amazed to see people running in the streets. Not just kids either, but older people as well. I was very impressed and wanted to see something like that happen back home."
When he got back to Eugene, Bowerman, in cooperation with a local newspaper, announced a series of jogging clinics that started at the university's track on Saturdays and followed a course around town. "We began with maybe 25 people," he says, "and it grew steadily. One day Life magazine came to Eugene to take pictures of this sport called jogging, and 5,000 people must have shown up."
Since most of the joggers who reported to Bowerman's clinic were anything but trained athletes, much of his time was spent treating a variety of foot ailments. "It was like a big laboratory," he says. "Good Lord, they came up with all kinds of problems and I tried to help by fixing their shoes a little." Bowerman started adding more cushioning to the heel of running shoes and ended up creating a full-length midsole cushion that to this day is an essential feature of running shoes.
Blue Ribbon Sports was the first company to use this innovation when, in 1966, it introduced the Tiger Cortez, for years, one of the company's most popular models. It was also the first expression of the company's interest in technological innovation as a way of gaining market share, a characteristic that became more striking in the years ahead. Bowerman also teamed up with a local doctor, Waldo Harris, and wrote a book on jogging based on his experiences at the clinics. It stands as one of the seminal descriptions of a sport that some estimates claim now occupies 25 million people nationwide. "I had no idea it would get as popular as it has," Bowerman says. "Anyway, in those days I wasn't thinking about markets or fortunes. I was making better shoes a foot at a time. I left everything else up to Phil Knight, and believe me, he's a genius."
Judging from the results, Knight's abilities are of a very high order, although he would be the last person to claim genius. Moreover, he has his own view of his contribution to the company. "I've been fortunate in being able to pick good people," he says. "I can't think of anything I've done that could be more important."
One of the "good people" is Jeff Johnson, now Nike's vice-president in charge of Nike's research and development facilities at Exeter, N.H. Johnson and Knight knew each other casually when both were at Stanford but didn't see each other again until the spring of 1964. Johnson was doing graduate work in anthropology at UCLA and took a break from the daily grind one day to watch a track meet. After the meet, he was surprised to see Knight strolling across the infield. "I ran over to him," Johnson says, "and asked him what he was doing, and he started telling me something about selling Japanese sneakers. Then he wanted to know if I would sell them, too. I told him I'd have to think about it."
Johnson didn't have to think long. For a few months in 1964, Johnson had worked in the Los Angeles outlet for Adidas and had seen the demand for modern athletic shoes firsthand.
Most of his early business was mail order from ads he placed in Long Distance Log, which he describes as an "esoteric running magazine," or direct sales to word-of-mouth drop-ins. At first, he used his own apartment as a business address, but as word got out that Tiger shoes were worth wearing, more and more runners showed up at his door. "By 1966, it just got to be too much," he says. "So I rented some space next to a beauty parlor. I didn't ask Knight about it. For the first few years, it was extremely difficult to find Knight. He was always out in the boonies auditing somebody." Johnson had opened the company's first retail store, and sales responded. By 1967, Blue Ribbon Sports had revenues of almost $100,000 and was selling 10,000 to 12,000 pairs of track shoes a year.
That spring, it was obvious to Knight that the conclusion reached in his graduate paper had been confirmed: The market for athletic shoes was strong and growing stronger. He went back to Japan and secured the distribution rights for Tiger shoes for all of North America. At the same time, he placed a large order and instructed Onitsuka to ship it to New York as proof of his intention to distribute on the East Coast. "This was very interesting," Johnson says, "because we didn't have anybody on the East Coast. When Knight got back he told me about the distribution rights and almost as an afterthought he said, 'You know, Jeff, we'd better do something about that order going to New York."
That summer, Johnson opened the company's first East Coast store in a small, rented house behind a funeral parlor in Wellesley, Mass., and started shippling shoes in cartons that once contained embalming fluid.
By 1969, only five years after Knight and Bowerman had sealed their partnereship, sales reached $300,000. Knight quit his job to manage the thriving business full time. Blue Ribbon Sports now had 20 employees, an office, and a warehouse in Beaverton, Oreg., and two retail outlets, one on each side of the country. More important, a flock of independent retailers had been won over to the Blue Ribbon cause, and Tiger shoes began showing up in sporting goods stores, shoe stores, nd department stores across the country.
Then, in 1972, only three years later, the company faced ruin. Blue Ribbon's success had not gone unnoticed by Onitsuka in Japan. "You could say they got a little greedy," Knight says. Onitsuka set up five regional distributors in the United States, an act that deprived Blue Ribbon of its exclusive distributorship and threatened to eliminate 90% of its roughly $3-million sales base. They also told Knight that they wouldn't be doing any more business together unless they could buy 51% of Blue Ribbon at book value."We wanted to keep going," says Knight. "We would've sold them 50% because there was enough business for everybody. But they wanted it all and we weren't about to give it to them."
Knight was angry and sued Onitsuka. The suit produced three and a half years of litigation and ultimately a hefty settlement to Blue Ribbon for damages. But Jeff Johnson recalls another feeling loose at the time. "It was panic," he says. "I was frantic. It looked like it was all over."
The rift between Blue Ribbon and Onitsuka couldn't have occurred at a worse time. Bowerman had just been appointed head track and field coach for the U.S. Olympic team, and the track trials, to be held in Eugene, were only months away. The company could lose the marketing chance of a lifetime.
Knight, Johnson, and Bowerman may have been frantic, but they loved it. It was a scene they had played out on the track many times. Only 50 yards to go, a runner edges ahead of you, and you wonder what you have left. But the training and practice pay off, and you start your kick for the finish line. "One day," Johnson recalls, "Knight came in and said this problem was really a great opportunity. He said we would simply put out our own line of shoes, under a new name."
Knight hurried to Japan and struck an agreement with Nissho-Iwai Corp., the sixth-largest Japanese trading company, in which they agreed to find shoe manufacturers in the Far East and provide financing and export-import services to Blue Ribbon Sports. Blue Ribbon, the original corporate entity, would distribute the new shoes. Knight gave Nissho-Iwai a design for a new track shoe. On the sides of the uppers was a trademark that today accounts for roughly 35% of all athletic shoes sold in the United States, the largest market share of any company in the business, according to Knight. The symbol suggested speed and looked like a rounded lightning bolt. It became known as the "swoosh" sign, after the sound a basketball makes as it passes cleanly through the mesh without touching the rim.
Three months later, Johnson, who was still on the East Coast, got a call from company headquarters in Oregon. "The Japanese are making the boxes for the shoes," the caller said frantically, "and we can't decide on a name. We need one by morning. Got any ideas?" After a night of fitful dreaming, Johnson wrote down a name on a pad of paper near his bed -- "Nike." In 1978, the company formally adopted this brand name as its corporate name.
The first shipment of Nikes were air expressed from the Far East just in time for the Olympic trials. Knight convinced several runners to wear the new shoes. In the marathon trials, four of the top seven finishers wore Nikes. By convincing marathoners to wear Nikes, Knight firmly established the company's "word-of-foot" advertising policy. "It was clear to me," Knight says "that to see name athletes wearing Nike shoes was more convincing than anything we could say about them."
Unfortunately, it was a lot easier to get athletes to wear Nikes than it was to sell them to retailers. The company had done such an effective job marketing Tiger shoes that stores were reluctant to change lines. That year -- 1972 -- was the only year that the company lost money. In 1973, the company countered the sales block by opening 4 company-owned "Athletic Department" retail stores in key cities across the country and soon pushed the number up to 12. But it still needed something dramatic, a new shoe, perhaps, something that would make retailers sit up and take notice. Once again, a Bowerman technological breakthrough was pressed into service.
The idea originally occurred to him on a quiet Sunday morning in 1972. Bowerman was enjoying a plateful of waffles he had just made in a waffle iron. Suddenly the thought struck him that the studded surface of the waffle iron could produce a revolutionary design for the soles of running shoes. "I grabbed the iron and went out to the garage," Bowerman recalls, "and poured some urethane rubber onto the iron and pressed it down. But I forgot to put in a releasing agent and totally ruined the iron. Still, I got a good impression."
Bowerman originally used the "waffle" sole as a customized feature for selected runners, but in 1975, the company decided to put it into full-scale production. The Waffle shoe was extremely popular with runners. For several years Nike had the market all to itself, because other companies regarded it as a gimmick. "The Waffle," Johnson says, "gave us the credibility we needed in the growing running market." And along with the credibility came sales in great, booming bursts.
In 1969, the tiny company had only reached $300,000 in revenues: By 1980, it was suddenly and swiftly approaching $300 million. During the late '70s; people simply went nuts over physical fitness, prticularly jogging. And when runners weren't off doing laps somewhere, they wore their running shoes anyhow to remind them of the glory of it all. Jogging shoes were in; fashion chic. Even if you were asthmatic and 50 pounds overweight, you had to have a pair of those shoes. Blue Ribbon Sports was more than happy to oblige. In the years that followed the introduction of the Waffle, the company gradually broadened its product line to include shoes for basketball, tennis, and other racquet sports, and cleated shoes for soccer, baseball, softball, and football.
Many of the new models were designed and manufactured at four company-owned plants in New Hampshire and Maine. Blue Ribbon first turned to New England in 1974 as a way to decrease its dependence on foreign manufacturers. The shoe industry in this area had long since passed its glory, but there was still an experienced labor force readily available and plants already tooled for shoe manufacturing.
Even though the New England facilities produce only 7% of the company's current requirements, a good part of its future is tucked away in a brick building on a back street in Exeter, N.H. The plant itself and a smaller adjoining structure house the company's research and development. The Bowerman waffle iron has become a bank of CAD-CAM terminals that adroitly manipulate new shoe designs, and the traditional field-testing has been amplified by a biomechanics laboratory bristling with pres-sure plates, high-speed cameras, and other scientific apparatus. In 1979, the Exeter facility scored a major technological breakthrough when it brought out the Tailwind, a running shoe that featured encapsulated air channels as part of the cushioning in the sole.
Johnson points to accomplishments like the Tailwind, as proof that there's still a lot of kick left in the company even though sales are expected to pass $450 million in 1981. He talks about Nike's forthcoming thrust into Europe and the first company-owned plant outside the United States, which will start production in Ireland in September 1981. He describes a new line of hiking and walking shoes featuring the "air sole" design and ends up detailing a greatly expanded line of sports apparel. "Some people look at our growth," he says, "and think we must be getting burned out. But, hell, we've only started the third quarter of the game."
A similar sentiment was expressed graphically in the prospectus that announced Nike's first public offering in December 1980. After the obligatory numbers, names, descriptions, and caveats, the company signed off on the last page with a picture. It showed a solitary runner at twilight silhouetted against a lake and the boldface caption: "There is no finish line." That was Nike's way of ending the past with a description of the future. It's like Johnson says, "Winning is a state of mind."
NIKE INC.: THE "SNEAKER GUYS FROM OREGON" RUN AWAY WITH SUCCESS
Year ending May 31 1976 1977 1978 1979 1980
Revenues ($ millions) 14.1 28.7 71.0 149.8 269.7
Net income per common share .04 .09 .22 .58 .77
Current assets ($ millions) 5.8 13.1 36.2 74.0 123.9
Current liabilities ($ millions) 4.6 10.5 30.9 60.7 94.3
Working capital ($ millions) 1.2 2.6 5.3 13.3 29.6
Current ratio 1.2 1.2 1.1 1.2 1.3
Long-term debt ($ millions) .5 .7 1.2 2.5 11.3
Return on equity (%) 60.0 50.0 58.5 59.7 43.4