Shoe Dog by Phil Knight

I bought this book hoping for lessons to apply to my business, manufacturing and selling physical products. I didn’t find many business insights, but it was still an engaging and funny story.

My high school cross-country coach was a fairly straight-laced guy, so it was a bit out of character that he had a small tattoo on his back. It was a Nike tattoo, and he proudly told us that he got it a few years after the company was founded. That always struck me as strange. It would be like me getting a Google tattoo in 2003.

After reading Shoe Dog, my coach’s tattoo made sense. Running wasn’t popular in the 70s, but Nike’s founders loved running. They positioned themselves as the sneaker company that served runners when everyone else was just making pretty shoes.

Nike’s history is more interesting than I expected, and the book provides a lively story of the company’s early years. There was a lot that I found relatable as a founder who never expected to be in the manufacturing business. It was comforting to see that my frustrations working with overseas suppliers are similar to what Knight experienced fifty years ago.

What I Liked ๐Ÿ”—︎

  • I laughed out loud several times while reading it, which is rare for me while reading.
  • I related strongly to Knight’s experience as a founder new to manufacturing and importing.
  • As a casual runner, it was motivating to see someone describe running with such love and reverence.
  • It was interesting to see how closely Steve Prefontaine was tied to Nike.

What I Disliked ๐Ÿ”—︎

  • I felt sorry for his employees.
    • It seemed like they worked so much harder than Knight and sacrificed more for Nike, yet he kept most of the rewards.
    • Knight deliberately withheld praise and encouragement, even when employees outright begged him for approval.
  • A lot of the Asian characters seemed more like caricatures who spoke in stereotypical broken English.
    • In fairness, almost all of the people in the book feel cartoonishly embellished.
  • The way he meets his wife is presented as cutesy and romantic but would today be egregious sexual harassment.
  • Knight built a lot of his business by lying to partners and employees.

Key Takeaways ๐Ÿ”—︎

Origins ๐Ÿ”—︎

  • Knight was a runner in high school and college.
    • In college, he trained under Bill Bowerman, one of the most respected running coaches in the world.
  • Knight originally started Nike under the name Blue Ribbon Sports.
    • Blue Ribbon formed as the US distributor for a Japanese shoe company called Onitsuka.
    • Knight lied to Onitsuka, telling them that Blue Ribbon was an existing, successful company. In reality, he formed the company specifically to import their shoes.
    • At the time (1963), Adidas and Puma dominated the US shoe market. Japan was just beginning to reach maturity in manufacturing capabilities, and they were producing sneakers at high quality and low costs.
  • Knight partnered with Bowerman after the first shoe samples arrived from Japan.
    • They formed a 51/49 partnership, with Knight as the majority owner.
  • Knight failed to sell to sporting goods stores, but he successfully sold shoes by attending track meets and selling to runners directly.

Management without praise ๐Ÿ”—︎

  • Knight’s stinginess with praise is a recurring theme in the book.
    • At several points, his employees were struggling with morale and begged him for encouragement, but he ignored them.
    • He believes he learned this behavior from his father and from Bill Bowerman, who he saw as a father figure. Both men gave praise sparingly.
    • Knight believed that this inspired people to work harder.

Growth outpacing equity ๐Ÿ”—︎

  • Throughout the company’s history, Knight would keep nearly zero equity.
    • As soon as he sold a batch of imported sneakers, he’d use 100% of his cash to buy more inventory.
  • Knight took bank loans to cover costs, but banks were always dissatisfied with his equity.
    • Banks felt that his equity was too low relative to his growth and that he should be holding more cash.
  • Venture capital wasn’t prevalent in the 1960s.
    • In the 70s, Knight sought VC funding for his sneaker company, but VCs were primarily interested in high-tech companies, so they found the sneaker business unappealing.
  • To earn cash for the business, Knight took a full-time job as an accountant.
    • Through his job, he audited companies and found that insufficient equity was one of the most common reasons for a company to fall into bankruptcy.

Marriage to Penny Knight ๐Ÿ”—︎

  • Knight met his wife Penny because she was his student when he was teaching at Portland State University.
    • He had a crush on her, so he offered her a job at his company.
    • After she started working for him, he asked her out, and they began dating, eventually marrying.
This was a weird dynamic, as Knight held power over Penny in so many dimensions. When they began dating, he was her professor, her academic advisor, and her employer.
  • Carolyn Davidson designed the famous Nike Swoosh logo because she happened to meet Knight while she was a student at Portland State University.
    • Nike paid Davidson $35 for the logo.
    • They had no idea what kind of logo they wanted, so they told Davidson to draw “motion.”
Knight doesn’t mention it in the book, but he later gave her 500 shares of Nike stock as a thank you.

Blue Ribbon becomes Nike ๐Ÿ”—︎

  • Nike’s big turning point came in 1971 when they graduated from a shoe importer to a shoe manufacturer.
    • Their original Japanese supplier, Onitsuka, attempted a hostile takeover of the company.
    • Nike was able to get financing from Nissho, a different Japanese company, to manufacture their own sneakers.
  • When Knight changed the company’s name from Blue Ribbon to Nike, it was a last-minute, impulse decision.
    • The heads of the company were deciding between the names “Falcon” and “Dimension Six.”
    • The name “Nike” appeared in a dream to Jeff Johnson, Blue Ribbon’s first employee.

Steve Prefontaine ๐Ÿ”—︎

  • Steve “Pre” Prefontaine was a superstar runner in the 1970s.
  • He was tightly tied to Nike because Bowerman was his college coach and Knight hired Pre so that he’d have money to support himself while training for the Olympics.
    • Earning money from races or endorsements would have disqualified him from the Olympics.
    • Unofficially, Pre was Nike’s second-ever athlete endorsement.
  • Pre died in a car crash after leaving a party thrown by an early Nike employee, with many other Nike employees in attendance.

Pre-selling for capital ๐Ÿ”—︎

  • One of the techniques Nike used to increase their cash holdings was to negotiate discounts in exchange for pre-sales with long lead times.
    • They offered retailers a 7% discount to put their orders in six months in advance.
    • Pre-selling gave Nike cash early and made their manufacturing more predictable.

Nike and Nissho ๐Ÿ”—︎

  • When Onitsuka attempted a hostile takeover of Nike, the company that saved Nike was Nissho, another Japanese company that provided financing.
  • In 1975, Bank of California suddenly dropped Nike as clients and closed their line of credit.
    • Bank of California was upset that Nike focused too much on growth and kept so little in equity.
  • Nissho once again rescued Nike by providing them more fiancing, under the condition that Nike agree to a full audit.
  • During the audit, Nissho discovered that Nike had lied to them about how they were spending their previous loan.
    • Nike had secretly used the money to build a new factory while representing to Nissho that they were still using third-party manufacturers.
  • Nissho apparently didn’t mind the deception. The Nissho manager responsible for the Nike relationship told Knight, “There are worse things than ambition.”
  • After the audit, Nissho assumed all of Nike’s debt to Bank of California.
  • Nissho was so loyal to Nike that they withdrew from a separate deal to punish Bank of California.
    • Bank of California had been pursuing a deal to manage one of Nissho’s banks in San Francisco.
    • After the Nike incident, Nissho told Bank of California that it cost them the San Francisco deal.

Shoe dog ๐Ÿ”—︎

  • “Shoe dog” is the industry term for a person who dedicates their life to the design and manufacturing of shoes.

Nike Airs ๐Ÿ”—︎

  • M. Frank Rudy was an aerospace engineer who approached Nike with the idea of putting air bubbles in sneakers.
  • Knight was extremely skeptical at first because he felt it unlikely that such a dramatic design change could improve an invention as mature as shoes.
  • Knight tested the soles on a 6-mile run and realized how much difference they made.
  • Nike Airs soon became one of Nike’s signature products.

LD1000 recall ๐Ÿ”—︎

  • In 1977, Nike released the LD1000, a shoe with a flared heel that was supposed to reduce pressure on a runner’s knees.
  • They later found out that if the runner didn’t land just right, the shoe would increase the likelihood of various running injuries.
  • Nike issued a recall and was surprised to discover that it didn’t affect their customers’ loyalty to them.

We issued a recall and braced ourselves for a public backlash โ€” but it never came. On the contrary, we heard nothing but gratitude. No other shoe company was trying new things, so our efforts, successful or not, were seen as noble. All innovation was hailed as progressive, forward-thinking. Just as failure didn’t deter us, it didn’t seem to diminish the loyalty of our customers.

American Selling Price controversy ๐Ÿ”—︎

  • As Nike was preparing for its IPO, the US Customs Office sent them a surprise bill for $25M in retroactive tariffs under the American Selling Price law.
  • The law says that import duties on nylon shoes are 20% of the manufacturing cost.
    • The hitch was that if a US competitor is selling a similar shoe, the import duty jumps to 20% of the competitor’s sale price.
  • Knight believed that his competitors had deliberately produced an expensive “similar” shoe to weaponize this law against Nike.
    • A $25M tariff at the time would have bankrupted Nike.
    • Enforcement of the rule would have increased Nike’s import duties by 40%
  • Nike’s response
    • At Knight’s behest, Oregon’s US Senators petitioned the US Treasury to drop the tariff.
    • Nike released its own locally-manufactured “similar” shoe and sold it for just above cost to reduce the “similar shoe” calculation.
    • Nike ran TV ads framing it as a David and Goliath story of the US government trying to crush free enterprise.
    • Nike filed a $25M antitrust suit accusing its competitors of collusion.
  • Nike ultimately settled for $9M.
    • Knight was dissatisfied with the settlement and fought longer than he should have for a settlement of $0.

Nike’s IPO ๐Ÿ”—︎

  • When Nike went public, Nike executives and early employees were allocated 56% of shares.
    • Knight kept 46% of shares (worth $178M at the time), and the rest split the remaining 10%.

There wasn’t a word of dissent or complaint. Ever.

Present-day ๐Ÿ”—︎

  • The last chapter of the book describes Knight’s life in 2007.
    • Nike has become a huge corporation.
    • Knight is a billionaire, and he casually chats with Bill Gates and Warren Buffet.
    • He has stepped down as Nike CEO.
  • The chapter mostly namedrops all the famous people that Knight knows.
    • This chapter feels awkwardly vain, but I admit that I enjoyed seeing the more personal glimpses into famous personalities.
  • When Knight’s son died in a scuba diving accident, Tiger Woods was the first athlete to call offering condolences.

Every Nike athlete wrote, emailed, phoned. Every single one. But the first was Tiger. His call came in at 7:30 a.m. I will never, ever forget. And I will not stand for a bad word spoken about Tiger in my presence.