Book Review of Shoe Dog by Phil Knight

This Book Review of Shoe Dog by Phil Knight is brought to you from Gaurav Dhume from the Titans of Investing.

Genre: Japanese Biographies
Author: Phil Knight
Title: Shoe Dog (Buy the Book)

Summary

Shoe Dog is a brutally honest memoir written by Phil Knight detailing the story of how he founded the now Fortune 100 athletic wear company, Nike. Each chapter of the book depicts a different year between 1962 and 1980, filled with details of the company’s beginnings, fumbles, and many successes.

The title of the book, “Shoe Dog,” is industry jargon used to describe a footwear enthusiast who has devoted himself wholly to the making, selling, buying, or designing of shoes – a lifestyle that Knight fully embodied.

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Growing up in a middle-class family in Portland, Oregon, Knight developed a passion for sports early on. Running track in high school and college, under the tutelage of legendary coach Bill Bowerman, gave him both a fiercely competitive spirit and an appreciation for running shoes.

While attending Stanford Business School, he wrote a paper on the plausibility of importing high-quality, low-cost running shoes from Japan and selling them in the U.S. market. His thesis was simple – If Japanese cameras could make deep cuts in the German dominated U.S. camera market, why couldn’t they do the same thing with running shoes?

In an attempt to follow his passion and live his life filled with “play”, upon graduation, Knight decided to travel to Japan and give his “crazy idea from business school” a try. He met with executives at a prominent shoe factory, bluffed his way into getting a $50 order, secured the money as a loan from his father, and started what would eventually become Nike.

He began by selling running shoes out of the back of his Plymouth Valiant, marketing them at track meets all over the Pacific Northwest. In his first year he sold $8000 worth of shoes, and sales continued to double year after year.

Knight attributed his early success as a salesman to the fact that he genuinely believed in running; he wholeheartedly believed in the idea that if people ran a few miles every day the world would be a better place, and he believed his shoes were better to run in. His passion was infectious, and his customers were unable to resist it.

Throughout the book Knight references his relationships with his family, his employees, his suppliers, and his bankers as the most important facets of his journey in creating Nike. His story is proof that our relationships with others can either make or break our success and can lead to our most cherished or regretful memories.

His relationship with his family was always strong; his father gave him his first loan, his mother was one of his first customers, and his sister was the first part-time employee of the company.

Their support was helpful in the beginning, giving him the encouragement he needed to get started. For the first decade he was carefree and focused without distraction, but in 1971, when he married his wife Penny, his life changed completely. For the first time he truly had a partner, and in that, he had something to lose.

Soon they were blessed with two sons, making Knight a father – a role he was ill-suited to play. Although he loved his sons, he sacrificed spending time with them on multiple occasions to keep his business afloat. His oldest son Matthew grew up resenting his father and ended up losing his way, an unintended result of Nike’s success for which Knight blames himself to this day.

When it came to the company’s employees, Knight’s earliest hires comprised of a band of misfits who often bent over backwards to help him succeed. However, Knight never showed his gratitude or gave any of them anywhere close to the praise they deserved.

His relationship with his employees was unusual, in that he both berated and praised rarely, but it worked phenomenally. Despite their eccentricities and physical limitations the company’s management made a formidable team.

Their ability to strategize effectively and work towards the betterment of the company rather than their individual success is what made them effective. Through the tumult of the early years, they were able to develop a culture of relaxed openness and collaboration, similar to the culture which pervades Silicon Valley today.

Throughout the story, Knight chronicles his stories of dealing with ruthless bankers, according to whom Knight’s lack of equity was an unsustainable risk. According to Knight, in order to succeed in a low- margin business he needed to “grow or die”.

He understood that maintaining a cash balance would have been cautious and prudent, but he knew that the roadside was littered with cautious, conservative entrepreneurs, and so he decided to keep his foot pressed down hard on the gas pedal. Thus every dollar earned was plowed directly back into the business, keeping his company living on the float for more than a decade.

His bankers however, soon saw his business as too risky to continue funding, and kicked him out twice in five years. Unsurprisingly, Knight’s opinion of bankers remained negative throughout the book, but his dealings with them taught him humility and perseverance which proved invaluable later on.

With respect to his relationship with Onitsuka, his first supplier, what began as a mutually beneficial relationship soon turned toxic. Knight’s extraordinary growth made Onitsuka greedy, which led to them expecting even more growth and ever increasing orders. Knight for his part was far from the ideal client; often telling Onitsuka whatever was necessary to protect his business, and hedging his bets by sourcing shoes from other suppliers in secret.

The tension between Knight and Onitsuka built up over the years and eventually led to lawsuits being filed by both sides accusing each other of unfair business practices. Knight ultimately won the case, and used the settlement proceedings to begin manufacturing his own line of shoes through his own factories.

Today, Nike manufactures most of its shoes in China, but Knight’s dealings with Onitsuka are still fresh in his memory. His early experiences taught him how important it is to fight to protect free enterprise, how lawyers can play a pivotal role in a company’s survival, and how success can often have unintended consequences.

In the conclusion, Knight reminisces on the many relationships he developed in his life, focusing on the familial bonds he made over the years with Michael Jordan, Kobe Bryant, Tiger Woods, and many other legends of our generation. In describing the passing of his son Matthew, he regrets the time he chose to spend away from his family, and wishes he could have done more to prevent the unfortunate outcome.

His story, filled with both successes and regrets, serves as a warning to an aspiring entrepreneur of the long, arduous journey ahead of them. In writing the book, he hopes to explain to his grandchildren the reasons behind the many choices he made, and inspire tomorrow’s leaders to seek a calling, follow their dreams, and never give up.

My Views

Shoe Dog is a breath of fresh air in today’s world where entrepreneurial success is portrayed by the media as two kids in a dorm room creating a smartphone app, gaining traction, and rocketing to fame and fortune. Phil Knight describes the excruciatingly painstaking process of having to build a business from scratch and succeeding in the face of adversity.

His humility and reclusiveness is inspiring, in direct contrast to the opulence exhibited by many of today’s leaders. In addition to the book providing the reader with a detailed description of his entrepreneurial journey, it is humorous, surprisingly honest, and easy to follow.

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However, the book omitted two important aspects of Nike’s story: there was very little information on how a running shoe is actually designed, and how the company’s brand managed to become so powerful over the years. If Knight had included information on these two parts of the story, it might have become a little more personal and informative.

Besides this, I believe Shoe Dog is a phenomenal book and a must read. It provides invaluable insight into the mind of one of the most visionary business leaders of our generation, and details of his earliest days in creating the most successful athletic company in the world. I would recommend the book to anyone with a passion for business, sports, history, or entrepreneurship.

Introduction

Today, it is almost impossible to take a walk down any street in any corner of the world without spotting someone wearing a pair of Nike’s, but this wasn’t always so. In the 1950’s and 1960’s Adidas and Puma maintained a duopoly in the United States’ running shoe market until, in the early 1960’s, Phil Knight disrupted the industry with his brazen idea of importing high-quality, low-cost running shoes from Japan.

In his senior entrepreneurship class at Stanford Business School, Knight wrote a research paper arguing that if Japanese cameras could make deep cuts in the German-dominated U.S. camera market, then Japanese running shoes might be able to have the same effect in the running shoe market.

His idea lay dormant until a few years later when he decided to pursue his passion and travel to Japan in the hopes of executing his “crazy idea from business school.” While in Japan, Knight met with executives at a shoe factory, bluffed his way into getting a $50 order, secured the money as a loan from his father, and started what would eventually become Nike.

Knight’s story snowballed from that point onward, and to capture its essence the following brief is split into three distinct sections. The first describes Phil Knight: the aspirations, passion, and personality traits that defined his life. The second focuses on details of his relationships with his family, suppliers, bankers, and employees. Finally, the third section focuses on details of his later life, personal regrets, and advice to future entrepreneurs.

Part I: Phil Knight

The world today knows Phil Knight as the iconic founder and visionary who created Nike, one of the most powerful brands in existence. However, there was a time when Knight was just an unassuming college student pursuing a degree in accounting while running track at the University of Oregon.

Training under the gaze of legendary collegiate track and field coach Bill Bowerman had a powerful impact on Knight’s early life, giving him a passion for sports and the fortitude of an athlete. It was during this time that Knight first developed an understanding of running shoes, often taking part in races wearing shoes personally modified by Bowerman.

Through these experiences, Knight developed a competitive spirit that would prepare him for the struggles and competition that lay ahead, far beyond Oregon. Upon graduation, Knight spent a year in the army and afterward attended Stanford Business School, graduating with a glowing resume but without an idea of what he wanted to do with his life.

He returned back home to Portland in 1962, and while on a run one day, he decided that more than anything, he wanted his life to be about “play”. As he describes in the foreword, “The secret of happiness, I’d always suspected, lay somewhere in that moment when the ball is in midair, when both boxers sense the approach of the bell, when the runners are near the finish line and the crowd rises as one.

I wanted that, whatever that was, to be my life, my daily life.” Unfortunately life for most people was not play in those days; the world was overrun with war, pain, and misery, and many grew old and weary from the daily routine. In the midst of this, he decided the only respite would be to find a prodigious, improbable dream and chase it with the dedication of an athlete.

In that moment, little did he know the impact his passion would eventually have on the world.

In his musings his mind drifted back to his “crazy idea from business school,” where he had written a research paper on the plausibility of importing high-quality, low-cost running shoes from Japan and selling them in the U.S. market. To Knight the idea seemed so obvious, so simple, and so potentially huge.

But in those days 26 out of 27 businesses failed, and entrepreneurship was nowhere near as celebrated as it is today. Faced with the choice of either taking a leap of faith and following his dream or living a stable life as an accountant, Knight chose the former. With grand aspirations of leaving his mark on the world he decided that in order to do so he would need to get out there and see the world first.

Thus, in September of 1962, he set out on a long, open-ended trip, with stops in Hawaii, Berlin, Calcutta, Paris, Milan, and many other exotic destinations. He also planned a stop in Japan with the hopes of bringing his idea to fruition. Once there, he traveled to the southern city of Kobe, met with a prominent Japanese shoe manufacturer, and managed to secure an order for 12 pairs of shoes.

With these crude beginnings, Knight set out on his journey of creating Blue Ribbon, the company that eventually became Nike.

He began by selling imported running shoes out of the back of his Plymouth Valiant, marketing them at track meets all over the Pacific Northwest to coaches, runners, and anyone else who would listen. Impressed with the idea, soon Knight’s former coach Bill Bowerman asked to become a minority partner in the company, serving as Knight’s personal mentor and the company’s spokesperson and designer for many years to come.

In its first year the company sold $8,000 worth of shoes, and sales continued to double year after year. Knight attributed his early success as a salesman to the fact that he genuinely believed in running; he believed in the idea that if people ran a few miles every day the world would be a better place, and he believed his shoes were better to run in. His passion was infectious, and his customers were unable to resist it.

During the early years he spent much of his time hiring salesmen, sourcing suppliers, pacifying bankers, and selling an ever-increasing amount of running shoes. He believed that in order to succeed in a low margin business such as his, he would have to ‘grow or die’.

Thus every dollar earned was plowed directly back into the business, without paying its founder a salary. To sustain himself he took on part-time jobs, first as an accountant at a large firm, and then as a professor at Portland University. During this period he went through the rollercoaster of highs and lows that all entrepreneurs face early on, and his methods of dealing with stress were relatively peculiar.

In the beginning he would snap rubber bands against his wrist, and later on, when that wasn’t enough, he would wrap his arms around his body and hold tight until he calmed down. He describes instances when he would go so far as to break his telephone by smashing it against the receiver several times, eventually forcing himself to learn how to meditate and focusing on his nightly six-mile run as a source of tranquility.

As the company grew, Knight’s wealth and fame ballooned, but he stuck true to his core values of being a hard worker and sports aficionado.

To this day he continues to remain as reclusive as ever; a trait emphasized in a description of a conversation between Knight, Bill Gates and when a passerby commented, ‘Look, it’s Buffett and Gates – who’s that other guy?” Having never been driven by money, attaining extraordinary wealth failed to have a significant impact on his life.

On the day after the company’s IPO, he was suddenly worth $178 million, but as he wrote, “The world was the same as it had been the day before, as it had always been. Nothing had changed, least of all me.” Unsurprisingly, he was at his desk that morning before anyone else.

This rare characteristic of sticking to one’s core values was ingrained in Knight early on, and is what helped him succeed where others failed. Today, Knight and his wife give away $100 million each year to charitable causes, and upon their passing, they plan on giving away the rest of their wealth.

As an entrepreneur, father, and mentor, Phil Knight changed the way people view athletic wear, and he managed to ingrain the need for running shoes in our everyday lives. Despite the hardships he endured, the setbacks he faced, and the regrets he will forever live with, he writes in the final pages of the book, “God, how I wish I could relive the whole thing.”

Part II: Relationships

Throughout the book Knight references his relationships as the most important facets of his journey in creating Nike. His story is proof that our relationships with others can either make or break our success and can lead to our most cherished or regretful memories. The four most important relationships that impacted his life were those with his family, his employees, his suppliers and his bankers.

Family

Phil Knight grew up with a domineering but loving father, an encouraging mother, and two younger sisters in Portland, Oregon. His relationship with his father was based primarily on sports, and as with many father-son relationships, Knight grew up craving his father’s approval.

In the beginning, his father approved the idea of a running shoe company, supporting it both financially and morally.

Eventually however, his father’s patience ran out and he grew frustrated with the idea of his son continuing to “jackass around selling shoes.” In describing his father, Knight portrays a man who grew up in poverty and lived his life chasing respectability – colonial house, beautiful wife, obedient kids, and admiration from the community.

His mother, on the other hand, was shy, beautiful, and always encouraging. She was always supportive of her son’s efforts, going so far as to buy one of the first pairs of Blue Ribbon’s shoes with seven dollars from her own purse. His parents were the classic case of opposites attracting, and when their personalities clashed, they fell back on the one thing they had most deeply in common – their belief that family comes first.

When Knight decided to start a business, his decision was partially influenced by a desire to subtly retaliate against his father and break away from the mold of respectability he had been raised to pursue. However, later on, when he was able to secure his first loan solely based on his father’s reputation, he realized that without that respectability there would have been no shoe company to begin with.

While his relationships with his parents and siblings continued to play a role in his life, the beginnings of his own family started to take shape in 1967 on his first day as a professor at Portland State University. While calling roll, he noticed a striking young woman named Penelope Parks seated in the first row, and he was instantly mesmerized.

Her long golden hair and bright blue eyes captivated his thoughts, and his interest was only further piqued by the fact she was the brightest student in the class. In an effort to spend more time with her, he offered her a job as a bookkeeper for Blue Ribbon, a role which she accepted and excelled in.

A few months later, on a whim, he plucked up the courage to ask her on a date, and after a year of courtship they decided to get married. The event was life changing for Knight, as it was the first time he felt he truly had a partner in life, and in that, he now had something to lose.

Penny, as he lovingly called her, soon learned that her husband was absent-minded, spoiled rotten by his mother and sisters, and most of all, a sore loser. Being married to a man running a start-up shoe company meant that all household expenses had to be managed on a shoestring budget, yet she thrived.

Within a few years the couple was blessed with two sons, whom they named Matthew and Travis.

As they grew up, Knight was forced to balance his time between Son A, Son B, and Son C, his company. Regretfully, he admits that Son C won out a majority of the time, not because of a lack of care for his family, but because of an obsession with his business.

When he did come home from the office, he almost always returned too late to join the family for dinner, but would spend quality time putting his sons to sleep with bedtime stories, memories he always cherished.

No matter how much he vowed to change, no matter how much he told himself he’d spend more time with his sons, Knight always fell back into his usual parenting style – not quite hands-off but not hands-on either. Interestingly enough, both of his sons reacted to their father’s absence in different ways.

When Nike began rolling out their first children’s shoes, Matthew announced he would never wear any Nike product so long as he lived. It was his way of retaliating against his father’s absences, and no amount of coaxing from Penny would make him understand. Even when Knight would spend entire weekends teaching him how to hit a baseball, Matthew, ever the contrarian, refused to listen.

Travis, in direct contrast to his older brother, always understood and was a dutiful son. Knight, for his part, didn’t bother explaining his absences, having convinced himself that a few more words or a few more hours wouldn’t have made a difference.

Only later on did Knight realize that the irony of his life was that his bond with his own father was about sports, his business was about sports, his thoughts were constantly consumed with sports, and yet neither of his sons wanted anything to do with sports.

While his parents and siblings provided him with the resources, encouragement, and the environment to succeed, his own family, namely his son Matthew, held him back as the company really began to gain traction. This contradiction only escalated throughout his life as Knight continued to depend on his father for support when the company faced problems, while he was never truly able to develop a connection with his eldest son.

As noted in the foreword, the book is addressed to his grandchildren and is Knight’s attempt of explaining to them the reasons behind the choices he made. In doing so, he hopes that they will understand their grandfather, and avoid making the same mistakes he did.

Employees

A significant contributor to Nike’s success was the camaraderie between the band of misfits that Phil Knight put in management roles to help him run the company. The first salesman he ever commissioned was Jeff Johnson, whom he tasked with selling shoes in California.

Johnson’s exuberance quickly turned from admirable to overwhelming, as he began sending Knight multiple letters a day, asking questions and giving updates, sending more letters than any human being could possibly respond to. As Knight described, “I began to worry that the man might be unhinged. I wondered why everything was so breathless. I wondered if he was ever going to run out of stamps.”

The sheer number of questions paralyzed Knight from ever responding, which instead of dissuading Johnson, only invigorated him even further. Over time Johnson became the manager of Blue Ribbon’s first retail store and later on, the manager of the company’s first factory. However, his most significant contribution came when the company was looking to rebrand itself, and Johnson suggested a new name – ‘Nike’.

The second key employee Knight hired was Bob Woodell, a famous former long jumper who had been paralyzed in an accident.

He had since been confined to a wheelchair, but retained the tenacity of an athlete. He began working side by side with Knight in Oregon and soon became chief of operations, but he often went beyond the call of duty to help his boss. When the company first announced a public offering, they didn’t receive even a single response, but were able to stay in business only because of an $8,000 loan from Woodell and his parents.

Draining their savings, they told Knight, “If you can’t trust the company your son is working for, who can you trust?” This kind of sacrifice from the earliest employees, described many times throughout the book, is what often kept Nike’s lights running.

Johnson, Woodell, and other key employees worked to the bone; often staying at the office late into the knight, traveling for long periods of time, uprooting their families across the country, all in the pursuit of creating a company that would change how people viewed athletic wear in their daily lives.

Despite the profound care his employees showed him, Knight was never able to return the favor.

Not only did he never reply to Johnson’s letters, but he never gave any of his employees anywhere close to the amount of praise their hard work deserved. As he described, “When they did well I’d shrug and deliver my highest praise: not bad. When they erred I’d yell for a minute or two, then shake it off.”

In one such instance, Knight convinced Woodell and Johnson to switch roles and move across the country, claiming that the move would play to their strengths and therefore benefit the company. Even though it was an enormous sacrifice on both of their parts, no praise was given. In fact, in several office memos, Knight even referred to the switch as “Operation Dummy Reversal”.

Such was his management style, and surprisingly enough, it worked phenomenally. He was able to create a laissez-faire culture, where people dressed casually to work and drank beer together at the end of a workday, altogether foreshadowing the type of culture that pervades Silicon Valley today.

At their biannual retreat, an event they came to call the ‘Buttface,’ the atmosphere was filled with people yelling ideas, solutions, and quotations all at once, while thoroughly enjoying themselves with no filter. As Knight described, “The only thing truly not tolerated at a Buttface was a thin skin.” To anyone in the corporate world their meetings would have looked inefficient, inappropriate, and even scandalous, but for Nike it wouldn’t have worked any other way.

Despite all of their eccentricities and physical limitations, the company’s management made a formidable team. Their ability to strategize effectively and work towards the betterment of the company rather than their individual success is what made them effective.

Even though Knight never formally showed his appreciation and gratitude, he cared deeply for all of his employees, and was able to rally his troops when necessary. Today, as chairman of Nike, he still goes to the office most days and oversees a company of 63,000 employees.

The original dream team is long gone, but many streets and buildings at the company’s Oregon headquarters are named after their founding fathers in an effort to remind today’s employees about the company’s humble beginnings.

Suppliers

When Phil Knight founded his company in 1962 with the goal of importing running shoes from Japan, the country was still recovering from its losses during World War II. Having grown up listening to the family’s console radio, which in the 1940’s was always tuned to news of the war, Knight knew that the Japanese were still distrusting of Americans.

However, despite several warnings from his grandmother about ‘those crazy Japs’, he was determined to make his dream a reality.

Armed only with his passion, he travelled to Japan and learned that he would need to be gentle, negotiate calmly, and offer the Japanese kei, or respect, if he wanted to be successful in doing business with the Japanese. With the vague knowledge of a Japanese shoe called the ‘Tiger’ and its manufacturer, Onitsuka Co., he traveled south to the city of Kobe and secured a meeting with the company’s factory.

After a preliminary tour, he found himself seated at the head of a conference table filled with factory executives, and was asked for the name of the company he represented, a question he had no answer for. Feeling the flight response, his mind traveled back to his childhood bedroom adorned with blue ribbons as awards from his track and field achievements, and thus he blurted out, ‘Gentlemen, I represent Blue Ribbon Sports of Portland, Oregon’.

The blatant lie, although an inauspicious beginning to their business partnership, secured him a $50 order for 12 pairs of shoes, which he paid for with a wire transfer loan from his father. Upon his return to Portland he quickly sold out of that first order and was soon hungry for more. His sales began to steadily increase and a mutually beneficial relationship began to develop between himself and Onitsuka.

However, as his business grew, he began to learn that his suppliers did not continue to offer him the same kei they initially had. Difficulties began to mount, first with Onitsuka reneging on its promise of exclusive distributorship, and then over the quality and reliability of the shipments. His suppliers grew greedy, expecting faster growth and larger orders, threatening to break their contract and find other distributors if Knight was unable to deliver.

Knight for his part was self-admittedly far from the ideal client; he fell into a pattern of telling Onitsuka whatever he deemed necessary to protect his business, and then figuring out how to follow through on his promise after the fact. What began as a lie about the existence of his company soon spun into an even bigger lie about the existence of their offices on the East Coast, and culminated in Knight’s decision to hedge his bets by secretly importing football shoes from a different manufacturer in Mexico.

When Onitsuka found out about Blue Ribbon’s new shoe called the ‘Nike’, and the other factories that were manufacturing it, they were enraged.

Onitsuka immediately terminated the partnership, and filed a lawsuit against Knight and his company. Knight immediately responded with a lawsuit of his own, accusing Onitsuka of breach of contract and trademark infringement, beginning a period of litigation that would cause one of the darkest periods in his life. On April 14, 1974 the trial began, and representatives of both companies testified on behalf of their respective employer.

In the book, Knight describes his terrible performance on the witness stand, the animosity between the two former partners, the lack of sympathy from the presiding judge, and his frustration at the unfairness of it all. Throughout the period Knight felt as if he was in battle, fighting for the survival of free enterprise. In describing the analogy he wrote, “War is the most extreme of conditions, but business had its warlike parallels.

Someone once said that business is war without bullets, and I tended to agree.” At the end of the debacle, the judge ruled on behalf of Blue Ribbon on account of their story sounding more convincing, and forced Onitsuka to pay $400,000 worth of damages.

Their victory, however, was short-lived. Without Onitsuka as their supplier, Blue Ribbon was forced to go out on their own and sell their own brand, which meant they needed new factories. They first built a factory in Exeter, New Hampshire, and then signed contracts with factories in Taiwan.

With a mass exodus of factories from Japan, Taiwan had began setting up hundreds of small factories, where Knight believed his company could take a dominant position. Soon they expanded to China, and continued expanding production facilities around the world. Today, Nike manufactures shoes and athletic wear in multiple countries across the globe, with China being their dominant supplier.

After dealing with a great deal of negative publicity about working conditions in their factories, the company has reinvented itself and become a dominant player in the factory reform movement. Today the United Nations uses Nike as the gold standard by which they measure working conditions in all apparel factories, and even though Knight wished he could have avoided the sweatshop crisis, he admits being grateful for the miraculous change it brought both inside and outside Nike.

Bankers

The first order of shoes from Japan was paid for with a $50 loan from Knight’s father, but soon the ‘Bank of Dad’ dried up, and Knight was forced to take out a loan from First National Bank of Oregon. Knight first mentions problems with his banker a few chapters in, circa mid-1965.

It was Blue Ribbon’s second year of business and he was projecting 100% year-over-year sales growth which, according to his banker, was too fast for the amount of equity in the company. In Knight’s opinion it was very simple; growing sales plus profitability and unlimited upside equaled a high quality company, which is exactly what he had.

He tried to explain the shoe business to his banker, emphasizing that if he didn’t keep growing he would lose the confidence of his supplier and therefore lose his business, but banks in those days did not see it the same way. Their myopic focus was on cash balances, and extraordinary growth in a low margin business set off alarms about sustainability. This disconnect between business owner and creditor remained throughout the growth of Nike, causing excessive amounts of stress and frustration for Knight and his employees.

Over time Knight began to loathe the word ‘equity’ and would hear it wherever he went.

He heard it while brushing his teeth, while punching his pillow at night, and was soon unable to even say it aloud, hoping that if he removed it from his vocabulary the concept itself would cease to exist. He understood the reason for equity, and even recognized that keeping a healthy cash balance would have been the cautious, prudent action to take.

However, knowing that the roadside was littered with cautious, conservative entrepreneurs, he chose instead to keep his foot pressed down hard on the gas pedal. In those days First National was the only option; all other banks had turned him down, there was no venture capital industry, and nobody else was willing to take a chance on a fledgling running shoe company.

Knowing this, every time he met with his bankers, he would exercise self-control, hold his tongue, get his loan approved, and then do exactly as he pleased. He would use the money to buy shoes, and after he sold out his inventory, he would pay off the loan in full, and then repeat the process all over again. Every time he walked into the bank he would hustle, grovel, and negotiate, and eventually walk away with a check.

This method of doing business helped get his company off the ground, but it was unsustainable in the long term. With the company on the verge of posting $1.3 million in sales in 1971, the day finally came when Knight’s creditors at First National abruptly informed him that they were not interested in continuing to do business with a company as risky as his, and would be terminating their relationship.

With his business suddenly on life support, Knight reached out to everyone he knew, and three weeks later was able to secure a small line of credit from the Bank of California. Even though he was safe for the time being, Knight knew he needed a more long-term solution. His mind drifted back to an article he had read in Fortune magazine, which discussed Japan’s newfound economic power of the time, the nation’s hyper-aggressive sosa shoga – trading companies.

These companies were chameleons, acting as importers, exporters, and even private banks, providing all kinds of companies with credit.

One of these trading companies, Nissho Iwai, had an office in Portland, and when Knight visited them he found that providing credit to businesses selling huge volumes on low net margins was their bread and butter. He realized that while Nike had been a landmine to all other conventional banks, they were a goldmine in the eyes of Nissho.

Soon Nissho agreed to take a second position to the Bank of California on their outstanding loans, and a mutually beneficial relationship between Blue Ribbon and the Japanese trading company began, one that would save Knight many times over.

Eventually, their nonexistent cash balance caught up to them. On a fateful spring day in 1975, Knight and his team found themselves facing a $1 million dollar payment to Nissho, for which they were about $75,000 short. They were forced to dry up the bank accounts of all their retail stores just to make the payment, which caused them to send it in a few days later than usual.

However, before they could even do so, the Bank of California called in to inform them that their relationship was henceforth terminated. Furthermore, the bank would be notifying the FBI of what they believed to be a case of fraud. With nowhere left to turn, Knight went to Nissho’s office, hat in hand, and explained the entire situation.

Living on the float, he explained, had caused them to go underwater, but his intention had been genuine – to plow every dollar back into the company to ensure maximal growth. Thus, after pouring over Blue Ribbon’s books to ensure there was no fraud involved, Nissho showed them mercy, and not only approved their million dollar loan, but paid off their outstanding debts to the Bank of California, thereby ending the pending FBI investigation. As Ito, their representative from Nissho, concluded: ‘There are worse things than ambition.’

Throughout the book Knight chronicles his experiences with his many bankers, for the most part with a negative tone. Having been kicked out of two different banks in five years, Knight did not view bankers in a favorable light, but his connection to Nissho remains intact to this day, with the oasis in the center of Nike’s headquarters in Oregon named after the trading company.

Part III: Conclusion

The final section of the book focuses on three final aspects of Phil Knight’s life: the death of his son Matthew, Knight’s relationships with the greatest athletes of our generation, and his advice to future entrepreneurs. With respect to his son, the sorrow in the writing is palpable as he recounts Matthew’s long, difficult search for meaning and identity throughout his life.

Struggling with angst directed towards his father, Matthew had led a difficult life.

In his quest to find himself he had dropped out of college, rebelled, and had even run away, until he finally found meaning in philanthropy work – namely building orphanages in El Salvador. On one of his visits he went scuba diving with a few friends and decided to see how deep he could go, taking a risk that even his risk-addicted father would never have taken.

At 150 feet below sea level, Matthew lost consciousness and breathed his final breath, causing the darkest moment in his father, Phil Knight’s, life. Losing one’s child is the cruelest of punishments, and both Knight and his wife Penny felt the pain in droves. In the days that followed, every Nike athlete wrote, emailed, and phoned, but Tiger Woods was the first to extend his condolences.

His call came in at 7:30 a.m. the next day, and it is because of this loving support, and many other caring acts over the years, that Phil Knight supports Tiger Woods and will never stand for a bad word spoken against the golfer in his presence.

Knight was able to develop a bond with Nike’s athletes, by relating to them with his passion for sport, that many other CEO’s were unable to form.

In the early days, Steve Prefontaine was Blue Ribbon’s star athlete, holding records in every distance track event from the 2,000 meters all the way to 10,000 meters. He, and many other athletes, were regulars at the company offices, fitting in perfectly with the relaxed yet fiercely competitive culture.

Over the years Knight built strong relationships with many such athletes across a variety of sports by attending their games, helping them when they needed it, and relating to them in a way nobody else could. He recalls an event in 2005 where LeBron James pulled him aside and gifted him a Rolex watch from 1972, the year the company was born, as a sign of gratitude for taking a chance on him.

Another such instance was when Andre Agassi won the U.S. Open, unseeded, and came to Knight’s box after the final shot, yelling, “We did it, Phil!” Knight built a similar connection with Michael Jordan, Kobe Bryant, Arnold Palmer, and many other legends, all of whom played pivotal roles in Nike’s success over the years.

He considered all of them to be like sons, brothers, and altogether family. In the final pages of the book he chastises the phrase ‘It’s just business’ stating his belief that, “It’s never just business. It never will be. If it ever does become just business, that will mean that business is very bad.”

To conclude his memoir, he offers his advice to the leaders of the future, pushing them to not settle for a job or profession and instead to seek a calling. Doing so, he says, would make the fatigue easier to bear, transform disappointments into fuel, and make the highs unlike any emotion ever felt before.

He cautions entrepreneurs to be aware of the uphill climb they face, which is now steeper than ever, as the entrepreneurial spirit in America continues to decline. According to Knight, free enterprise continues to face obstacles; it has always been this way and always will be so, but that does not mean one should give up. He makes it a point to credit luck as playing a big role in his success, but noting that the harder one works, the luckier one will be.

His motivation to write the book is an attempt to verbalize his thoughts in the hope that some young man or woman, somewhere, going through the same trials or ordeals might be inspired or comforted. Maybe, just maybe, upon hearing his story, some young entrepreneur, athlete, painter, or novelist, might press on.

HookedtoBooks.com would like to thank the Titans of Investing for allowing us to publish this content.  Titans is a student organization founded by Britt Harris. Learn more about the organization and the man behind it by clicking either of these links.

Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books.  We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives.

This post has been slightly edited to promote search engine accessibility.

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