Library / Biographies | Industries
Date of review: September 2024
Book author: Phil Knight
Вook published: 2016
Book author: Phil Knight
Вook published: 2016
As my long-term readers know, I am a big fan of reading business biographies. Even with the survival and hindsight biases, they unveil plenty of industry insights, often indirectly. Something that is usually missing in a typical investor presentation or annual report.
After reading a few dozen such biographies, you can spot common traits of successful companies and their founders.
Charlie Munger was a voracious reader. This is what he once said:
After reading a few dozen such biographies, you can spot common traits of successful companies and their founders.
Charlie Munger was a voracious reader. This is what he once said:
I am a biography nut myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It's way better than just being given the basic concepts.
This is probably how Charlie Munger spotted BYD more than sixteen years ago. He later described its founder, Wang Chuanfu, as “a combination of Thomas Edison and Jack Welch—something like Edison in solving technical problems, and something like Welch in getting done what he needs to do.”
One of the books I read this summer was Shoe Dog, written by Phil Knight, the founder of NIKE. It is a fascinating story, which I highly recommend. I have summarised my takeaways.
One of the books I read this summer was Shoe Dog, written by Phil Knight, the founder of NIKE. It is a fascinating story, which I highly recommend. I have summarised my takeaways.
Nine lessons for entrepreneurs and investors
- Don’t start with a grand vision
This is standard advice for startups, which is also evident from Knight’s story. As a graduate of the University of Oregon and Stanford Graduate School of Business, he went on an around-the-world trip in 1962 (at 24) to learn about other cultures and meet new people, still unsure of what he wanted to do in life. He had a vague idea that just as Japanese cameras “had made deep cuts into the camera market, which had once been dominated by Germans…Japanese running shoes might do the same one day.”
During his first-ever trip outside of the US, he placed his first 50-dollar order for a sample of shoes with a relatively small Japanese firm, Onitsuka Co, in Kobe. That was the start of his business - just importing and distributing low-cost running shoes of an unknown Japanese brand in the US.
During his first-ever trip outside of the US, he placed his first 50-dollar order for a sample of shoes with a relatively small Japanese firm, Onitsuka Co, in Kobe. That was the start of his business - just importing and distributing low-cost running shoes of an unknown Japanese brand in the US.
2. Focus on a niche
Knight had a narrow niche - just running shoes, no other athletic shoes, sports clothes or accessories. His geographic focus has been equally narrow: first, his friends in Portland, then Oregon state and later, other Western states.
Many successful businesses start with a niche. In the early 2000s, BYD produced just cell batteries for Motorola and Nokia, with no idea of becoming a global EV leader one day.
Many successful businesses start with a niche. In the early 2000s, BYD produced just cell batteries for Motorola and Nokia, with no idea of becoming a global EV leader one day.
3. Offer an obvious customer value
A clear value offered to Nike’s customers made sales grow 100% annually in the first several years. Japanese running shoes were cheaper than established brands, with comparable quality and often innovative designs and features.
As an avid runner, Knight focused on customers like himself - those who loved running. Some were professional athletes, for others running was just a hobby.
But the focus has been on what he (and customers like him) missed in the existing models and what he (and his customers) would want to try next.
Knight did not follow or copy Adidas.
This focus on the customer, operating in a narrow niche without a grand vision, reminded me of Jeff Bezos. He is famous for saying the following:
As an avid runner, Knight focused on customers like himself - those who loved running. Some were professional athletes, for others running was just a hobby.
But the focus has been on what he (and customers like him) missed in the existing models and what he (and his customers) would want to try next.
Knight did not follow or copy Adidas.
This focus on the customer, operating in a narrow niche without a grand vision, reminded me of Jeff Bezos. He is famous for saying the following:
“
We're not competitor obsessed, we're customer obsessed. We start with what the customer needs and we work backwards.
Following your customer often opens up new business opportunities. Nike, for example, didn’t have a plan for a mail-order business. However, shortly after starting his first sales, young Phil Knight received letters from customers asking for a new pair of Tigers (the most popular model of Japanese running shoes he was selling in 1964). This was the start of Nike’s mail-order business.
4. Have a winning marketing strategy
You may have a great product, but it is worth zero if you cannot sell it. How you sell it is crucial and too often underappreciated by founders.
Knight, for example, initially approached sporting goods stores, but was always rejected: “Kid, what this world does not need is another track shoe!”
Instead, he attended various track meets, chatting up the coaches, runners, and fans between the races and showing them his models. Contrary to the feedback from stores, the response from practitioners was always the same: “I couldn’t write orders fast enough.”
Knight, for example, initially approached sporting goods stores, but was always rejected: “Kid, what this world does not need is another track shoe!”
Instead, he attended various track meets, chatting up the coaches, runners, and fans between the races and showing them his models. Contrary to the feedback from stores, the response from practitioners was always the same: “I couldn’t write orders fast enough.”
5. Don't sell a product; Sell your vision and your dream
This is Phil Knight in his own words:
“
Driving back to Portland I’d puzzle over my sudden success at selling. I’d been unable to sell encyclopedias, and I’d despised it to boot. I’d been slightly better at selling mutual funds, but I’d felt dead inside. So why was selling shoes so different? Because, I realised, it wasn’t selling. I believed in running. I believed that if people got out and ran a few miles every day, the world would be a better place, and I believed these shoes were better to run in. People, sensing my belief, wanted some of that belief for themselves. Belief, I decided, Belief is irresistible.
6. Any business is a marathon, not a sprint
While Nike showed many early signs that it had found a growing niche and that the product was in high demand (sales data, customer feedback), Phil still had to work full-time as an accountant with Price Waterhouse to pay the bills. He left the audit company in 1968 and took a job as an assistant professor at the local Oregon State University, teaching accounting.
It was only in 1969, seven years after placing his first order in Japan, that Knight could afford to leave a full-time job and focus on his company.
Six years after starting his company, the sales were only $150k, rising to $300k the next year (1969). Sales were almost doubling every year but from a very low base.
Imagine you start a business, and almost ten years later, your revenue is just $300k (the profit much closer to zero with overheads and small scale). All signals that you are in the wrong business, at least not a very profitable one.
By 1977, however, Nike sales were approaching $70 million, after doubling the year before from $7 million in 1975 to $14 million in 1976. And two years later, in 1979, they were on track to double again, hitting $140 million. Think of the power of compounding, focus and drive.
It was only in 1969, seven years after placing his first order in Japan, that Knight could afford to leave a full-time job and focus on his company.
Six years after starting his company, the sales were only $150k, rising to $300k the next year (1969). Sales were almost doubling every year but from a very low base.
Imagine you start a business, and almost ten years later, your revenue is just $300k (the profit much closer to zero with overheads and small scale). All signals that you are in the wrong business, at least not a very profitable one.
By 1977, however, Nike sales were approaching $70 million, after doubling the year before from $7 million in 1975 to $14 million in 1976. And two years later, in 1979, they were on track to double again, hitting $140 million. Think of the power of compounding, focus and drive.
7. Stamina and drive
Most successful entrepreneurs are not there for the money or prestige. Understanding what drives founders and their teams can help determine the business's potential and resilience in the face of adversity.
In 1968, Phil Knight “was putting in six days a week at Price Waterhouse, spending early mornings and late nights and all weekends and vacations at Blue Ribbon [the name of his original company].”
This is how he described it:
In 1968, Phil Knight “was putting in six days a week at Price Waterhouse, spending early mornings and late nights and all weekends and vacations at Blue Ribbon [the name of his original company].”
This is how he described it:
“
No friends, no exercise, no social life - and wholly content. My life was out of balance, sure, but I didn’t care. In fact, I wanted even more imbalance.
“
I wanted to dedicate every minute of every day to Blue Ribbon. I’d never been a mutlitasker, and I didn’t see any reason to start now. I wanted to be present, always. I wanted to focus constantly on the one task that really mattered.
There were several moments when his company was about to go out of business. Their main bank cut all the credit lines, and they struggled to find a new bank to work with. Their first partners in Japan brought up a legal case against Nike, followed by a tax claim by the US government.
Nike is not unique. Many young companies that eventually became global leaders went through rough times more than once. It is how they deal with adversity, not just whether they have a great product, that ultimately defines their future success.
Nike is not unique. Many young companies that eventually became global leaders went through rough times more than once. It is how they deal with adversity, not just whether they have a great product, that ultimately defines their future success.
8. An investor and an entrepreneur
The book also illustrates the importance of focusing on the product of the business and its long-term potential, not on the last quarterly earnings. As Buffett says,
"I am a better investor because I am a businessman and a better businessman because I am an investor.”
Knight had many tough negotiations with his bank. The latter always complained that he had too low equity because he grew too fast.
To Knight, this was absurd because to succeed, he needed to gain market share, which meant more orders and more loans to place them.
For many years, Nike invested all its profits in growth, not considering dividend distributions.
If someone looked at the company with traditional value investor metrics, they would never invest in that company. Close to zero equity, a simple importing business, high debt, zero FCF.
Such investors would have missed the opportunity to understand what product Nike was really selling, what it was investing its money in, and where it could be in a few years. You do not learn this by looking at headline quarterly earnings.
"I am a better investor because I am a businessman and a better businessman because I am an investor.”
Knight had many tough negotiations with his bank. The latter always complained that he had too low equity because he grew too fast.
To Knight, this was absurd because to succeed, he needed to gain market share, which meant more orders and more loans to place them.
For many years, Nike invested all its profits in growth, not considering dividend distributions.
If someone looked at the company with traditional value investor metrics, they would never invest in that company. Close to zero equity, a simple importing business, high debt, zero FCF.
Such investors would have missed the opportunity to understand what product Nike was really selling, what it was investing its money in, and where it could be in a few years. You do not learn this by looking at headline quarterly earnings.
9. The importance of the team
The last lesson from the book is the importance of the team. Even though it was Knight’s idea behind the business and it was he who signed the first deal with Onitsuka, he may not have succeeded without his partners and first employees. His college coach, Bill Bowerman, became his first partner in the business. He made many valuable suggestions about the design. And being one of the best-known field and track coaches in America helped to sell more shoes with his endorsement.
Other first employees played equally critical roles, including Jeff Johnson, who loved running and loved the product. The name Nike was his idea. He helped set up several new offices and was instrumental in maintaining contact with hundreds of the company's first customers by sending them postcards and replying to their questions by post.
Knight’s wife was also one of the first employees at Nike (she was a former student in Knight’s class, during the only year he taught at university). She did all the admin work for the first few years.
Others included Delbert Hayes, his former boss at Price Waterhouse, who became Nike’s treasurer and later EVP, Bob Woodell (a former runner who was tragically paralysed in an accident), Rob Strasser (a lawyer who helped Nike in the case against Onitsuka) and several others.
Knight called his small team Buttfaces. This is how he described his team in 1976 (fourteen years after founding the company):
Other first employees played equally critical roles, including Jeff Johnson, who loved running and loved the product. The name Nike was his idea. He helped set up several new offices and was instrumental in maintaining contact with hundreds of the company's first customers by sending them postcards and replying to their questions by post.
Knight’s wife was also one of the first employees at Nike (she was a former student in Knight’s class, during the only year he taught at university). She did all the admin work for the first few years.
Others included Delbert Hayes, his former boss at Price Waterhouse, who became Nike’s treasurer and later EVP, Bob Woodell (a former runner who was tragically paralysed in an accident), Rob Strasser (a lawyer who helped Nike in the case against Onitsuka) and several others.
Knight called his small team Buttfaces. This is how he described his team in 1976 (fourteen years after founding the company):
“
…In the midst of those intense discussions, in the middle of one of the most trying years in the company's history, those Buttface meetings were nothing but a joy. Of all those hours spent at Sunriver, not one minute felt like work. It was us against the world, and we felt damned sorry for the world…Each of us had been misunderstood, misjudged, dismissed. Shunned by bosses, spurned by luck, rejected by society, shortchanged by fate when looks and other natural graces were handed out.
“
We'd each been forged by early failure. We'd each given ourselves to some quest, some attempt at validation or meaning, and fallen short.
“
I identified with the born loser in each Buttface, and vice versa, and I knew that together we could become winners. I still didn't know exactly what winning meant, other than not losing, but we seemed to be getting closer to a defining moment when that question would be settled, or at least more sharply defined.
Memorable quotes
On hiring new employees at Nike
“I did seem to hire nothing but accountants. And lawyers. It wasn't that I had some bizarre affection for accountants and lawyers, I just didn't know where else to look for talent... There [was] no shoe school, no University of Footwear from which we could recruit. We needed to hire people with sharp minds, that was our priority, and accountants and lawyers had at least proved that they could master a difficult subject. And pass a big test.”
“Most had also demonstrated basic competence. When you hired an accountant, you knew he or she could count. When you hired a lawyer, you knew he or she could talk. When you hired a marketing expert, or product developer, what did you know? Nothing. You couldn't predict what he or she could do, or if he or she could do anything. And the typical business school graduate? He or she didn't want to start out with a bag selling shoes. Plus, they all had zero experience, so you were simply rolling the dice based on how well they did in an interview. We didn't have enough margin for error to roll the dice on anyone.”
“Most had also demonstrated basic competence. When you hired an accountant, you knew he or she could count. When you hired a lawyer, you knew he or she could talk. When you hired a marketing expert, or product developer, what did you know? Nothing. You couldn't predict what he or she could do, or if he or she could do anything. And the typical business school graduate? He or she didn't want to start out with a bag selling shoes. Plus, they all had zero experience, so you were simply rolling the dice based on how well they did in an interview. We didn't have enough margin for error to roll the dice on anyone.”
On advertising
“Everyone around me thought the ad was bold, fresh. It didn't focus on the product, but on the spirit behind the product, which was something you never saw in the 1970s. People congratulated me on that ad as if we'd achieved something earth-shattering. I'd shrug. I wasn't being modest. I still didn't believe in the power of advertising.
At all. A product, I thought, speaks for itself, or it doesn't. In the end, it's only quality that counts. I couldn't imagine that any ad campaign would ever prove me wrong or change my mind.
Our advertising people, of course, told me I was wrong, wrong, a thousand per cent wrong. But again and again I'd ask them: Can you say definitively that people are buying Nikes because of your ad? Can you show it to me in black-and-white numbers?”
At all. A product, I thought, speaks for itself, or it doesn't. In the end, it's only quality that counts. I couldn't imagine that any ad campaign would ever prove me wrong or change my mind.
Our advertising people, of course, told me I was wrong, wrong, a thousand per cent wrong. But again and again I'd ask them: Can you say definitively that people are buying Nikes because of your ad? Can you show it to me in black-and-white numbers?”
On Zen concepts
“In every religion, it seemed, self is the obstacle, the enemy. And yet Zen declares plainly that the self doesn't exist. Self is a mirage, a fever dream, and our stubborn belief in its reality not only wastes life, but shortens it. Self is the bald-faced lie we tell ourselves daily, and happiness requires seeing through the lie, debunking it. To study the self, said the thirteenth-century Zen master Dogen, is to forget the self. Inner voice, outer voices, it's all the same. No dividing lines.
Especially in competition. Victory, Zen says, comes when we forget the self and the opponent, who are but two halves of one whole. In Zen and the Art of Archery, it's all laid out with crystal clarity. Perfection in the art of swordsmanship is reached... when the heart is troubled by no more thought of I and You, of the opponent and his sword, of one's own sword and how to wield it...All is emptiness: your own self, the fashing sword, and the arms that wield it. Even the thought of emptiness is no longer there.”
Especially in competition. Victory, Zen says, comes when we forget the self and the opponent, who are but two halves of one whole. In Zen and the Art of Archery, it's all laid out with crystal clarity. Perfection in the art of swordsmanship is reached... when the heart is troubled by no more thought of I and You, of the opponent and his sword, of one's own sword and how to wield it...All is emptiness: your own self, the fashing sword, and the arms that wield it. Even the thought of emptiness is no longer there.”
On competition
“I thought back on my running career at Oregon. I'd competed with, and against, men far better, faster, more physically gifted. Many were future Olympians. And yet I'd trained myself to forget this unhappy fact. People reflexively assume that competition is always a good thing, that it always brings out the best in people, but that's only true of people who can forget the competition. The art of competing, I'd learned from track, was the art of forgetting, and I now reminded myself of that fact. You must forget your limits. You must forget your doubts, your pain, your past. You must forget that internal voice screaming, begging, "Not one more step!" And when it's not possible to forget it, you must negotiate with it. I thought over all the races in which my mind wanted one thing, and my body wanted another, those laps in which I'd had to tell my body, "Yes, you raise some excellent points, but let's keep going anyway..."
On Luck
“Luck plays a big role. Yes, I'd like to publicly acknowledge the power of luck. Athletes get lucky, poets get lucky, businesses get lucky. Hard work is critical, a good team is essential, brains and determination are invaluable, but luck may decide the outcome. Some people might not call it luck. They might call it Tao, or Logos, or Jñana, or Dharma. Or Spirit. Or God.”
“Put it this way. The harder you work, the better your Tao. And since no one has ever adequately defined Tao, I now try to go regularly to mass. I would tell them: Have faith in yourself, but also have faith in faith. Not faith as others define it. Faith as you define it. Faith as faith defines itself in your heart.”
“Put it this way. The harder you work, the better your Tao. And since no one has ever adequately defined Tao, I now try to go regularly to mass. I would tell them: Have faith in yourself, but also have faith in faith. Not faith as others define it. Faith as you define it. Faith as faith defines itself in your heart.”
On Entrepreneurship
“I’d like to warn the best of them, the iconoclasts, the innovators, the rebels, that they will always have a bull's-eye on their backs. The better they get, the bigger the bull's-eye. It's not one man's opinion; it's a law of nature.”
“I’d like to remind them that America isn't the entrepreneurial Shangri-La people think. Free enterprise always irritates the kinds of trolls who live to block, to thwart, to say no, sorry, no. And it's always been this way. Entrepreneurs have always been outgunned, outnumbered. They've always fought uphill, and the hill has never been steeper. America is becoming less entrepreneurial, not more.”
“I’d like to remind them that America isn't the entrepreneurial Shangri-La people think. Free enterprise always irritates the kinds of trolls who live to block, to thwart, to say no, sorry, no. And it's always been this way. Entrepreneurs have always been outgunned, outnumbered. They've always fought uphill, and the hill has never been steeper. America is becoming less entrepreneurial, not more.”
On quitting
“And those who urge entrepreneurs to never give up? Charlatans.
Sometimes you have to give up. Sometimes knowing when to give up, when to try something else, is genius. Giving up doesn't mean stopping. Don't ever stop.”
Sometimes you have to give up. Sometimes knowing when to give up, when to try something else, is genius. Giving up doesn't mean stopping. Don't ever stop.”
Advice to young people
“I’d tell them to hit pause, think long and hard about how they want to spend their time, and with whom they want to spend it for the next forty years. I'd tell men and women in their midtwenties not to settle for a job or a profession or even a career. Seek a calling. Even if you don't know what that means, seek it. If you're following your calling, the fatigue will be easier to bear, the disappointments will be fuel, the highs will be like nothing you've ever felt.”
“I’d like to warn the best of them, the iconoclasts, the innovators, the rebels, that they will always have a bull's-eye on their backs. The better they get, the bigger the bull's-eye. It's not one man's opinion; it's a law of nature.”
“I’d like to warn the best of them, the iconoclasts, the innovators, the rebels, that they will always have a bull's-eye on their backs. The better they get, the bigger the bull's-eye. It's not one man's opinion; it's a law of nature.”
On motivation and crazy ideas
“The secret of happiness, I'd always suspected, the essence of beauty or truth, or all we ever need to know of either, lay somewhere in that moment when the ball is in midair, when both boxers sense the approach of the bell, when the runners near the finish line and the crowd rises as one. There's a kind of exuberant clarity in that pulsing half second before winning and losing are decided. I wanted that, whatever that was, to be my life, my daily life.”
“At twenty-four I did have a Crazy Idea, and somehow, despite being dizzy with existential angst, and fears about the future, and doubts about myself, as all young men and women in their midtwenties are, I did decide that the world is made up of crazy ideas. History is one long processional of crazy ideas. The things I loved most-books, sports, democracy, free enterprise-started as crazy ideas.”
“So that morning in 1962 I told myself: Let everyone else call your idea crazy... just keep going. Don't stop. Don't even think about stopping until you get there, and don't give much thought to where "there" is. Whatever comes, just don't stop.”
“At twenty-four I did have a Crazy Idea, and somehow, despite being dizzy with existential angst, and fears about the future, and doubts about myself, as all young men and women in their midtwenties are, I did decide that the world is made up of crazy ideas. History is one long processional of crazy ideas. The things I loved most-books, sports, democracy, free enterprise-started as crazy ideas.”
“So that morning in 1962 I told myself: Let everyone else call your idea crazy... just keep going. Don't stop. Don't even think about stopping until you get there, and don't give much thought to where "there" is. Whatever comes, just don't stop.”