Rizwan
Rizwan Asif I am a technopreneur exploring the field of artificial intelligence to build the next big thing in tech. My vision for the world is to reduce human capital for low level system tasks and put humans in the higher decision making positions. We are not meant to sort stamp papers, we will give up that task to create something beautiful. 10 min read

Nike, The Startup Way: An Analysis of How Nike Began as a Startup.

Startup is a buzzword these days and many of us pretty much know what they are. Although these small group of motivated individuals seem like they operate differently than what a large company looks like. The truth is all the big brands we see today one way or another operated like a startup once. Wheather that was intentional or not, either way there are lessons for all the awesome entrepreneurs out there.

Nike is no exception, kicked off in a small town in Portland. Where Phil Knight, at that time in his parents house, told a Japanese company that he owned a small company called Blue Ribbon. The truth was he didn’t and came up with the name right there in the meeting. The decisions by Phil from there on became a guiding light to future startups.

I study entrepreneurship as part of my course and came across the book “Shoe Dog” [1] by Phil Knight. Which made me realize how identical the strategies of Nike was with modern startup methodologies. So I put up everything together to understand how Nike stood on its feet by following the startup principles.

We’ll one by one dive into these principles and discuss Nike on the way.

Innovation

Innovation is the application of technology, it can be in business or in any general use case. For business we divide innovation into two categories [6] i.e, radical and incremental innovation. As the name suggests, radical innovation, informally, means to create something so innovative that it renders the current available solutions obsolete. Like what the IPod did to Walkmans. While incremental relates to slowly introducing new innovation to business that it eventually takes over the current business practices. An example will be from selling movies and music to streaming charging for subscription based streaming services like Netflix and Spotify.

Phil had while being an accounting student at the University of Oregon, came up with ‘crazy’ idea that Japanese shoes can replace the dominating market of European shoe manufacturers. Taking this plan to action would inherently be an incremental innovation. Shoes, coming from Japan instead of Europe, that will give huge advantage over prices and quality. Nike did eventually innovate in the show space but that came after.

An important take from here is how Nike avoided the ‘death valley’. According to Velu, C. [4], companies that don’t take the path of either radical or incremental innovation and try to do both at once don’t have a particularly good success rate. I am not sure Phil knew this at the time because eventually him and his co-founder innovated the running shoe industry by bringing in new designs of their own, while still being a startup.

Funding

Phil Knight travelled the world after his graduation and one of his stops was Japan., where he met Onitsuka, the famous shoe company. In the meeting he was nervous to make a deal with them, in order to take his ‘crazy idea’ to fruition. Thus making up a company Blue Ribbon to become Onitsuka’s representatives in the US.

On returning he ordered sample pairs and shared them with his college coach Bill Bowerman. Bowerman being a passionate running coach found potential in the idea and immediately offered to be Phil’s partner in Blue Ribbon.

In entrepreneurial terms Bill Bowerman became an angel investor. These are individuals who have enough money to invest in new businesses, but the fact that they have earned this money suggests that they have tons of experience in the field and make calculated decisions before making the investment. Therefore, they become valuable partners in the long run of the company.

The counter type of investors will be venture capitalists (VCs) that represent wealthy individuals and invest in valuable businesses that can profit their partners. Usually VCs require a seat on the board of your company. Whilst angles contribute with their experience without responsibilities of the board. At an early stage its beneficial to go with an angel and utilize their experience to grow. VCs can help in a scaleup stage where they provide a more stable and larger contribution.

Phil Knight had his angel in the form of Bill Bowerman, they agreed on a 51-49 partnership giving Phil the control of the company. Phil didn’t go with a VC but took loans from the First National Bank for a while to pay Onitsuka. Later in 1980, they went public.

Adoption Lifecycle

New products or services don’t get attraction immediately after being introduced. There is a known sociological model, called the product (or technology) adoption lifecycle, that describes how different markets respond with time to a new product.

This model is helpful in assessing strategies for companies and shape their marketing plan accordingly. We’ll go through each phase of this lifecycle with Nike and explore how it looks like.

Innovators

These are experimental people who are looking for exciting new products that can either be a hobby, professional benefit or curiosity. Their response and suggestions influence the market direction for the product.

1964, Phil Knight in his parents' home was excited to get a box of sample shoes from Onitsuka. He immediately sent two pairs to his University running team coach Bill Bowerman. He knew that this was the right person who can appreciate shoes.

Bill Bowerman was all into the running. He took his profession as a passion and didn’t hold back trying anything that help his runners. He had a workshop in this garage where he tried different materials for designing the shoes for his runners. It was Bill’s belief that,

One Ounce sliced off a pair of shoes, is equivalent to 55 pounds over one mile.

Phil knew that people like Bowerman are the innovators. “Lightness was the goal” and Phil was offering light weight shoes. Turns out Bowerman not only endorsed the shoes but immediately became a partner with Phil.

Early Adopters

Kicking off a business relies heavily on the desire and response of the Early Adopters. These are people who are looking for exceptional products but don’t want to be the very first one to try them.

1965, Phil Knight ordered 300 pairs of shoes from Onitsuka, worth $1000. His mother was the very first customer who bought a pair for $7 [1]. Now, it was time to find potential buyers. Phil went to sporting good stores but their response was not positive. Phil prepared his car for a tour of the Pacific Northwest, he met coaches, runners, fans and showed them the shoes. There he got orders for his Blue Ribbon.

The lesson to learn here is that the early adopters are not really accessible they are hidden somewhere and an effort is required to get them.

Early Majority

When a market starts accepting the new product then it is time to try and expand into something bigger. Nike, then Blue Ribbon, was being accepted by runners and coaches, so it was time to advertise. Mail order system was established and Phil put out an ad stating,

Japanese Challenges European track shoe domination! Low Japanese labour costs make it possible for an exciting new firm to offer these shoes at the low low price of $6.95

However, Geoffrey, A. Moore [3] in his book introduced us with a “chasm” in between Early Adopters and Early Majority. Indicating that companies face some massive hurdles during this transition. For Nike, I believe Phil Knight described the chasm as,

.. in 1965, running wasn’t even a sport. It wasn’t popular -- it just was. To go out for a three mile-run was something weirdos did, presumably to burn off maniac energy. Running for pleasure, running for exercise, running for endorphins, running to live better and longer -- these things were unheard of.

Post-Chasm Early Majority

Phil Knight knew that their market was limited and getting over the chasm would require some effort. Luckily Jeff Johansson, a salesman in California came aboard Nike as a commissioned salesman for $1.75 per pair sold. The thing about Johansson was that he had been involved in several social projects that allowed him to be close to people and understand their needs. According to Phil,

[Johnsson] wanted to socialize exclusively with runners.

Johnsson started writing letters to his customers, birthdays, holidays and what not. The customers will write back to him regarding their lives and injuries. Johnsson used his social skills to console them. He loved the job and freedom provided by Phil. Johnsson didn’t just sell shoes, Johnsson sold the brand. It became so effective that soon they had to open a store in Los Angeles County on Johnsson’s suggestion, which then joined fulltime for $460 per month. At that time data files and customers cards were introduced. Business was good, so Phil signed up with First National Bank Oregon as their official bank.

Nike’s journey over the chasm shows how essential it is to connect with customers and showing them that the brand is about you. That’s one of the most amazing things about marketing by Nike, Inc.

Late Majority

These are people who respond to societal trend and see the benefit in following it. A strong brand presence and effective service is important to them.

At this time Blue Ribbon was making $1.3 Million but their accounts were running dry due to continuous expansion. Things went south with Oniksuta and Nike became the mainstream business for the Blue Ribbon team. They decided to go public in 1980. They created 50 Million shares, where 30 Million were kept reserve. The other 20 Million were split into 18 Million class A shares and 2 Million class B shares. The two classes represent public and private stakeholders. B were set as public i.e. anyone can invest in them. However, class A shares belonged to employees and internal stakeholders, 56% of whom belonged to Phil and Bowerman. Such a division was created so that only one person can remain in charge of the company.

With the new boost of income, Nike started expanding to the world with new factories and retail stores, thus capturing the late majority.

Marketing

This is where Nike excels, marketing have been their strong game and that’s what won them over their competitors. Not only that, Nike’s marketing strategy laid the foundation for future brands to follow, Apple being one.

Nike’s marketing approach is a combination of the mindset of both Phil Knight and Jeff Johannsonn. As we talked before, Phil focused hard on his target market i.e. runners and tried his best to get world class athletes on board. Steve Prefontine [2] or Pre was one of the very first runners to become brand ambassadors for Nike. Pre was an inspiration to all the runners and Nike gave him a voice. Which was beneficial for Nike and Pre to gain publicity. This kind of influencer marketing is still highly impactful in the internet age.

Jeff Johansonn [5], meanwhile, gave Nike a heart. His customer relationship methods were exceptional. He cared about his audience, listened to them and based on that suggested shoe model improvements. You can still see this kind of customer caring attitude in Nike today. The rule is that when doing business to business deals, then logic is what signs the deal, but when it comes to business to customer deals, empathy makes the sale.

Conclusion

Nike is a tremendous brand, and its origins are equally exceptional. I believe that most of the modern entrepreneurship literature is significantly inspired from Nike. In this article we saw how perfectly the theory fits with Nike’s journey. How little as it seems, Nike deserves no less respect than the huge tech brands we give examples everyday.

Reference Shelf

[1] Knight, P. H. (2018). Shoe dog: A memoir by the creator of Nike. New York (NY): Scribner.

[2] News, N. (n.d.). 40 Years of Prefontaine. Retrieved August 17, 2019

[3] Moore, G. A. (2014). Crossing the chasm: Marketing and selling disruptive products to mainstream customers. New York, NY: HarperBusiness, an imprint of HarperCollins.

[4] Velu, C. (2015). Business model innovation and third-party alliance on the survival of new firms. Technovation, 35, 1-11.

[5] McCue, M. (2019, June 11). Employee Number One. Retrieved August 17, 2019

[6] Startups, Start Here: What Happens to the Research? I-Corps Teaches Teams How to Take Research to Market. (n.d.). Retrieved August 20, 2019

Rizwan
Rizwan Asif I am a technopreneur exploring the field of artificial intelligence to build the next big thing in tech. My vision for the world is to reduce human capital for low level system tasks and put humans in the higher decision making positions. We are not meant to sort stamp papers, we will give up that task to create something beautiful. 10 min read

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