Ep 39: Nike's Story-Part 3: How Phil Knight Built Nike One Pair at a Time | The 14-Month Wait That Changed Everything

Most people know Nike as one of the biggest brands in the world. Few realize the company almost never got off the ground.

In Part 3 of our Nike series, Daniel Wood follows Phil Knight through the most frustrating period of his entrepreneurial journey. After convincing a Japanese manufacturer to work with him, Phil waits an unbelievable 14 months for his first shipment of shoes while everyone around him tells him the business will fail.

Most people would have given up.

Phil didn't.

As the shoes finally arrive, Blue Ribbon Sports begins to take shape. Phil recruits legendary coach Bill Bowerman as his business partner, starts selling shoes from the trunk of his car, lands his first employee, Jeff Johnson, and slowly builds the foundation of what would eventually become Nike.

This episode also reveals one of the most famous moments in sneaker history—the invention of the waffle sole—and why it became the turning point that pushed Blue Ribbon Sports toward creating its own brand.

In this episode, you'll discover:

✔ Why Phil Knight waited 14 months for his first shipment of shoes
 ✔ How Bill Bowerman became Nike's first great innovator
 ✔ The simple sales strategy that helped Blue Ribbon Sports grow
 ✔ Why Jeff Johnson became one of the most important people in Nike's history
 ✔ The financial struggles that nearly stopped the company from expanding
 ✔ How the famous waffle sole was invented with a household appliance
 ✔ Why building slowly often creates stronger businesses than chasing overnight success

This is the story of persistence, patience, and believing in a vision long before anyone else can see it.

If you've ever wondered whether your hard work is taking too long to pay off, Phil Knight's journey is proof that some of the greatest businesses spend years laying the foundation before the world notices them.

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Transcript

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The shoes don't arrive until about February 1964, which means it took about 14 months for this first delivery of shoes. He didn't have a product, he he was a kid just out of college, he took a job as an accountant. Shoes coming in just a little more day. While everyone is telling him this is never gonna work. We've been following along with Phil Knight, and yes, we are on episode three. If you listen to the last episode, Phil hasn't even received his first shoes. This is because I can get really nerdy when it comes to these things. This is a passion of mine to really go deep into the stories of entrepreneurs, of companies, and learn as much as I can. So I'm really excited to keep sharing my passion with you. Now, normally on the show, I interview experts like Robert Kiyosaki, Les Brown, Janet Atwood, John Gray, and other absolutely amazing people. And we will keep doing that, but we will mix in these exciting episodes where we go deep into the history of companies. Today, we are going to see Phil get his first choice. We're going to see him start building blue ribbon sports, and we will take him all the way to the cusp of starting Nike. That will be the second phase of this startup journey. So today we're going to go through this first phase of his corporate journey, and we will wrap up with the creation of the waffle shoe, which is a really amazing story that I know you're going to love. And then next time we'll do the second startup where it Nike or Blue Ribbon is reborn as Nike. So let's get into it. So last we left off, Phil. He had traveled the world. He'd gone to Japan and met the shoe company Onitsuka that made tiger shoes. He kept traveling the world, amongst other things. He went to Greece, saw the Parthenon, and saw Nike, the goddess of victory. And after three months after that meeting with Onitsuka, he made it home to Portland, Oregon to realize none of the shoes that he had been promised the samples had arrived. And I'll tell you now, and we'll see this more in the next episode, but this is a sign of things to come. So he had his meeting with Onitsuka in November 1962. The shoes don't arrive until about February 1964, which means it took about 14 months for this first delivery of shoes. So what did Phil do during that time? He didn't have a product, he was a kid just out of college. He took a job as an accountant. So he was working as an accountant, but during he didn't give up his dream. So he wrote Tony Tsuka asking, where are the shoes? How's it going? What's going on? And they replied simply, frustratingly, shoes coming in just a little more days. And this came month after month, and you know, Phil was giving up. And, you know, we talked about this in the last couple episodes, his relationship to his father. He wanted to prove himself to his dad. His dad paid these $50, and his dad is kind of going, well, this is not going to happen. So it wasn't just the fact that Phil couldn't run his company and he had to take a job that he absolutely did not like. It's also that the people around him are telling him, I told you so. As entrepreneurs, we know this feeling, right? About we just want to do, we just want to build our dream. And he is stuck waiting for someone else not to deliver while everyone is telling him this is never going to work. So he's in, he's in a bit of a dark place. But finally, in February 1964, the boxes arrive and he gets his first 12 pairs of Onitsuka Tigers. Now, the first thing that Phil does is take his shoes to his old track coach, Phil Bowerman. Now, Bowerman, his hope is he'll just buy a few shoes, right? Phil wants to sell him a few shoes. He can put them on his athletes in the University of Oregon. And this will be a great reference for Phil as he continues to sell. But Bowerman looks at this and Bowerman realizes the exact same thing that Phil had. And he wants in. So Bill asks, so Bowerman asks Phil to come to what they call Mount Olympus. So Bowerman lives up on this mountain. And Bowerman is, you know, he's a generational, you know, Oregon living. Like his family were part of the, you know, the wagon train that came over. And he calls his mountain is Mount Olympus. And Bowerman is a real character. We'll talk more about him as we go along. But Bowerman and his lawyer sit down with Phil. And the lawyer says, look, Bowerman wants in, but he wants you to be in control. He wants to be able to be creative. He wants to be a part of this, but he's going to be a passive partner. So he wants 49%. Phil, you take 51%. So Bowerman's role would be obviously giving his brand, putting it on his students. He would be kind of a coach, a mentor to Phil. And as we know, Bowerman is an inventor. And that will be important throughout this journey. These roles that Bowerman plays, the coach, the brand, and the inventor are incredibly, incredibly important to Nike's future. But at the beginning, their partnership essentially is okay, let's get more shoes. They both put in $500. You know, Phil has made a little bit of money and now is an accountant. So they put $500 in and they order 300 pairs of shoes at about $33 or $3.33 per pair. So they got, you know, for $1,000, they got 300 pairs. Phil, when he made this order to Onitsuka, he asks them to be the exclusive distributor of Tiger shoes. And they agree. Now, Onitsuka sees this as a mutual, mutual exclusivity, where they're giving Nike exclusivity, but oh sorry, blue ribbon, Phil, blue ribbon exclusivity, but Phil is also giving, you know, being exclusive to them. He's not going to sell other shoes. This will be a problem. And we'll talk about this in the next episode, how this relationship continues to grow. Good news is this time the delivery is really quick. It takes about two months. So in April 1964, Phil has 300 pairs of shoes and he is ready to go to work. He starts going to track meets, literally in his car. He'll go to track meets and he'll stand, he'll talk to athletes. Now he was a part of this world. He had been a runner. So it's not like he's some random guy selling shoes out of his out of his trunk, although he is. He knows the guy. So he tells them about this new shoe. He tells them how Bowerman is involved, and he starts selling. It takes him three months traveling all around, you know, the northwest part of the United States to sell out his shoes. So he takes all the money that they get. They sell the shoes for about $6.95 each, so just over double. They take all the money they make and go off and buy another 900 pairs. So he does three times the order. And this becomes their model. All right. They, you know, they buy the shoes, they sell the shoes. They take everything they make, they buy more shoes because this is the problem. It's incredibly capital intensive, right? If he's going to get 900 shoes, he has to pay for the 900 shoes. He gets the shoes, he sells the shoes. Now more money comes in, he goes and buys more. And it's this constant, you know, he doesn't want to run out of shoes. So he wants to order before he sells out, but he has to make the money to be able to pay. And it's it's a frustrating circle, which I'm sure a lot of entrepreneurs know of. Now, year one, they have they sell 1,300 pairs of shoes for about $8,000. Now, Phil is the one doing the work. He's working full-time as an accountant. Bauerman is off being the coach, being the brand, you know, a silent partner. So this is all Phil. He's traveling up and down after work, before work, selling shoes, having people come to his parents' house and try on shoes in the living room and all of that. By the end of 1964, he's started to, you know, they've done sales and he goes to his bank, so he's got an account with his father, the same bank his father uses, which is First National Bank of Oregon, and he gets them to extend him a $3,000 worth of credit. Now, this saves the initial kind of cash flow issues because what it does, so this is, you know, by the end of year one, essentially, this allows him to not have the same cash flow constraint. He can go buy shoes while he still has shoes left. He sells them, boom, the new shoes come, he sells them, he pays back the overdraft, he uh, you know, he sells out, he goes and buys more. So it allows him a little more freedom on the cash flow. They don't trust his little business, though. So his father actually guarantees the loan, which is interesting because if you read the book Shoe Dog, Phil talks a lot about, you know, how judgy his father was, how he didn't feel supported. But in the end, his dad paid those first $50 for him to buy the first shoes. He allows him to run the business out of his own house, and he guarantees his first loan. So I definitely think his father deserves some credit, even though emotionally he maybe didn't show it. And and this may might be a lesson for us as entrepreneurs, right? Maybe people don't always show us support in the way we wish they did, but maybe they're doing it in the way they can. Now, the difference with banks back then and now, but but even now, there's so Phil looks at his business as a growth machine, right? They're growing revenue like crazy. And I'll go through year by year here to give you an overview. So in 1964, they made $8 million of sales. In 1965, that went up to $20,000. In 66, $44,000 worth of sales. $67, $84,000 of sales. And in 68, $150,000 worth of sales. So they essentially doubled revenue every year. And this would continue. Now, what this does to the bank is they get nervous because more money is coming in, but all that money keeps flowing out. And Phil keeps asking for more and more credit because $3,000 doesn't matter when he's starting to, you know, do orders of $40,000 at a time. So he keeps asking for the credit to match his revenue, right? And the way he looks at it is well, I buy the shoes, now I have inventory. I sell the shoes, now I have cash, and then I can pay back my loans and I buy more shoes and now I have inventory. But the banks look at it as he's not building up stable assets. They look at it as a what they call they, he doesn't have equity. He doesn't have value in the company. He's only a sales company, right? There is no business value. There are no buildings, there is no, you know, systems, there is no brand equity, which back then they didn't even look at brand equity, but they they there was no value to the company, which means if he fails, if he orders a block of shoes and maybe they're poorly created, or the demand goes away. Now he'll have all these shoes and no way to make money and pay back the loan. And this is why they get nervous. They see there is no equity in this business. And Phil gets frustrated. He's like, I don't, like, what are you talking about? Equity. We're doubling revenue. And they're saying, yes, you're doubling too quickly. You're growing the business too fast. You have to build up your asset base. And he's like, What are you talking about? Slowing growth. I want to grow faster. Give me more money so I can grow faster. And like, no, no, no, you should slow down. And this is kind of the entrepreneurial spirit of we want to grow versus maybe the finance sector going, yes, but we want to make sure you can repay us this money you're borrowing. And that doesn't always match. And it definitely doesn't as they as they grow. And again, we'll come back to this in next episode because this goes, it comes to a head, his relationship with First National Bank of Oregon. So we'll come back to that. Well, as things move on, finally Phil dares to quit his job in 1969. When the year after the company does $150,000 worth of sales, five full years into the company, finally Phil quits his job as an accountant and moves over full-time. So it takes five years of him holding down a full-time accountancy job, selling part-time, building this business before he has the courage or confidence to leave. This is the definition of a side hustle, right? You build it up over time. And he doesn't take big risk. He builds it up. And at the same time, he takes risk. He's putting all the chips to the middle of the table every time. Now, we're going to talk about who actually becomes the first full-time employee of Nike. It's not Phil. Phil takes five years. But in 1965, Jeff Johnson becomes the first full-time employee of Nike. And this story is absolutely amazing. So Jeff was a runner, just like Phil. He absolutely obsessed with running, right? For him, it was like it was religious. It was something, it was your connection to God. He he was passionate about running. And through running, he knew Phil. And so Phil sells him a pair of shoes. And Jeff goes crazy. Now, Phil always felt that that Jeff was kind of odd, which is funny because if you've seen, you know, movies or documentaries about Phil, he is well known to be odd. You know, you see him barefoot in the Nike office and all these kind of jokes. But he felt that Jeff Johnson was a weird cookie. Now, Jeff, once he he just falls in love with these shoes. And he calls up Phil and says, Hey, you know, I'd love to get involved. Can I can I help you in any way? And Phil kind of goes, No, no, I'm I'm doing this. I'm okay. But Jeff doesn't give over give up. He chases over and over again. And he keeps saying, Look, you don't need to pay me. Just, I just want to be involved. I think this is amazing what you're doing. I think it can change the world. I think you can make a difference. Please let me get involved. I will sell the shoes. You know, pay me a commission. I don't need a salary. And he says, just let me prove myself. And finally, Phil says, All right, okay, you can do it. And he sends Jeff to Southern California, to like the LA area. And Jeff goes off. He is even more passionate than Phil. He's doing this full time. And he starts like writing letters to people because remember, this is back before the internet and before smartphones. And so he's writing letters to his, to all of his clients. He remembers their injuries, their children, their goals, their sizes, their preferences. Like he builds up these relationships with these people because he sees everyone as a part of this movement and he wants to create this passion around it. And he's constantly trying to get Phil's attention. And this is where Phil kind of takes on the role of his dad and a bowerman, right? Phil always wanted their attention, their approval. And now Jeff is kind of him. He's kind of like, yeah, look what I did. I sold more shoes. Yay, look how great I am. Look, we're doing all these things. And Phil just ignores him. He barely gives him a word of support. And mostly, yeah, no, Jeff will write daily long letters, and most of them Phil doesn't even read. And if he does, he will complain about something or send a short terse reply to poor Jeff. Jeff is undaunted. Jeff is a real character, and Jeff goes all in. And by 1966, so in his second year, Jeff says, I want to open a retail location. I want to open a store. And so he goes on a hunt for Phil. He's writing letter after letter after letter, begging to open. And now Phil starts echoing his bank. He's thinking about the risks, the cash flow risks. Uh, what will the bank say and all this? And then Jeff is in a serious car crash. He doesn't die, he survives, and he reaches out to Phil and he says, Don't worry. I'm gonna keep doing my commitments, I'm gonna keep working. I I won't be able to run for a while, I won't be able to walk for a while, but I'll be fine. I'm gonna keep selling, don't worry. And as always, Phil kind of goes, uh-huh, and doesn't really reply. But finally he says, Okay, you know what? I will let you open that store if you achieve this impossible goal. He says, sell 3,250 pairs in 10 months, and you can open your store. So, what do you think Jeff did? Jeff sold 3,250 pairs in less than 10 months, and Phil keeps his promise. In 1967, they opened the Santa Monica location, and it's not your normal store, it is a Mecca for runners, it is a shrine to running, and this is what Jeff Johnson has created, and it keeps this expansion going. Now, as I've read, uh, when I was reading Shoe Dog, I kind of went, all right, that's great. So the business is growing, everything is pointing up. What is Bowerman doing in this time? Well, Bowerman is going to do two things. One we'll talk about in our next lesson or next episode, sorry. But the other one I'm gonna talk about now, because he is doing research and development. He is sending over ideas and sketches over to Onitsuka with ideas for shoes. He is basically the mad scientist, and I'm gonna tell you in a moment one of the most crazy stories in Nike history that Bowerman did. Before that, there was a runner who ran for the University of Oregon for Bowerman called Kenny Moore. He gets hurt, and he's he's doing a run. It's an 880-meter race, and he gets spiked, so he gets stepped on. So back then, right, the the the tracks were cinder, so there was like like broken, like sand kind of thing. So it's like you have these spikes under your shoes to get grips, and someone spikes him, so someone steps on him during during a race, and it cuts the outer side of the foot, but also it rips apart his shoe. So while he's recovering, he's using his Onitsuka Tiger TG22. But what happens is he gets a stress fracture. He gets a stress fracture in his foot. And so Bowerman starts looking at the shoe. He rips it apart, puts it together, you know, rips it apart again, and he realizes that the shoe has good support for the heel and for the forefoot, the front, but it has no arch support. So what he does is he rebuilds the shoe with kind of a soft sponge rubber heel and forefront, and then a cushioned inner sole and a firmer outer sole. Like he really goes into engineering this. And he sends over all this to Onitsuka, and it leads to it's a part, it's a big step in the development of what's called the cortex. The tiger Cortez shoe, which becomes a huge part of this growth that is then happening in the 67, 68, 69 for uh, well, back then they were blue ribbon. They weren't Nike yet. So blue ribbon sports. But what then starts happening is that the track starts moving away from the cinder base and goes into like these synthetic surfaces. Now that means you don't want the spikes anymore. You need good grips, kind of more of the modern type of sneaker, right? The not modern type of shoe. And so Bowerman was has was thinking about this. So, okay, what do we need? How does it need to look? And he was sitting down at breakfast with his with his wife, and his wife had made him waffles. This is called, well, this is the famous waffle iron story. So he was looking at the the waffle kind of design, the grip, and he was thinking, wait a sec. This grip would work brilliantly on the synthetic surfaces. And so he steals his wife's waffle iron, uses it to make a mold. He he pours boiling hot rubber into this waffle iron and creates a sole with that kind of waffle look. And he realizes it has an amazing grip. Now, this is important and will be the whole base of next week's episode. He does not send the waffle shoe to Onitsuka. This becomes the true start of Nike. Now, why? Why do they do this? Well, it the relationship, and we'll talk about this. The relationship started to change. A new director, it's instead of Mr. Miyazaki running the show, they bring in a new gentleman called Kitami. And Kitami looks at the relationship differently with Blue Ribbon Sports. They they they're not partners anymore. This is a distributor. They're replaceable. They could get more, they can expand. And for Blue Ribbon, for Phil, he feels like, you know, they want to grow, but they only grow based on what Onitsuka will give them, right? They need to get the shoes, they need to get a good deal, and they need to expand. But it's it's a constant battle, and there are delays and there are problems and there are development issues. And so he feels like the growth of his own company is in somebody else's hands. And he doesn't like that. So he starts thinking about how can we take control ourselves? This is what then starts them on the journey of creating Nike as its own shoe developer, producer, manufacturer, and brand. And that brand starts to grow when they sign their first athletes, which we'll talk about next time, when they sign the tennis star Nastase and the absolutely amazing runner, Pre-fontaine. This will be the second phase of the startup. We've just looked at the first phase of starting Nike. Next time, well, of starting Blue Ribbon, and next time we'll look at how they start Nike. And finally, I'll be able to start calling everything Nike instead of Blue Ribbon, which will be nice. Thank you so much for listening today. I hope you've been enjoying this series. Next week, we're going to get into how they start Nike, how we meet, how we meet these athletes, how they start signing more, how they actually start competing with Adidas and how they created their own shoes, how the Nike swoosh is created, and how they fight competing resellers, how they get thrown out of not one but two banks, and how they partner with a Japanese trading company to allow true expansion. So I hope you I see you next time. I also have a gift for you as a thank you for joining us. I'd love to invite you to our upcoming events. We have one in the European time zone and one in the North American time zone called the Freedom Shift. We'll drop the links in the chat. I'd love to give you a free ticket. It's a four-day event with all virtual, all online, featuring speakers like John Gray, who wrote that Men are from Mars, Women Are from Venus, Les Brown, Brian Tracy, Janet Atwood, Marcy Shimoff, Jack Camfield, Brian Tracy, Nick Vuyacich, Rob Moore, and many more amazing speakers. So I hope I see you there. Thank you so much for listening, and I'll see you next week.