Nike

In this episode of Acquired, hosts Ben Gilbert and David Rosenthal delve into the captivating history of Nike, exploring its evolution from a small shoe distributor to the world's largest non-luxury apparel company. They discuss Nike's innovative marketing strategies, including the pivotal role of athlete endorsements, the creation of cultural icons like the Air Jordan brand, and the company's ability to intertwine product development with storytelling. Ben and David also touch on Nike's controversial labor practices and their strategic shift towards direct-to-consumer sales and digital engagement. With insights from Nike's corporate historian Scott Reams and former COO Eric Sprunk, they shed light on how Nike's relentless pursuit of growth, willingness to break rules, and focus on athletes' dreams have shaped its enduring success.

• Ben Gilbert and David Rosenthal debated pre-episode changes.
• Decision made via text to proceed without changes.
• David Rosenthal's bad jokes set the tone for the episode.

Ben Gilbert: "Listeners, you should know, David and I were texting before this debating, do we change this thing around? Do we play with this? Should we reorganize this section? And he texted me, let's just do it."

This quote explains the behind-the-scenes discussion on whether to make last-minute changes to the episode structure, ultimately deciding to keep it as planned.

• Ben Gilbert and David Rosenthal introduce the season premiere.
• The episode focuses on Nike's history and its business strategy.
• Debate on whether Nike's success is driven by product innovation or marketing.
• Nike's current strategy shift is a topic of interest.
• Audience participation in episode selection is encouraged.

Ben Gilbert: "Welcome to season 13, episode one of acquired, the podcast about great technology companies and the stories and playbooks behind them."

This quote marks the beginning of the new season and outlines the focus of the episode, which is to dissect Nike's business approach and its historical growth.

• Phil Knight's background and his relationship with Bill Bowerman are pivotal.
• Bowerman's innovative approach to track shoes leads to the foundation of Blue Ribbon Sports.
• The early struggles with shoe production and distribution set the stage for Nike's future.
• Phil Knight's vision for importing Japanese shoes shapes the company's initial business model.

Ben Gilbert: "So really the question is, what makes this company the single largest apparel business in the world today? Outside of luxury, of course."

This quote highlights the central question of the episode, which is to understand the factors that made Nike the largest apparel business globally, excluding luxury brands.

• Bill Bowerman's influence extends from coaching to co-founding Nike.
• His innovative ideas for shoe technology contribute to Nike's product development.
• Bowerman's book on jogging helps ignite the fitness movement in America.
• The relationship between Bowerman and Knight evolves as the business grows.

Ben Gilbert: "And how is it possible to be a shoe company that does over $50 billion in revenue when they technically don't make a single shoe?"

This quote emphasizes the unique aspect of Nike's business model, where the company achieves massive revenue without manufacturing shoes themselves.

• Nike's marketing strategies, including athlete sponsorships and brand positioning, are scrutinized.
• The company's ability to create a strong brand image is considered a key competency.
• The discussion includes the impact of Nike's advertisements on its market presence.

Ben Gilbert: "Does breakthrough innovation drive that business? Or is their core competency really around their profound advertisements and their sponsorship deals with athletes and teams, or their probably best in the world brand positioning?"

This quote presents the debate on whether Nike's success is primarily due to its innovative products or its superior marketing and branding efforts.

• Nike's ongoing strategic changes are a point of discussion.
• Audience engagement through voting for episode topics is highlighted.
• The importance of listener participation in shaping the podcast's content is acknowledged.

Ben Gilbert: "But what hasn't been told is how those old stories tie to the gigantic shift in strategy that Nike is really in the middle of right now."

This quote points out that while Nike's past is well-documented, the current strategic changes the company is undergoing are less known and will be explored in the episode.

• Phil Knight's personal drive and competitive nature are foundational to Nike's culture.
• Early financial and operational challenges are outlined, including struggles with bank financing.
• The company's initial public offering (IPO) attempt as "Sports Tech Inc." is mentioned.

Ben Gilbert: "And this show is for informational and entertainment purposes only."

This quote serves as a disclaimer that the podcast is meant for information and entertainment, not as investment advice, highlighting the importance of context in discussing companies like Nike.

• Blue Ribbon Sports faced difficulties in selling shares due to Phil Knight's lack of enthusiasm in promoting the company.
• Bob Woodell, an employee at Blue Ribbon Sports who later became Nike's first president, and his family loaned a significant amount of money to the company.
• Phil Knight used convertible debt as a financing strategy, which allowed early friends and family financings to convert into equity pre-IPO.

"Phil would convert that into equity before the actual IPO, and they would become millionaires and change their lives."

This quote explains how Phil Knight's financial decisions regarding early loans significantly benefitted the lenders post-IPO, turning them into millionaires.

• Phil Knight discovered Japanese trading companies, which played a crucial role in Blue Ribbon Sports' growth.
• Japanese trading companies acted as a hybrid between lenders and supply chain partners, offering strategic investments and asset-based financing.
• Nisho Iwai, a Japanese trading company, provided crucial financial support and supply chain assistance to Blue Ribbon Sports.

"So the company that he ends up meeting at the local branch office of it in Portland, I think they might have been. The only Japanese trading company with a branch office in Portland is Nisho Iwai."

This quote highlights the significance of Nisho Iwai's support for Blue Ribbon Sports, noting its unique presence in Portland and the strategic partnership it offered.

• Phil Knight navigated complex negotiations with Japanese trading companies to maintain control over Blue Ribbon Sports.
• The partnership with Nisho Iwai led to the introduction of new manufacturing relationships, which were critical in the eventual creation of Nike's own shoes.
• The relationship with Onitsuka ended, leading to Blue Ribbon Sports (Nike) manufacturing its own shoes with the support of Nisho Iwai.

"Nisho is going to say, hey, we'll introduce you to manufacturers, to factories here in Japan. Build your own shoes, make your own brand. Screw these tiger guys. And that is exactly what happens."

This quote captures the pivotal moment when Nisho Iwai encouraged Phil Knight to create his own brand and manufacture Nike's own shoes, marking a significant turning point for the company.

• The iconic Nike Swoosh was designed by Carolyn Davidson and chosen for its appearance, despite initial lack of enthusiasm.
• The name "Nike" and the Swoosh logo were initially used for a line of football cleats, which faced quality issues in cold weather but marked the start of the Nike brand.
• Carolyn Davidson was later compensated with Nike stock before the IPO, which appreciated significantly in value.

"And Phil very famously says the line, 'I don't love it, but maybe it'll grow on me.' And that becomes the swoosh."

This quote explains Phil Knight's initial reaction to the Nike Swoosh, which he did not love at first but decided to use, leading to one of the most recognizable logos in the world.

• Nike began to systematically sponsor athletes, starting with tennis player Ilie Năstase, and expanded to sponsor college basketball teams and coaches.
• The company's sports marketing strategy was not about selling the specific shoes worn by athletes but about building brand recognition and inspiring consumers.
• Nike's sponsorship deals were aimed at creating a strong association between the brand and athletic success.

"Nike fans looked at this as, oof, the company really has a black mark on their otherwise great reputation."

This quote reflects the public perception of Nike's sports marketing efforts, acknowledging both the success and the controversies that arose from its aggressive sponsorship strategies.

• Nike's revenue grew exponentially through the late 1970s, reaching $150 million by 1979.
• The company expanded its manufacturing operations globally, moving from Japan to countries like Taiwan, South Korea, and eventually China.
• Nike faced ethical challenges with its outsourcing practices, leading to public outcry over labor conditions and prompting the company to implement new standards and transparency measures.

"And companies need to grapple with a spectrum that they sit on. On one end there's making the absolute maximum margin, and on the other end there's creating labor conditions that customers would totally be fine with if they learned every single little detail."

This quote captures the ethical dilemma faced by Nike and other companies regarding labor practices and profit margins, highlighting the importance of balancing corporate responsibility with financial objectives.

• Rob Strasser, a key figure in Nike's development, wrote a memo outlining ten founding principles for the company, emphasizing innovation, rule-breaking, and focus on results.
• The principles guided Nike's culture and approach to business, encouraging employees to push boundaries and prioritize success over process.
• The document, often misattributed to Phil Knight, reflects the aggressive and pioneering spirit that characterized Nike's rise to prominence.

"Perfect results count. Not a perfect process. Break the rules, fight the law."

This quote from the ten principles memo encapsulates Nike's philosophy of prioritizing outcomes and challenging the status quo, which has been integral to the company's success.

• Statsig is a tool for modern product development that integrates feature flags, a powerful proprietary stats engine, and robust analytics.
• It allows companies to significantly increase their experimentation velocity and gain near real-time visibility into the impact of features on business metrics.
• Statsig caters to large enterprises and also offers a startup program.
• The platform is noted for enabling organizations to operate like large experimentation organizations, even for non-technical users.
• Black Crow, an AI startup, runs Statsig natively in their Snowflake data warehouse, exemplifying the trend of bringing compute into data warehouses.

"We're operating like a large experimentation organization at an enterprise tech company, organizing, tracking and analyzing multiple experiments, providing intuitive visualizations that even enable non technical users to make informed business decisions."

This quote emphasizes Statsig's ability to empower companies to conduct and manage multiple experiments effectively, providing easy-to-understand visualizations that assist even those without a technical background in making data-driven decisions.

• Nike's business philosophy is centered around change, being on the offensive, and valuing perfect results over a perfect process.
• The principles highlight a combative approach to business, the importance of assuming nothing, and the necessity of persistence until the job is completed.
• Identified dangers include bureaucracy, personal ambition, and energy takers.
• Nike's philosophy supports the idea that doing the right things in business can lead to profit almost automatically.

"If we do the right things, we'll make money. Damn near automatic."

This quote encapsulates the essence of Nike's business philosophy, suggesting that a focus on the right actions and decisions will naturally lead to financial success.

• Nike's principles are interpreted differently when considering the company's history and journey.
• Some principles, like "live off the land," may seem controversial in light of Nike's labor issues.
• The principles also foreshadow internal conflicts, such as Rob Strasser's dislike for bureaucracy and his eventual departure to Adidas.
• Nike's values resonate differently once one understands the context and history behind them.

"Dangers, bureaucracy, personal ambition. Like this is a foreshadow of Rob Strasser hating the bureaucracy at Nike after its IPO that we'll talk about in a second."

This quote reflects on how Nike's principles hinted at future internal challenges, particularly Rob Strasser's disdain for bureaucracy and how it contributed to his eventual exit from the company.

• Nike's IPO occurred in the same week as Apple's, marking a significant moment for the company.
• Prior to the IPO, co-founder Bill Bowerman sold most of his stake back to Phil Knight, not wanting to be a major shareholder in a public company.
• Post-IPO, Phil Knight owned 46% of Nike, making him one of the richest people in America at the time.
• The company's market cap at IPO was around $400 million, with Apple's at $1.8 billion for comparison.
• Nike's journey, as depicted in Phil Knight's memoir "Shoe Dog," ends before major events like the signing of Michael Jordan and the company's struggles post-IPO.

"It was about $400 million, the market cap at IPO, Apple, for comparison's sake, was $1.8 billion."

This quote provides a financial snapshot of Nike's position at the time of its IPO, highlighting the company's valuation in comparison to Apple's.

• Nike mistakenly focused solely on the running boom, not recognizing the broader fitness boom.
• The company missed the shift to aerobics, which Reebok capitalized on, leading to Reebok eclipsing Nike in sales by 1988.
• Nike's early success was tied to the running trend, but as the market evolved, the company needed to diversify its offerings to maintain growth.
• Reebok's success with aerobics shoes was a result of their marketing and product strategy, appealing to the changing fitness trends of the time.

"Early Nike did so many things right, but they made one critical mistake. They mistook the running and the jogging boom for the broader fitness boom."

This quote acknowledges Nike's initial success but points out a strategic error in not recognizing the shift in fitness trends, which allowed competitors like Reebok to gain an advantage.

• Michael Jordan's signing with Nike and the release of Air Jordans revolutionized sneaker culture and Nike's business.
• The initial deal with Jordan included a 5% royalty on gross sales of Air Jordan products, with minimum guarantees that quickly became irrelevant due to massive sales success.
• Air Jordans became a cultural phenomenon, influencing fashion and making sneakers a staple in everyday wear.
• Nike's strategy with Jordan was to incentivize him to build the brand, offering him significant upside while maintaining the brand's visibility and appeal.

"The revolutionary aspect of the deal was the payouts were calculated as a 5% royalty on gross revenue from the sales of Air Jordans."

This quote highlights the innovative nature of Michael Jordan's contract with Nike, which provided him with a significant share of the revenue generated by the Air Jordan line, aligning his interests with the company's success.

• Nike selects social issues they care strongly about and prominently features them in American media.
• The company's approach suggests a preference for aligning with certain customer segments that share their values.
• Nike's strategy may seem touchy-feely and less about calculated market analysis.

"They pick a social issue that they feel strongly about and they drive a truck through it in the American media market and say, hey, we want to prioritize this and we want to say we stand for this and we want to say we stand for and support something."

This quote emphasizes Nike's strategy of championing social issues and embedding them into their brand identity, aiming to connect on a values level with their audience.

• Kaepernick's involvement with Nike highlighted the brand's focus on the athlete rather than the sport itself.
• Nike's campaigns often transcend the products, focusing on the symbolic value and inspiration associated with sponsored athletes.
• The company's controversies, such as executive-level misconduct and doping allegations, have necessitated a reevaluation and cleanup of their image.

"Kaepernick played football. Not an important sport for Nike in terms of shoe sales. Hadn't played in several years. Wasn't about football."

This quote illustrates that Nike's athlete sponsorships are not always directly linked to product sales but more about the broader brand message and halo effect they create.

• Nike's response to internal issues and competitive landscape has been to streamline and refocus their organization.
• The company's shift to a direct and digital strategy has been part of a larger plan to prepare for the future.
• Nike's competitors' mistakes, particularly during the COVID-19 pandemic, have allowed Nike to maintain a strong position despite its own challenges.

"After they brought in John Donohoe, they've been able to clean up the organization, reset for the next chapter, execute this shift to a direct and digital strategy."

This quote shows how leadership changes at Nike have been instrumental in navigating the company through a period of transition and setting up for future growth.

• The discussion revolves around Hamilton Helmer's business strategy book, 'Seven Powers', which outlines what enables a business to achieve lasting profitability.
• Nike's brand and scale economies are identified as key components of their enduring success.
• The company's ability to acquire and retain customers through high-profile athlete sponsorships is likened to content acquisition strategies in media.

"Nike is acquiring content, Nike is acquiring the LeBrons of the world to be Nike athletes."

The analogy of acquiring athletes to acquiring content emphasizes Nike's strategy of investing in high-profile sponsorships to attract and retain customers, similar to how media companies invest in content.

• Nike's revenue, growth rate, and market share are discussed, highlighting the company's scale and influence.
• The company's strategic pivot towards direct-to-consumer sales and the challenges associated with it are explored.
• Nike's gross margin and operating income are compared to other industries, underscoring the differences between Nike and luxury or software businesses.

"Nike is at absolutely astonishing scale. They are a $51 billion revenue business, growing 10% year over year."

This quote summarizes Nike's financial status and growth, indicating the company's vast scale and continued expansion in the market.

• The conversation questions whether Nike truly exercises brand power through premium pricing or if its brand is more about market presence.
• The distinction between Nike's ability to charge more for its products versus competitors and the actual pricing strategy is analyzed.
• The potential reasons behind Nike's pricing decisions, including market penetration and brand ubiquity, are considered.

"Nike Inc. Is a growth company and they care more about growth than harvesting profit dollars."

This quote from Nike's investor relations page is used to speculate on the company's focus on growth over maximizing immediate profits, which may explain their pricing strategy.